Hyundai Accent Hybrid

Hyundai Goes Hybrid Long shunning the technology in favor of fuel cells, the Korean carmaker has made a U-turn, thanks in part to subsidies from Seoul.

Can Hyundai Motor catch up in the hybrid race? In the past five years, the Korean company has emerged as the fastest growing of the major auto makers by channeling its energies into closing the gap with industry leaders, particularly the Japanese. Now, with gasoline prices staying in the stratosphere, Hyundai is jumping on the hybrid-engine bandwagon.

At a Dec. 20 meeting of Korea's Cabinet ministers to discuss the development of vehicles using cleaner fuels, Hyundai confirmed that it will begin a commercial rollout of a hybrid version of its Accent sedan within a year in Korea and later in export markets, including the U.S. "By the end of 2006, customers will be able to go into any local Hyundai showroom and buy a hybrid Accent," says Hyundai spokesman Oles Roman Gadacz.

Hyundai's firm commitment to hybrids is a shift. Until a few months ago, the Korean auto maker was a skeptic on the technology, arguing that in terms of improving fuel economy, diesel vehicles held greater potential than hybrids, which combine electric motors with gasoline-powered engines. "We've maintained a slow pedal on hybrids because we doubted this was the way," Gadacz says.

GREEN PROGRAM. Instead, the Koreans had placed most of their bets on fuel-cell engines, which spew out nothing more harmful than water. Hyundai, which began working on fuel-cell vehicles in 1999 in collaboration with United Technologies' (UTX) Fuel Cells in South Windsor, Conn., remains confident it will be among the first auto makers to commercialize fuel-cell vehicles, beginning around 2010



Hyundai has already begun shipping a small number of fuel-cell versions of its Tucson SUVs to the U.S., as part of an Energy Dept. program for testing such vehicles. The Tucsons can run 300 kilometers (186 miles) on a tank of fuel at a top speed of 150 km (93 miles) an hour.

Even so, Hyundai hasn't totally ignored hybrids. In 2005, the company and its Kia Motors subsidiary supplied Korean state agencies with 350 hybrid cars under a government program that offers a hefty subsidy of $28,000 per car, or 76% of the sticker price, to promote environmentally friendly vehicles. This year, Korean state agencies are due to take delivery of 380 Hyundai Accent and Kia Rio hybrids. Kim Chul Soo, principal research engineer for Hyundai's hybrid project team, says the pilot program with the government will help gauge consumer interest and response to its hybrid cars.

Unlike auto makers General Motors (GM), DaimlerChrysler (DCX), BMW, and Ford (F), which have either partnered to develop hybrid technology or licensed it from competitors, Hyundai is going it alone. Both the Accent and Rio hybrids are powered by the Hyundai's Alpha II 1.4-liter, four-cylinder gasoline engine, plus an electric motor.

BIDDING FOR SHARE? It's not all Korea, all the time, though: The motor is run by a nickel-metal-hydride battery made by Panasonic EV Energy, a company controlled by Toyota (TM) that also supplies the batteries for the hot-selling Prius hybrid.

Hyundai has a long way to go on fuel economy. Its hybrid burns 5.3 liters for every 100 kilometers (44 miles per gallon) of city travel. That's better than the 8 liters per 100 km (29 miles per gallon) the gasoline-engine-powered Accent needs, but its worse than the low 4.7 liters (50 miles per gallon) the Honda Civic hybrid gets by on.

Performance-wise, the Accent hybrid's 98.2 horsepower and 121.7 pound-feet of torque also compares unfavorably with the Civic hybrid's 110 horsepower and 123 pound-feet of torque. The hybrid Accent's biggest shortfall may be its sticker price: at $36,700 -- the price charged to Korean government agencies. That's way more expensive than the hybrid Civic's $25,800.

Yet in some key markets, Hyundai may choose to sell its hybrids at a loss in a bid to gain market share. Ed Hellwig, senior editor at Edmunds.com, a Web site for car buyers, speculates that if Hyundai charged a $2,000 to $3,000 premium for the hybrid versions of the Accent and the Rio, the models would be the lowest-cost hybrids available on the U.S. market. The current best-seller, the Toyota Prius, starts at around $20,000.

INCENTIVE PACKAGE. Korean government incentives may remove the sticker shock, as will Hyundai's ramp-up to the mass production of hybrids. In December, the government approved a plan to invest $200 million over the next five years to help develop technologies needed for hybrids, fuel-cell vehicles, and advanced control systems for safety.

Seoul also envisions a commercial pilot project beginning in 2010, under which hybrid vehicles will be priced at no more than twice the level of a comparable car with a combustion engine. "We'll draw up a package of incentives, including tax breaks, subsidies, and privileges to use bus lanes for drivers of environmentally friendly vehicles," says Kim Jin, a deputy-director at the Commerce, Industry & Energy Ministry. With the government in its corner, Hyundai could someday realize its dream of joining Toyota and Honda as the auto industry's greenest companies.