Hybrids: The High Cost of Low Batteries

As I got into my car at my local YMCA recently, I noticed a Prius parked next to me with a For Sale sign in the window. It read: "'05 Prius, $14,999, 97,000 miles." This beige Prius looked to be in good condition. And with gas prices topping $4 a gallon, it certainly seemed like a good deal for a gas-electric hybrid that gets 48 mpg in the city and would cost about $23,000 new. But one question nagged at me: as the odometer approaches the century mark, how much life is left in this car's electric battery? And then an even scarier question occurred to me: if the battery runs out of juice, how much would it cost to replace it? Those concerns short-circuited any interest I had. So I put the key in the ignition of my far less fuel-efficient car and drove off.

Hybrids these days are hotter than a laptop battery, with sales up 58 percent last month. But what happens if the battery on your hybrid goes dead? After all, hybrids have been on the road in America for eight years, racking up hundreds of thousands of miles. Automakers say those big batteries under the seats are holding up well. But when they power down, replacing them will cost you thousands. That thought might have been a caution light for me, but it isn't for the growing gridlock of used hybrid buyers. On the car Web site MyRide.com, the number one search term last month was "Used Toyota Prius"—up 944 percent since January. "People are ignoring the concern about battery life," says J.D. Power auto analyst Michael Omotoso. "Their immediate concern is, 'Oh my God, gas is $4 a gallon. I need a hybrid. I'll worry about battery replacement five years down the road.'"

When hybrids first hit the road in 2000, there was plenty of fear-mongering, especially here in Detroit, where the Big Three were drunk on cheap gas and big SUV sales. Back then Motown execs warned darkly that rescue workers could be electrocuted trying to save trapped motorists who crashed in these high-voltage contraptions. And those giant batteries could cost $10,000 or $15,000 to replace once they ran down, maybe after 100,000 miles or less.

It turns out those safety fears were nonsense. But while the battery replacement cost was overblown, it is not insignificant. Philip Card of Utica, N.Y., says a Toyota dealer wanted to charge him $3,900 to replace the battery on his 2001 Prius, which had 350,000 miles on it when he bought it used on eBay this year for $4,357. Card knew the battery might be running on empty when he bought the car, but the retired engineer hoped to convert the car into a plug-in hybrid that could get 100 mpg. Before he had a chance, though, his Prius had a brownout. "It lost power drastically," he says. "It still moves around, but with no pep at all." He's decided to park the Prius rather than replace the battery. He's going to scavenge parts from it to fix up two other Priuses he owns. What's his advice for other used Prius buyers? "If they're going to take it to a Toyota dealer for service," he says, "they better have deep pockets."

The stiff cost of replacing a battery at your dealer helps explain why an underground aftermarket in Prius batteries is emerging. Since last year eBay has seen an 850 percent increase in Prius batteries changing hands. Prices for used Prius batteries—which come from junkyards and auto body shops—range from $450 to $1,700, says Famous Rhodes, director of eBay Motors parts and accessories. "As hybrid vehicles hit the tipping point in age," he says, "the demand is growing significantly."

The hard part about these cheap batteries: once you buy them you have to figure out how to install them. That's labor-intensive work for which dealers can charge $900. But Rhodes does not recommend that amateur mechanics try to tackle this high-voltage repair job. "This is not something where a DIY can just open up an installation manual and put in their own batteries," says Rhodes. "You need to have a mechanic or an electrical technician do it."

Despite eBay's booming battery bazaar, Toyota, Honda and Ford all say hybrid battery failures are extremely rare. Out of more than 100,000 Honda hybrids on the road, the automaker says fewer than 200 have had a battery fail after the warranty expired. Honda, like Toyota and Ford, covers the cost of battery replacement for the first 100,000 miles in most states and 150,000 miles in California and a few other states with tough green car laws.

Toyota says its out-of-warranty battery replacement rate is 0.003 percent on the second generation Prius that debuted in the 2004 model year. That equals about one out of 40,000 Priuses sold, says Toyota spokesman John Hanson. That's a vast improvement over the first generation Prius, which had about 1 percent of the batteries fail after the warranty expired. Hanson says today's Prius batteries are designed to last "the life of the car," which Toyota defines as 180,000 miles. (Toyota and Panasonic announced Friday that they will build a new $200 million factory to produce more hybrid batteries to meet the automaker's goal of selling 1 million gas-electric cars a year.)

For those unlucky few who have to replace their own batteries, the cost is coming down. On June 1 Honda is slashing the cost of its batteries from $3,400 (excluding installation) to as low as $1,968 on an Insight or as high as $2,440 on an Accord hybrid. Toyota also plans to substantially cut battery prices, which now stand at $3,000 (excluding installation), down from $5,500 on the original Prius. Both automakers attribute the price cuts to improved technology and lower production costs. But some analysts think Toyota and Honda are really trying to get ahead of consumer concerns about battery replacement. "PR is a very important factor in the hybrid market," says J.D. Power's Omotoso. "Honda and Toyota have the oldest hybrids on the road. And when a hybrid gets to be that old, you have to factor battery replacement costs into your purchase decision."

So far, the high cost of battery replacement isn't having much impact on the resale value of hybrids. The Automotive Lease Guide (ALG)—the resale value bible—only recently began assessing hybrids. "We had concerns about battery life," says ALG CEO John Blair. "But our analysts told us that battery life was really a nonissue. They found that the batteries have a 10-year life expectancy, which is quite reasonable."

Still, hybrids don't hold their value as well as their gasoline-powered siblings, batteries aside. For example, a three-year-old Honda Civic is worth about $12,000, retaining about 60 percent of its original sticker price of $20,000, according to Blair. But a hybrid Honda Civic holds only 58 percent of its original sticker price after three years, giving it a used price of $13,630, down from a new price of $23,500. "The new car buyer is more into bells and whistles, while used car buyers are all about value," says Blair. "If a hybrid is near the end of its warranty, what could creep into the mind of the used car buyer is, 'I still have a doubt about the battery, and it's just one more big thing that could go wrong.'"

Anytime you buy a used car, there's always a risk that something big and costly could wear out. That's why the experts recommend having your mechanic check out any used car you're thinking about buying. The problem is there aren't that many mechanics who know how to tell if a hybrid battery is running out of juice. "We're on the front edge of figuring out how this all plays out," says Rob Chesney, vice president of eBay Motors. "As a hybrid owner, you're kind of playing a game of Russian roulette." Precisely why I was happy to drive away from that seemingly good deal at the Y.