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

Who cares, GM Ford and Chrylser's cars are obviously money loosers, and they don't even have a battery. Nor buyers.

 

Well a very good point 9G-man, the big three loose money on every car they make on average. Even Toyota lost a little this year.

 

The underlying unspoken sentiment to articles that write that Toyota loses money at the margin for every hybrid sold is that hybrids are a PR exercise, and the costs are absorbed as part of the marketing budget.

I buy the argument for the first 10k or vehicles a year, but a company taht ramps up production to keep up with -- or better yet anticipate future demand -- has laid that presumption to rest.

Common sense also should come into play here. Toyota planned to build 10^6 hybrids a year from 2010. If they are losing $5,000/vehicle, taht works out to 5 Billion dollars/year losses from hybrids.

 

I heard an interview in which someone who sounded like he knew what he was talking about said that Toyota only profits by $100 on each Prius. Hard to believe evidently many costs involved including the battery. I am sure labor is a big chunk of it.

galt

 

I became aware of this information a few weeks ago after seeing a video someone posted on the PriusChat homepage!

Yahoo!

Apparently the Prius is just a "marketing machine" and its funding comes from the success of its other vehicles.

 

Does anyone here mind that you got your Prius for <$100 over cost?
It bothers me not.

 

No Satisfaction - Toyota - Georgetown - Car Factory | Fast Company

At the end of this December 2006 article:

Darn, darn, darn. Those messy facts and data pop-up again.

So let's do some back of the envelope calculations:

~180,000 Prius sold in North America in 2007
$5,000 * 180,000 -> $900,000,000 claimed battery loss
​

Which part of "hook, line and sinker" do you not understand? <GRINS>

Now if you were to claim this is the GM projected loss on each Volt, it would make sense:

$5,000 * 10,000 -> $50,000,000 (projected GM loss on Volt)
​

No doubt GM has $50 m. to spend on "Green wash." ... <eyes rolling>

Bob Wilson

 

"green wash" as you call it is king. You state Toyota sales were up 34% over three years, were the vast majority of those gained sales "green" vehicles or is the perception is that Toyota builds "green" vehicles because of Toyota "green wash" campaign. Probably the most successful pr campaign in the history of business.

 

An interesting hypothesis, it reminds me of a similar pattern:

"Cargo cults tend to appear among people who covet this desired equipment but are unable to obtain it easily through trade or established traditions. Given their relative isolation, the cult participants generally have little knowledge of modern manufacturing and are liable to be skeptical about Western explanations. Instead, some symbols associated with Christianity and modern Western society often tend to be incorporated into their rituals as magical artifacts. Across cultural differences and large geographic areas, there have been instances of the movements organizing independently."

"Famous examples of cargo cult activity include the setting up of mock airstrips, airports, offices, and dining rooms, as well as the fetishization and attempted construction of Western goods, such as radios made of coconuts and straw. Believers may stage "drills" and "marches" with sticks for rifles and use military-style insignia and national insignia painted on their bodies to make them look like soldiers, thereby treating the activities of Western military personnel as rituals to be performed for the purpose of attracting the cargo. The cult members built these items and "facilities" in the belief that the structures would attract cargo intended to be sent to them." (Wikipedia, Cargo cult - Wikipedia, the free encyclopedia)

​

It won't be the first time that emulation was attempted for some goal like customers. Regardless, the Detroit Auto Show, if the LA Auto Show is to be believed, is likely to be nearly wall-to-wall hybrids. Hopefully, actual vehicles that will be for sale in the new year. Sad to say, Consumer Reports had this to say about one hybrid:

Bob Wilson

 

yeah dude, didnt you know? Toyota lost 2.5 billion in 2007 on hybrids, and they will try to best themselves in 2009 with 3.5 billion loss... and in 2010 they will try to lose 5 billion on hybrids, just on operating costs alone (lets not include R&D costs)...



Thats quite an marketting campaign, for that money they could buy 24/7 advertising in most countries around the world

 

For that money spwolf, they could have a spree of a leveraged buyout and pick up every US based US airline, and with the money left over buy every US auto manufacturer.

 

It's business. The sole purpose is to make as much money as possible. How they get there is just details. In an industry that is not much different from Japan to the US to Europe the one thing that sets Toyota apart the rest is Marketing.!!!

That's a good part of what so many find so annoying about Toyota. It is not an engineering company, Honda and BMW are. Toyota focuses on production and marketing. It has the marketing side locked up and no one else is even close. As a result it makes money because it understands how to market and sell.

Call it what you will. Minimize it as much as you want. But if you ignore it then like the D3 you'll just find yourself being outsold and out marketed with other people making profits at your expense.

 

It's been a while, like 40+ years, but I still understand the concepts from my major even though I never used any of the Accounting in my professional career.

This part has not changed. Accruals.

What this means is that since Toyota is a going concern and the Prius is a continuing product - now catch this carefully - Toyota has made money on every Prius built and shipped from the very beginning!!!!

Most writers even business writers were presumably Arts majors. They studied Lit and writing in school and avoided specific subjects such as Engineering and Accounting. These are two subjects that they avoided when in school because they were simply too tough. But I digress.

Accruals. Any investment whether it be plant, equipment, design or R&D generally results in money being spent in advance of actual production. All these costs are accumulated in specific accounts to be accrued later when the appropriate product begins to generate revenue.

The Mississippi Prius plant. It's all but built and that money has been spent. But right now there is no revenue being generated yet. The costs of that plant are being held awaiting production. Accruals.

As to the Prius specifically and the costs involved, consider first what it is.

