hybrid economics michael love toyota motor sales

Hybrid EconomicsHybrid Economics

Michael LoveMichael Love

Toyota Motor SalesToyota Motor Sales

Defining the IssueDefining the Issue

• Lowest purchase price ?Lowest purchase price ?

• Lowest cost of ownership ?Lowest cost of ownership ?

• Lowest life cycle cost ?Lowest life cycle cost ?

• Lowest life cycle GHG ?Lowest life cycle GHG ?

• Lowest criteria pollutants ?Lowest criteria pollutants ?

• Lowest fossil fuel use ?Lowest fossil fuel use ?

• Other ?Other ?

Potential Hybrid BenefitsPotential Hybrid Benefits

• Lower fuel use = lower fuel cost and CO2;Lower fuel use = lower fuel cost and CO2;

• Lower criteria pollutants;Lower criteria pollutants;

• Better performanceBetter performance

In some combinationIn some combination

Toyota’s PositionToyota’s Position

• Hybridization of power trains offer benefits Hybridization of power trains offer benefits that can be realized today on many types that can be realized today on many types of power plants – gas, diesel, alt fuel, even of power plants – gas, diesel, alt fuel, even fuel cell – but no single technology offers a fuel cell – but no single technology offers a “silver bullet” solution to all the future “silver bullet” solution to all the future challengeschallenges

Hybrid EconomicsHybrid Economics

• Assuming issue is cost of ownership, Assuming issue is cost of ownership, analyze just like any other vehicleanalyze just like any other vehicle

– Initial purchase priceInitial purchase price

– Resale valueResale value

– Operational costsOperational costs Fuel, insurance and maintenanceFuel, insurance and maintenance

IntangiblesIntangibles

Some companies (like some individuals) find Some companies (like some individuals) find value in certain “intangibles”value in certain “intangibles”

• EfficiencyEfficiency

• Energy securityEnergy security

• Concern for environmentConcern for environment

• Good corporate citizenshipGood corporate citizenship

• Technology leadershipTechnology leadership

Issues RaisedIssues Raised

Within popular media, some have raised concern Within popular media, some have raised concern over hybrids:over hybrids:

• MaintenanceMaintenance – primarily battery life / cost – primarily battery life / costBattery designed for life of vehicle = >15 Battery designed for life of vehicle = >15

years / 15k mi.years / 15k mi.Battery warranty 8/80k is not “signal” of Battery warranty 8/80k is not “signal” of

battery life, just like 3/36k vehicle warranty battery life, just like 3/36k vehicle warranty does not imply vehicle life!does not imply vehicle life!

• Resale valueResale value: Based on many issues but : Based on many issues but similar (or better) than conventional vehiclessimilar (or better) than conventional vehicles

Fuel Economy Fuel Economy

Actual vs. Label Fuel Economy has been Actual vs. Label Fuel Economy has been hot topic, with much confusion …hot topic, with much confusion …

•Fuel economyFuel economy is non-linear versus all is non-linear versus all issues of interestissues of interest

–Cost of fuelCost of fuel–Gallons of fuel usedGallons of fuel used

–COCO22 emitted emitted

•Fuel consumptionFuel consumption is the better metric is the better metric Gallons saved has significant meritGallons saved has significant merit

Gallons SavedGallons Saved

• Every 100 gallons of gasoline saved has Every 100 gallons of gasoline saved has the following impacts:the following impacts:

– ~$300 in the owner’s pocket (not ~$300 in the owner’s pocket (not spent)spent)

– ~ One ton CO~ One ton CO22 not emitted not emitted

– ~4 barrels of crude not consumed~4 barrels of crude not consumed

• Each additional 100 gallons saved has the Each additional 100 gallons saved has the same impact (i.e.: the metric is linear)same impact (i.e.: the metric is linear)

Gallons SavedGallons Saved

VehicleVehicle2004 EPA 2004 EPA

Trends Trends ClassClass

2004 EPA 2004 EPA Trends Old Trends Old

MPGMPG

Old Model Old Model MPGMPG

Gallons Gallons Saved per Saved per

YearYear

CivicCivic

HybridHybridComp. CarComp. Car 27.127.1 47.647.6 238238

Toyota Toyota PriusPrius

M/S CarM/S Car 24.324.3 55.355.3 346346

Ford Ford EscapeEscape

Midsize Midsize SUVSUV 19.219.2 32.132.1 314314

GM GM SilveradoSilverado

Large Large PickupPickup 16.516.5 18.418.4 9494

Well, everybody knows the EPA test is no

good!Consumers’ Union uses their own on-

road tests

Urban LegendUrban Legend

Old EPA vs. CU - MPGOld EPA vs. CU - MPG

SourceSource PriusPrius CorollaCorolla CamryCamry MalibuMalibu Jetta TDIJetta TDI

Old EPAOld EPA

CombComb 5555 3232 2727 2828 3737

CUCU

OverallOverall 4444 2929 2424 2424 3232

% Diff% Diff 20%20% 9%9% 11%11% 14%14% 14%14%

These data certainly suggest that Prius has a larger

shortfall, right?

