April 2007 Looking Ahead

Toyota’s 75% share of the hybrid market speaks for itself, but this month’s announcement about the new Lexus hybrid, the LS600h L, makes you wonder about the company. Does it really make sense to use hybrid technology in a 438 horsepower luxury car that costs over $100,000 and gets 21 miles to the gallon?

Sure, Toyota can apply their hybrid technology in whatever vehicle they want. They’ve been saying for several years that they plan to offer hybrid powertrains throughout their product line. And we understand the positioning of this Lexus—it offers the same horsepower as the V-12-powered BMW 760Li, but with 40% better fuel economy and SULEV emissions (and a $20K lower price tag). Unlike those who buy the BMW, LS600h L owners also get to tell the world that they own a hybrid. And therein lies the issue.

For many buyers, the hybrid powertrain is more than just another fuel-saving device. Sure people like getting higher mileage, but a lot of them also like what getting higher mileage represents: conserving resources, doing less harm to the environment, being smarter about household budgets, giving less support to oil companies, or embracing new technology. This list is not exhaustive, but you get the idea—hybrids say something that other cars don’t. We haven’t seen many user groups popping up for people who are especially enthusiastic about cylinder deactivation or direct injection gasoline engines. These are fuel-saving technologies too, but they don’t really excite people like hybrid technology does. Markets live and die over this kind of excitement.

As more hybrids like the LS600h L come on the market, the ideas that hybrids stand for will begin to change. Optimists are suggesting that the flagship Lexus will give hybrids a classier, high-end image. But this Lexus (and the upcoming HEMI-hybrid version of the Chrysler Aspen) might also turn hybrid powertrains into just another fuel-saving technology. Maybe this change is inevitable, but if and when it comes, sales of cars like the Prius could suffer as hybrids lose the unique significance they currently hold for buyers.

Of course, we have to keep things in perspective. Lexus expects to sell about 2,000 units of the LS600h L in the coming year, while Toyota plans to sell about 3,000 Priuses each week. So while the Lexus may send a confusing message about hybrid technology, it is greatly outnumbered by cars drive home a clear message.