True? Toyo loses $5k per Prius on battery?

CNN ?? How many of their journalistic blunders over the decades do you need to remember, before you can pull your bunched up panties back where they belong?

10 years old. Still ... One of my favorites:

CNN's Ten Mistakes, by Neil Hickey - CJR, Sept/Oct 98

and there are a bunch of other irresponsible articles they've put out ... so just add this blunder to the pile & move on. Heck, we all make mistakes and say stupid things one time or another.

Here's my FUNNIEST CNN screwup Mr. Creepy's Obit.
Wishfull thinking?

 

dealer should get around $650 out of that $2500, depending on dealer performance/status... At least thats how our european network works... although our price for the battery was always more than US one (as is for all other parts)

I have no clue on how much toyota produces batteries at, but there is no chance they would be subsiziding cost of replacement battery and give us full margin.

 

Actually BusinessWeek Online interviewed both Toyota and Honda earlier this year asking them after several years on the market what was the real failure rate of the hybrid batteries.

Toyota's reply was 1 in 40000 or about .0025%. If I remember correctly I believe that Honda's was somewhat greater at .01%.

This generally correlates with what we find on this site and what I find after 8 years of selling them.
How many fail in real life? NONE to my knowledge.
How long do they last? There is no reason that with normal care they shouldn't last the life of the vehicle.
How many miles will they go before needing replacement? Well over 200,000 miles if not more. 300,000 miles?
How much does it cost to replace one? Right at the Parts Desk today you can buy one for $2599 Retail, plus labor.

 

DeadPhish,

Another "reliable source" checks in.

Thanks for the HV battery numbers.

As a current Prus owner, 1 in 40,000 HV failures, .0025%; I can live with that.

 

let me tell you right now, rate of diesel related failures is currently WAY WAY WAY above that .

 

i know a lot of people in the car business and getting a straight answer as to the profit margin ON ANY VEHICLE is impossible. but all stated that profits on parts and options are where the real money is made. typical markups START at 50% and up.

basically, when considering the price of options, more than half of the cost is profit, sometimes even more than that. when considering like $200 for floor mats and a first aid kit, its not hard to believe

 

Since the assertion is just that- an unattributed assertion, I would say it doesn't deserve too much attention. Just more anti-Prius trash talking.
On the other hand, it would appear from the context that NREL's representative is the one who made the assertion. If so, one can hope this isn't the federal government's position.
I notice they didn't mention the Honda Civic GX either. Of course, it was a pro-all-electric article...

 

you need to make an difference in your mind between manufacturer and dealer... in our case, we make same money on option packages as on cars, while accessories installed by dealer get same margins as parts, which is a lot less than 50%... I think best dealers that get best dealer ratings and invest most in infrastructure, get around 35% margins, while it starts with 25%. Thats how it works in Europe.

50% is a bit crazy

 

It is true that OEM and dealers make different margins. At the OEM level 7 times cost (700%) seems to be standard for parts. That is my experience from off-road transaxles, car interiors, and utility vehicles. However, not all parts get this markup. The utility vehicle transaxle was sold at OEM cost because of past problems.

Dealers get 30% on parts, 20% on options, and 15% on vehicles. (EDIT: That is for utility vehicles)

 

Uh, Bob, no offense, but how can you declare a winner when all Phish did was give us an accounting lesson? His post doesn't provide a single bit of quantitative evidence that gets us closer to answering (a) What is Toyota's maringal cost of building a Prius today and (b) What is the cost of building a Prius today when all of the other costs (R&D, factory and equipment, marketing etc.) are factored in. And to argue that the costs of developing the hybrid system can be applied across all of Toyota's vehicles will only make sense when that actually happens. Despite lots of promises from Toyota, the hybrid system to date has been installed in exactly one model besides the Prius -- the Camry.

That said, other posters made the essential point that my fellow journalist missed in his/her report on whether the Prius is profitable: Toyota isn't losing money because of the Prius. It's losing money because of the general collapse in new vehicle sales and Toyota's over-reliance on gas-guzzling trucks and SUVs. In the article I wrote on Toyota's loss-making, I actually pointed out that one reason they'll lose money this year is that, because of poor planning in terms of battery procurement, they didn't have enough Priuses to go around when gas prices went past $4 a gallon last summer. The shortage led to big price markups, but those premiums went to the dealers, not Toyota.

 

toyota has many hybrid vehicles, and is getting more in upcoming years... in NA they have, Prius, Camry, Highlander, Lexus GS, Lexus LS, Lexus RX... and in Japan they have few other hybrids as well... This number will grow next year and even more in years to come.

 

The accounting perspective was shown to disprove the commonly stated notion that 'the Prius is not profitable'. This is because of accruals.

To continue further with the accounting view then. In 2004 and 2005 and 2006 and 2007 Toyota made profits from it's automotive operations. Part of those profits were generated by Prius sales all over the globe!! In those years because of accruals Toyota had to report on its financial statements that it made profits from the Prius...as well as other hybrid vehicles. Do we know how much? No because this is confidential info that is lost in the summary of the financial statements.

