2010 Elective Course (International Management) Report on International Product Life Cycle
Aditya Zutshi (09BM8005) & K. Vishnu (06MI3815) MBA II Year Vinod Gupta School of Management, IIT Kharagpur
Table of Contents What is International Product Life Cycle ...................................................................................................... 3 New Product ............................................................................................................................................. 4 Maturing Market ....................................................................................................................................... 4 Standardized Market ................................................................................................................................ 4 Pros of IPLC ................................................................................................................................................... 6 Cons of IPLC................................................................................................................................................... 7 Diffusion ........................................................................................................................................................ 8 Industry Case to explain International Product Life Cycle ............................................................................ 9 The U.S. Hybrid Electric Vehicle Market & the Toyota Prius ...................................................................... 10 The Hybrid Electric Vehicle ..................................................................................................................... 10 Why hybrid and electric vehicles? .......................................................................................................... 10 The Car Market ....................................................................................................................................... 10 Consumer Sentiment about HEVs and BEVs ........................................................................................... 11 Breakdown of Global HEV and BEV Sales by 2020 .................................................................................. 13 Developments in Hybrid Vehicles ........................................................................................................... 13 Hybrid Electric Vehicles in the United States.......................................................................................... 14 Toyota Prius ............................................................................................................................................ 15 First generation (XW10; 1997–2003) ...................................................................................................... 15 Second generation (XW20; 2003–2009) ................................................................................................. 15 Third generation (XW30; 2009–present) ................................................................................................ 16 Sales ........................................................................................................................................................ 16 Government and Corporate Incentives .................................................................................................. 17 The Future: PHEV Vehicles ...................................................................................................................... 17 Appendix 1: Toyota Prius Chronological History .................................................................................... 19 Appendix 2: Outline of Events concerning the US HEV Market .............................................................. 20
What is International Product Life Cycle International product life cycle theory is one of the leading explanations of international trade patterns. The theory postulates a four phase international trade cycle for most products. In the first phase, U.S. exports dominate the world market, while in the next three, producers from other developed countries become increasingly competitive, first in their markets, then in third country markets, and finally in the U.S. market. The cycle may be repeated by successive challenges from producers in less developed countries. The initial U.S. strength derives from market size, ready acceptance of innovations, R & D resources, and well developed marketing information systems. Later shifts are based on factor endowments and costs. A schematic representation of net exports over the IPLC is provided in the figure below.
In terms of corresponding product life cycle stages in the domestic market there is little incentive for sizable export (phase 1 of IPLC) before the start of competitive growth. Phase 2 would probably coincide with the late stages of competitive growth and early maturity. Phase 3 and particularly phase 4 require a substantial degree of international standardization and an emphasis on production efficiency- implying maturity in the domestic market. The later stages of a second IPLC emphasize unskilled labor inputs and, therefore, completely standardized technology, and channel leadership at the middleman level (full maturity to decline). Apart from its explanatory value, the theory has appealing prescriptive properties: It can aid a multinational firm in designing a dynamic, global
production, export, and direct investment strategy; help a local firm decide on product policy priorities for import substitution and potential export; and aid government agencies to make decisions regarding differential support schemes for industries.
New Product The IPLC begins when a company in a developed country wants to exploit a technological breakthrough by launching a new, innovative product on its home market. Such a market is more likely to start in a developed nation because more high-income consumers are able to buy and are willing to experiment with new, expensive products (low price elasticity). Furthermore, easier access to capital markets exists to fund new product development. Production is also more likely to start locally in order to minimize risk and uncertainty: ―a location in which communication between the markets and the executives directly concerned with the new product is swift and easy, and in which a wide variety of potential types of input that might be needed by the production units are easily come by‖. Export to other industrial countries may occur at the end of this stage that allows the innovator to increase revenue and to increase the downward descent of the product‘s experience curve. Other advanced nations have consumers with similar desires and incomes making exporting the easiest first step in an internationalisation effort. Competition comes from a few local or domestic players that produce their own unique product variations.
Maturing Market Exports to markets in advanced countries further increase through time making it economically possible and sometimes politically necessary to start local production. The product‘s design and production process becomes increasingly stable. Foreign direct investments (FDI) in production plants drive down unit cost because labour cost and transportation cost decrease. Offshore production facilities are meant to serve local markets that substitute exports from the organisation‘s home market. Production still requires high-skilled, high paid employees. Competition from local firms jump start in these non-domestic advanced markets. Export orders will begin to come from countries with lower incomes.
Standardized Market During this phase, the principal markets become saturated. The innovator's original comparative advantage based on functional benefits has eroded. The firm begins to focus on the reduction of process cost rather than the addition of new product features. As a result, the product and its production process become increasingly standardised. This enables further economies of scale and increases the mobility of manufacturing operations. Labour can start to be replaced by capital. ―If economies of scale are being fully exploited, the principal difference between any two locations is likely to be labour costs‖. To counter price competition and trade barriers or simply to meet local demand, production facilities will relocate to countries with lower incomes. As previously in advanced nations, local
competitors will get access to first hand information and can start to copy and sell the product. The demand of the original product in the domestic country dwindles from the arrival of new technologies, and other established markets will have become increasingly price-sensitive. Whatever market is left becomes shared between competitors who are predominately foreign. A MNC will internally maximize ―offshore‖ production to low-wage countries since it can move capital and technology around, but not labour. As a result, the domestic market will have to import relatively capital intensive products from low income countries. The machines that operate these plants often remain in the country where the technology was first invented.
