Reflecting on the world's trend on saving crude oil consumption and to create an economical fuel efficient vehicle for the increasing world population, a new THS-II HV powertrain has been developed for the compact vehicle class. The application of a THS type powertrain for the compact vehicle class was a first for the world and to achieve it, brand new hardware, and software needed to be developed.For the Internal Combustion Engine (ICE), state of the art technologies such as the use of the Atkinson cycle with Variable Valve Timing (VVT), cooled exhaust gas recirculation (EGR), an electric water pump, a compact exhaust manifold, a Low Friction chain, beltless system and exhaust heat recovery system were applied. For the electric motor, copper wire with a rectangular cross section and divided stator cores combined with a newly developed production process were applied for higher volumetric density. For the transaxle; parts location, bearing specifications, and the cooling systems were redesigned to be more compact. Finally, the transaxle and motor were downsized by 21mm in length and weight was reduced by 10.7 kg. This resulted in yielding the best motor power within the space restriction. The HV battery was also relocated under the rear seat to maximize space for competitiveness with non HEV vehicles in the compact class.Toyota's new compact HV “Prius-C” is equipped with this HV powertrain. Prius-C is positioned as the smallest vehicle in the Prius family. Its mission is to offer affordable price, great fuel economy, and convenience for our customers. To improve real world fuel economy, several new control systems were developed. For example, catalyst warm-up time after engine cold start was reduced by 24%, and engine running time for SOC recovery in congested traffic was reduced by 67% compared with the current Prius.