One Finite Planet

Toyota: Failure inevitable?

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Once the darling of Hollywood in the wake of "green" image built by the Prius hybrid, Toyota has more recently prompted shareholder complaints, and calls for boycotts by climate groups in response to Toyota anti-climate action and anti-EV lobbying that has seen the company reach the status of no 3 climate enemy company in the world, behind only Exxon-Mobil and Chevron.

Either Toyota is ideologically against action on climate change, or senior management see no way for Toyota to survive the EV transition.

Could Toyota really be at risk of failure?

This is an exploration of why Toyota, a company that at one time was the darling of environmentalists, has pivoted so much that it is now regarded by Greenpeace and others as an enemy of action on climate change to behind only oil companies the same level as Exxon Mobile and Chevron.

My conclusion is that Toyota is not against the environment, but that their projections show an EV transition most likely end the company. Obviously oil companies revenue will plumet if there are no more fossil fuel cars, but we usually assume car makers can just switch and make electric cars, so their should be little to for them to fear. Yet Toyota seem to have more to fear than even all but two of the oil companies. Given a global transition to EVs is now inevitable, Toyota is now on a mission to delay the inevitable as long as possible.

The key points are:

  1. The revenue per vehicle for manufacturers will fall as a result of the transition to EVs.
  2. The transition to EVs will result in a reduction in labour to build EVs from over 30 hours to 10 hours.
  3. New companies such as Tesla and the Chinese brands are expected to take 30% of the market.
  4. Toyota cannot see themselves gaining sufficient market share from an EV transition

In 2022, Toyota produced the more vehicles than any other automotive company, but in what many see as crazy, is ranked only second behind Tesla in terms of market capitalisation, despite last year in 2021 Tesla not even making the top 10 in terms on number of vehicles produced, shipping less than 1 million cars to Toyotas over 10 million cars in the same year.

“I firmly believe the simple answer is they [Toyota] don’t want to make and sell electric cars. They are anti-EV, they have been this way for a long time, I have been covering this who scene for more than a decade, I’ve come across product managers in different countries, many people that have interviewed Toyota executives, they’re probably the most anti-electric vehicle company out there today. …….Toyota dominates the world in hybrids … and they know that electric vehicles are going to crush that, and now they’re not going to dominate once we switch to electric vehicles like they are now, so I really think that’s the bottom line. They simply know that they won’t be the best at making electric vehicles. They’ll probably make a very good electric vehicle, but they won’t dominate like they do with the hybrids, so they are trying to hold on to that technology as long as possible. “

Tom Moloughney.

The industry recognises the move to EVs will hurt Toyota, but would they be this resistant just because they will lose some market share?

Given Toyota being the market leader, the suggestion they will be unable to survive the transition to EVs could at first seem crazy. However in some ways, being the largest volume producer, puts them in the hardest position. Between 30% of the market going to EVs and reduced revenue per vehicle, on average, existing car makers will reduce their revenues to 50% of their current level. I have a page for tracking the two leading EV makers, Tesla and BYD, and the 4 legacy automakers chasing them, and this page will track industry giant, Toyota.

Unlike other automakers GM, Ford, VW and even Stellantis, Toyota has never, at least to my knowledge, publicly stated they will at some point overtake Tesla in selling EVs.

Yet, there are also many who believe Toyota can never be dethroned as the leader, and will sometime soon introduce ground breaking EVs that take the world by storm, because their hybrids have been market leaders.

Reality is anyone else but Toyota can plan to get aggressive, and increase their market share at the expense of companies slower to adjust, enabling them minimise any reduction in revenues. But for Toyota, there is no one big enough to for them to target stealing market share from, and maintaining current market share requires technology advantages they do not bring to EVs. This would make their becoming a much smaller company inevitable. If Toyota does as well as that average, they simply become half their current size, which would still be one of the biggest companies in the industry. A concern for Toyota would be that Toyota got to be the biggest, by growing in the volume market as new player from a country at the time not known for quality cars, and then riding on being leaders in a new technology. Does that sound like China today? The concern could be that Toyota are more vulnerable than the typical company, so they could shrink even further than average.

Then there is debt.

Toyota Motor Company is the world’s most indebted corporation. That’s per a data analysis of the state of global corporate debt. The Site concludes that in the 2021/22 financial year, Toyota’s debt stood at $186B. That figure is $1B more than the next.

StockApps’ financial lead Edith Reads has weighed in on the data. She said, “It’s not unusual for Toyota to have such a colossal debt on its cash book; most global corporate giants do. Debt allows companies to reinvest in their businesses, growing them further. The key is keeping that debt sustainable, and Toyota has done well on that front. Being a player in a highly competitive sector, R&D constitutes a significant chunk of Toyota’s budget. That and other expansion needs make such debt a necessity.”

