Toyota Losing Money on Prius?

Hi All,

So, the thing between GM and Toyota, apparently, is GM is putting all the Volt development costs on the Volt, and not charging any towards capital. While Toyota is treating some, if not most of these costs as technological capital. See how quickly Toyota came out with other HSD vehicles? And so GM is charging all that battery testing to every buyer of a Volt, rather to every buyer of a E-Flex platform for the next 20 years (expected viability of the concept). Is that fair to a Volt buyer?

Once you know how to do something, its cheap to do it on another car. The problem is figuring out how to do it the first time. The question is do you charge the new project, with the time it took to figure out the original project?

If you take out the R/D costs out of the Prius - allot of which was done by TRW 20 years ago, BTW - the Prius is mechanically much simpler. And Mechanical stuff is the costly stuff. Because it takes very large expensive machines and enclosing enviorment to make mechanical stuff. Nobody has figured out how to print transmission cogs in 30 seconds yet. And the Prius has 1/3 of those than standard automatic transmissions. Besides band clutches, or hydraulic control unit or starter.

 

How much help did they provide developing the GM Precept, Ford Prodigy, and Chrysler ESX-3?

Partnership for a New Generation of Vehicles - Wikipedia, the free encyclopedia
The Partnership for a New Generation of Vehicles

 

Toyota is not building a plant specifically to build the Prius. The plant in Mississippi has been planned for years. The bid process for the site started in 2005 even though it wasn't announced until Feb 2007. These plant was originally planned to build 150K Highlander SUV's per year and open in 2010. As SUV sales have declined Toyota pushed back the opening date to 2011 and started looking for a product to build at the plant. Since the US is the number one market for the Prius it only makes since to build it here.

 

GM do silly things like spend a bucket load of cash developing cars they crush. How did they go getting the cost of developing the EV1 back?
The Prius sells for a lot more outside North America, a base model here is $37,400AU which was a lot when the Aussie was 94 cents US, not so much now though, about on a par now with US prices right now. I believe they make money on Prius sold in Australia.

 

How can you lose money on a car? Toyota has a brand-premium with it that commands far more money than, say, Hyundai, for an equivalent car. There are only two parts of the Prius that I could see "losing money" for Toyota - the body, because its non-standard, (within their assemblies) so they have to make a new line for that - and the batteries, which they have little control over, as I believe they are sourced by Panasonic.

Maybe they do have a long term strategy - with enough people seeing how great hybrids are, the price of batteries goes down with increased production (as we saw with that announcement awhile back, where Prius packs went down several hundred dollars), and with that they can then start making money...

No company will just give stuff away, at worst the Prius is a loss-leader.

 

"car manufacturers still haven't figured out how to produce hybrid and plug-in vehicles cheaply enough to make money on them. After a decade of relative success with its hybrid Prius, Toyota has sold about a million of the cars and is still widely believed by analysts to be losing money on each one sold."

Are they counting [FONT=arial,helvetica,sans-serif]CNW "Research" as one of their analysts maybe?[/FONT]

 

On the face of it, government investment in research that has far-reaching benefits sounds like a good idea. Any involvement by the Japanese government in developing the Prius is staunchly denied by Toyota, despite GM's whining. And if government help is such a bad thing, why has GM accepted so much 'dirty' money over the years? And to develop what? A bunch of cars most people have never heard of? Sorry, Malorn, if you're going to develop any cogent arguments against the Prius, or the 'evil Toyota empire', you'll have to take off those GM-coloured glasses.

 

My dad used to say there are only two things that will make a man unhappy:

1. Not getting what he asked for
2. Getting what he asked for

Maybe we are approaching this the wrong way. Perhaps we should calculate how much money Toyota has given away by selling their hybrids for the past 11 years at a loss.

$40,000 - Volt projected price (since the 'analysts' don't volunteer the $$)
$25,000 - estimated average Toyota hybrid price
---------
$15,000 - Toyota's loss/donation per hybrid

x 1,000,000 - Toyota's hybrid production
-------------
$15,000,000,000 - Toyota's total donation to hybrid owners

Yippie!! Toyota has given away $15 B. by under pricing their hybrid costs.

What great humanitarians! What wonderful Santa Claus!

What brilliant accountants who have hidden this $15 B. loss from their share holders and 'the industry.' After all, we have these unnamed 'analysts' who claim Toyota has been losing money all along. Let's agree and tell them how much has been lost per unit and do the math. <grins>

Bob Wilson

 

there's NO way toyota should be loosing money on the prius.

unless they completely overpaid for the engineering/r&d stages of development.

even though the car is of high quality and design, it isn't made of gold.........hard to see how charging ALMOST $28,000+ for a #6 doesn't include a nice profit.

 

BWilson -- Cheers !

