A recent Reuters report states that to better compete in a booming sector it has been slow to enter, Toyota (TM 0.22%) has temporarily halted the $38 billion electric vehicle (EV) rollout that it had previously announced in order to reconsider its long-term electrification strategy.
A critic of EVs despite rising sales
As I previously noted, the industry's swiftly accelerating move away from internal combustion engines hasn't won over President Akio Toyoda.
Currently, the company holds the top spot in the world for manufacturing gas-electric hybrids. In the third quarter, Toyota sold almost 100,000 hybrids. Half of all hybrid vehicles sold in the United States in 2022 are a Toyota. With that sort of market share, it's little wonder that Toyoda remains among the fiercest opponents of pure battery electric technology. Earlier this month, he told reporters that battery electric vehicles "are just going to take longer than the media would like us to believe."
This places Toyota at a disadvantage in its attempts to compete with market leader Tesla, as well as rivals like General Motors and Volkswagen, both of which are stepping up their own electrification efforts. Fully electric vehicles sales have been increasing far more quickly than even skeptics had anticipated, growing to 6% of U.S. auto sales in the third quarter of 2022, up from 2.2% during the same period in 2020.
A change of heart and an about-face
Nevertheless, the company seemed to have bowed to the inevitable in December 2021 when it announced a plan to spend $38 billion to bring 30 battery electric vehicles to market by 2030. But the strategy called for a mix of powertrains, including conventional gas-electric hybrids, plug-in hybrids, hydrogen fuel cell vehicles as well as EVs. The company also planned to transform Lexus into a fully electric brand in North America by 2030. As if to prove its intentions for the sector, the company rolled out its first EV earlier this year, only to halt production and recall all of the models to correct a product defect. It restarted production in early October.
Then came the Reuters report, which quotes anonymous sources within the company as saying Toyota is examining whether to change its recently launched electric vehicle platform or engineer a new one.
Why it matters
The fallback is notable for a company that perfected lean production, which led to its dominance of the auto industry. But the company's advantage is one Toyota lags Tesla in establishing the benchmark for EV production costs. The world's automakers have been envying and emulating Toyota for decades, but the company is no longer a leader in electrification. That honor falls to Tesla, which is now the target of every other automaker worldwide.
As Toyota reshuffles its plans and decides what it should build, most of its biggest competitors already sell EVs and have more on the way. Toyota engineers and management realize it's Tesla, not Toyota, that's setting the standard for EV production costs, which is one reason management's is reassessing its electrification plan.
While the company remains among the world's largest automakers, it's going to have to invest billions of dollars in EVs to catch up with leading American, European, and even Korean automakers that are already ahead in the market.
If you own the stock, it remains one to hold as it remains the world's largest automaker. Its market position and profitability should continue. Although it can be challenging to foresee the end of an era, this appears to be it. For those betting on an automaker to lead the EV future, Toyota does not appear to be one to buy now.
