It's not just cars anymore.

Bulldozers, front-end loaders and excavators used in building and mining projects are going hybrid amid surging fuel costs, and Japan again seems to be in the lead.

Komatsu Ltd, the world's second-biggest maker of earth-moving machines, launched this month what it called the world's first hybrid hydraulic excavator, twinning a traditional diesel engine with a capacitor, a battery-like electronic device.

The 20-tonne excavator -- the mid-sized shovel most commonly seen in building sites in cities across Asia -- consumes about 25 percent less fuel than other models.
But that efficiency comes at a price -- 27 million yen ($260,000), 50 percent more than its conventional cousins.

Big global and local rivals Caterpillar Inc, Volvo AB, Hitachi Construction Machinery Co and Sumitomo Heavy Industries Ltd are also pushing into the hybrid space with plans to being production this year or next.

But the companies, and their investors, will have to wait some time before they see a steady flow of orders as buyers steel themselves to pay higher prices, analysts said.

Toyota Motor Corp's premium-priced Prius hybrid car business took seven to eight years before the new car started generating any profit, analysts said, but now dealers are having a hard time keeping up with the orders.

The first firms to successfully launch hybrid earth-moving machines "could see a boost in brand image and a technical edge in five to ten years' time, though the immediate impact on stocks and profit would be limited for the time being," said Masayuki Kubota, senior fund manager at Daiwa SB Investments.

The race to move into more fuel-efficient machines comes as makers of industrial vehicles are struggling with tougher emissions control standards to be adopted in the United States and Europe after 2011.

Among other things, the new standards would call for a 90 percent cut in exhaust emissions from non-road diesel engines. Analysts expect the rules will force companies to invent totally new engines using cutting-edge technology.
"You can't cope with the new emissions standards with existing technologies," said UBS analyst Hidehiko Hoshino.

"But I would say accumulations of expertise in hybrids and capacitors would definitely give the pioneering companies an edge in the future technology development race."

Global sales of earth-moving equipment, including machines used for construction and mining projects, already amount to about $120 billion a year.

A STEP AHEAD

Komatsu is closer to large volume production of its hybrid model than other rivals. It plans to initially sell 30 hybrid excavators in its home market in the year to March 2009 to collect data and feedback from actual users.

Komatsu Chief Executive Kunio Noji said he aimed to replace 20 percent of its excavator market in Asia with the new hybrid machines, but declined to give a timeframe.

"It's still like a toddler," Katsushi Saito, analyst at Nomura Securities Co said. "But if the result is good, Komatsu would expand the hybrid version into smaller and bigger excavator models, its profit drivers, helping boost its image and differentiate its products from rivals."

But high prices aren't the only hurdle.

Market watchers say Komatsu may find it hard at first to sell the new model in China, its market target, because its current service and maintenance networks will not be able to handle more complex machines.

Sales could also suffer in its home market as the economy slows. The Japanese market for construction machinery is already shrinking after cuts in public spending.

"You need a tax incentive at home or you can't find buyers," said one industry official, who did not want to be identified because he works for a rival company.
Some analysts say the future of the technology is also unclear, adding hybrids are only an interim solution for the ultimate goal of developing zero-emission fuel cell vehicles or fully-electric, plug-in machines.

That could make big machinery makers more reluctant to invest heavily in hybrid research and development.

Shares in Komatsu trade at about 14 times expected earnings, about the same as Caterpillar, the world's largest maker of mining and construction equipment.

Komatsu stock has lost about 2 percent since it announced the hybrid launch on May 13, underperforming the machinery sector sub-index's 6 percent rise.

The sector index IMCHN.has lost 24 percent since hitting an all-time high on July 24 last year, pressured by fears of a global economic slowdown.

http://www.guardian.co.uk/business/feedarticle/7590562