Here at CleanTechnica, we haven’t been big fans of Toyota. Most recently, Steve Handley wrote a fine article about Toyota’s CEO (and the grandson of its founder) is saying that thousands of jobs will be lost if we move to electric vehicles (EVs). What Toyota’s CEO seems to miss is that more jobs will be lost if he doesn’t move to EVs. In this article, I’ll talk about some of Toyota’s advantages and how it can leverage them to survive this very difficult time for all traditional automakers. I know some of you want to see Toyota fail for some of the actions it has taken to slow the electrification of the industry (and you may very well get your wish), but that isn’t what this article is about. This article is about how Toyota could pivot in a way that is different from other automakers. The “easy” thing for me to write would be that Toyota should be just like Volkswagen and develop a broad plan to produce state-of-the-art electric vehicles. I think it needs to do that, but that will take 5 or more years to produce some good results. Toyota needs a plan to survive until then, because this market is shifting to electric vehicles quickly, even more quickly than I imagined was possible.
A Parallel Between IBM & Toyota
I worked for IBM for 13 years in the ’80s and ’90s and think Toyota’s situation is in some ways similar to IBM’s back then. IBM in the ’80s was more dominant than Toyota is today. It had higher sales than several of the nearest competitors combined. I believe it was that extreme dominance that led to many of its troubles.
It is hard to get people to change when you are winning. Likewise, Toyota is winning (maybe not this year, but for the last 50 years). IBM bet on hardware when the money was in the software. It put money into its marketing when its competitors put it into their products. IBM considered its marketing people to be its competitive advantage and saw its software developers as somewhat of a commodity that could be outsourced or easily replaced by offshore talent. IBM has barely survived the last 40 years in a very high growth industry and has failed to grow at all. If you adjust IBM’s sales for inflation, the company has shrunk. Through cost-cutting, milking its past successful products for all their worth, and spending huge amounts of money on stock buybacks, IBM has been able to keep the stock stable. Companies that have more ideas than money go to the capital markets to finance those ideas. Companies that have more money than ideas buy back their stock. IBM has been right to buy back its stock, since it doesn’t really know how to develop new products anymore.
Toyota, after it has lost face and been humbled, will need to take a similar route. It will need to aggressively cut costs and break promises it has made to its executives, workers, and even cities if it wants to survive. It is also possible that the Japanese government will bail out the workers, or maybe the workers and the company. Toyota still has a good reputation with many customers (it has upset environmentalists after being their hero 20 years ago with the Prius, but it still has many fans that it can leverage to survive this transition).
Steps I Recommend For Toyota
Toyota has not done the work to roll out the EVs it needs to be competitive with early adopters in many markets, but it does have a lead in hybrids and should use that lead to survive until it has the time to develop the EVs it needs. Here are steps I recommend:
- Put an electric motor in every car as quickly as you can ramp up production. For example, as I covered in this article when Toyota designed the Sienna Minivan, the company decided it might as well make it a hybrid as standard equipment. Although that adds a couple thousand dollars in additional costs for the small battery and electric motor, it can save money by providing additional power for the car at key times without adding a turbo. It also gets 50% better fuel mileage, cutting fuel costs by $10,000 over the life of the vehicle. Furthermore, it reduces emissions, which helps the company’s public image, and in regions like Europe that fine you for having high emissions, it saves you real money.
- As I discussed in this article, making serial hybrids in which the gas engine has no connection to the wheels and just acts as a generator has certain advantages. You are converting all your accessories to electric (water pump, air conditioning, brake assist, steering assist, etc.). This is helping your suppliers prepare for an EV future more quickly. A serial hybrid doesn’t need an expansive transmission and Toyota could greatly reduce costs on engines by having just 1 or 2 simple generators that run at a constant speed when electricity is needed. Serial hybrids need small batteries about the same size as Toyota’s parallel hybrids.
- As they get more battery supply, they can convert more models to plug-in hybrids, which as I discussed in this article, can greatly reduce fossil fuel use and emissions, if people plug them in. In general, I don’t think a plug-in is worth the hassle if you can’t put in 30 miles of range or so. Many of the incentives governments give also require a battery of a certain size or a certain range, so don’t make a plug-in hybrid unless you can meet those requirements.
- Toyota is experienced in being the last to offer something. When the Detroit big 3 abandoned sedans a few years ago, Toyota kept making a full line of sedans (it recently announced it is discontinuing the Avalon). When people who were lifelong Chevy buyers went to buy a new sedan, they were forced to go to Toyota, Honda, VW, or Mazda, since Chevy quit selling most of its sedans. Likewise, as many brands quit selling gas cars, those not ready to switch to electric will flock to brands like Toyota that still offer cars that run on gas (even if they are hybrids). This won’t make up for all the customers that Toyota will lose by not having EVs, but it could help Toyota.
Today, Toyota has the Sienna and Venza as hybrid-only models. The Corolla, Camry, RAV4, and Highlander all offer hybrid models and the RAV4 offers a plug. Toyota could drop the non-hybrid models as it can and do some work to enable serial hybrids for many of these vehicles. You have to wonder if the Prius should just be combined with the Corolla at this point — it has lost its value as a way to signal your environmental concern. Anyone who is a leader in reducing emissions has long since left that brand. [Editor’s note: I think there still are a lot of people who think they’re being green by buying a Prius and just think BEVs are niche or too expensive and not practical enough yet. Though, the number is certainly declining every day. —Zach]
The painful truth is Toyota sales are going to go down significantly and there is nothing Toyota can do about it now. The company should have invested in one or more EV platforms a few years ago. It needs to dramatically reduce engineering costs by dropping its research into fuel cells and most engine and transmission development (other than a generator for serial hybrids and plug-in hybrids). If it cuts expenses now before it is in financial trouble, that will give the company the money it needs to invest in future technologies, but if it continues to waste billions on gas engines and hydrogen fuel cells, it’s unlikely the company will survive without a massive bailout.
Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], and Xpeng [XPEV]. But I offer no investment advice of any sort here.