Toyota's Misjudgment on EV Demand: A Closer Look at the Future
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The Rise of Electric Vehicles
Electric Vehicles (EVs) are gaining significant traction, with sales increasing rapidly as automakers globally strategize to transition towards electric models. The Biden administration has recognized this trend, setting an ambitious target for the U.S.: aiming for 50% of all vehicle sales to be electric by 2030.
In a recent webinar, however, a prominent figure at Toyota expressed skepticism about this goal, stating, “I don’t believe the market is prepared. The infrastructure isn't ready either. Even if one is willing to purchase an EV, the prices are still too high.” Jack Hollis, Toyota North America's executive vice president of sales, asserted that the demand for EVs is insufficient to meet these targets.
Toyota's Longstanding Skepticism
Toyota’s skepticism towards EVs isn't new. From the onset of the electric vehicle movement, the company has consistently opted to invest in alternative technologies. In 2013, shortly after the first mass-market EVs were introduced by competitors like GM and Nissan, Toyota made it clear it had no plans to enter the all-electric vehicle sector. Chairman Takeshi Uchiyamada stated, “The reason Toyota does not introduce any major all-electric vehicles is that we do not believe there is a market for it.”
Three years later, the company established a small in-house development team for EVs, but their primary focus remained on Fuel Cell Vehicles (FCVs) that run on hydrogen and hybrid models. While hybrids offer better fuel efficiency compared to traditional vehicles, they still rely on gasoline.
FCVs versus BEVs: A Comparison
Unlike plug-in hybrids, standard hybrids merely enhance fuel efficiency but do not eliminate gasoline dependence. FCVs are closer to being a viable alternative to Battery Electric Vehicles (BEVs) since hydrogen can be generated using renewable sources—though that isn’t currently the case. In the early 2000s, many believed FCVs were the future of clean transportation.
FCVs boasted advantages over BEVs, such as comparable driving range to gasoline vehicles and quick refueling times. Toyota heavily invested in this technology, launching the Mirai in December 2014 when they had no BEVs available for sale. However, as technology advanced, the shortcomings of FCVs became more pronounced, while the benefits diminished.
BEVs allow for home charging and utilize existing electricity infrastructure, enabling early adopters to buy these vehicles before extensive public charging stations were developed. This demonstrated demand encouraged both private companies and governments to invest in building public charging networks.
In contrast, FCVs face a significant hurdle: without a network of hydrogen fueling stations, their usability is severely limited. This created a paradox—without FCVs on the roads, investing in hydrogen stations was a gamble with no assurance of return, leading to a lack of such infrastructure.
The Shift Towards BEVs
As BEV technology improved, the advantages of FCVs in terms of range and refueling times became less significant. Many BEVs now offer competitive ranges and quick charging capabilities, with some models charging in under 20 minutes. Additionally, unlike BEVs, FCVs do not offer savings on fuel costs compared to gasoline-powered vehicles, which is a primary reason consumers switch to electric alternatives.
By 2009, the U.S. Department of Energy shifted focus away from FCVs, and automakers began to downscale their FCV projects in favor of BEVs. Today, the market for FCV passenger vehicles is nearly non-existent, with only two models—the Toyota Mirai and Hyundai Nexo—available, selling just a few thousand units annually.
Conversely, the demand for plug-in electric vehicles skyrocketed, with 6.6 million units sold globally in 2021, accounting for 8.6% of total vehicle sales, the majority being fully electric models.
Toyota's Changing Strategy
In response to the soaring demand for BEVs, Toyota began to adapt its strategy. In November 2016, they set up an in-house development team, albeit with minimal staffing—just four engineers. This was a tacit acknowledgment that they could no longer ignore the technology.
By 2017, Toyota targeted the production of one million zero-emission vehicles by 2030. However, they included both FCVs and BEVs in this target without specifying the production breakdown. This indicated their continued preference for FCVs.
In May 2021, Toyota raised this target to two million zero-emission vehicles annually by 2030, yet again without distinguishing between FCVs and BEVs. Later, in December 2021, they announced a new target of producing 3.5 million BEVs by 2030, marking a significant pivot in strategy and showing a newfound seriousness towards BEVs.
Despite these shifts, some of Toyota's executives have expressed doubts about the feasibility of EV adoption. Recently, Hollis reiterated that there is insufficient demand to meet the Biden administration’s goal. He cited inadequate charging infrastructure as a key issue. While it is true that current infrastructure cannot support the projected sales, the target is eight years away, allowing ample time for necessary developments.
Demand vs. Supply: A Misunderstanding
It is crucial to recognize that demand for EVs has not been the limiting factor; indeed, the number of potential buyers often exceeds the availability of vehicles. Many EV models currently have waiting lists stretching months or even years. This raises the question of whether supply constraints pose a more significant risk than demand deficiencies based on historical patterns.
Perhaps the most compelling argument against Hollis’s claims is Toyota's own track record. The company has frequently underestimated the demand for BEVs, rapidly revising its targets upwards within short timeframes.
Once again, we find a Toyota executive asserting that demand for BEVs is lacking. Whether this assertion will hold true this time remains to be seen, but skepticism from Toyota has historically proven to be misplaced.
Chapter 2: Perspectives on Toyota's Future in EVs
The first video, titled "Toyota's CEO just CALLED OUT the EV industry // Here's why EV is a 'waste' of investment dollars," discusses Toyota's ongoing skepticism towards electric vehicles and provides insights into their strategic direction.
In the second video, "Toyota down 11% in China in 1H of 2024 - Lexus EV 'Don't buy it!'", the decline of Toyota in the Chinese market is examined, emphasizing the challenges they face in the EV sector.