Is the Toyota (TM) Prius about to get a big brother? According to the June 24 edition of Nihon Keizai Shimbun, Japan's leading business daily, the hybrid trailblazer is planning a new dedicated hybrid-only model for launch in 2009.

While Toyota sells seven models that use hybrid technology, the Prius (now in its 10th year) is the only one that's offered exclusively as a hybrid. Others, such as the Camry Hybrid, have gas-electric options available at a premium as well as straight gasoline-only models. The new model, which the paper doesn't name, would give Toyota a second dedicated hybrid model.

Hybrid Sales Goal: A Million

The details in the report are scant, but the Nikkei claims the new hybrid will offer better riding quality due to its larger size and engine displacement of 2 to 3 liters. The Prius uses a 1.5-liter engine.

The paper goes on to say that Toyota Motor Kyushu, a Toyota group company, will likely produce the new hybrid at a plant in Fukuoka. If launched in 2009, the new model will likely follow the introduction of a third-generation Prius, which is expected in later 2008 or early 2009.

The Nikkei adds that the annual sales target for the new model is 100,000 units and that compares with Toyota's total hybrid sales of 310,000 last year. The extra sales would go some way to help Toyota reach its target to sell a million hybrids a year by the early 2010s.

Cutting Into Camry Sales?

Analysts say news of a new model isn't a big shock—Toyota will need more hybrids in order to hit its sales target—but "spec-wise, it's a bit of surprise," says Tatsuo Yoshida, an analyst at UBS (UBS) in Tokyo. "I didn't expect such a big engine."

Others add that reports of the 2- to 3-liter engine, if correct, could put the new model into competition with the Camry Hybrid. That vehicle, which accounts for about 15% of Camry sales in the U.S., uses a 2.4 liter engine, electric motors, and batteries to generate 192 horsepower and 40 miles per gallon fuel economy in the city.

Still, the benefits of a second dedicated hybrid model may outweigh such risks. One reason for the success of the Prius, which accounted for half of Toyota's hybrid sales last year, is that car ownership conferred impeccable environmental credentials. No car is more closely linked with the hybrid movement.

By contrast, a lack of "green" recognition was said to be a factor behind weak sales of Honda's (HMC) Accord Hybrid. Honda said earlier this month that it won't offer a hybrid option on the next generation of Accords.

Increased sales would also help Toyota raise scale efficiencies. Some have criticized gas-electric vehicles because the cost of making hybrids is thousands of dollars more than regular gasoline vehicles. That usually translates to a higher sales price, which can outweigh short-term fuel-efficiency savings or lower margins for manufacturers, or do both. An extra 100,000 units of a new hybrid would help speed that trend. Last month, Masatami Takimoto, an executive vice-president at Toyota, said that by 2010, margins will be at the same level as conventional gasoline cars.

A new model will also help prepare Toyota's hybrids for the coming battle with "clean" diesels, which many industry watchers believe have the potential to offer similar environmental performance as hybrids at a lower cost.

Diesel Competition

Among Japanese rivals, Honda, along with dumping its Accord hybrid, plans a "clean" diesel for the U.S. market by 2009. It now plans to focus on hybrids for smaller models and use diesels for larger models, including the next-gen Accords, CR-V crossover sport-utility vehicles, and Odyssey minivans, where the cost benefit is most marked (see BusinessWeek.com, 6/8/2007, "The Trouble with Hybrids"). Nissan (NSANY), meanwhile, has said it will launch a diesel model in the U.S. by 2010.

Toyota, though, has so far been quiet on its plans for diesels in the U.S. "The fact of the matter is we have a big head start on a technology that is leading edge and is the most elegant solution to today's infrastructure, fuel situation, [and] today's emissions requirements," James Press, Toyota's North America chief, said on June 21, prior to the Nikkei article being published.