Domestic Battery Production Must Be A Component Of Reducing Hybrid Costs

Price is shaping up to be the major consideration for adopting hybrid technologies, for both automakers and consumers. While GM is concerned with bringing its first PHEV to market, Toyota's second generation and third-generation concerns are focusing on battery technology and price.

Toyota announced its plans to build a battery production facility in the US, despite earlier announcements that it would be building two new battery plants in Japan in 2009 and 2010. The role of the US battery plant will be to reduce the overall production cost of the Prius.

According to Toyota vice chairman Kazuo Okamoto, the company made it a priority to reduce the cost of the second-generation vehicle's hybrid system by half, and believes it can reduce the cost by half again in the US with domestic battery production.

The move will do two things for Toyota right away: it will improve the production time and volume for the Prius at the company's Blue Springs, MS plant, and it will also enable the company to maintain a base price that is lower than its competitors.

GM and other hybrid manufacturers would do will to take note of this strategy. Rather than taxing hybrid buyers with the so-called "hybrid premium," they would do well to eliminate the hybrid premium and make their models competitive on price. Doing so would open up the Volt and other innovative vehicles to the largest segments of the auto-buying public.

One of the biggest costs associated with hybrid technology is the cost of the batteries. GM announced last month that it had settled on a battery manufacturer but would not say which of the two finalist companies would get the nod for the Volt. LG Chem is located in South Korea and Continental is located here. Additionally, Continental's chief executive had said that Conti would build a domestic battery plant if they got the nod from GM.

Having a domestic battery source is of critical importance to the long-term economic viability of automotive hybrid technology. By choosing Continental, GM would signal that it is committed to bringing the price of the Volt within reach of the average car buyer - GM's original vision for the vehicle. Choosing an off-shore battery manufacturer would signal that GM's realization of the Volt has diverged from its vision, and that the company would be "satisfied" with making the Volt appealing to select consumer segments.

The issue of domestic battery production is major. It affects every automaker that wants to sell hybrids, EVs and PHEVs in the US, and it is the major determinant in whether or not most consumers will have access to hybrid vehicle technology sooner rather than later.