Toyota is perhaps the greatest car company the world has ever known. At first a maker of weaving machinery in Japan, the family-run Toyota turned to building cars in the Thirties. The innovative start-up overcame long odds and broke through in an entrenched, cutthroat, and capital-intensive industry. Toyota made it through World War II intact and entered the U.S. market in 1958 with the homely Toyopet Crown sedan. After lurking for decades, Toyota eventually overwhelmed the giants of the West to become the world’s largest carmaker. The brand has earned a reputation for reliability, durability, and an uncanny ability to read markets while focusing on the long view. It sees five, 10, 20 years out rather than just to the next quarter’s earnings.
This story originally appeared in Volume 20 of Road & Track.
Though a cautious innovator, Toyota birthed the first mass-produced hybrid, the Prius, which went on sale in Japan in 1997. While competitors chortled and sniffed, Toyota soon proved the economic viability of the gas-electric combo. With close to 5 million Priuses and more than 23 million similarly electrified vehicles to its credit through 2022, the Japanese firm has inarguably done more to save fuel and reduce carbon emissions than any carmaker on earth—though I guess one could argue that DeLorean did more by quickly going out of business.
It seems odd that Toyota, with this record of achievement, has been slow to adopt the battery-electric vehicle (BEV), while politicians around the world insist upon, and other carmakers prepare for, its complete market takeover. For years, critics in the money-obsessed stock exchanges and impatient environmentalists both roundly chided Toyota for failing to offer fully electric vehicles across its lineup. Toyota’s long-awaited BEV entry, the ungainly bZ4X crossover, launched in 2022 but did little to quiet the detractors.
Earlier this year, Akio Toyoda—grandson of founder Kiichiro Toyoda and son of Shoichiro Toyoda, who from 1952 shepherded the company to its great success on the world stage—stepped down as Toyota’s CEO and president, staying on as chairman of the board. Replacing him was Koji Sato, formerly the chief engineer and president of Lexus. The reassignment of Akio Toyoda, whose vocal skepticism of BEVs could explain the company’s lackluster all-electric offerings, was seen as a sign of a major corporate shift.
Following Sato’s ascension, several pronouncements girded that narrative, including a renewed commitment to electrification, with 10 new EVs to launch by 2026. Engineers tore down a Tesla Model Y and surprised themselves by learning much about how to build a car better and more easily (read: inexpensively). They praised the high-pressure “giga casting” Tesla uses for large chassis pieces. The process reduces the number of individually cast parts, strengthening the car’s assemblies and enabling the use of structural battery packs as floors.
“Of course, we admit Tesla has wonderful technology,” Yoshio Nakamura, deputy chief of global production, confessed in June to Automotive News. “But that just motivates us to work harder to catch up. If we are to learn from them, it won’t be a copy. We will improve upon them through kaizen,” the Japanese term for a business philosophy of continuous improvement.
Then Toyota portentously revealed a breakthrough in its research of solid-state batteries, a long-heralded but never-perfected technology that offers to cut the weight, size, and cost of batteries in half eventually. Using a solid electrolyte in place of a liquid one, Toyota believes it has found a way to increase potential range to 700-plus miles, with time to recharge dramatically reduced—how does 10 minutes sound? Game-changing stuff if true. However, many questions remain unanswered. The company has declined invitations, including from Road & Track, to detail the actual breakthrough.
The announcement did, however, goose Toyota’s languishing share price. The market capitalization of Toyota, and all legacy carmakers, lags that of Tesla, whose value on paper is about triple Toyota’s. That’s despite the Japanese giant selling 10.5 million cars in volume-constrained 2022 versus Tesla’s 1.3 million. The stock market prizes margins above all else (Tesla’s profit on each car far outstrips other manufacturers’) and, lately, electrification.
Thus, following Toyota’s solid-state announcement and promise to double down on EVs, its shares traded as high as $195.65 in September, up from $153.38 in June, while the company’s market cap, roughly $181 billion at the time of Sato’s ascension in April, touched $255 billion in September. However much jollier the market still feels about Tesla, such increased value is nothing to sneeze at. For reference, Toyota’s summer 2023 share jump alone exceeded the entire market cap of General Motors.
Most suppose that the momentous battery announcement will herald a production breakthrough, since large-scale manufacturing issues are widely understood to stand in the way of solid-state technology’s commercial viability. But Toyota’s subsequent reticence to discuss the technology leads many to wonder: What was the discovery and how big was it? Was it the colossal breakthrough the electric-car movement has been waiting for?
