Dear Toyota USA Executives,
Why do you struggle so much with what is pretty clear to many of us?
I read with interest and bewilderment the December 16 CNBC article “Toyota struggles to save breakthrough Prius hybrid.” In this article, one of your executives admits to not knowing what to do with the breakthrough Prius hybrid vehicle.
“I don’t think Prius can be the same as before,” said Kaneko, looking forward to the gen-5 model that is just now beginning to enter the development process. “Our role is to figure out what we can do with it. We need to find a new direction.” — Deputy Chief Engineer Koichi Kaneko, Toyota
How Did You Get Here?
The Toyota Prius has seen declining sales for many years. However, in recent years, the Prius Prime PHEV version has seen strong growth. I’m sure your product analysts and marketing strategists have done the math and analysis, but just in case, here is the current situation:
- Gas prices have remained relatively low in the US.
- Consumers have many more hybrid or electric alternatives, including Toyota’s own portfolio of models.
- Consumers are also shifting away from sedans and hatchbacks to SUVs and small crossovers, including Toyota’s RAV4, which was the #4 selling vehicle overall in 2018.
- There is a significant shift away from hybrids to plug-in hybrids (PHEVs) and BEVs, especially in early adopting markets such as California.
- California, which accounts for more than 50% of EV sales in the US, has shifted away from buying regular hybrids, with BEVs alone now outselling hybrids.
- Now with multiple Prius models and powertrains, the “Prius” brand has been muddied and doesn’t just mean “hybrid hatchback” anymore. The Prius brand now stands for both regular hybrid and plug-in hybrid. It also stands for a liftback and a subcompact, inexpensive quasi-hatchback. In essence, you extended the Prius brand so much that it lost its unique, clear, and dominant positioning in the minds of consumers — usually a recipe for consumer confusion and declining sales.
- And most importantly, Prius buyers are switching to purchasing the Prime PHEV version over the regular gas version.
- The Prius Prime had the highest year-over-year (YOY) increase in unit sales in 2018 (compared to 2017) of any EV model available during all of 2017 and 2018.
- The Prius Prime was the top selling PHEV and second-highest selling EV overall in the US in 2018, behind only the Tesla Model 3. And it was 1 of only 4 EVs that averaged at least 2,000 units sold per month.
- Finally, the starting and fully loaded price differential between the regular hybrid and Prime PHEV versions is modest, around $4,000 for the base versions. But if you take into account federal, state, and utility tax credits and rebates, the Prius Prime will in many markets have much lower net cost than the regular hybrid. If consumers are educated well about this, there is little reason for anyone to buy the plug-less Prius.
So, Toyota, Here are My Suggestions to Fix Your Conundrum with the Prius in the US
I know you are excited about the new features of the 2019 Prius — including all-wheel drive, interior and exterior upgrades, and new tech/audio systems — but these aren’t enough to significantly boost Prius sales. This is a bit like Nokia adding a better keyboard, slightly better camera, and new case colors to a flip phone a few years after the launch of the Apple iPhone. Buyers of green cars now want EVs, not regular hybrids. The shift is clear.
Here are four suggestions to consider:
1. Increase the Range of the Prius Prime: The Prime has a mediocre electric range of 25 miles as compared to the 53 of the Chevrolet Volt and 47 of the Honda Clarity PHEV. Toyota could increase the Prime’s battery pack to 16 kWh, which then qualifies it for the full $7,500 federal tax credit. With the Volt being discontinued in March 2019, there is much potential for sales growth here. The upgrade would likely increase the Prime’s electric range to about 44 miles, giving it just 3 fewer miles of range than the Clarity PHEV, but also perhaps at a net effective price of about $1,500 less.
2. Offer Only the Prius Prime PHEV: As the earlier data and charts show, sales of hybrids are declining as consumers increasingly purchase BEVs and PHEVs. With sales of the Prime at nearly 38% for 2018 and 47% in December 2018 of total Prius liftback sales, the trend is clear. By the end of 2019, 60% or more of Prius liftback sales could be for the Prius Prime.
Toyota, don’t fight the inevitable — kill the regular hybrid version and reposition the PHEV Prime version as the next generation of the Prius. Make the Prime the “new green,” the new and improved hybrid of the future, the “hybrid you can charge” — as your own website says. And then market the hell out of the Prime.
3. Potentially Offer Two Battery Range Versions of the Prime: To offer consumers a choice of range and increase the overall market share, consider continuing to offer the Prius Prime with 25 miles of range as well as my proposed version with roughly 44 miles of range. This allows you to compete at two levels and offer a lower-price option as well as one with a much longer range but higher price tag.
4. Rebrand the Prius c: The Prius c subcompact dilutes and cheapens the Prius brand and has led to part of the decline in sales of the iconic hybrid. The Prius liftback has a very distinctive look and is attractive to green-conscious buyers who want to signal to their neighbors that they care about the planet.
The Prius c instead speaks to budget-conscious buyers where price is more important than saving the planet. The Prius c competes with models such as the Nissan Versa and Honda Fit and should be rebranded without the Prius name.
The Toyota Prius is one of the most important and iconic auto model brands in the last 100 years. But as times change and consumers are moving to electric vehicles, you need to shift the former hybrid leader into the dominant plug-in hybrid model of the next 10 years (or until PHEVs run their course).
I’ll save another letter to address the company’s continued infatuation with fuel-cell technology (a recent admitted mistake with the Mirai) and putting off launching BEV models for the Toyota and Lexus brands.
Toyota, do the smart thing and go all in on the Prius Prime PHEV.
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