But this is what financial analysts and accountants do for a living. They estimate what the profits and losses are from other data gathered from various other diverse areas. Then they apply common sense and built a model that makes sense. This is what writers fail to do....analyse in more depth.

First as spwolf noted there are far more Toyota hybrids being sold than just the Prius and TCH. You must look at the entire world. This may not be exhaustive but there are also the HH, the 3 Lexus models noted, the Estima hybrid in JDM and the Harrier hybrids in Asia. In toto there has likely been 1.5 million Toyota hybrids sold worldwide since they've debuted in 1997.

To make the picture complete. Here are the pieces of the puzzle to assemble to create your financial picture.

The Prius car platform, sans hybrid system, is s simplified version of the Matrix/Vibe which debuted about the same time in 2002. Both vehicles are made of steel, rubber, plastic, fabric and labor. Both vehicles have selling prices of about $20000. Are these vehicles profitable? Presumably. According to Toyota's financial statements it makes between 5-10% Net profit after taxes. That means on average it makes $1000 to $2000 Net Profit on all sales of about $20000. I will argue that they make more profit on 4Runners and Highlanders than Corollas, Matrix's and Prius'. So let's use the lower estimate of $1000 NET PROFIT per vehicle.

Excluding dealer costs/margins from that $20000 MSRP above, the revenue to Toyota on a Matrix or non-hybrid Prius ( were there such a vehicle ) is about $17000. The variable cost to produce these vehicles is far, far, far lower than $17000. The variable costs are steel, plastic, glass, fabric, computers and labor. From other sources around the world one can estimate what these variable costs are. Depending on the size of the vehicle these variable costs come to about $8000-$10000 per vehicle. Dull dry accounting stuff, I know, but I still find it stimulation for the mind.

That leaves about $7000 unaccounted. This is where the PROFITS and the ACCRUALS of fixed costs are located.









The Prius has a hybrid option that the Matrix does not. But the Prius sells for $4000 to $8000 more than the Matrix. So what is the variable cost of this hybrid option? Well there are only 4 parts to it ( you can look this up in the technical data of the Prius ).

• ..a traction battery
• ..two electric motors
• ..an inverter/converter
• ..wiring and some computer modules

We now have pretty good estimates of what these 4 addtional components cost. The traction battery at full retail to you and me is $2588. As an OEM cost I'd estimate that the cost is half of that. Two e-motors? $400? Inverter/converter, wiring, modules? $500? Those in purchasing will have more accurate data. But those 4 elements of variable cost are still well under $4000. So we can state with a fair amount of certainty that the hybrid variable costs are well covered in the price of the Prius. In fact the the $4000 upcharge may even contribute to the profit margin.

To this point I don't think that there is any question that the Prius is profitable from a variable cost perspective.

What is unknown and this is the point of your contention and the original dumb writer, 'What was the original cost of developing the THS?' Well from a recent press statement by GM we actually have a very accurate number. Last year when GM announced the launch of the 2-Mode system it specifically stated that the R&D cost them $1 Billion. This cost was shared with Daimler and BMW. You can look it up as they say.

I don't think it's a far stretch to estimate that Toyota, also a world class engineering firm ( ), also spent about $1 Billion to develop the THS.

So back to ACCRUALS. IF you accept that the non-hybrid Prius/Matrix is a profitable vehicle. If you accept that the extra variable costs of making the Prius car platform into a hybrid are well covered in the sales prices then the only missing element is how much are the ACCRUALS of the original R & D costs for the THS? This is where the several various hybrid models that Toyota makes come into play. The THS cost of R&D is divided across all 1.5 million units sold.

That's the easiest part, 2 seconds on a calculator. R&D / hybrid units sold.
$1,000,000,000 divided by 1,500,000 = or about $700 per unit based on sales since the orignal debut through 2008.

However going back to the original post where I stated that R&D costs are accrued on an estimated sales volume at the beginning of production Toyota at that time had to base its pricing on some volume of sales, say one million units. Thus for the first one million units sold Toyota ACCRUED its R & D expenditures for the THS at the rate of $1000 per unit. $1 Billion / 1 million.

Since reaching the 1 million unit mark in sales Toyota has paid itself back fully for the original R & D investment and that $1000 accrual has gone directly to the bottom line as additional profit, more dry accounting.

One final piece of diverse data to apply to the puzzle. In Jan 2006 the US Fed Govt allowed hybrid buyers to take a tax credit on their purchases. Toyota reached its limit of sales in May of 2006 resulting in the fact that on 10-1-06 the tax credit on Toyota vehicle began to be phased out. On 4-1-07 that credit was reduced to about $775 through 9-30-07 when it disappeared entirely. In May 2007 Toyota of its own accord reduced the pricing of the Prius by amounts of $800 to $2000 depending on the trim. This was just after the company had reached the 1 million unit mark in worldwide sales in Dec 2006. There's that number again.