Pros of IPLC
The model helps organisations that are beginning their international expansion or are carrying products that initially require experimentation to understand how the competitive playground changes over time and how their internal workings need to be refitted. The model can be used for product planning purposes in international marketing.
New product development in a country does not occur by chance. A country must have a ready market, an able industrial capability and enough capital or labour to make a new product flourish. No two countries exist with identical local market conditions. Countries with high per capita incomes foster newly invented products. Countries with lower per capita incomes will focus on adapting existing products to create lower priced versions.
The IPLC model was widely adopted as the explanation of the ways industries migrated across borders over time, e.g. the textile industry. Furthermore, Vernon was able to explain the logic of an advanced, high income country such as the USA that exports slightly more labour-intensive goods than those that are subject to competition from abroad.
According to Vernon, most managers are ―myopic‖. Production is only moved outside the home market when a ―triggering event‖ occurs that threatens export such as a new local competitor or new trade tariffs. Managers act when the threat has become greater than the risk in or uncertainty from reallocating operations abroad.
The model‘s validity was proved by empirical evidence from the tele-transmission equipment industry in the post-war years. The model is best applied to consumer-oriented physical products based on a new technology at a time when functionality supersedes cost considerations and satisfies a universal need.
Cons of IPLC
Vernon‘s main assumption was that the diffusion process of a new technology occurs slowly enough to generate temporary differences between countries in their access and use of new technologies. By the late 1970‘s, he recognised that this assumption was no longer valid. Income differences between advanced nations had dropped significantly, competitors were able to imitate product at much higher speeds than previously envisioned and MNCs had built up an existing global network of production facilities that enabled them to launch products in multiple markets simultaneously. Investments in an existing portfolio of production facilities made it harder to relocate plants.
The model assumed integrated firms that begin producing in one nation, followed by exporting and then building facilities abroad. The business landscape had become much more interrelated since the 1950‘s and early 1960‘s, less US-centric and created more complex organisational structures and supplier relations. The trade-off between export or foreign direct investments was too simplistic: more entry modes exist.
The model assumed that technology can be captured in capital equipment and standard operating procedures. This assumption underpinned the discussion on labour-intensity, standardization and unit cost.
The model stated that the stages are separate and sequential in order. Vernon‘s Harvard Multinational Enterprise Project that took place from 1963 through 1986, was a massive study of global marketing activities at US, European, Japanese and emerging-nation corporations. The study found that companies design strategies around their product technologies. High-technology producers behave differently from firms with less advanced goods. Companies that invested more R&D to improve their products and to refresh their technologies were able to ‗push‘ these products back to the new product phase.
The relative simplicity of the model makes it difficult to use as a predictive model that can help anticipate changes. In general, it is difficult to determine the phase of a product in product life cycles. Furthermore, an individual phase reflects the outcome of numerous factors that facilitate or hamper a product‘s rate of sales making it difficult to see what is happening ‘underwater‘.
The relation between the organisation and the country level was not well structured. Vernon emphasized the country level. Furthermore, he used the product side of the product life cycle, not the consumer side, thereby stressing the supply side. Selling ‗older‘ products to a lesser developed market does not work if transportation costs for imports is low and information is accessible globally through the Internet and satellite TV.
Foreign markets are not just composed of average income consumers, but contain multiple segments. The research did not consider the emergence of global consumer segments.
Diffusion Diffusion is the process by which a new idea or new product is accepted by the market. The rate of diffusion is the speed that the new idea spreads from one consumer to the next. There are several theories that purport to explain the mechanics of diffusion: 1.
The two-step hypothesis: Information and acceptance flows, via the media, first to opinion leaders, then to the general population.
2.
The trickle-down effect: Products tend to be expensive at first, and therefore only accessible to the wealthy social strata - in time they become less expensive and are diffussed to lower and lower strata
3.
The Everett Rogers Diffusion of innovations theory: For any given product category, there are five categories of product adopters:
4.
a.
Innovators – venturesome, educated, multiple info sources
b.
Early adopters – social leaders, popular, educated
c.
Early majority – deliberate, many informal social contacts
d.
Late majority – skeptical, traditional, lower socio-economic status
e.
Laggards – neighbours and friends are main info sources, fear of debt.
Crossing the Chasm model: The marketer should focus on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries (early adopters) and pragmatists (early majority). If successful, a firm can create a bandwagon effect in which the momentum builds and the product becomes a de facto standard.
5.
Technology driven models: These are particularly relevant to software diffusion. The rate of acceptance of technology is determined by factors such as ease of use and usefulness.
There are several types of diffusion rate models: 1.
Penetration models - use test market data to develop acceptance equations of expected sales volume as a function of time. Three examples of penetration models are: a.
Bass trial only model
b.
Bass declining trial model
c.
Fourt and Woodlock model
2.
Trial/Repeat models - number of repeat buyers is a function of the number of trial buyers.