Old EPA vs CU – Gallons / Old EPA vs CU – Gallons / YearYear


Old EPAOld EPA

CombComb 273273 469469 556556 536536 405405

CUCU

OverallOverall 341341 517517 625625 625625 469469

Gal DiffGal Diff 6868 4848 7171 8989 6464

But, not on a gallons per year basis Remember MPG is non-

linear

Economy vs Economy vs ConsumptionConsumption

0

10

20

30

40

50

60

70

10 20 30 40 50 60 70

Economy (MPG)

Ga

l/1

00

0m

i

X

XX

X-10% FE = -5 mpg, but +2.2 gal/1000mi

-10% FE = -2 mpg,but +5.6 gal/1000mi

Old EPA vs CU – Prius Old EPA vs CU – Prius SavingsSavings


Old EPAOld EPA

CombComb -- 196196 283283 263263 133133

CUCU

OverallOverall -- 176176 284284 284284 128128

On a gallons saved per year basis, the old EPA ratings were a good comparison

But, high efficiency vehicles suffer more

in extreme operation!

Another Urban LegendAnother Urban Legend

EPA Test Results - MPG EPA Test Results - MPG

VehicleVehicle Old EPA Old EPA LabelLabel

ColdCold

2020FFHotHot

SC03SC03

AggressiveAggressive

US06US06

PriusPrius 5555 45.145.1 44.344.3 44.144.1

CorollaCorolla 3232 26.426.4 25.425.4 26.426.4

CamryCamry 2727 22.222.2 21.321.3 25.625.6

Again, these data certainly suggest that Prius has a larger

shortfall, right?

Old EPA Results – Gal/Yr Old EPA Results – Gal/Yr


ColdCold

2020FFHotHot

SC03SC03


US06US06

Avg incr Avg incr GallonsGallons

PriusPrius 273273 333333 339339 340340 6464

CorollaCorolla 469469 568568 591591 568568 107107

CamryCamry 566566 676676 704704 586586 8989

Again, consumption tells a different story

EPA Tests – Prius EPA Tests – Prius Savings Savings


ColdCold

2020FFHotHot

SC03SC03


US06US06

PriusPrius -- -- -- --

CorollaCorolla 196196 236236 252252 228228

CamryCamry 283283 343343 366366 246246

On a gallons saved per year basis, the EPA ratings are a good

comparison

EPA has changed the calculation of label MPG values in MY08 (but the

tests are the same)

What about Label What about Label changes?changes?

And they must keep the MPG metric by law

NEW EPA vs. CU - MPGNEW EPA vs. CU - MPG


New EPANew EPA

CombComb 4646 2828 2424 2525 3232

CUCU

OverallOverall 4444 2929 2424 2424 3232

% Diff% Diff 5%5% -4%-4% 0%0% 4%4% 0%0%

The New EPA numbers are very close to the CU numbers!

Based on MY04 vehicles as not all vehicles are available in MY08; EPA data – www.fueleconomy.gov

NEW EPA vs CU – Prius NEW EPA vs CU – Prius SavingsSavings


New EPANew EPA

CombComb -- 196196 283283 263263 133133

CUCU

OverallOverall -- 176176 284284 284284 128128

The New EPA ratings predict the same fuel savings as CU

for the Prius!

What Next?What Next?

EPA will change the calculation of LABEL FE once again in MY2011

Stay tuned!

Moral of the StoryMoral of the Story

• Be clear on the goal of the exerciseBe clear on the goal of the exercise

• Forget about fuel economy, especially % Forget about fuel economy, especially % differences, and focus on gallons saved in differences, and focus on gallons saved in your analysisyour analysis

• Consider intangibles as appropriateConsider intangibles as appropriate

Toyota believes hybridization offers value Toyota believes hybridization offers value and will continue to expand it’s offeringsand will continue to expand it’s offerings

Questions?Questions?

hybrid economics michael love toyota motor sales

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