It's a small 5 door hatchback with a hybrid system but lacking a traditional transmission.. or it's a Matrix/Vibe with a hybrid system. The price difference between the two vehicles just happens to be $4000 ( Base Matrix vs Pck 2 Prius ) with similar equipment. But I digress again.

By accounting rules when the priorly expended costs for R&D are accrued and associated with specific production and sales they are apportioned according to the rules that company must follow. Normally plant and equipment are 'depreciated' over time but prior R&D expenditures are divided over a given estimated volume of production. Nothing unusual here.

This leads to the discussion of the 'breakeven point', that being when priorly spent investments are 'recovered' in current sales via the accrual method. You put $3 Billion worth of R&D into a vehicle. Do you apply all that money to the first vehicle off the line such that it has a $3Billion loss attached to it? Such that vehicle #2 has no R&D expense at all? No, that's nonsensical.

The R&D costs are apportioned over an estimated volume of sales. That means that each vehicle bears some of the priorly spent funds for R & D.

So pick some numbers. How much did the R & D cost for the orignal THS? How much did it cost to develop the Prius as a car outside of the hybrid system? How many Prius' have been sold? How many other hybrid vehicles have borne part of the cost of the hybrid R & D? It's pretty easy since a lot of the sales figures are known and good estimates can be made on the R & D costs of the hybrid system and the car platform.

The key point though, getting back to dumb writers, is that each and every Prius, TCH, Estima hybrid, Harrier hybrid have all borne only part of the cost of the original expenditures. In fact if the cost accounting was done correctly then when they were building a cost model of these vehicles they..
.. took all of the accrued the Fixed costs, such as R & D, and divided them over an estimated volume. This gave them a Fixed Cost component of the vehicle price. Apply some common sense. The Fixed Cost component wasn't $100,000 per vehicle. It was probably along the lines of $5000 - $8000 per vehicle.
.. then they added all the direct costs ( variable costs ) such as steel, rubber, plastic and labor.
.. then they added the SG&A costs, including transport, storage, financing etc.

THEN THEY ADDED A PROFIT MARGIN ( before taxes ). Hello.

Maybe in the beginning they weren't sure how this vehicle was going to go over, how many they were going to sell. At that time their accruals of R & D may have been overly generous based on a limited volume of expected sales. They wildly underestimated the popularity, especially the Gen 2's when they first came out. But now there are well over a million if not 1.5 million Toyota hybrids on the roads all over the world. That's a lot of volume to aborb the original R & D expenditures.

After these initial expenses the Prius is just a small 5 door hatchback with a small, off-the-shelf 1.5L ICE, without a transmission (!) which would sell for about $20000 here just as the Base Matrix does. Presumably the Matrix is profitable so why wouldn't the Prius be profitable?

 

We have a winner!

I continue to be amazed at the ignorance about profitability and break-even and how they are abused when the word "Prius" shows up.

Bob Wilson

 

Toyota is more of engineering company than Honda... thing is, Toyota does everything, and does it well... But when it comes to engines/engineering, Toyota has a lot more engineering skills than Honda, who is very conservative company and does not like to risk anything.

There is probably no other company in the world that does as much engineering in house as Toyota, and R&D spending proves it too.

 

I am certain that the sales price Toyota Japan gets for each new Prius
recovers all costs and includes some profit for the Prius HV battery.

But, what about the cost of replacement for a failed out-of-warranty HV
battery?

Being as the HV battery lies at the heart of the Hybrid Synergy Drive, its
failure, or more likely the cost of its replacement, has been one of the
supposed "down sides" of Prius ownership. It has been much ballyhooed by
the motoring press. It is one of the rallying cries of hybrid/Prius naysayers.
And it is widely misunderstood, that is to say accepted without question, by
the general public.

In real terms however, replacement of a failed HV battery seems to be a
relatively infrequent event, at least as reported here at PC.

It wouldn't seem to be either strategically unreasonable or fiscally imprudent
on Toyota's part to accept a lower profit margin, maybe almost none, on
replacement HV batteries... remembering that they represent a very small
percentage of all HV batteries produced.

Might not this be the case?

 

well I know that we, european dealers get same margin on prius battery as with every other part, and that margin is quite nice, thank you

there is no chance in the world that Prius battery costs 5k to produce, let alone that it costs 5k more than what they are selling it for.

 

spwolf,

I'm taking your comment to mean that you have direct, first hand knowledge
of both the cost to the dealer, and the current cost to the consumer...
I would say you are one of those elusive, usually anonymous "reliable
sources."

In reviewing this thread, estimates of HV battery building costs range from
$800US to ~1600US, and ~ $2500US to the customer. Somewhere between
~$900 to $1600 margin to be shared between Toyota and the dealer. Given
that typical markup between manufacturer and customer is in excess of
100%, this doesn't appear to be out of line.

Thank you for putting my issue to bed.

 

DeadPhish,

I'm not an accountant, but I have always found marginal cost of production to be the simpler way to look at this question of profit, with the qualitative understanding that large volumes are required to offset sunk and ongoing fixed costs. When Toyota announced the Prius profitable, I took it to mean the marginal cost had gone from negative to positive (or vice versa, depending on perspective).

Do you disagree ?

 

You can't take the cost of the battery alone, price of parts doesn't relate to cost, the whole bundle is amortised over projected sales, a lot of the replacement parts when taken on their own will be sold at a loss but some will make ridiculous profits.

The number of replacement batteries they sell would allow them to sell them at 1$ each and still not affect overall figures for profit.