3.
Deterministic models - assess number of buyers at various states of acceptance - later states are determined from calculations to previous states.
4.
Stochastic models - recognize that many elements of the diffusion process are unknown but explicitly incorporate probabilistic terms.
Industry Case to explain International Product Life Cycle
In the next section, we use the information gathered from various online sources about U.S. Hybrid Electric Vehicle Market & the Toyota Priusto to explain the concept of International Product Life Cycle and Product Diffusion. The sources of information have been duly referenced and can be used to read about the topic discussed, in greater detail.
The U.S. Hybrid Electric Vehicle Market & the Toyota Prius
The Hybrid Electric Vehicle A hybrid electric vehicle (HEV) is a type of hybrid vehicle which combines a conventional internal combustion engine (ICE) propulsion system with an electric propulsion system. The presence of the electric powertrain is intended to achieve either better fuel economy than a conventional vehicle, or better performance. A variety of types of HEV exist, and the degree to which they function as EVs varies as well. Modern HEVs make use of efficiency-improving technologies such as regenerative braking, which converts the vehicle's kinetic energy into battery-replenishing electric energy, rather than wasting it as heat energy as conventional brakes do. Some varieties of HEVs use their internal combustion engine to generate electricity by spinning an electrical generator (this combination is known as a motor-generator), to either recharge their batteries or to directly power the electric drive motors. Many HEVs reduce idle emissions by shutting down the ICE at idle and restarting it when needed; this is known as a start-stop system. A hybrid-electric produces less emissions from its ICE than a comparably-sized gasoline car, as an HEV's gasoline engine is usually smaller than a comparablysized pure gasoline-burning vehicle (natural gas and propane fuels produce lower emissions) and if not used to directly drive the car, can be geared to run at maximum efficiency, further improving fuel economy (1).
Why hybrid and electric vehicles? It is clear that the current road vehicle transportation system is not sustainable. It consumes fossil fuels of which reserves are not endless, and its gaseous emissions cause air pollution and contribute to climate change. Among others, hybrid and electric vehicles are options to reduce energy consumption and emissions from road vehicles compared to conventional vehicles. In spite of these advantages, the hybrid and electric vehicles are not used on a larger scale because of their higher purchase costs. A hybrid vehicle for example has at least two propulsion systems so it can use at least two different energy carriers, which makes it more expensive to manufacture than a conventional vehicle. Also batteries for electric vehicles are still expensive. Other reasons are for example that a production and maintenance infrastructure is not yet in place, and for battery Electric Vehicles, the vehicle range is usually perceived as being too small. In spite of the price disadvantage, the market for hybrid vehicles has started to take off. This was possible because vehicle manufacturers with a long-term vision on energy efficiency have started producing hybrids and governments have created incentives for clean and energy-efficient vehicles.
The Car Market The year 2008 showed a remarkable change in car sales. The change was primarily because of the automotive industry crisis of 2008–2010 which was a part of a global financial downturn. The crisis affected European and Asian automobile manufacturers, but it was primarily felt in the American automobile manufacturing industry. The automotive industry was weakened by a substantial increase in the prices of automotive fuels (2) linked to the 20032008 energy crisis which discouraged purchases of sport utility vehicles (SUVs) and pickup trucks which have low fuel economy1. The trend of increasing sales of larger and heavier cars, including sports utility vehicles (SUVs), was broken in favor of smaller and more energy-efficient cars. During the first half of 2008 the surging oil price was 1
http://www.msnbc.msn.com/id/24896359/
driving this change, while in the second half of the year the worldwide economic crisis had its impact. The economic crisis not only led to an increasing interest in small and fuel-efficient cars, but it also caused a sharp decline in total vehicle sales. Remarkably, the share of hybrid electric vehicles in total car sales continued to grow in many countries. This trend is expected to continue because of the following reasons:
Hybrid electric cars are more fuel-efficient than conventional cars, especially in urban traffic. More hybrid models will become available on the market. Higher production volumes may lead to lower hybrid vehicle costs and prices. Incentives for energy-efficient and low CO2 emitting cars, such as tax reductions and entry rules for urban areas.
A report published, titled ―Drive Green 2020: More Hope than Reality‖ by J.D.Power and Associates on 27 th October, 2010, (3) considers various factors affecting the future potential for ―green‖ vehicles in the world‘s largest automotive markets. These factors include market trends, regulatory environment, and consumer sentiment and technology development in these markets. According to the report, it will be difficult to convince large numbers of consumers to switch from conventionally powered passenger vehicles to HEVs and BEVs. A consumer migration to alternative powertrain technologies will most likely require either one of the following scenarios, or some combination of these scenarios: 1. 2. 3.
A significant increase in the global price of petroleum-based fuels by 2020 A substantial breakthrough in green technologies that would reduce costs and improve consumer confidence A coordinated government policy to encourage consumers to purchase these vehicles.
