Weekly Brief: Sticking to ICE Guns May Shoot Toyota in the Foot

The largest carmaker in the world is finally ready for its first all-electric vehicle.

Toyota unveiled the bZ4X last week, an all-electric SUV jointly developed with Subaru. It will come in front wheel and all-wheel drive variants that offer a range of roughly 310 miles and 285 miles per charge respectively. In China, the vehicle will feature an optional yoke-style steering wheel. In some markets, a solar roof panel that helps to recharge the vehicle as it drives will also be available. The bZ4X will hit dealerships in Europe in late 2021 and in the US by mid-2022.

The real story here isn’t the bZ4X but why on earth it took Toyota so long to deliver it. Toyota was the first carmaker to put a hybrid on the consumer market when it launched the Prius back in 1997. In doing so, it linked its brand with forward-thinking consumers who proudly drove their cars as emblems of eco-friendly activism. The Prius is still the top-selling hybrid in US history by a wide margin. Why then is Toyota one of the last legacy carmakers to join the EV revolution?

The short answer is that Toyota made a bad bet back in the mid-teens. At the time it owned a 3% stake in Tesla and had just introduced its first production hydrogen fuel-cell vehicle, the 2016 Toyota Mirai. Toyota’s then senior vice-president for US operations, Bob Carter, criticized Tesla for having “all of its eggs in one basket”. The prevailing view at Toyota was that hydrogen fuel-cell vehicles represented the future of the auto industry and EVs wouldn’t find traction beyond a fringe following.

Toyota’s brand Lexus put out ads mocking EVs for taking too long to charge. “No charging means more driving,” became a tagline. Toyota sold its 3% stake in Tesla that year citing to cultural and strategic differences. In return, it pocketed roughly $538M. Had it chosen to hold onto that 3% stake, today it would be worth about $30Bn. Toyota’s present market cap is roughly $244Bn. Last week Tesla announced the largest single order of EVs in history, as rental car company Hertz announced a 100,000 bulk purchase of Tesla Model 3s that will be at airports and rental car lots around the country by the end of this year. That news boosted Tesla’s valuation north of $1Trn, making it more valuable than the next nine carmakers combined.

It’s safe to say that Toyota never saw this coming. Its CEO, Akio Toyoda, continues to be openly skeptical about Tesla and the broader EV revolution. “Tesla says that their recipe will be the standard in the future but what Toyota has is a real kitchen and a real chef,” he said last November when Tesla surpassed Toyota’s market cap to become the most valuable carmaker in the world. More recently Toyoda has argued that switching to manufacturing EVs will cause his company to fire too many employees who work the lines at ICE and hybrid manufacturing plants.

He might be right. BMW and Mercedes-Benz have had similar concerns about having to shed their workforces. Toyota’s belief that hydrogen fuel-cell technology is the better course for carmakers and the planet may be right as well. However, it’s also true that EVs have gained traction at a rate that Toyota completely underestimated. As a result, governments have rallied behind them, placing incentives for EVs and regulations against ICEs with an alacrity that Toyota never saw coming.

Just last week President Biden celebrated reaching a framework for his signature infrastructure bill that he says can pass both branches of US Congress. That framework includes a $12,500 tax credit for those EVs manufactured in the US ($5,000 more than the current credit). It also includes $7.5Bn to expand America’s EV charging network.

Toyota can look at a long list of historical correlations for titans of industry that got blindsided by unexpected technological revolutions. Think about the mainframe computer industry being upended in a matter of years by desktop and then laptop computers. A decade later, mobile phone makers got steamrolled by the smartphone revolution and those companies that were skeptical or slow to adapt (remember Nokia, maker of the best-selling mobile phone of all time? How about Motorola?) went the way of the Dodo. Both Nokia and Motorola, it’s worth noting, came out with smartphones of their own but their technologies ultimately couldn’t compete. Toyota has to be careful not to follow in the same footsteps.


2 comments

  1. Avatar Donald Williams 2nd November 2021 @ 5:33 pm

    Do we really think Tesla is going to deliver 100,000 Model 3s to Hertz in less than 60 days? It hasn’t delivered 100,000 cars in any quarter of its 13 year existence why should it start now?! Not even taking into account the backlog of up to six months on personal orders of consumers willing to pay full retail. To me it seems a puff piece to drive up stock price. Mission accomplished!

    • Avatar Craig 3rd November 2021 @ 5:54 pm

      Tesla delivered 241,300 vehicles in the third quarter. It has delivered over 100,000 vehicles a quarter since Q3 2020.

Leave a comment

Your email address will not be published. Required fields are marked *