Equally, have things really changed around Toyota? Recall that at the same time Akio Toyoda relinquished his titles as CEO and president, he was elevated to chairman of the company’s board. Unless it’s some sort of ceremonial role, one might suppose the chairman retains considerable power. When Toyota suddenly recast itself as a “mobility company” rather than a car company, was it sincere change or a belated sop to the markets?
Online critics knew where they stood. Several EV websites noted that Toyota has made similar pronouncements about solid-state batteries that proved premature, predicting in 2014 their widespread introduction for 2021, then again in 2017 for a 2022 launch, then 2025. Today the tech is variously promised for 2027 or 2028. How very Elon of Toyota, some snickered.
Environmentalists, meanwhile, were skeptical of the Sato reset and new promises. “Automakers without a robust EV strategy are automakers in trouble. Toyota’s announcement today that it plans to start selling advanced battery technology in long-range EVs starting in 2027 is a clear attempt to assuage shareholder concerns,” East Peterson-Trujillo charged in a statement in June on behalf of Public Citizen’s climate team. “Until Toyota stops fighting the electric vehicle future and commits to a 100% zero-emission vehicle line-up, shareholders should remain skeptical and continue to push for accountability.”
Tellingly, Toyota’s new strategy broke cover along with the revelation that a group of Toyota shareholders—including the California Public Employees’ Retirement System, the Office of the New York City Comptroller, and two leading proxy advisory firms, as well as several European money managers—would (and did) vote to oust Toyoda from the board over the company’s failure to set a date for going all-electric. Toyota claims EVs should constitute about a third of its production by 2030. For some, that’s not enough. Greenpeace ranks Toyota last among global automakers for decarbonization efforts.
The resolution seeking to dislodge the 67-year-old scion from the board’s helm failed. But it underscored the hazards of the company’s recalcitrance, as did the proposed replacement of directors thought beholden to Toyoda. Other investors, focused less on air pollution and more on financial return, remain concerned that Toyota is unprepared for a coming showdown with China.
By transparent force of volume, China leads the world in EV production, controls much of the supply chain for battery production, and recently overtook Japan as the world’s leading exporter of automobiles. By failing to invest more aggressively in the BEV space, Toyota risks missing out on profits, critics suggest.
A recent push from the Tokyo Stock Exchange could explain Toyota’s sudden mobility mania. Among other things, the exchange has encouraged companies to speak more grandiosely about plans and fall in line with Western companies’ fixation on share prices.
Yet, the question remains: What’s really up with Toyota?
External pressures weigh heavily on the carmaker’s public posturing, tailored as it is to soothe critics’ concerns. But there is also good reason to believe that not much has changed amid the executive shake-up and that Toyota still sees EVs as only one step on a much-longer road to a green future. One can debate the merits of a diverse approach to cutting emissions. But this is standard Toyota behavior—not much different from, and arguably more honest than, the rest of an industry dragging its feet on fully electric lineups while paying lip service to going green.
A careful look shows that competitors’ BEV plans are often contradictory and vague. While Toyota might be faulted for its slow BEV rollout—making headlines in the meantime with a new gasoline-fired Land Cruiser—GM announced recently the cancellation of the Bolt, its most affordable EV. Then it pandered to public outcry, announcing that the sensibly sized Bolt will return some time in a hazy future. Meanwhile, earlier this year, GM and Ford announced they’d spend billions to modernize factories that build gas-swilling pickups and SUVs. The investment demonstrates a long-term commitment to large internal-combustion automobiles. One more drink for the road, if you will.
In 2021, the Detroit Three promised that by 2030, 40 to 50 percent of their vehicles would be electrified (BEV, hybrid, or fuel cell). This came four years after GM leader Mary Barra urged President Trump to roll back Obama-era tailpipe-emission and fuel-economy standards. More recently, despite the passage of the Inflation Reduction Act, which directs billions to hasten the nation’s EV conversion, the Alliance for Automotive Innovation—whose members include almost every company selling cars in the U.S.—lobbied vociferously against new EPA standards, ones that would require the Detroit Three to hit the targets they had once boasted about gearing up to meet.