Based on currently available information, none of these scenarios are believed to be likely during the next 10 years. ―While considerable interest exists among governments, media and environmentalists in promoting HEVs and BEVs, consumers will ultimately decide whether these vehicles are commercially successful or not,‖ said John Humphrey, senior vice president of automotive operations at J.D. Power and Associates. ―Based on our research of consumer attitudes toward these technologies—and barring significant changes to public policy, including tax incentives and higher fuel economy standards—we don‘t anticipate a mass migration to green vehicles in the coming decade.‖
Consumer Sentiment about HEVs and BEVs Consumers have a variety of concerns about HEVs and BEVs, including: 1. 2. 3. 4. 5.
Dislike of their look/design Worries about the reliability of new technologies Dissatisfaction with overall power and performance Anxiety about driving range Concern about the time needed to recharge battery packs
More importantly, however, are the personal financial implications of deciding to purchase an alternative-energy vehicle. While many consumers around the world say they are interested in HEVs and BEVs for the expected fuel savings and positive environmental impact they provide, their interest declines significantly when they learn of the price premium that comes with purchasing these vehicles.
Breakdown of Global HEV and BEV Sales by 2020 Of the 5.2 million HEVs and BEVs forecasted to be sold worldwide in 2020, some 3.9 million units are expected to be HEVs, according to the J.D. Power and Associates global forecast numbers for the third-quarter of 2010. The leading markets for HEVs are the United States (1.7 million units), Europe (977,000 units), and Japan (875,000 units). China is expected to sell fewer than 100,000 HEVs in 2020. Of the 1.3 million BEVs projected to be sold worldwide in 2020, sales in Europe will account for 742,000 units; sales in China will account for 332,000 units; and the United States and Japan should each account for sales of approximately 100,000 BEVs in 2020.
Developments in Hybrid Vehicles Hybrids are among the most intriguing technological trends to appear in the past decade. However, while their massproduction is a recent phenomenon, hybrid technology is not itself new. Like a recessive gene hiding in automobile DNA, electric drive systems have been around ever since engineers first moved carts out of stables and into garages. In the early days of automobiles, before the hegemony of gasoline (petrol) became unquestioned, steam, gasoline, electricity and even peanut oil2 all competed to be the power system of choice. The shear diversity of automobiles in those early days is telling. In 1900, 4,200 cars were sold in the USA of which 38% were electric, 40% steam and only 22% gasoline 3. Electric vehicles even held the world road speed record for three years between 1899 & 1902 4 - a speedy 66 miles per hour (106 km/h) 2. Ferdinand Porsche in 1900 developed the Lohner-Porsche Mixte Hybrid, the first gasoline-electric hybrid automobile in the world5. However, in 1909 the Model T Ford was launched and from then on gasoline was the unrivalled source of vehicle power. The rare exceptions this rule were specialized utility vehicles and concept cars, such as milk delivery vehicles and the Sinclair C5. After the 1973 Arab oil embargo6, gas prices mounted and rose up to 50% in a year, and concern for developing an effective alternative was increased. The U.S. Dept. of Energy (DOE) considered many options including a German produced gas-electric hybrid that traveled more than 8,000 miles. The U.S. Energy Research and Administration also studied various hybrid possibilities to advance technology. The Electric and Hybrid Vehicle Research, Development and Demonstration Act of 1976 spurred cooperation between the government and private industry to progress hybrid development 7. Encouraged by the government regulations by the late 1980s America‘s vehicle fleet was considerably more efficient and gradually the path was being prepared for hybrids. One of the first modern hybrids was built by General Motors in 1986 8, but with gasoline prices at under $1.00 per gallon9 the project was scrapped in anticipation of low consumer demand 10.
2
Rudolf Diesel, designer of the diesel engine demonstrated an engine that ran on peanut oil at the 1900 World Trade Exhibition, http://www.veggiepower.org.uk/selecting.html 3 CDI in Cobalt News 05/1, Development of Hybrid Gas-Electric Vehicles. 4 M. Westbrook, 2001, The Electric Car: Development and future of battery, hybrid and fuel-cell cars. 5 J. Motavalli, 2000, Forward Drive: The race to build ‘clean’ cars for the future. 6 Introduction to the oil crisis, http://www.answers.com/topic/1973-oil-crisis 7 http://www.allabouthybridcars.com/ebook/hybrid-electric-cars4.htm 8 Baltimore Sun, 18/04/05, Prius: Winning Hybrid-Electric Car Shows The Way 9 In July 1986 the gasoline price was $0.94, http://www.mtc.ca.gov/maps_and_data/datamart/stats/gasprice.htm 10 M. Westbrook, 2001, The Electric Car: Development and future of battery, hybrid and fuel-cell cars.
General Motors‘ foray into hybrids was followed in 199311 by the US Government‘s Partnership for a New Generation of Vehicles (PNGV) program, aimed at developing a ―super-efficient‖ car capable of 80 mpg. Despite a budget of over $1.4 billion it achieved very little 12 and the concept cars it produced were quickly forgotten. However in Japan, as early as 1989 Toyota was funding research into hybrid technologies and in 1992 13 they published their first ―Earth Charter‖, a manifesto for low emission vehicles. This ultimately led to the development of the Prius, which first emerged at the 1995 Tokyo Motor Show 14.
