Will Toyota Be Able To Produce Enough Priuses To Sustain a Separate Brand?

Implications: Toyota has had tow pleasant surprises in the competition to lead the OEM automotive industry into the era of green cars: 1.) It has had no competition while it has established its bestselling Prius hybrid, and 2.) Its largest current competitor is probably bankrupt allowing Toyota to expand the Prius into a brand while its only real competition, Honda, is just starting down the road to establish itself as a green car maker. However, Toyota may now be facing a serious shortage of the raw materials needed to ramp up production of the nickel metal hydride batteries it uses in the current Prius.

Analysis: In a sharply declining global car market Toyota has the unique advantage of not being able to produce enough units of its industry leading Prius hybrid.

Toyota has chosen this point in time to consider making the Prius a separate brand, and this may be a troublesome proposition.

Toyota's business model is clearly now to produce as many hybrids utilizing the third generation-according to Toyota itself-of the nickel metal hydride battery it codeveloped originally with Panasonic based on an invention patented originally  by America's Energy Conversion Devices from which Toyota licensed the use of the technology for motor vehicles in the late 1990s.

Toyota has been reported to be experimenting with a dual power version of the Prius which would have both a lithium-ion battery for use as a short range-10 miles-plug-in hybrid and a 'regular' nickel metal hydride battery to allow it to operate as a true hybrid with a combined range of 500 miles and an efficiency of 50 miles per gallon as in the current nickel metal hydride only Prius hybrid now marketed globally.

It is clear that Toyota began developing a plug-in hybrid powerplants only as a reaction to the Chevrolet Volt concept being hyped by its latecomer competitor General Motors.

It is much more plausible that Toyota's 10 mile plug-in range is a reliable indicator of the limitations of lithium-ion battery development than to accept that GM's promised 40 mile range plug-in hybrid will be brought in on time and trouble free.

Even if the Volt were to arrive on time and as specified, however, it may arrive too late to save General Motors from bankruptcy and the need to conserve cash rather than squander it on cobbling together a car that already seems too little too late.

Toyota seems to understand that the electrified car of the near future will need to have a variety of powertrains to do different jobs rather than one all-encompassing one.

If there is a market for a plug-in hybrid it may only be capable of a very limited range before needing a recharge. Toyota will probably offer a Prius version with the dual power train just to test the market. Some car makers are already offering conversions with old reliable lead acid batteries to ensure a longer range than can be supplied today economically by lithium ion technology, and this inexpensive approach could catch on quickly in a global economic slowdown.

Toyota's success with the nickel metal hydride based hybrid is endangered by the current collapse of all of the rare earth mining venture out side of China. Every publicly traded such mining opportunity has suffered a decline in its share price of from 50% to 75% in just the last two months.

If Toyota is dependent on Chinese production for the key rare earth metal, lanthanum, for its nickel metal hydride batteries it will have to compete with Chinese companies and Honda to get the critical material.

Toyota is not General motors; it, Toyota makes long term plans to insure supplies of critical raw materials, but doing this by depending solely on Chinese suppliers is not low risk.

I believe that Toyota has enough lanthanum stockpiled to allow the Prius program to grow according to its business model and produce 1,000,000 Prius hybrids in 2011. Any increase after that is at this moment, I think, problematic, as indeed may be just sustaining that production level unless new non-Chinese sources of lanthanum are brought on stream by then.

Therefore the idea of expanding the number of models and creating a separate brand as an umbrella for a car maker that could grow to be a world class producer has the risk of there not being sufficient raw material availability to sustain the brand.

Toyota needs to address this raw material  issue publicly, before it asks the public to support it.