New Toyota CEO must speed up transition to EV-first mindset
- Toyota’s slow electric vehicle transition, unless rapidly turned around, threatens to make it obsolete, in the face of new climate legislation and the phasing out of fossil fuel cars
- It is already losing out in its biggest market, the US, where rivals are using EV and battery tax breaks to win a competitive edge
As the new CEO of Toyota Motor Corporation, the world’s largest carmaker, Koji Sato, appointed on April 1, faces a daunting task. While global sales of electric vehicles have surged, Toyota lags far behind its competitors in rolling out EVs, with all-electric vehicles comprising just 0.2 per cent of its sales in 2021.
Carmakers that manufacture and sell EVs in the United States are set to benefit significantly. If Sato resists the development of battery-powered EVs, he risks dramatic profit losses as the legislation reshapes the world’s second-biggest car market.
Under the act, consumers receive a tax credit of up to US$7,500 for each qualifying EV bought. At present, no Toyota model qualifies for the tax credit, putting the carmaker at a steep disadvantage in the US market.
In the last 20 years, Toyota has only released one all-electric vehicle model, the bZ4X, which was then recalled and kept off the market for four months due to a risk of the wheels falling off. In 2021, Toyota’s EV sales rate was the lowest among the world’s 10 largest carmakers.
As of April 19, Ford and Volkswagen each had eight models eligible for the tax credits, and General Motors had six. In contrast, not a single Toyota model qualified.
Toyota is also losing out to its peers in securing US subsidies for battery production. Rival carmakers have invested far more resources into US battery production facilities, despite Toyota’s position as a market leader.
Hyundai-Kia has announced US$18.2 billion worth of planned investments in battery production and other costs associated with manufacturing, and General Motors has announced US$7.8 billion, compared to just US$4.6 billion from Toyota.
Manufacturers receive tax credits for the assembly of US-produced battery cells. The tax credits enable carmakers to churn out batteries at a lower cost, making it easier to scale up EV production. As the global car market electrifies, carmakers that have invested in battery plants will be well-positioned to ramp up output.
Meanwhile, Toyota’s combustion engine models are becoming obsolete, and the production capacity built to assemble them is at risk of becoming a stranded asset.
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America’s Inflation Reduction Act is just one aspect of a broader shift towards electrification, a trend that will accelerate as battery-charging infrastructure expands. Around the world, governments are fuelling the electrification shift by phasing out of gas and diesel vehicles.
Last year, in the key market of California, Toyota’s bestselling RAV4 and Camry models were outsold by Tesla’s Model Y and Model 3.
For too many years, Toyota has resisted the transition to electric vehicles. Sato has expressed support for a “EV-first mindset” but not yet committed to a major shift in Toyota’s electrification strategy. But this year, a major shift is needed. Sato must lead Toyota’s transition to all-electric vehicles by massively scaling up EV production.
Just as other carmakers have done, Sato should commit Toyota to phasing out combustion engine vehicles by 2030, both to prevent the most catastrophic impact of climate change and to save his business.
Jiangbei Hao is an energy specialist at Greenpeace East Asia
