More than two decades ago,
Toyota rocked the world with a car that looked like a
big step toward a greener future. But a lot has
changed in 20 years. Toyota sold 10.5 million
cars, SUVs and trucks in 2021, the most of any
automaker in the world. And this behemoth, which
operates in at least 170 countries, is now facing
criticism that it's not moving fast enough to
reduce carbon emissions. Some have even said the
company is opposing climate reduction efforts. But we believe a one size
fits all approach doesn't work,as we transition to
this new future. We think, again, multiple
products can meet the customers' needs where they
are in different product needs, how they commute,
etc.. It's 20 years and they're no
longer innovative and they're no longer
sustainable in our eyes. Other large automakers, like
General Motors and Volkswagen, have made big
commitments to electric vehicles and have already
released several models. Toyota markets only one
electric vehicle, and it sold only 232 so far in the
US and about 1600 globally. Top executives have
repeatedly said the hype around EVs does not match
the reality. In December of 2021, Toyota
said it would invest $35 billion in fully electric
vehicles. However, at the same time,
it outlined an equal investment in hybrids and
hydrogen fuel cell vehicles. We're committed to being
carbon neutral by 2050. We're moving in that
direction aggressively with many products, not just
one, but with many products. So the question is, is
Toyota behind everyone else or is it smart to be
cautious? In 1997, Toyota rolled out
the RAV4 EV. It was an electric version
of the popular RAV4 crossover. Tesla was still
years away from being founded and EVs were
extremely rare. Several more EVs followed,
but none went into mass production. Toyota
purchased a stake in Tesla in 2010. The two companies
collaborated on a second generation RAV4 EV in 2012. But as established
automakers started switching to EVs, Toyota held back in
2017. It sold all its shares in
Tesla. Toyota really kind of
doesn't want to dive into anything too quickly and
then have to waste billions upon billions of dollars'
investment. Also, culturally, Toyota,
the Japanese automakers are typically a little bit more
cautious when it comes to new technologies. They want to do a lot of
due diligence and they want to make sure it's the right
direction for the company. Along with Ford, Toyota is
one of the rare automakers that is still run by its
founding family, which can contribute to a more
conservative approach. But the sentiment is
widespread among leaders across the company. You famously said several
years ago that you don't believe that there is a
market that will accept a pure electric vehicle. Do you still believe that? So you could have someone
nonetheless. That's a question I get
asked a lot. I must say up front that we
are not against electric vehicles, but in order for
electric vehicles to cover long distances, they
currently need to be loaded with a lot of batteries
that take a considerable amount of time to charge. There's also the issue of
battery life. He has a very specific
viewpoint on electrification, which is
that until the energy density of batteries
reaches a certain point and we're not there yet,
there's no way that battery electric vehicles can
actually compete on a firm footing with gasoline or
diesel. Toyota sells cars in markets
all over the world, and those markets have
different needs and constraints. Its light
vehicle brands, Toyota and Lexus, currently offer more
than 130 models between them. Toyota sells Lexus
branded cars in 90 countries and Toyota branded vehicles
in 170. Of the nearly 8 million
cars Toyota had sold worldwide for the year
through October 2022, nearly 7 million were sold outside
Japan. More than 184,000 sold in
Africa, 400,000 in the Middle East region and
about 2 million in Asian countries other than Japan,
including countries such as Pakistan and the
Philippines. The electric infrastructure in at least
some of these countries is not nearly as well
developed as it is in other regions. Two thirds of the
world's population without access to electricity live
in sub-Saharan Africa. Another 17% live in South
Asia. Much of the rest are
located in the ASEAN and China region, Latin America
and Middle East and North Africa. Ultimately, the customers
will tell us what is the best powertrain at the
right timing for them. The road may be bumpy as we
move that way. Be it infrastructure, be it
cost of batteries, etc. Hydrogen fuel cell vehicles
are zero emission. They run on hydrogen and
they emit small amounts of water. They've garnered a
lot of criticism from battery enthusiasts, but
Toyota has championed the technology in both light
duty passenger vehicles as well as in commercial ones. It co-developed a truck
with Kenworth and demonstrated its
capabilities at the Port of Los Angeles. It has also
sold 20,000 units globally of the Mirai, a
hydrogen-fuel-cell-powered car. Toyota divides its
alternative powertrains into two categories zero
emission ones like hydrogen and battery, electric and
carbon reducing ones like hybrids, which run on a
combination of gasoline burning engine and battery
powered electric motors. The hybrid didn't
dramatically alter the driver experience. It actually enhanced it by
reducing the amount of trips to the gas station because
it was more fuel efficient. When it launched the Prius
in Japan in 1997, Toyota ushered in the era of the
mainstream hybrid vehicle. It has sold 20 million
hybrid cars around the world and 5.4 million of them in
the US to date. 25% of our current market
share of our US sales is hybrid. We have hybrids
from Corolla through RAV4. 100% of Sienna's 100% of
Sequoias are hybrid and even the recently launched
Tundra hybrid. They think that as the
batteries improve, the hybrids get better and
better. And we creep towards that point where the
batteries are good enough that then actually it's
better than a system that is hybridized. Toyota's argument, in brief,
has long been that electric vehicles are too expensive
, the batteries aren't able to hold enough energy, they
take too long to charge and the charging infrastructure
isn't sufficient yet. The problem with this point
of view is that the world has moved on, even though
they are right in a way from an engineering principles
perspective, there are other things that have happened
in the interim: you know, manufacturing capability,
mining capability, new advances in lithium-ion
battery, and all of a sudden their calculation is a
little off. Toyota rival Volkswagen
Group said in 2021 it expects EVs to achieve cost
parity with gasoline-powered cars by 2025. Globally. In 2021, EVs made
up about 5% of the market. But they were higher in some
