1. Hybrid Economics Michael Love Toyota Motor Sales

2. Defining the Issue Lowest purchase price ? Lowest purchase price ? Lowest cost of ownership ? Lowest cost of ownership ? Lowest life cycle cost ? Lowest life cycle cost ? Lowest life cycle GHG ? Lowest life cycle GHG ? Lowest criteria pollutants ? Lowest criteria pollutants ? Lowest fossil fuel use ? Lowest fossil fuel use ? Other ? Other ?

3. Potential Hybrid Benefits Lower fuel use = lower fuel cost and CO2; Lower fuel use = lower fuel cost and CO2; Lower criteria pollutants; Lower criteria pollutants; Better performance Better performance  In some combination

4. Toyota’s Position Hybridization of power trains offer benefits that can be realized today on many types of power plants – gas, diesel, alt fuel, even fuel cell – but no single technology offers a “silver bullet” solution to all the future challenges Hybridization of power trains offer benefits that can be realized today on many types of power plants – gas, diesel, alt fuel, even fuel cell – but no single technology offers a “silver bullet” solution to all the future challenges

5. Hybrid Economics Assuming issue is cost of ownership, analyze just like any other vehicle Assuming issue is cost of ownership, analyze just like any other vehicle – Initial purchase price – Resale value – Operational costs  Fuel, insurance and maintenance

6. Intangibles Some companies (like some individuals) find value in certain “intangibles” Efficiency Efficiency Energy security Energy security Concern for environment Concern for environment Good corporate citizenship Good corporate citizenship Technology leadership Technology leadership

7. Issues Raised Within popular media, some have raised concern over hybrids: Maintenance – primarily battery life / cost Maintenance – primarily battery life / cost  Battery designed for life of vehicle = >15 years / 15k mi.  Battery warranty 8/80k is not “signal” of battery life, just like 3/36k vehicle warranty does not imply vehicle life! Resale value: Based on many issues but similar (or better) than conventional vehicles Resale value: Based on many issues but similar (or better) than conventional vehicles

8. Fuel Economy Actual vs. Label Fuel Economy has been hot topic, with much confusion … Fuel economy is non-linear versus all issues of interestFuel economy is non-linear versus all issues of interest –Cost of fuel –Gallons of fuel used –CO 2 emitted Fuel consumption is the better metricFuel consumption is the better metric  Gallons saved has significant merit

9. Gallons Saved Every 100 gallons of gasoline saved has the following impacts: Every 100 gallons of gasoline saved has the following impacts: – ~$300 in the owner’s pocket (not spent) – ~ One ton CO 2 not emitted – ~4 barrels of crude not consumed Each additional 100 gallons saved has the same impact (i.e.: the metric is linear) Each additional 100 gallons saved has the same impact (i.e.: the metric is linear)

10. Gallons Saved Vehicle 2004 EPA Trends Class 2004 EPA Trends Old MPG Old Model MPG Gallons Saved per Year CivicHybrid Comp. Car 27.147.6238 Toyota Prius M/S Car 24.355.3346 Ford Escape Midsize SUV 19.232.1314 GM Silverado Large Pickup 16.518.494

11. Well, everybody knows the EPA test is no good! Consumers’ Union uses their own on-road tests Urban Legend

12. Old EPA vs. CU - MPG SourcePriusCorollaCamryMalibu Jetta TDI Old EPA Comb5532272837 CUOverall4429242432 % Diff 20%9%11%14%14% These data certainly suggest that Prius has a larger shortfall, right?

13. Old EPA vs CU – Gallons / Year SourcePriusCorollaCamryMalibu Jetta TDI Old EPA Comb273469556536405 CUOverall341517625625469 Gal Diff 6848718964 But, not on a gallons per year basis Remember MPG is non-linear

14. Economy vs Consumption X X X X -10% FE = -5 mpg, but +2.2 gal/1000mi -10% FE = -2 mpg, but +5.6 gal/1000mi

15. Old EPA vs CU – Prius Savings SourcePriusCorollaCamryMalibu Jetta TDI Old EPA Comb-196283263133 CUOverall-176284284128 On a gallons saved per year basis, the old EPA ratings were a good comparison

16. But, high efficiency vehicles suffer more in extreme operation! Another Urban Legend

17. EPA Test Results - MPG Vehicle Old EPA Label Cold 20  F HotSC03AggressiveUS06 Prius5545.144.344.1 Corolla3226.425.426.4 Camry2722.221.325.6 Again, these data certainly suggest that Prius has a larger shortfall, right?

18. Old EPA Results – Gal/Yr Vehicle Old EPA Label Cold 20  F HotSC03AggressiveUS06 Avg incr Gallons Prius27333333934064 Corolla469568591568107 Camry56667670458689 Again, consumption tells a different story

19. EPA Tests – Prius Savings Vehicle Old EPA Label Cold 20  F HotSC03AggressiveUS06 Prius---- Corolla196236252228 Camry283343366246 On a gallons saved per year basis, the EPA ratings are a good comparison

20. EPA has changed the calculation of label MPG values in MY08 (but the tests are the same) What about Label changes? And they must keep the MPG metric by law

21. NEW EPA vs. CU - MPG SourcePriusCorollaCamryMalibu Jetta TDI New EPA Comb4628242532 CUOverall4429242432 % Diff 5%-4%0%4%0% The New EPA numbers are very close to the CU numbers! Based on MY04 vehicles as not all vehicles are available in MY08; EPA data – www.fueleconomy.gov

22. NEW EPA vs CU – Prius Savings SourcePriusCorollaCamryMalibu Jetta TDI New EPA Comb-196283263133 CUOverall-176284284128 The New EPA ratings predict the same fuel savings as CU for the Prius!

23. What Next? EPA will change the calculation of LABEL FE once again in MY2011 Stay tuned!

24. Moral of the Story Be clear on the goal of the exercise Be clear on the goal of the exercise Forget about fuel economy, especially % differences, and focus on gallons saved in your analysis Forget about fuel economy, especially % differences, and focus on gallons saved in your analysis Consider intangibles as appropriate Consider intangibles as appropriate Toyota believes hybridization offers value and will continue to expand it’s offerings

25. Questions?