 

so after all this, lets mull a few things over...

how much is the "standard" profit for a car company on a $25,000 vehicle?

would it be $3,000 per unit? 10,000?? ... i havent a clue, but betting its between those two figures.

now, we also have to look at possible other things that could reduce the profit. rebates, cash back offers, etc...

but say its $3,000 per vehicle. that would be about a half billion profit for last year alone. i think the actual (once again, i dont have a clue...just speculation here) profit per vehicle is more like 4-5,000, but with the "hybrid thing, i think $3,000 would be a lowest estimate... and we all know that the Pri's were sold at pretty much MSRP

now there have been many many reports on what it cost Toyota to develop the hybrid, but even if it was a billion dollars, it would have taken about 2 full years at the higher production numbers to break even and start making money per unit after paying the R&D which would jive with the reported profits starting around the end of 2005 which would have been the start of the 3rd MY for the new Pri.

another thing that really really stands out for me that a lot of you may not know about if you were not here during the early years and that was the nearly non-existent advertising budget the Prius received.

the Pri supply was so backlogged for the first 2½ years, that it would have been foolish to advertise the Pri... it was like it was Toyota's "unmentionable" car.

i remember the big hoopla here at PC the first time a Pri commercial was shown... it WAS A BIG DEAL!! and it happened for the 2006 MY...not the 2004 debut year so that would be another expense the Pri did not have...

now, we also have the battery issues, and the fact that Toyota pretty much had to go into the battery business so i guess we could somewhat justify that as "support or logistical" cost added to the Pri, although the factory did align with the intro of the TCH...

 

Who cares if they think Toyota is losing money? It just means we got a better deal then we thought: a more expensive car for the same price. Awesome.

 

We have a winner:

The perfect answer!

The crafty Prius purchasers have gotten away with the shopper's victory: a GREAT DEAL!

Bob Wilson

 

I know I have read articles on Priuschat over time that Toyota has been renegotiating better and better deals with battery materials suppliers as time has gone on. I know there as a thread on here just a month ago that Toyotas cost for each battery pack had gone down several hundred dollars. I would find it hard to believe that by now he Prius still isn't profitable. If this is true, then I will be expecting to see a noticable price increase when the next (finally profitable) generation Prius comes out. Toyota will be thinking: " now that there's demand, let's start making some money off of this thing.". The transition from the 2nd gen to the 3rd gen will be the perfect opportunity to raise the price whtever it takes to make a profit. How much profit? Probably the same amount they make on the their other similar cars.

GM made hybrid SUVs instead of cars because they make significantly more profit from an SUV than from a car. If they sell an Escalade for $60K, you know there's a lot more profit in that than a $14K Cobalt. If they make $20K profit on the core vehicle but lose $5K on the hybrid system, then they're still making money. With the Cobalt, they'd actually be losing money, or else have to charge $20+K for a car they can't even sell at $14K.
I agree with you that they need to bring the Euro cars over here ASAP. It will even save them R&D costs since the vehicles have already been designed.

 

I was checking my Google alert and found another article that stated:

Even if Toyota Motor has rolled out one million hybrid Prius the past 10 years, majority of industry analysts believe the Japanese firm is still losing money for each unit sold. Cost of production for the vehicle and its parts like batteries are still expensive.
​

This is too pat and I've seen cases during the "Bell the Hybrid Act" effort of articles that just 'cut and paste' from press releases and other articles. So when I see the same words show up more than once, I know someone is salting the media with this phrase.

The best answer is to address journalist ethics:

• name your sources - there should be no problem naming these "analysts" who should be expected to justify their claim
• number the 'majority' - was this 2 of 3 analysts such as CNW Marketing, George Will and Rush Limbaugh (aka., Will marked the wrong box.)
• quantify and support the loss - Toyota financial statements are readily available so show us how much was lost (pushes them to the 'CNW Marketing' nonsense.)

It is less important to reply to the journalists as much as to the editor and the journalists. Shame them into naming their sources or at least facing the fact that they are reporting a rumor, not facts and data.

Bob Wilson

 

Toyotas profit strategy is not geared around amortisation of R&D costs and running loss leaders. It is really very simple, so simple that most people won't believe it.... something along these lines......

Develop a desirable product and price it at a price that a customer will percieve is good value (notice not cheap, but good value). Then figure out how to make it at the LOWEST COST known today and if it turns a profit it's a winner. Somewhere in the cost will be a view on R&D amortisation but not the overriding cost concern.

Then when it's in production and being sold, a steady profit stream is coming in. Now as a company, negotiate and get on board suppliers who have the same ethos and keep pushing down that production cost for everyones benefit. Before you know it, prices for new models are very similar to the last model price despite inflation and R&D. The good thing about this approach ? Everyone is happy. Consumers still get good value, suppliers get increased business through higher volumes sold, Toyota profits increase and more money is available to invest in R&D to repeat the cycle with the next cycles winning products.

If only other vehicle manufacturers had not just talked this talk but actually walked it, the industry would be a healthier one that it is today.

Toyota do well and continue to deserve to do well because they live and breathe lower costs EVERY day, not just for budget, press and investor presentations. It is in their DNA.

 

It is also that holistic approach where Toyota actually look at what their suppliers are doing and help them to lower production costs while maintaining quality.

Other manufacturers just look at the product they receive rather than the processes in making it. Toyota's suppliers are stronger companies because of their involvement with Toyota. Toyota didn't just ask Panasonic to make batteries for Prius, they helped them get the quality right too.

 

Toyota just recently lowered the HV battery price. This fact contradicts with the unknown sourced ANALyst belief.

 

Toyota is likely losing money with the base model Prius but making money with the loaded version. That is why it is very difficult to find one with pkg 2.
Options are high profit items.