Summary: If you accept that Toyota produces profitable vehicles such as the Camry, Highlander and Matrix then every Toyota hybrid vehicle sold from the beginning has been profitable - since each one throught the 1 millionth unit only had to bear the cost of about $1000 per unit for the original R & D on the THS. After that 1 millionth unit the vehicle became even more profitable.

Do you really think that the writer of the original article went into this depth? No of course not, if so the article wouldn't have been written.

 

Neat post.

I would like the point out that if the above were true, then in order to spend a billion dollars on development is equivalent to hiring 10000 man years of pure NRE labor across the whole development effort. I doubt that Toyota hired (directly or indirectly) this much. These massive numbers are often the result of a brute force calculation that makes for great PR, but is VASTLY different than the budget allocated by the CEO for the development effort.

 

Now let me explain why, according to Accounting again, this paragraph is in error. It has to do with ACCRUALS again......and the concept that hybrid advocates love to hear so much 'breakeven'.

In the prior post I showed how the original R & D cost/investment of about $1 Billion was recouped after the first one million units were sold. this holds true for all ACCRUED Fixed Costs.

When the volume of sales reaches the, ta da, breakeven point that means that all the ACCRUED Fixed Costs have been recovered. Thus at about 1 million units sold Toyota paid itself back for it's original investment in creating a new car platform, the Prius, and for the R&D on the THS.

Now this is the amazing part and why this business can be so hugely profitable or loss-ridden. When the breakeven point was reached, presumably in Dec 2006 at the 1 million unit point, Toyota no longer had any expenses to ACCRUE. All of the Accrued Fixed Costs immediately became pure pretax profits.

This number is likely in the $5000 - $8000 per unit level. Why? Because to make, ship and sell a new Prius in 2007 and beyond it only cost them about $10000-$15000 as variable costs depending on the trim.

Now to your paragraph above. Since all the costs to make the Prius since Jan 07 are variable costs if the company does not build a Prius then it spends no money. Thus it neither profits nor loses.

What does happen though is that by not selling a vehicle it foregoes significant cash inflow by reducing it's revenues. These revenues beyond the breakeven point are the funds which are actually reinvested in the R&D for future vehicles, like the Gen 4 Prius ( the R & D for the Gen 3 is complete ).

This past year Toyota made huge huge piles of money on Prius sales because it had no fixed costs to be ACCRUED. How about this for an estimate since 2006. For the past 500,000 units sold beyond the breakeven point at the rate of $8000 per unit Toyota has 'made' $4-6 Billion in pure profit.......just on the hybrids.

I don't think that you look at the worldwide picture very much. Yes in 2007 demand spiked and all hybrid makers ran out of batteries. There were none to be made. All hybrid vehicle makers sold every unit that they could make. In the case of Toyota it too sold everything it could make but sales in the US went down!!!! Hmmm curious. Why?

Currency issues and greater opportunity profits elsewhere.

At the beginning of 2007 it was apparent that the USD was losing strength like a dying patient. It went into freefall at the end of the year vis-a-vis the JY. Every sale here to the US meant giving up profit that could have been made in say, JDM, Indonesia, Germany, UK or Norway. In every one of these markets the prices are far higher than in NA and there was no currency penalty.

Simply put. OUR Prius' were diverted to more profitable markets. This is just part of international trade. I did it for years in the steel business.

 

wow!!... so we go from Toyota losing money on every Prius sold to them making $8,000 per unit. ok, sure. one thing i am pretty sure of. they didnt lose money, not with their profit margins

very interesting post. i dont know enough to say whether i believe it or not, but its well explained and does make sense. all the neigh-sayers have no pertinent info at all to add to their statements.

 

toyota spends more than 8 billion every year on R&D... I think that number for hybrid development was 8-9 billion up to 2-3 years ago.

Single new car (major new introduction) costs anywhere from 800 million to 1.2 billion to develop.

if developing vehicles was easy and cheap, everyone would have hybrids and no cars would have any issues

 

How much money do you think Tesla spend developing the Sportster?

 

hundred million, but then again, the Pri was a new design from the tires on up...

the Tesla was really only battery management, the body was already designed by someone else, the Electric motor, likewise...

 

Tesla is buying components and almost complete car from suppliers... hence relativly low cost - however this is also cause of high cost of vehicle for Tesla, which then does not make much money, or any money at all.

This is why Lotus is getting into hybrid car business, and I will guess that they will be much better at making money and staying afloat than Tesla.

 

It does not matter who does the designing. Tesla still has to pay for everything. Note that the Elise was the "model" for the Tesla design, but just about only the airbags were retained. The entire chassis is new as well as all major parts. Let's not overlook that the initial investment also had to buy a new car company.

Not true. Tesla is quite clear that only the airbags were retained and everything else is their own design.

Why would you claim that the Tesla does not make money? Few investors commit to a business plan which only plans for failure. They are selling everything they make at a very premium price (~$100000) for a very small car. I will fully agree that the capital investment recovery still requires quite a few more to be sold, but this seems to be pretty much guaranteed.

Returning to my original point, It looks like Tesla was able to put together both and new car company and a new car for about 100 times less money than 8 billion.