How Does Toyota Motor Corp. Plan to Build Cars for Future Generations?

Sensing the future of autos in advance, Toyota is molding its offerings to suit the needs of today's youth as they become adults, and take the lead over its peers.

May 24, 2014 at 8:31AM

The world of cars as its stands today will undergo a sea change in the next 20 years, and only those automakers that are able to turn this change into opportunity will survive. Oil and gas major BP's "Energy Outlook 2035" and other studies throw up some pretty amazing predictions:

  • Hybrids would rule the market by 2035, constituting 67% of sales.
  • Plug-in-hybrids and electric vehicles, or EVs, will take around 7% of the market share in 2035.
  • Sales of conventional vehicles will decline by around 75%.
  • Low-emission vehicle market will expand by 30.3% between 2012 and 2017. 

These facts indicate that green cars could be the future of the auto industry, and it's difficult to think about eco-freindly cars without thinking of Toyota (NYSE:TM). The Japanese auto major was the first to mass produce a hybrid, the Prius, back in 1997, and is a leader in the field. It has a fleet of electric vehicles, and is pioneering fuel cell vehicle technology. Let's take a look at Toyota's playbook.

Source: Toyota

Toyota is the biggest seller of hybrids; global sales reached more than 6 million by end of 2013. It sold 2,302,000 hybrids in North America since the first-generation Prius was launched here in 2000. Over the years, Toyota has customized the Prius to suit American tastes -- the car has grown bigger in size, offers more features, and is available in several models.

Though there's no doubting Prius' cult status in hybrid circles, its aging looks have faced flak and has put a mild brake on its growth. Honda (NYSE:HMC) Accord overtook Prius in the first quarter of this calendar year by a small margin (around 293 units) to get to the top sales position in California, America's green car capital.  

To keep competition at bay, Toyota is constantly revving up things. The company will redesign the Prius for the 2015 model year -- the car will sport better looks and may create some new records with fuel economy. expects combined mileage to touch 55 miles per gallon.

At the Frankfurt Autoshow in Europe last year, Toyota displayed its hybrid line up, ranging from Yaris, Auris, Auris Touring Sports, to the Prius plug-in hybrid. The company is a leader in hybrid in Europe with Toyota and Lexus brands holding 75% of the market share. 

Source: Toyota

The automaker has an aggressive plan for the future as it looks to launch 15 new or refurbished hybrid models globally. This will add to the 23 hybrid Toyota and Lexus models it boasts of. The company is leveraging on the envious lead it has taken over all other automakers.

Electric vehicles go one step up on hybrids in reducing CO2 emissions. Toyota has introduced a plug-in Prius 2014, adding to its EV offerings that include the RAV4 EV, and is even testing wireless recharging.

RAV4, Source: Toyota

Though Toyota has its share of electric vehicles, the shortcomings of the battery-enabled powertrains and a lukewarm response from buyers to EVs made the company constrain its future plans. The unpopularity has even led the Obama administration to drift from its plan to have 1 million EVs on the U.S. roads by 2015.

Knowing Toyota, it couldn't have just stopped at the pitfalls -- it has a viable Plan B, which brings us to fuel cells.

Toyota is betting big on fuel cell technology and has put in extensive research and resources into it. In simple words, a fuel cell is like a power plant where hydrogen and oxygen mix together to produce electricity. The advantages of fuel cell vehicles compensate for the major disadvantages of the battery-run EV:

  • It can cover a longer range and is competitive with hybrid and conventional models.
  • It can refuel in the same time taken by a gasoline car -- five minutes.

Toyota debuted its FCV Concept in the Tokyo Motor Show in November and at the Consumer Electronics Show in Las Vegas in January. The car can go 300 miles on full tank, catch speed up to 60 miles per hour in 10 seconds, and get refueled in three to five minutes. It will go on sale in 2015. Honda is also ready to launch its own hydrogen car for the masses in 2015, and both Japanese automakers are looking to sell around 1,000 cars each annually according to Japanese news agency, Nikkei.

The hydrogen cars will be launched in the American, European and Japanese markets, with a price tag in the range of $50,000-$100,000. Nikkei has reported that prices could be at the higher end of the range but the carmakers are trying to get it down to a more affordable level with time. If Toyota can do with the FCV Concept what it did with the Prius, it can get a head start over its peers.

Wrapping up
Toyota is quick to identify trends and capitalize on them. The carmaker knows that hybrids are here to stay and so it's going at the segment full bore, to take lead at such a level that leaves competitors gasping. While it's still early to predict the future, Toyota's shift from EVs to FCVs could be another example of its foresight. And all this while it keeps adding to revenues and profits.

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4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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