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Toyota Reveals Plans to Cut Hybrid Costs

Last week, a top Toyota exec told Reuters that Toyota Motor Corp. expects to cut costs for hybrid cars enough to be able to make as much money on them as it does on conventional gasoline cars by around 2010.

Toyota has been keen to see the fuel-saving powertrain enter the mainstream since launching the Prius, the world's first hybrid car, in 1997, but sales have come at the expense of profitability, given the high production costs of hybrid cars.

Masatami Takimoto, executive vice president in charge of powertrain development, said cost-cutting efforts on the system's motor, battery, and inverter were bearing fruit, and the cost structure would improve drastically by the time Toyota reaches its sales goal of one million hybrids annually in 2010 or soon after.  "By then, we expect margins to be equal to gasoline cars," he told Reuters in an interview.

If it succeeds, Toyota would be removing the main hurdle preventing rivals from pushing the expensive powertrain, which twins a conventional engine with an electric motor, and likely widen its sales lead as more consumers seek better mileage amid rising fuel costs.

In 2006, Toyota sold 313,000 units, accounting for the majority of the world's hybrid cars, and aims to lift that to 430,000 units this year with ramped-up production of the popular Prius.

Second-generation Prius sales began to suffer late last year after U.S. tax credits whittled down for the model, prompting Toyota to offer incentives of up to $2,000 on each Prius, and pundits said that was pressuring already-tough margins on the hybrid.  Takimoto, however, said that he saw little impact on profitability before and after the incentives appeared, mainly thanks to the ongoing efforts to shave costs and thanks to larger volumes; Prius production will rise by 40% to 280,000 units this year

"There really hasn't been that much of a difference in margins," Takimoto said, adding: "In a sense, you could say things are finally normalizing now. The Prius will soon enter its fifth year, and all this time we had no incentives on it."

Industry watchers expect the current Prius to be remodeled late next year or in early 2009, using a lithium-ion battery for the first time. Takimoto declined to confirm the speculation, but added that Toyota's lithium-ion battery, under development with Matsushita Electric Industrial Co.was technically ready to be mounted on hybrid cars "any time."