While sincerity appears to be in short supply, Toyoda has said what he means, at least. He told a Las Vegas audience last fall that California’s zero-emission requirements, designed to end sales of new gasoline-only vehicles by 2035, will be “difficult” to meet. In December, just before his reassignment, Toyoda allowed that public pressure was preventing “a silent majority” of executives from vocally dismissing the notion that electric cars were automakers’ “single option” for addressing carbon emissions. “They think it’s the trend so they can’t speak out loudly,” Toyoda said of his fellow C-suite chieftains.
For further insight into Toyota’s current battery-electric situation, I rang Jeffrey Liker, professor emeritus at the University of Michigan and author of the best-selling business book The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer. What about this solid-state breakthrough?
“I can’t think of one instance in the 40 years I’ve been following Toyota where they came out and said something untrue in response to public pressure,” Liker says. “Toyota are kind of obsessive about planning. And they are obsessive about looking at all the data and facts. And they also tend to be conservative. They tend to be risk averse, particularly if there are any issues related to safety of customers. So normally when they announce something—normally being like the last 70 years—they’ve thought about it thoroughly. They’ve analyzed it from every possible angle, and when they finally get ready to tell the public, as a general rule their policy is to underpromise and overdeliver.”
If history is any guide, it’s unclear whether Toyota will swiftly rise to meet environmentalists’ idealized version of the future. Liker says that Toyota, having studied solid-state batteries for close to two decades, has expressed general frustration with putting batteries into production, let alone cracking complex chemistry problems that stall their continued development.
Toyota “kept on saying, ‘We need more time, we need more time.’ So when they came out and said, ‘There’s a breakthrough,’ I take it seriously,” Liker says.
“But if you listen to what they really said—‘In three years, we’re going to be making a million [solid-state batteries]’—it’s a small number,” he points out. “And they’re trying to decide how to allocate that. Initially, their idea was to use it in plug-in hybrids and make lots and lots of them, or they can make a very small number of battery-electric vehicles. At first, they wanted to use it for hybrids to get more volume out of it.”
Applying solid-state batteries in this way creates a bigger environmental benefit, Liker says, than if the batteries were deployed in BEVs, which require substantially more batteries per car. If Toyota uses a battery allocation for BEVs, “which it seems they’re leaning toward, it is likely to be one relatively low-volume vehicle to begin with, and then it will ramp up,” he predicts, but to increase battery production “to where it’s really viable is maybe a five- to 10-year process. What they actually said was, ‘We think we’re a big step toward mass production.’”
Mel Yu, an industry analyst, sees several paths by which the industry, not just Toyota, will fail to meet BEV targets.
“If you look, manufacturers that claimed to be going completely electric actually said ‘electrified’ rather than ‘fully electric,’” Yu says. “Think how much electricity modern cars use: ADAS—advanced driver assistance with camera, radar, sensors, image processing. Telematics. Infotainment—constant cellular connection, image processing, power-hungry screens, dozens of speakers and amps. By-wire systems for steering, braking, acceleration. ADAS alone uses the equivalent of a power-hungry graphics card playing games on max resolution. The traditional 12-volt, 100-Ah alternator/battery/wiring setup can no longer handle all of those power requirements. Therefore, 48-volt systems with integrated starter/alternator setups have become a minimal requirement for car manufacturers. Because a 48-volt system integrates lots of electric-dependent components of a PHEV, or even a BEV, it’s a lot easier and cheaper for car manufacturers to make PHEVs out of 48-volt cars. And there’s your ‘electrified’ powertrain. Here, Toyota already has the huge advantage of already implementing hybrid and PHEV cars.”
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Yu notes that many of the states with aggressive EV-sales mandates, including California and those following it, have loopholes allowing the purchase of secondhand gas-powered cars from other states or the use of leased vehicles with out-of-state registrations, which could wind up on dealers’ CPO lots with 7500 miles, ready for well-heeled Californians feeling gassy. It’s another regulation-defeating back door to legally driving internal-combustion cars. We should expect more.
But Yu doesn’t doubt Toyota’s long-term success. “As long as battery supply and cost stay within the projected path, Toyota’s next-gen products will mostly be PHEV beginning in 2028,” he forecasts. “With the solid-state batteries online by then, a transition to ‘fully electrified’ powertrains by 2032 is certainly doable.”
So, while it may not be moving as quickly as environmentalists demand, Toyota appears to plod ever forward, headed in the general direction of green. Just as they always have, Toyota’s patience and farsighted investment, this time in hybrids, may continue paying dividends.
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