Toyota’s EV policy will only make it stronger

COMMENT

“The reports of my death are greatly exaggerated” said Mark Twain, having been asked to comment on his own obituary. The same could be said of Toyota.

Read the comments on your social media platform of choice recently and you could be forgiven for thinking the world’s largest car-maker was at risk of imminent collapse.

The cause of its impending doom is its supposedly lackadaisical approach to the electric vehicle revolution and it’s been a hot topic this week after the company itself stoked the fire with comments about EVs being only “for the few” at the Japan Mobility Show.

Here’s the thing. Not only will Toyota’s strategy not lead to its destruction, there’s a very good chance it will only enhance its market dominance. Let’s take a closer look at this statement.

First things first, what is Toyota’s strategy? I’ll leave it to Toyota Australia’s vice-president of sales and marketing, Sean Hanley:

“Toyota’s global approach is that there are other workable paths that ensure no-one is left behind on the journey to decarbonisation,” he said.

“We will therefore maintain our global strategy of deploying as many technologies as possible, blending BEVs [battery-electric vehicles] with hybrids and other technologies, including fuel-cells, hydrogen injection and carbon-neutral fuels.”

This isn’t intended to be some Toyota apologist piece. Whether intentionally or not, the company has missed the chance to be a market leader in the EV space in the way it pioneered hybrid technology, but there needs to be some common sense applied.

Toyota is easily the world’s biggest car-maker, selling almost 10.5 million cars in 2022, with the Volkswagen Group second at almost 8.3 million. It has a lot of debt, but also a profit margin of almost eight per cent and nearly $US80 billion in cash reserves – this isn’t a company in dire financial stress.

In Australia it’s even stronger. Even in a down year as supplies remain tight, Toyota’s current 2023 sales (154,659) dwarf those of second place Mazda (75,220) and third place Ford (61,204) combined. And this is the important point.

You don’t get to become the dominant number one in an industry without understanding your customer. Let’s face it, Toyota doesn’t occupy this position due to the overwhelming superiority of its products. Most of its offerings sit between ‘good’ and ‘very good’ but are, crucially, good enough for the people buying them.

Making cars as good as they need to be (and little better) is a sound financial decision and Toyota’s ‘multi-pathway’ approach to electrification is similarly financially sound.

Currently, making electric cars is not a pathway to profitability.

Mercedes-Benz’s chief financial officer recently described the EV market as “brutal” and said margins on ICE cars would have to be increased to compensate for the losses.

VW has cut production at some plants due to stalling EV demand, Ford’s EV division lost $US1.3b in the last QUARTER, Honda and GM just cancelled their proposed partnership to make affordable EVs as it wasn’t viable, and even Tesla’s Q3 2023 revenue fell 44 per cent on a year earlier due to the price cuts required to stimulate demand.

One area Toyota is incorrect is its assertion that Australians aren’t ready for electric vehicles. The nearly-40,000 people (as of September) who’ve bought a Tesla this year prove that. Clearly, many Australians are ready and willing to drive on electricity alone.

However, many are not. Some not right now, some not in the near future and some not ever, and this is the crux of the assertion that Toyota’s approach – that it calls “leave no one behind” – is likely to benefit it in the short- to medium-term.

There are three barriers to EV adoption: cost, useage and desire. To ignore any or all of these barriers is to, well, leave customers behind.

Take the nearly 70,000 Aussies who have bought a light passenger car or SUV so far in 2023. These are presumably folks who have the perfect use case for an electric car – short urban trips – but almost every single option in those two classes is priced below Australia’s two cheapest electric cars, the base model MG4 and BYD Dolphin.

These people may very much want an EV, but they can’t afford it. They can probably afford a hybrid, though.

Use case also precludes the vast majority of the 200,000 light commercial buyers so far in 2023. While industry is currently clamouring for zero-emissions utes, the battery technology required for an electric ute to be a viable private replacement for today’s diesel versions is a long way away.

Right or wrong, a lot of those buyers also occupy the third category. They don’t want an electric vehicle. The reasons for this may be valid or they may be silly, but don’t dismiss those who simply aren’t interested in owning an electric car as the lunatic fringe.

After all, there’s a very good reason why Porsche is dedicated to keeping the 911 combustion-powered for as long as possible, because that’s what customers want.

There’s a very, very good chance that Toyota is in regular communication with the many people who buy a LandCruiser and a Prado and a Fortuner and a HiLux and a 70 Series, and that those people aren’t clamouring for an electric vehicle.

Finally, Toyota isn’t anti-EV. Battery-electric cars make up part of its strategy, with at least three scheduled for release in Australia by 2026, starting with the bZ4X mid-size SUV in February 2024, plus a family of seven bZ models planned by 2025, 10 EVs promised globally by 2026 and plans to sell 3.5 million EVs annually by 2030.

In preparation for these releases, Hanley recently told media that Toyota dealerships would have banks of EV chargers installed. With almost 300 dealers nationwide, chances are there will be a charging solution for Toyota customers within easy reach.

Sounds like quite a competitive advantage, don’t you think?

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