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Toyota: Revving Up for the Future

It's the dawn of a new era for Toyota, the world's largest car company, holding a towering 11% share of the global market and a massive 18% here in Australia.

 

Toyota has long been a symbol of innovation and efficiency in the automobile world, but as the green revolution of the 21st century unfolds, Toyota needs to make a big decision.

 

Should they accelerate into the electric era, embracing the uncertainties and opportunities it brings? Or should they continue to rely on the internal combustion engines that have powered their success?

Welcome back to Strategy Standoff, where you'll discover which path Toyota is choosing behind the scenes, and how it might steer them into the future.

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Background: A Mammoth in the Automobile Industry

 

If you cast your mind back 25 years, you’ll recall Toyota first introduced the world to green, efficient motoring with their Prius—the first mass-produced hybrid car. Fittingly, Prius means “first” in Latin, signalling Toyota’s justified pride in their achievement.

The market penetration of electric vehicles (EVs) is increasing as governments incentivise uptake and penalise emissions from traditional internal combustion engine (ICE) vehicles. Trade estimates put the crossover point—where more EVs are sold than traditional cars—between 2028 and 2030. However many of these cars will be hybrid models that still have an ICE motor.

Until now, Toyota has stayed out of the pure battery EV (BEV) market where companies like Tesla and BYD reign.

 

But the February launch of the electric Toyota bZ4X (yes, that’s its name) signals a new direction, marking their biggest step forward into EV technology in years.

Most of Toyota’s lineup is still heavily weighed down by its popular petrol and diesel models, from Land Cruisers to Hi-Lux utes.

Will increasing pressure from governments and consumers force their hand to shift to battery electric vehicles and compete with market leader Tesla?

Toyota’s 21st Century Business Model

 

In response to growing pressures in 2019, Toyota CEO Akio Toyoda unveiled a new business model under the acronym "CASE": Connected, Autonomous/Automated, Shared, Electric. He reimagined Toyota not as a car manufacturer, but as a personal mobility provider.

But politics is hard in large companies and after 14 years as CEO, Akio Toyoda was suddenly replaced by Koji Sato, aged just 54.

The Strategic Challenge.

 

Sato-san faces a dilemma as new CEO.

As consumer preferences in major markets still lean towards larger, more powerful cars and utes, Toyota is at a crossroads. These beasts are hard to power with an all-electric setup, at a time when governments and activists are pressuring for an electric takeover at breakneck speed.

On the other hand, electrical grids to charge EVs are nowhere near the required maturity in sophisticated markets, let alone the growth centres of the coming decades, Africa and China.

Caught between evolving consumer desires and the urgent call for sustainability, Toyota must decide...


Should they look to the future and rapidly electrify their fleet, or keep their core vehicles running on the old reliable combustion engine?

The Strategy Standoff

Strategy A: Embrace Combustion Dominance

Keep most of Toyota's range powered by internal combustion engines (70% ICE) by 2035.

Under Strategy A, Toyota would continue to leverage its expertise and market leadership in ICE vehicles, including hybrids, recognising the current limitations of global EV infrastructure and the diverse needs of consumers worldwide.

 

This approach allows Toyota to maintain its stronghold in markets where electric vehicle adoption is slow and infrastructure is lacking. Capitalising on its existing manufacturing capabilities, extensive dealer network, and existing customer loyalty.

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Strategy B: Accelerate Electric Transition

 

Take inspiration from Toyota's Prius history and turn their range to mainly battery EVs (70% BEVs) by 2035.

With Strategy B, Toyota would aim to transform its vehicle lineup to predominantly electric by 2035. This would involve significant investment in research and development, battery technology, and the creation of a comprehensive range of BEVs to meet diverse consumer needs—from compact cars to SUVs and trucks capable of competing with models like Land Cruisers.

This would align Toyota with global environmental goals and respond to the increasing consumer demand for green vehicles. However, it would require substantial financial investment and come with uncertainty surrounding consumer acceptance and infrastructure readiness.

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So, Which Did They Choose?

Cast your vote to find out!

Good Job, Strategy A was chosen!

Better luck next time, Strategy A was chosen!

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But how will this work out for Toyota...

Expert Facilitator Commentary By Matt

Matt Braithwaite-Young

Managing Partner

t +61 2 9002 3100

Tesla and BYD can breathe easy. Toyota has no intention of sacrificing sales of in-demand product categories such as four wheel drives and ICE hybrids – at least for the foreseeable future. They’ve decided to continue to produce mainly internal combustion vehicles (albeit some with hybrid and plug-in features) with plans for only limited production of battery-only electric vehicles (BEVs).

 

Although governments of many advanced economies like Australia are encouraging uptake of battery EVs, deciding on a product mix gets more complicated for a global player with huge investments in factories producing ICE-engined cars.

 

Despite youthful CEO Sato talking up his desire to grow sales of battery vehicles, his straight-talking boss remains Aikido Toyoda. (Toyoda was happy for a new CEO to step in but maintained his job as Chairman of the Board and is still the top dog in the Toyota pound).

 

With a billion consumers living without electricity, Aikido believes ICE and hybrid cars have the major role in their range for the foreseeable future: "No matter how much progress [battery-electric vehicles] make, I think they will still only have a 30 per cent market share".

 

His new CEO Sato is talking more optimistically about BEVs, which is a sensible move given many governments are huge buyers of Toyota models and are publicly committed to BEV technology.

 

But he’s far from abandoning ICE models, saying: “We would like to… accelerate the shift to electrification and engage in car-making that responds to diverse values and local needs.”

 

Here in Australia, head of sales for Toyota recently quoted to a trade magazine:  “Sato-san… will accelerate battery-electric vehicles. We’re being honest with the market and saying not every part of the globe can do battery electric vehicles only."

 

The head of sales for Toyota in the US puts it even more directly:

"I don’t think the market is ready. I don’t think the infrastructure is ready. And even if you were ready to purchase one, and if you could afford it … (the price is) still too high … It took 25 years to get to less than 10% (market share) for hybrid … The consumer isn’t demanding (EVs) at that level. The consumer is not screaming, 30% or 40% by tomorrow."

 

So it looks like Toyota is not exactly making a BEV commitment to compete on all fours with Tesla and BYD – at least over the next decade.

 

However down under in Australia the charging infrastructure for battery EVs is nascent but it’s bound to improve. Toyota is clever and will introduce more BEV models in Australia, starting with the new bZ4X.

If you fancy a test drive: https://www.toyota.com.au/bz4x-ev
or... https://www.toyota.com.au/landcruiser-300

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