places and outpaced expectations. They will be between five
and 10%, probably six or 7%. Growth in China and Europe
have been extremely strong for electric vehicles. I
would say even stronger than I expected in Europe,
mostly in Germany. There is also a new business
case for EVs. The electrification of the
entire vehicle works hand in hand with the
computerization of the vehicle. That has allowed
car companies to think of a vehicle much more as a high
tech hardware device like a mobile phone. Governments
are also pushing EV adoption - in China, the
European Union and the United States to name a
few. Many are offering generous
incentives for companies and buyers. Even if they don't make
sense from an engineering standpoint yet, they
certainly make sense from an economic standpoint with
with incentives. Toyota has historically had
the biggest share of the California car market, the
largest statewide car market in the US. Data from the
California New Car Dealers Association shows Toyota
lost share in the first half of 2020 to over 2021. Tesla went from less than
5% share to almost 11. All electrified vehicles,
including hybrids, plug in hybrids and fully electric
vehicles with just under 30% of sales in California, as
of November 2022. Fully electric vehicles
alone accounted for about 15% of the market. That is triple the national
all electric vehicle market share of about 5%. When you look at a very key
and profitable market, like California, for Toyota,
Tesla's taking share from them there and Toyota needs
to rally back with that, starting with the Lexus
brand, but also with the mainstream Toyota brand. Katherine Garcia is a clean
transportation activist at the Sierra Club, an
environmental advocacy group based in California. Their, their goals have been
mismatched, based on what we're seeing in terms of
production, in terms of innovation. And we're just
really disappointed that Toyota has not stepped up
and met its competitors in accelerating the transition
to cleaner vehicles. Sierra Club also says
Toyota, even more than other automakers, has opposed
climate legislation around the world. Influence Map, a
UK based, climate focused think tank, identified
Toyota as one of the companies most aggressively
lobbying against climate policies in 2021. The top three were Chevron,
Exxon and Toyota. And frankly, it's just
extremely inappropriate for an automaker that has the
means to be investing in cleaner vehicles and
supporting this transition to electric vehicles to be
stepping in the way of climate policies. Environmental activist group
Greenpeace placed Toyota at the bottom of a list for
its decarbonization efforts. In a statement to CNBC,
Toyota said to set the record straight. Toyota has
never lobbied for lower emission standards nor to
lower incentives for any particular technology in
the US. We have consistently asked
the government for fair policies that do not favor
one technology over another in the pursuit of
eliminating carbon emissions. We do believe in an all
electric future. We're investing $35 billion
from 2021 to 2030 in battery electric vehicles. But also while we go
through this transition, we're also electrifying the
rest of our portfolio, increasing our hybrid
volume and plug-in hybrid volume to maximize the
benefit of carbon reduction. Toyota's new $35 Billion
investment, announced in December 2021, includes a
plan to introduce 30 electric models by 2030. That is just under a
quarter of the more than 130 models it currently makes. The plan includes about
$14.6 billion of spending on battery technology and $5.9
billion in the US alone. It also includes a planned
$3.8 Billion battery factory in North Carolina. In April 2022, Toyota
launched the bz4X, the only battery electric vehicle it
sells. The launch comes about a
decade after Tesla launched its flagship Model S sedan
and five years after Tesla's smaller Model 3. I think they've they've
realized that they do need to pay more attention to
all electric than they have in the past. While the company is making
lofty promises, not everyone thinks Toyota can catch up. There is a learning curve
around how to build a good EV. You can't just out of
the box be great at it. The company is gargantuan
and it has a massive research and development
budget. No one doubts the prowess,
the technical prowess and the ability to develop
technology that Toyota has. But research and development
is just one piece of the total. There's a manufacturing
element to it and there's a supply chain element to it. There's these arrangements
with battery suppliers. So there's people inside
your organization. There are servicing that
needs to be done at the dealership. There's a lot
of things that if you started earlier, you're
farther ahead. North American EVP Jack
Hollis said in an interview with the Automotive Press
Association in August 2022 that mainstream consumer
demand for electric vehicles does not match the rhetoric
around them. After 25 years on the market
, hybrids have only about 6% share of new vehicles. EVs are half that. The recent federal
Bipartisan Infrastructure law set aside $7.5 billion
to build a network of 500,000 electric chargers. However, a recent report
from consulting firm McKinsey and Company said
that would still be a far cry from what would be
needed to meet demand. The government wants 50% EV
penetration in the US by 2030. McKinsey estimates
that would require 1.2 million public chargers and
28 million private ones to sustain an EV fleet of that
size. That is about 20 times the
number of chargers the US had as of April 2022. If you were to judge
electric vehicle sales by the amount of articles and
hype around them that are written, we would be a 90%
all-electric electric vehicle society. But the reality is that
electric vehicles are still a very niche player. And we are going to have
hybrids, plug-in hybrids, ICE engines with gasoline
for decades to come. We still think that in ten
years, 50% of new vehicle sales will be gasoline. And if you look at the
global footprint, that is almost certainly going to
be true because you're not going to see in Nigeria, in
Iran, in Indonesia, a 50% market
share for electric vehicles, period. And those are big markets. In the meantime, industry
watchers say Toyota will be working hard to manage
criticism that it is not doing enough to fight
carbon pollution or develop green products. If my guess is right, they
will be consistently beating the message that, look, all
these hybrids that we sell, we actually reduce fuel
consumption by way more than all these other people
trying to sell EVs. Watch that message. That
message is going to be repeated and repeated and
repeated by them over the next ten years.