Hybrid Electric Vehicles in the United States The first hybrid to be offered in the USA was the Honda Insight in late 1999, followed in 2000 by the Toyota Prius. In just five and a half years hybrid vehicles have made manufacturers and consumers‘ alike sit up and take notice. The year 2005 is marked by an increase of around 150% in aggregate sales and by the end of 2005, there were 8 different HEVs compared to 5 in 200415. Worldwide sales of hybrid electric vehicles is led by the United States with 1.6 million units sold by December 2009 (4).The top selling car in the U.S. was the Toyota Prius, with cumulative sales of 814,173 units, followed by the Honda Civic Hybrid, with 197,177 vehicles, and the Toyota Camry Hybrid, with 154,977 units. The top seller in the U.S. by an American manufacturer is the Ford Escape Hybrid, with cumulative sales of 95,285 vehicles by December 2009, followed by the Fusion Hybrid, with sales of 15,554 units in just nine months (5). California has been the state leading hybrid sales in th U.S. with 55,553 vehicles sold in 2009, (5) 74,932 in 2008, (6) and 91,417 in 2007. (6) In 2009 it was followed by New York (15,438) and Florida (14,949) (5).In terms of new hybrids sold per capita, the District of Columbia was the leader in 2009 with 3.79 hybrids per 1000 residents, followed by California (1.54) and Washington (1.53). (5) The top 5 U. S. metropolitan area markets for sales of hybrid electric vehicles in 2009 were Los Angeles (26,677), New York (21,193), San Francisco (15,799), Washington, D.C. (11,595), and Chicago (8,990). (5) www.afdc.energy.gov/afdc/data/
U.S. Hybrid-Electric Vehicle Sales
Sierra/Silverado Lexus HS 250h Mitsubishi Milan Ford Fusion
400
Dodge Durango Chrysler Aspen
350
Cadillac Escalade Chevy Malibu
Thousand HEVs
300
GMC Yukon Chevy Tahoe
250
Saturn Aura Lexus LS600hL
200
Saturn Vue Nissan Altima
150
Toyota Camry Lexus GS 450h Mercury Mariner
100
Toyota Highlander Lexus RX400h
50
Honda Accord Ford Escape
0
Honda Civic
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Toyota Prius Honda Insight
11
Economist.com, 27/01/00, Hybrid Vigour? Baltimore Sun, 18/04/05, Prius: Winning Hybrid-Electric Car Shows The Way 13 Economist.com, 02/12/04, Why the future is hybrid 14 http://www.toyoland.com/prius/chronology.html 15 www.afdc.energy.gov/afdc/data/ 12
Toyota Prius16 The Toyota Prius is a full hybrid electric mid-size car developed and manufactured by the Toyota Motor Corporation. The Prius is the most fuel efficient gasoline car currently sold in the U.S. according to the United States Environmental Protection Agency (7). The Prius first went on sale in Japan in 1997, making it the first massproduced hybrid vehicle. It was subsequently introduced worldwide in 2001. The Prius is sold in more than 70 countries and regions, with its largest markets being those of Japan and North America. In September 2010, the Prius reached worldwide cumulative sales of 2.0 million units (8). The U.S. is the largest market, with 814,173 units registered by December 2009. Appendix 1 shows the Toyota Prius Chronological History17 until its point of launch in the United States in August 2000.
First generation (XW10; 1997–2003) In 1995, Toyota debuted a hybrid concept car at the Tokyo Motor Show, with testing following a year later. The first Prius, model NHW10, went on sale on December 10, 1997. It was available only in Japan, though it has been imported privately to at least the United Kingdom, Australia, and New Zealand. The first generation Prius, at its launch, became the world's first mass-produced gasoline-electric hybrid car. The NHW10 Prius styling originated from California designers, who were selected over competing designs from other Toyota design studios. In the United States, the NHW11 was the first Prius to be sold. The Prius was marketed between the smaller Echo and the larger Corolla. The published retail price of the car was US$19,995. The NHW11 Prius became more powerful partly to satisfy the higher speeds and longer distances that Americans drive. Air conditioning was standard equipment. The vehicle was the second mass-produced hybrid on the American market, after the two-seat Honda Insight. While the larger Prius could seat five, its battery pack restricted cargo space. Prius owners were eligible for up to a US$2,000 tax credit from their gross income. European sales began in September 2000. The official launch of the Prius in Australia occurred in 2001 after the Sydney Motor Show, although sales were slow until the NHW20 model arrived.
Second generation (XW20; 2003–2009) In 2004, the Prius was completely redesigned as a mid-size lift back, sized between the Corolla and the Camry, with redistributed mechanical and interior space significantly increasing rear-seat legroom and luggage room. The 2004 Prius is even more environmentally-friendly than the 2001 model (according to the EPA), and is 6 inches (150 mm) longer than the previous version. The Prius uses an all-electric A/C compressor for cooling, an industry first, and also adds an electric power steering system to further minimize engine belt-driven engine accessories. Combined with a smaller and lighter NiMH battery, the XW20 is more powerful and more efficient than the XW10. In the U.S., the battery pack of the 2004 Prius is warranted for 100,000 miles (160,000 km) or 8 years. The warranty for hybrid components in California and the seven Northeastern states that have adopted the stricter California emission control standards is 150,000 miles (240,000 km) or 10 years. It is classified as a SULEV (Super Ultra Low Emissions Vehicle) and is certified by California Air Resources Board as an "Advanced Technology Partial Zero Emission Vehicle" (AT-PZEV). From 2005 to 2009, the second generation Prius had been built by FAW-Toyota in the city of Changchun for the Chinese market.
