It’s smaller than a golf cart, runs on electricity and will probably soon be road-legal. The ultracompact is set to be Japan’s first new vehicle niche in 50 years and an opportunity for the likes of Yoshiro Sugimoto.

Town EV, Sugimoto’s startup, plans to have the 800,000 yen ($10,000) ZEVe ultracompact on the market in Japan next year.

“This is a once-in-a-lifetime chance,” said Sugimoto, 62, a former Toyota Motor Corp. veteran of 16 years who became fascinated by ultracompacts and pooled 20 million yen of his own and colleagues’ cash for the quest to build the smallest road- legal cars.

The country’s largest automakers are keeping an eye on Sugimoto and on the generation of ultracompact entrepreneurs. The carmakers and startups, including Town EV, lobbied the government to approve the ultracompact category, and the transport ministry has said it intends to take that step as early as next month. 

Ultracompact demand will be “at least 70,000 units a year” after the rules are changed to allow them on the road, said Takeshi Matsunaga, who is in charge of electric car projects at Toyota Auto Body Co., a division of the automaker. The company is waiting for approval of the new rules before announcing its plans for ultracompacts, Matsunaga said.

Sugimoto started Town EV after his Toyota career, which included years as an assistant to then-President Shoichiro Toyoda, who rolled out the Lexus brand and started building cars in the U.S. in the 1980s. Town EV is among startups including Kobot Co. and one founded by ex-Fuji Heavy Industries Ltd. engineers to make and sell the tiny, electric-powered four- wheelers in Japan.

To hold down costs, Sugimoto is building the ZEVe at fabrication shops run by subcontractors until sales reach a scale to warrant a full assembly line.

Government interest in the new category is intended partly to make it easier for older Japanese living in areas without convenient bus services to get around. People who aren’t comfortable riding a scooter would have a new transportation option with ultracompacts.

“There is interest in ultracompacts because many prefectures in Japan are aging fast,” Akihiko Hoshi, spokesman for the transport ministry, said by phone.

Under the proposal that carmakers expect to be approved by the ministry, ultracompacts could be driven on selected roadways.

To promote sales, the government will offer subsidies to companies and local governments that purchase ultracompacts, the Nikkei newspaper reported Aug. 15. The payment would amount to half the vehicle’s purchase price for as many as 3,000 vehicles over three years, according to the report.

Toyota and rivals including Honda Motor Co., Suzuki Motor Corp., Daihatsu Motor Co. and Nissan Motor Co. have introduced prototype ultracompacts at auto shows, while announcing no plans to sell the cars in Japan.

“We are quite interested in the program and research and development is under way,” Honda President Takanobu Ito told reporters in June. “I believe demand will be created when you have the products on the market.”

Yoshiaki Kawano, an analyst at IHS Automotive in Tokyo, agrees. “There will be a market if they are priced below 700,000 yen,” Kawano said.

The cars face some obstacles, including safety.

“Ultracompacts look easy to crush,” said Ikuo Doi, a 73- year-old in Ayabe city, Kyoto Prefecture, who drives a car. “And it is very inconvenient, as these cars can’t carry many farming implements or tools.”

The government is expected to approve the vehicle category because slow speeds and light weight mean they are less of a danger to other vehicles or pedestrians, said Sugimoto.

Ultracompacts are already road-legal in many European countries and parts of Asia, where they tend to be regulated as motorcycles, Sugimoto said.

Europe has a class of low-power cars known as moped autos. In Germany, they are defined as light ― less than 350 kilograms ― and have a top speed of 45 kilometers per hour (28 miles per hour), engine no larger than 50 cubic centimeters and no more than 5.4 horsepower.

U.K.-based Peel Engineering Ltd. has started selling two three-wheeled models that are road-legal in the U.S., including the P50, a $16,000, 49 cubic centimeters one-seater that’s also available with an electric motor, according to the company’s website.

Sugimoto’s aluminum-framed ZEVe one-seater prototype looks like a narrow golf-cart with a windshield, canopy, hatchback- style trunk and no side windows or doors and is designed to run as much as 50 kilometers (31 miles) when fully charged at a top speed of 50 kilometers per hour.

Sugimoto’s revenue target for fiscal year 2015 is 3 billion yen, which includes sales from converting ordinary minicars into electric vehicles, he said. Unit sales for the ZEVe should reach 1,000 units that year, and prices may decline to as low as 600,000 yen per vehicle as volumes rise, he said.

Former Fuji Heavy Industries engineer Shuji Matsumura is developing ultracompacts at Japan’s Gunma University because he believes the vehicles will help make transportation more efficient, he said.

“There is a lot of waste in our current transportation system ― for example, one man driving a four-seat car,” said Matsumura, who helped build Subaru cars at Fuji Heavy. (7270) Ultracompacts will help cut energy consumption, he said.

At the university, Matsumura heads a team of six Fuji Heavy veterans developing prototype electric vehicles. The group is focusing on lowering production costs and may have an ultracompact for sale in as little as two years, he said. 

(Bloomberg)