Prius is a heavy vehicle from the added generator, motor, plus engine and battery and don't forget the high speed 7.5% grade climb which will take HP to do. Going taller in the gearing is not always the answer and only helps if the engine generates enough torque and runs more efficiently at lower speeds and heavier loads.
As far as the Lupo . . . all those tweeks have been done and it only gets 78mpg!
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http://en.wikipedia.org/wiki/Volkswagen_Lupo
Lupo 3L
The Lupo 3L was a special-edition made with the intent of being the world's first car in series production consuming as little as 3 litres of fuel per 100 kilometres (78 miles per US gallon or 94 miles per Imperial gallon). To achieve this the 3L was significantly changed from the standard Lupo to include:
1.2 litre 3-cylinder diesel engine with turbocharger and direct injection (61 hp, 140 Nm)
Use of light-weight aluminum and magnesium alloys for doors, hood, rear-hatch, seat frames, engine block, wheels, suspension system etc. to achieve a weight of only 830 kg (1830 lb)
Tiptronic gearbox
Engine start/stop automatic to avoid long idling periods
Low rolling resistance tires
Linear Mode