** So, How Does Toyota’s Debt Compare to That of Other Global Corporations?

Stockapps’ analysis shows that the top 10 most indebted companies globally accounted for 17% of net corporate debt. That’s a combined $8.1T in credit. Additionally, they are from the automotive and communication sectors.

German automaker Volkswagen (VW) is the second-largest borrower among global corporations. By the time of writing, VW’s debt stood at $ 185B.

Moreover, American communication giants AT&T and Verizon take the 3rd and 4th spots with debts of $182B and $174B, respectively.

German firm Deutsche Bank closes the top 5 with a debt of $153B.

Toyota motor’s net corporate debt 186b is highest

Debt is huge, but manageable at Toyota’s current size. In fact Toyota’s debt to equity ratio is better than VW, and while sheer size of Toyota debt, declared by several sources as the largest corporate debt in the world, the debt ratio is ok because Toyota is so large. However, the size of the debt limits how much the company can downsize, and still service that debt. Unlike some rivals, Toyota cannot afford to halve in size.

Overall there are worrying signs, but if it is this bad for Toyota, it is also bad for VW. In fact many also predict VW will fail, however instead of trying the delay the transition to EVs, VW is instead trying to become the leader. Perhaps because convincing Europe to move slower on climate is much harder than trying to convince Japan the US and the likes of Australia?

In the end, the biggest reason I have for believing Toyota does not see how it can succeed with EVs, is I cannot see another reason that Toyota to become the world’s 3rd high spender on trying to block action on climate change, than Toyota feeling, for them, climate action presents an existential crisis.

To EV or Not to EV?

Toyota And Electric: A Love Hate Relationship.

Tom Moloughney: “I firmly believe they just don’t want to make and sell electric cars period”

I have previously labelled Toyota the “anti-ev company“, and my first impression of their hydrogen car plans, were that Toyota only was funding hydrogen cars to delay the move to electric cars. Now I am believe it is also possible that Toyota management are applying sufficient confirmation bias to, just maybe, believe their own rhetoric.

Looking back at the history, it is clear there was a time when battery technology was just not up to the task of enabling electric vehicles to provide complete a path to zero emission vehicles. Many still question battery power for trucks, planes and shipping. However, Toyota, or at least their president Aiko Toyoda, perhaps became a victim of sunk cost bias, ready to adopt any opportune argument that would result in a delay of the adoption of electric vehicles.

Toyota Zero Emission Pioneer.

1997-2003: Rav4 EV Compliance Car .

The 1997 Rav4 EV had a 27kwh battery, and an EPA range of 95 miles or 153km. All of this sounds impressive compared to the 2010 Nissan Leaf arriving 13 years later with a range of 73 miles or 117 km from a 24kwh battery.

  • The Rav4 EV was a “compliance car” produced at a loss in very limited numbers.
  • The 1st Gen Rav4 EV was very slow, 18s 0-60mph, only achieved the range by being slow, and was very slow to recharge.
  • Toyota’s other ‘compliance‘ zero emission vehicle, a hydrogen car, had far better range, better performance, and was faster to recharge, possibly a major reason for Toyota adopting a Hybrid and Hydrogen strategy.

1999-2021: Hybrid And Hydrogen Strategy.

The Toyota Prius, launched in 1997 in Japan by 2001 in the US and other international markets, gave Toyota a positive reputation with environmentalists, and those who wanted to be seen as environmentally responsible.

Ever since, Toyota has focused on hybrids for today, and hydrogen for “one day” as the company plan. Even plug-in hybrids have not been endorse by Toyota with “charge by gasoline” hybrids, that Toyota cleverly/cynically markets as “self charging hybrids”.

By around 2017, the lustre from the Prius had stated to wane as it became clear in in true green credential, Toyota was lagging behind.

The Hybrid Addiction.

Labour can be cut from 30 hours building cars with processes designed around internal combustion engines, to 10 hours for an EV. Toyota is master of building hybrids, which have the complexity of both powertrains one vehicle, Is any wonder why Toyota spent so many dollars advocating hybrids as a greener solution than moving asway from fuels?

Climate Pariah.

A log of the Toyota ‘anti climate action’ stance.

Despite the association of Toyota and the Toyota Prius hybrid with its history of having been championed as environmentally friendly, Toyota has a chequered history with electrification that includes:

Toyota: No3 Worldwide In Companies Negatively Influencing Climate Action.

Toyota Motor has campaigned against proposed regulations globally to phase out internal combustion engines in favor of electric vehicles in 2020-21 and ranks 3rd on InfluenceMap’s list of global companies most negatively influencing Paris-aligned climate policy. It is joined by BMW (18th), Daimler (24th) and Hyundai (25th) from the automotive sector, which as a group is highly negative on stringent climate regulation on the automotive sector.

