Breaking the defiance: Why Toyota changed its mind about EVs?

Toyota, one of the oldest automakers in the world, has been a rebel against the growing electrification trend around the world since the beginning. Only five years ago, the defiant stance of the Japanese giant would make sense, as its hybrid car sales were all satisfactory: 

• The sales of hybrids exceeded 15m globally since the launch of the Toyota Prius in 1997,
• By 2020, the global sales of the Prius family exceeded 5m. 

Relying on this success, Toyota kept up with the hybrid, internal combustion engine (ICE) and hydrogen cars strategy, reaching over 10m sales in 2022. 

Toyota seemed not shaken by the electric vehicle (EV) revolution a bit, even after the sales and interest towards EVs boomed following the pandemic. On the contrary, the former CEO of Toyota, Akio Toyoda, made confident remarks, saying, “EVs are not environmentally friendly and switching to battery electric vehicles (BEVs) would require more time than what the media believes.” The strategy under Toyoda, a grandson of the Toyota founder Kiichiro Toyoda, was clear: 

Not sticking to one type but various powertrains to reach to widest possible range of customers through hybrids, hydrogen fuel cell vehicles and ICEs. The reason backing the strategy was the belief that “the unbalanced adaptation of EVs worldwide and lack of infrastructure” in certain parts of the world. 

The recall of the Toyota BZ4X, belonging to the only EV series of Toyota, may have weakened the attitude towards electrification. In June 2022, Toyota recalled the cross-over SUV due to a technical failure, partially triggered by the heavy weight of batteries, causing the bolts on the hub to disassemble and risking the wheel to come off. Toyota clearly didn’t have a good start with BEVs. 

Major markets require otherwise 

No matter how big the EV defiance of Toyota was, the global sales numbers of Toyota also put up defiance against the automaker’s strategy: 

• 5.6m vehicles were sold in the top five markets; Japan, the US, Canada, Australia and China. 
• One million vehicles were sold in Brazil, Indonesia, Thailand, India and the Gulf states. 

While the countries fiercely pursuing electrification and installing charging points are the top markets of Toyota, the ones going slower in electrification are the ones with the lowest sales. A Bloomberg report in 2021 predicted that 50% of all vehicle sales would be EVs by 2035 and 70% by 2040. Moreover, the top foreign markets of Toyota are all pursuing national decarbonisation goals; 

• Europe planning to ban sales of ICE cars and vans by 2035, 
• Canada aims to have all passenger cars and truck sales to be zero-emission by 2035,
• China wants EVs to account for 50% of all car sales by 2035, 
• The US expecting 66% of all new car sales to be electric by 2035, boosted by California’s initiatives, 
• Australia wants to get rid of ICE cars and vans entirely by 2050. 

Clearly, Toyota could see the writing on the wall and knew that change was inevitable. 

“Not entirely EVs but…” 

Following the new leadership announcement in February of this year, Koji Sato replaced Akio Toyoda as the new CEO, the latter becoming the chairman of Toyota, thus still having a significant role in the automaker’s strategy. 

While everyone was expecting the new remarks of the new CEO in April, 54 advocacy groups around the world took the opportunity. They called on Toyota to shift attention to EVs, suggesting a roadmap of becoming zero-emission in Europe and the US by 2030 and globally by 2035. 

Sato, who took the new role on 1 April, didn’t appear as thrilled as some may have expected but announced the change, while it didn’t sail too far from the conventional thinking of Toyota. Toyota will continue selling ICEs as long as there’s demand, said Sato, but added that diverse powertrain options come to life to support decarbonisation efforts. The new strategy included the following: 

• Establishing a BEV-dedicated platform, selling 1.5m BEVs annually by 2026.
• Bolstering the electrification strategy, 
• Increasing software development through the mobility tech subsidiary Woven, 
• Achieving carbon neutrality in the Asian market, 
• Keeping the product range wide with hybrids, plug-in hybrid vehicles (PHEVs), and hydrogen vehicles alongside EVs. 

Talking to Automotive News, Sato said the new strategy is not a reaction to the increased competition in the EV market but to increasing Toyota’s competence as a low-cost, efficient manufacturer. Realising the painstaking development and manufacturing process of BEVs, Toyota updated its strategy in June and presented pinpoint goals: 

• The next-gen battery of the current NMC (nickel-manganese-cadmium) provides over 1,000 km of range, turning range anxiety into a thing of the past. 
• Reducing the cost of cross-over bZ4X by 20% and fast charging time to 20mins from 30mins.
• New battery chemistry, including lithium-iron-phosphate (LFP), by 2026 to reduce the cost of bZ4X 40% from the current cost with a range of 750km. 
• The next big move will be switching to SSBs by 2027, pushing the range limit to 1,500km.

Having observed the EV industry for years, Toyota took many notes and appeared to address the most common challenges to make a late but swift start. 

Why is change inevitable? 

Looking at the global EV industry, the numbers emerging all around were just too much for Toyota to ignore: 
 

The enormous gap in the BEV sales represented critical risks for Toyota:

• Falling behind the innovative manufacturing required for EVs,
• Missing huge opportunities in the fleet industry by not offering EVs,
• Falling short of pleasing EV-demanding customers,
• Facing enormous costs in conventional production processes. 

Statistics supporting the below risks kept coming in:

• According to Reuters, thanks to its ability to ease production and reduce costs, Tesla made almost eight times the profit per vehicle, compared to Toyota, in Q3 2022. 
• In the US market, sales of Toyota fell by around 9%, while General Motors (GM) saw an 18% increase in Q1 2022. 

Worse, some suppliers of the Japanese giant started shifting their attention to EV makers to avoid future risks. Perhaps the scariest outcome of not going electric would be missing huge deals in the fleet industry if we look at some recent developments:

• PepsiCo to use Tesla Semi electric trucks, 
• SIXT formed a partnership with BYD,
• Hertz to purchase 100,000 BEVs from Tesla and 65,000 from Polestar.

Consequently, Toyota pushed aside the e-TNGA system, which produces EVs on the same assembly line as ICEs and hybrids, and announced a BEV platform with specific goals. How swiftly will Toyota catch up? Time will tell. 

The main image shows the Toyota BZ4X. Source: Shutterstock 224576121