When an unknown musician becomes an overnight sensation with a runaway hit album, expectations for the follow-up release often rise to unrealistic levels. Toyota faces similar anticipation from loyal fans waiting for the next-generation Prius.

The Toyota Prius rose from almost complete obscurity in 2003 to become a mega-superstar in the automotive world. In May 2007, Prius sales reached platinum-record levels—more than 24,000 vehicles in a single month, making it the sixth most popular of all passenger vehicles in the United States.

Enthusiastic but unsubstantiated claims about the next Prius began circulating in early 2006. The UK’s Auto Express quoted a Toyota engineer as saying that the next Prius would achieve 94 miles per gallon, use lithium ion batteries, and be on the road as early as 2008. Eco-minded bloggers went crazy with excitement, gushing that the next Prius could break the 100-mpg mark with plug-in capabilities.

Fantasies about the next Prius took visible shape when Toyota showed off its “Hybrid” X design concept at the Geneva Motor Show in March 2007. It was sleek, groovy and futuristic.

Then, hybrid fans crashed back to earth in May 2007 when the Wall Street Journal and a Japanese industrial daily, Nikkan Kogyo Shimbun, reported that the third-generation Prius would not switch from nickel metal hydride to lithium ion batteries and that Toyota would not release the vehicle until spring 2009. According to the newspapers, Toyota had decided to take its time to ensure quality and safety.

[According to the June 24 edition of Nihon Keizai Shimbun, Japan’s leading business daily, Toyota will also be launching a new midsize hybrid vehicle in 2009. The new car, which has not been officially named, will only be available as a hybrid.]

Prius Unplugged

Toyota’s reluctance to use lithium batteries in the next Prius may reveal more about the company’s corporate strategy than the state of lithium chemistry and plug-in technology. For more than a year, 21st-century backyard tinkerers have been adding bigger and more powerful lithium battery packs to conventional-hybrid Priuses, thereby boosting their gas-free, all-electric range from a few blocks to several miles. Plug-in hybrids give drivers the option to recharge batteries with a common household electric current.

Recently, however, a household name with very deep pockets joined the fray: Google. On June 18, Google.org, the philanthropic arm of the Internet giant, showed off four Priuses and two Ford Escape Hybrids that the company paid to have converted into plug-in hybrids. These six vehicles are part of Google’s planned fleet of 100 employee vehicles that can receive energy from the company’s massive photovoltaic system and can send unneeded energy back to the electric grid from the vehicles’ batteries, which act as mobile energy storage devices. Google’s founders are also among the backers of the Tesla Motors, which will begin shipping lithium-battery, all-electric luxury sports cars to customers in late summer 2007.

Even General Motors—still recovering from the negative backlash of killing its electric car program—is promising a lithium-powered plug-in hybrid version of the Saturn Vue by 2009. GM said that the plug-in Vue, a small SUV, could reach 70 miles per gallon. GM’s history certainly gives doubters reason to not believe the company can deliver on these promises, though.

If Google, Tesla, and GM are willing to go lithium, why is Toyota holding back—especially when it owns 60 percent of Panasonic EV, widely regarded as the world’s best advanced auto battery manufacturer? In a recent Reuters article, Masatami Takimoto, Toyota executive vice president in charge of powertrain development, characterized batteries from other manufacturers as “unusable.” He said, “Our battery is superior.” Is Toyota trying to amortize their huge investment in current hybrid technology and nickel batteries—or does it have a deeper philosophy in mind?

Protecting Its Lead

We can find clues in recent comments from Jim Press, president of Toyota Motor North America. “The approach the company takes is a more conservative decision-making process that tries to avoid wrong decisions and therefore it takes longer to make decisions,” said Press in an April interview in Edmunds’ Auto Observer. “We have a saying that before a Toyota person crosses a bridge, we check every rock.”

Press cited the company’s decision to invest in hybrids well before other car companies as an example of long-term, carefully planned decision-making rather than rash changes based on crisis. “It was the appropriate time [for hybrids] and the future dictated that for good business.”

Toyota’s move toward hybrids has undoubtedly paid off. The company, which dominates the hybrid market, recently sold its millionth hybrid worldwide. Takimoto said cost-cutting efforts on the system’s motor, battery and inverter were bearing fruit, and the cost structure would improve dramatically by the time Toyota reaches its sales goal of one million hybrids in 2010 or soon thereafter. He expects hybrids to become the standard drivetrain for Toyota and to account for 100 percent of Toyota’s vehicles.

Last year’s recall of 4 million Sony-manufactured lithium batteries by Dell due to a possible fire hazard certainly lends credence to Toyota’s conservative path. After the recall, Ryoji Chubachi, president of Sony, said, “The company should have investigatedthe cause of the battery problem more quickly. As a result, worries over batteries have spread.” The recall cost Sony $444 million (U.S.).

Those worries are magnified when it comes to car batteries, according to Menahem Anderman, a leading expert on advanced automobile batteries. He testified about lithium auto batteries at a U.S. Senate Committee on Energy and Natural Resources in January 2007. “The manufacturing of high-volume, low-cost, and high-reliability lithium ion batteries for the portable [device] market is challenging, and established producers have paid dearly to move up the learning curve and down the cost curve,” he said. “The manufacturing of low-cost, high-power lithium ion batteries for hybrids is considerably more demanding.”

As alluring as it may be to push the Prius over the 100-mpg mark with lithium batteries and plug-in capabilities, Toyota can afford to be patient, avoid risk, and allow the production levels of its current crop of hybrids to reach economies of scale. At the same time, the company is “checking every rock” before crossing the bridge to lithium and plug-ins.

When They Are Good and Ready

Bill Reinert, national manager of the advanced technologies group at Toyota, confirmed May 7 that Toyota intended to get more experience with lithium ion batteries before building a plug-in hybrid. Reinert was asked at a conference about clean energy alternatives in Redmond, Wash., if batteries are ready for plug-in applications. He said simply, “No.”

Reinert was less concerned about cost than reliability, but Toyota could also be waiting for the economics of lithium to adjust before moving forward. Speaking at the inauguration of Google’s plug-in hybrid program, David Vieau, president and CEO of A123 systems—the company that did Google’s plug-in conversions and supplied the lithium batteries, and will supply batteries for GM’s plug-in Saturn Vue—said that he expects the cost of automotive lithium batteries to be “cut in half within four to five years.”

Add it all up and it looks as if Toyota could make the switch to 100-mpg, lithium-powered, plug-in hybrids more carefully and profitably in five years. By that time, the cost of lithium batteries will have come down and the company will have an even larger base of millions of satisfied hybrid drivers—owners who would be keen to step up to the fourth-generation Prius.

Where does that leave the next Prius when it comes out in 2009? Reinert predicted a continuation of the previous 30 percent jump in fuel economy from the previous Prius generation. He said, “You can do the math for the next generation in 2008-2009.” So we did—and this calculation estimates that the next Prius could boost real-world combined fuel efficiency from the current high-40s to the low 60s—still rock star status among motor vehicles today.