The 50 Most Influential Companies and Industry Associations Blocking Climate Policy Action Globally

Only the largest American Oil companies block Toyota from 1st place. Toyota, currently the largest, and richest, manufacturer of internal combustion vehicles, sees electric vehicles as a significant threat. While hybrids increase car complexity and cost, battery electric vehicles remove the most complex parts of a car, the internal combustion engine, gear box and cooling systems. While you might think governments would not force consumers to buy more expensive cars as EV prices inevitably fall, Toyota in Japan has a government that already forces consumers to keep buying new cars in a planned obsolesce program to support the automobile industry.

Despite the seemingly environmentally friendly although complicated and expensive for the performance Prius, Toyota has been the only brand in the US to increase average fuel consumption of its fleet.

USA EPA Report for 2012-2017. All leading companies, with the sole exception of Toyota, improved economy & decreased emissions.
Can Toyota adjust their 100 year thinking.

Toyota is so concerned about the job loses in Japan from the move to electric vehicles that it has even formed “team Japan” to help keep the combustion engine alive. See “Toyota: The Anti-Electric Vehicle Company” for more, but Toyota is calling out that progress is bad for corporate profits and lowering prices is bad for economic activity. EVs can be built with 1/3 of the labour hours of building an ICE vehicle or hybrid, and Toyota argues that would be disaster for jobs in Japan.

A Toyota EV Comeback?

Toyota Electric History: EV Pioneer To Laggard, And Back?

However, there are other questions on Toyota’s ‘green’ history, and

It goes, on, and I could add more, but hopefully this is enough he convey the point.

From December 2021: An Electric Epiphany?

Then articles started to appear suggesting Toyota was trying to get serious about electric cars.

“Two million is a huge number and now we’re saying 3.5 million as a baseline, but people will still say [it’s only] 3.5 million out of 10 million annually.”

Toyota CEO: December 2021.

So the latest prediction is 3.5 million cars per year by 2030. Critics suggest that means Toyota is sill planning to sell 6.5 million non-ev cars, and that will lead ot big losses.

While ramping up production does take years, as does fully converting factories and securing battery supplies, at this time 2030 is 8 years away and there is time to further increase that target. Of course, given all the competition, where something has to give as far as market share, if is very likely that Totyota could drop back to 5 million cars per year annually from the current 10 million per year, if it fails to pull a rabbit out of its hat.

It has been suggested Toyota has ground breaking solid state batteries, just waiting in the wings to be released any time from 2022through to 2025, that revolutionise the industry. However, many reports say these batteries will first exist in hybrids, which remain Toyota’s favourite solution.

Toyota is one of the most difficult car makes to predict how they will handle the transition. Currently Toyota claim production reduction is due to semi-conductor shortages, but with several key markets such as Europe and China already around 25% EVs, it is hard to see how Toyota, with no current EV products, can avoid a drop in sales.

I suspect Toyota will lose more than 50% of their current volumes by 2030, and perhaps little more than the projected 3.5 million cars will need to be produced by 2030.

Toyota EVs: Finally?

BZ4x: 2022.

The first real, ground up EV from Toyota, released in 2022, and created in collaboration with Subaru.

Despite being recalled because the wheels literally fell off, reviews are mixed between:

One key point. The “not bad” tests seemed to not include testing charging. They still rate the cars stated charging speed as low, but seem to miss how far below the 100kW stated charging capability people who charged the car discovered. On the spec, the charge should charge faster then a Nissan Leaf, Chevrolet Bolt or even BYD Atto 3. On tests so far, it is not even close to those cars. Note the slowest charging speeds apply to a battery not installed on European cars. But with the battery in the AWD model in the US, a full charge takes hours even on a rapid charger. Maybe 4hrs on 350kW charger, but 7hrs one a 50kW charger.

While there are other niggles, the main problem is slow rapid DC charging, which is reported to take one hour to 80%. Out of spec reviews for this car the slowest charging car he had ever tested by a very large margin. Despite a peak rate of charge stated as 100kW, out of spec found while charging from empty started ok, by 40%, the rate on a xxkW charger had dropped to less than 50kW. and

No one is “blown away” and clearly this vehicle is not going to really shake up the car market, but if Toyota decide to try, and especially if software can fix the charging, they could sell in real numbers. While at this time it is too early to say what level of sales Toyota is even targeting, I will update once there is data.

BZ3: 2023.

In fact the BZ3 may even be released December 2022, but realistically, it will reach markets in 2023. This time the car will basically be a BYD under the skin. Outsourcing to the worlds largest maker of vehicles with a power point (as of mid 2022) can’t hurt. More information here.