16 17
http://en.wikipedia.org/wiki/Toyota_Prius http://www.toyoland.com/prius/chronology.html
Third generation (XW30; 2009–present) Toyota debuted the new Prius (2010 US model year) at the January 2009 North American International Auto Show and sales began in Japan on May 18, 2009. Toyota cut the price of the Prius from ¥2.331 million to ¥2.05 million to compete with the Honda Insight, which led to some questioned that the increase of sales of the Prius might come at the cost of reduced sales of vehicles that could bring in higher margin. Competition from lower priced hybrid like Honda's Insight also made Toyota difficult to capitalize on the Prius's success. Its new body design is more aerodynamic and an underbody rear fin helps stabilize the vehicle at higher speeds. The Prius was the most efficient car powered by liquid fuel available in the U.S. in 2009, based on the official rating. Only the first-generation Honda Insight (2000–2006) equipped with a manual transmission attained higher mileage.
Sales The Prius is sold in more than 70 countries and regions, and has its largest markets in the United States, Japan, and Europe. In May 2008, Toyota announced that its worldwide cumulative sales of the Prius had passed the 1 million mark; worldwide cumulative sales reached 2,012,000 units Prius in September 2010. As of December 2009 the U.S. accounted for almost half of the Prius global sales, with 814,173 Prius units registered since 2000. However, Prius experienced two consecutive year over year sales decrease from its peak in 2007 to 139,682 units in 2009. Cumulative Prius sales in Europe reach 100,000 in 2008 and 200,000 units by mid-2010, after 10 years on that market. The U.K. is one of the leading European markets for Prius, accounting more than 20 percent of all Prius sold in Europe. Toyota Prius became Japan's bestselling vehicle in 2009 for the first time since its debut in 1997 as its sales almost tripled to 208,876 in 2009. In that year it overtook the Honda Fit, which was Japan's best-selling car in 2008 excluding Kei cars.
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Jan-Set 2010 Cumulative Total
Annual sales worldwide and by region (in thousands) North World Japan U.S. America 0.3 0.3 17.7 17.7 15.2 15.2 19 12.5 5.8 5.6 29.5 11 16 15.6 28.1 6.7 20.3 20.1 43.2 17 24.9 24.6 125.7 59.8 55.9 54 175.2 43.7 109.9 107.9 185.6 48.6 109 107 281.3 58.3 183.8 181.2 285.7 73.1 163.3 158.6 404.2 208.9 144.3 139.7 401.3 254.2 105.9 103.3 2.011
826.9
939.1
917,5
Europe
Other
0.7 2.3 0.8 0.9 8.1 18.8 22.8 32.2 41.5 42.6 35.5
0.01 0.2 0.2 0.4 1.9 2.9 5.3 7 7.7 8.4 5.8
206.1
39.7
Table 1 : Annual Sales Worldwide and by Region (in thousands)
Appendix 2 shows the chart labeling the events that shaped the total sales of Toyota Prius.
Government and Corporate Incentives There have been a number of governments with incentives intended to encourage hybrid car sales. In some countries like the U.S. and Canada, some rebate incentives have been exhausted, while other countries such as the United Kingdom, Sweden, Belgium, and the Netherlands have various or alternative incentives to purchasing a hybrid vehicle. Travelers Companies, a large insurance company, offers hybrid owners a 10% discount on auto insurance in most U.S. states. The Farmers Insurance Group offers a similar discount of up to 10% in most U.S. states. The U.S. Energy Policy Act of 2005 established a federal income tax credit of up to $3,400 for the purchase of new hybrid vehicles, purchased or placed into service after December 31, 2005. Vehicles purchased after December 31, 2010 are not eligible for this credit. (9)
The Future: PHEV Vehicles With a recent mandate that effectively requires major automakers to put at least 58,000 gas electric vehicles on California roads by 2014, California has become a pioneer in new technology developments. After years of research and development the auto industry giants and startup companies are investing, researching and building prototype vehicles that can be fueled either with gas or electricity from a wall socket. A plug-in hybrid electric vehicle (PHEV) is a hybrid vehicle with batteries that can be recharged by connecting a plug to an electric power source. It shares the characteristics of both traditional hybrid electric vehicles, having an electric motor and an internal combustion engine, and of battery electric vehicles, also having a plug to connect to the electric grid. Most PHEVs on the road today are passenger cars, but there are also PHEV versions of commercial passenger vans, utility trucks, school buses, motorcycles, scooters, and military vehicles. (10) The Toyota Prius Plug-in Hybrid is a mid-size plug-in hybrid electric vehicle (PHEV) to be produced by Toyota Motor Corporation and scheduled to be released to the market in the second quarter of 2012. The Prius PHEV is based on a third generation Toyota Prius (model ZVW30) outfitted with 5.2 kWh lithium-ion batteries co-developed with Panasonic, which enable all-electric operation at higher speeds and longer distances than the conventional Prius hybrid. A global demonstration program involving 600 pre-production test cars began in late 2009 and will continue in 2010 in Japan, Europe, Canada, China, Australia, New Zealand and the United States. The commercial version is expected to cost between US$3,000 to US$5,000 more than the conventional Prius and Toyota announced it expects to sell 20,000 units a year initially. (11) Although there are many advantages and benefits of the PHEV Vehicles such as lower operating and maintenance costs, Noise reduction, less dependence on imported oil, and reduction in Air pollution and greenhouse gas emissions, the following enlists the barriers of adoption (12): 1.
