NEW YORK (TheStreet) -- This is 2014. So if a major car company launches a futuristic new vehicle, it's bound to be electric or at least a plug-in hybrid, no? If you're Lexus, the high-end division of Toyota (TM) - Get Toyota Motor Corp. Report, not a chance.
I spent four hours driving the 2015 Lexus NX, a new SUV that arrives in U.S. showrooms this December. It runs off fuel derived from recycled dinosaurs who died millions of years ago, now refined and readily available to conveniently provide 444 miles of range in just five minutes of refueling time from any gasoline station. Amazing, isn't it?
Normally, environmentalists tend to be thrilled when products use recycled natural materials, but when it comes to oil and gasoline all concepts go out the window. The Lexus NX 300h is very frugal for a heavy SUV at 33-35 miles per gallon in the city and 30-31 mpg on the highway, but it uses gasoline as its only fuel.
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The first thing you will notice about the Lexus NX is its very aggressive appearance. Lexus explained its design as having been inspired by the desires of a woman in Los Angeles who wants to pull up to a red light looking as intimidating as possible. It is very Hollywood drama.
Being unaware of the status-seeking Hollywood lady in need to intimidate nearby drivers, I immediately saw another inspiration behind the Lexus NX design: It is one half Jeep Cherokee, and one half Mazda CX-5. You see those inspirations all around the car.
In terms of size, the Lexus NX is a half-notch smaller than the current version of the Lexus RX, which has been its SUV best-seller for 16 years. When it was launched back then, the original RX was actually a couple of inches shorter than this NX. That's what we call size-inflation.
Today, the NX goes up against cars such as the Audi Q5 and BMW X3. This is a hyper-competitive and growing segment. Consumers are trading "up" (literally) from traditional sedans because Americans have grown taller, live longer and want cars where they can enter and exit with ease. They are probably also tired of scraping the front of the car against the curb.
For the driver, comfort and ergonomics are approximately on par with the best competitors. The seats are good, the seating position is good and, overall, the instrumentation is good. I found a lot of glare reflecting from the climate controls but they are otherwise some of the best in the industry to operate.
The best interior feature of the Lexus NX might be the center console, where you don't need orangutan-long arms to operate switches and you can rest your right elbow and underarm in the best way possible. On the other hand, the navigation (and related information) screen looks old and juvenile, sort of like a computer world from 10-20 years ago. However, it is functional.
In the back seat, knee and foot space are good. The back-rest adjusts but headroom is at least one full inch too little. Some competitors offer more. The luggage space is well-shaped but not class-leading in overall size.
In general, the overall interior execution is at or extremely near the top of the class, as it should be given that this is the newest car on the market. Colors, leather and materials are right up there with the best Germans.
Lexus' trademark technology is its hybrid system. All in all, depending on whether you get four-wheel drive or standard front-wheel drive, it provides for class-leading overall fuel economy: 33-35 mpg in the city; 30-31 mpg on the highway. Overall, on paper, no other car in its class can match this.
There is one caveat to this, however: If your driving consists almost exclusively of highway miles, you could do better in one of the diesels offered by the German automakers. Diesels often outperform the EPA ratings, notably in highway driving.
The upshot for the Lexus NX 300h is that a hybrid vehicle does make for a quieter and smoother city driving experience in the city, if you take it very easy on the accelerator pedal. But the story doesn't end there, either!
Diesel engines have so much torque that some of the more powerful ones, such as in the Audi Q5, feel almost like a powerful electric car. What I found with the Lexus NX is that when you apply a lot of power, the car downshifts, causing jerkiness typical of every gasoline car. The market's newest diesel cars make for a smoother experience.
In terms of handling, I found the Lexus NX handled as good as, or better than, every other SUV to date. The steering and suspension were both tuned for precision and cornering. Very impressive indeed.
There should be little doubt about the quality of this car. Lexus is known for testing its cars exceptionally well, and reliability has been legendary. Lexus will sell this car around the world, with monthly sales targeted at 3,000 in the U.S. and something closer to 5,000 as the total world-wide. That would make it approximately 10% of total Lexus sales, which could reach 600,000 this year.
Lexus has yet set the prices of the various NX models. I believe that the basic front-wheel drive non-hybrid version will start around $35,000. Loaded models should easily sell for at least around $50,000.
In terms of the purchase decision, with this being such a hyper-competitive segment containing many superb cars, what would be the reason for going with the Lexus NX?
1. Styling. While I think the car looks good today, I think it will also wear on me. In contrast, the Audi Q5 still looks fresh many years after its launch. For the person who disagrees with me, it would be a plus for the NX.
2. Legendary Lexus reliability. For those who value a trouble-free ownership experience, the historical odds are in Lexus' favor.
3. Hybrid credibility. There are other hybrids in this segment, but Lexus and its Toyota parent are king here.
The flip side of this is that for anyone who wants diesel or something that plugs in, there are several excellent diesel offerings in the market today. Within the next year or so there will also be numerous other plug-in electric SUVs and crossovers starting to hit the market, with full bloom by 2016.
Once we get beyond the highly subjective issue of styling, I did not find anything material to dislike about the Lexus NX. It is excellent in most aspects, all around. The problem -- if you can call it a problem -- is that there are many excellent entries into this segment, and that the bar is very high. Then add all the other offerings that will enter the market over the next six to 24 months and a new small/medium SUV/crossover really needs to be an outstanding slam dunk in order to stand out.
Once you pay well over a $35,000 base price for a car such as the Lexus NX, the purchase decision becomes as much one of emotion, style and taste -- compared to rational utility and value. From that perspective, the Lexus NX will make some people into very happy owners, but other buyers may prefer a German diesel or any of the numerous plug-in SUV and crossover alternatives entering the market starting in 2015.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates TOYOTA MOTOR CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate TOYOTA MOTOR CORP (TM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, attractive valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 21.9%. Since the same quarter one year prior, revenues rose by 44.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- TOYOTA MOTOR CORP has improved earnings per share by 16.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TOYOTA MOTOR CORP increased its bottom line by earning $11.17 versus $6.46 in the prior year. This year, the market expects an improvement in earnings ($12.59 versus $11.17).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Automobiles industry average. The net income increased by 17.1% when compared to the same quarter one year prior, going from $2,737.00 million to $3,204.00 million.
- Net operating cash flow has significantly increased by 61.50% to $9,495.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 41.88%.
- You can view the full analysis from the report here: TM Ratings Report