2.
Cost of batteries: Currently plug-in electric vehicle are significantly more expensive as compared to conventional internal combustion engine vehicles and hybrid electric vehicles due to the additional cost of their lithium-ion battery pack. According to a 2010 study by the National Research Council, the cost of a lithium-ion battery pack is about US$1,700/kW·h of usable energy, the manufacturer cost of the battery pack for a PHEV-10 is around US$3,000 and it goes up to US$14,000 for a PHEV-40. Availability of recharging infrastructure: Many authors assumed that plug-in recharging will take place overnight at home. However, residents of cities, apartments, dormitories, and townhouses do not have garages or driveways with available power outlets, and they might be less likely to buy plug-in electric vehicles unless recharging infrastructure is developed. Several cities in California and Oregon, and particularly San Francisco and other cities in the San Francisco Bay Area and Silicon Valley, as well as some local private firms such as Google and Adobe Systems,
3.
4.
already have deployed charging stations and have expansion plans to attend both plug-ins and all-electric cars. In Google's case, its Mountain View campus has 100 available charging stations for its share-use fleet of converted plug-ins available to its employees. Solar panels are used to generate the electricity, and this pilot program is being monitored on a daily basis and performance results are published in RechargeIT website. A simple solution to this problem would be using Solar panels inbuilt in the Vehicle. A different approach to resolve the problems of range anxiety and lack of recharging infrastructure for electric vehicles was developed by Better Place(http://www.betterplace.com/). Its business model considers that electric cars will be built and sold separately from the battery pack. As customers will not be allowed to purchase battery packs, instead, they must lease them from Better Place which will deploy a network of battery swapping stations thus expanding EVs range and allowing long distance trips. Subscribed users will pay a perdistance fee to cover battery pack leasing, charging and swap infrastructure, the cost of sustainable electricity, and other costs. The firm has already tested battery-switch or battery-swap stations allowing drivers to exchange their car's depleted battery pack for a fully recharged one in less than a minute. Better Place has already signed agreement for deployment in Australia, Denmark, Israel, Canada, California, and Hawaii. Potential overload of the electrical grid: The existing electrical grid, and local transformers in particular, may not have enough capacity to handle the additional power load that might be required in certain areas with high plug-in electric car concentrations. As recharging a single electric-drive car could consume three times as much electricity as a typical home, overloading problems may arise when several vehicles in the same neighborhood recharge at the same time, or during the normal summer peak loads. To avoid such problems, utility executives recommend owners to charge their vehicles overnight when the grid load is lower or to use smarter electric meters that help control demand. When market penetration of plug-in electric vehicles begins to reach significant levels, utilities will have to investment in improvements for local electrical grids in order to handle the additional loads related to recharging to avoid blackouts due to grid overload. Also, some commentators have suggested that by implementing variable time-of-day rates, utilities can provide an incentive for plug-in owners to recharge mostly overnight, when rates are lower. Rare earth metals availability and supply security: Current technology for plug-ins and electric cars is based on the lithium-ion battery and an electric motor, and the demand for lithium, heavy metals and other rare elements (such as neodymium, boron and cobalt) required for the batteries and powertrain is expected to grow significantly due to the incoming market entrance of plug-in electric vehicles in the mid and long term. Some of the largest world reserves of lithium and other rare metals are located in countries with strong resource nationalism, unstable governments or hostile to U.S. interests, raising concerns about the risk of replacing dependence on foreign oil with a new dependence on hostile countries to supply strategic materials. On September 29, 2010, the U.S. House of Representatives approved the Rare Earths and Critical Materials Revitalization Act of 2010 (H.R.6160). The approved legislation is aimed at restoring the U.S. as a leading producer of rare earth elements, and would support activities in the U.S. Department of Energy to discover and develop rare earth sites inside of the U.S. in an effort to reduce the auto industry's near-complete dependence on China for the minerals. A similar bill, the Rare Earths Supply Technology and Resources Transformation Act of 2010 (S. 3521), is being discussed in the U.S. Senate.
Beyond the PHEV and electric-only vehicles, a wide range of other low carbon transportation technologies are currently being considered. On the fuels side, biomass-based alternatives to refined fuels are already available on a limited scale. In the U.S., the dominant form is ethanol derived from corn, which is blended with gasoline. It is questionable whether or not corn-based ethanol could ever supply a large market economically without having an effect on food prices (13). Ongoing research is aimed at developing advanced biofuel formulations derived from the lignocellulosic plant material. On the vehicles side, alternatives to the ICE-only vehicle include conventional (offgrid) hybrid electric vehicles, electric-only vehicles, natural gas vehicles, and hydrogen used in fuel cells or in direct
combustion. Hydrogen transportation, particularly if powered by fuel cells (which are very costly at present), is not expected to be economically viable in the near term due to vehicle cost hurdles and fueling infrastructure requirements (14).
Appendix 1: Toyota Prius Chronological History January 16, 1992 - Toyota Motor Corporation (TMC) announces the Earth Charter, a document outlining goals to develop and market vehicles with the lowest emissions possible. September, 1993 - Following the lead of Honorary Chairman Eiji Toyoda, Toyota R&D Executive Vice President Yoshiro Kimbara creates G21, a committee to research cars for the 21st century. Late 1993 - Risuke Kubochi, general manager of the General Engineering Division, volunteers to take over the lead for the G21 project. December, 1993 - First G21 progress report given to the TMC Board. January, 1994 - Takeshi Uchiyamada takes over as leader of the G21 project team. He would later become the chief engineer for the Prius hybrid. February 1, 1994 - First official meeting of the G21 project team. The team determines the goal of G21 is to build a car that is resource and environmentally friendly while retaining the benefits of a modern car. Late 1994 - The G21 team designs a concept car with a hybrid engine for the 1995 Tokyo Motor Show. The concept car is named "Prius," the Latin word for "prior" or "before." June 30, 1995 - Development of a hybrid vehicle is approved and code named "890T." The exclusive hybrid powertrain is named the "Toyota Hybrid System (THS)." October 27, 1995 - Prius hybrid concept car is shown at the 31st Tokyo Motor Show. December, 1995 - TMC President Hiroshi Okuda establishes a launch date of December, 1997, for Prius in Japan, one year earlier than planned. July, 1996 - Irwin Lui of Toyota's Calty Design Studio in Newport Beach, Calif., wins an informal Prius design competition. His model is selected to go into production. Late 1996 - Prototype test-driving begins. March 25, 1997 - President Okuda publicly announces the development of the THS hybrid system to be used in the Prius. May, 1997 - First media test-drive event takes place at the Higashi-Fuji Proving Grounds. October, 1997 - Toyota Prius officially unveiled to the press for the first time. December 10, 1997 - Prius goes on sale to the public in Japan, fully two years ahead of any other manufacturer. First-year sales are nearly 18,000. April, 2000 - The Sierra Club, the nation's oldest and largest environmental organization, presents its "Excellence in Environmental Engineering Award" to the Prius. August, 2000 - Prius is launched in the U.S. as a 2001 model, with an MSRP of $19,995.
Appendix 2: Outline of Events concerning the US HEV Market
References 1. [Online] [Cited: November 18, 2010.] http://en.wikipedia.org/wiki/Hybrid_electric_vehicle. 2. [Online] September 19, 2008. [Cited: November 18, 2010.] http://www.iht.com/articles/2008/09/18/business/deal19.php. 3. J.D.Power and Associates Press Release. [Online] [Cited: November 30, 2010.] http://businesscenter.jdpower.com/news/pressrelease.aspx?ID=2010213. 4. [Online] Alternative Fuels and Advanced Vehicle Data Center (U.S. DoE). [Cited: November 18, 2010.] http://www.afdc.energy.gov/afdc/data/vehicles.html. 5. [Online] [Cited: November 18, 2010.] http://www.hybridcars.com/hybrid-sales-dashboard/december-2009dashboard.html. 6. hybridcars.com. [Online] [Cited: November 18, 2010.] http://www.hybridcars.com/files/feb09-hybrid-marketdashboard-v2.pdf. 7. United States Environmental Protection Agency and United States Department of Energy. [Online] November 30, 2010. http://www.fueleconomy.gov/feg/best/bestworstNF.shtml. 8. Worldwide Prius Cumulative Sales Top 2M Mark; Toyota Reportedly Plans Two New Prius Variants for the US By End of 2012. [Online] [Cited: November 30, 2010.] http://www.greencarcongress.com/2010/10/worldwideprius-cumulative-sales-top-2m-mark-toyota-reportedly-plans-two-new-prius-variants-for-the-.html#more. 9. Government Incentievs for fuel efficient vehicles in the US. Wikipedia. [Online] [Cited: November 30, 2010.] http://en.wikipedia.org/wiki/Government_incentives_for_fuel_efficient_vehicles_in_the_United_States. 10. Floyd Associates. [Online] [Cited: November 30, 2010.] http://www.floyd-associates.com/phev.pdf. 11. The Toyota Plug-in Hybrid. [Online] [Cited: November 30, 2010.] http://en.wikipedia.org/wiki/Toyota_Prius_Plug-in_Hybrid. 12. [Online] [Cited: November 30, 2010.] http://en.wikipedia.org/wiki/Plug-in_electric_vehicle. 13. Reilly, J. and Paltsev, S. Biomass Energy and Competition for Land. Cambridge, MA : MIT Joint Program on the Science and Policy of Global Change, 2007. Report No. 145. 14. Sandoval, R., et al., et al. Modeling the Prospects for Hydrogen Powered Transportation Through 2100. Cambridge, MA : MIT Joint Program on the Science and Policy of Global Change, 2008. Report No. 154.