The surprise announcement that Toyota (TM -1.35%) CEO and President Akio Toyoda is stepping down from those roles offers the company's shareholders cause for cautious optimism.

The 66-year-old grandson of the company's founder will move into the role of company chairman, a shift that may give the automaker more flexibility to address some of its recent problems. Lexus President Koji Sato will take Toyoda's place as Toyota president and CEO on April 1, the beginning of the company's new fiscal year.

But investors' outlook on Toyota seems decidedly mixed despite the automaker's optimistic sales forecast for 2023. Its stock price is currently mired at the lower end of its 52-week trading range. And over the past year, it's down nearly 25%, while the S&P 500 is off by a little over 9%.

However, with the ascension of Sato as company president, odds are favorable that Toyota will finally address the competitive challenge posed by Tesla.

A careful response to electrification

Given Toyota's pioneering role in successfully marketing gas-electric hybrids, starting with the launch of the Toyota Prius in 1997, many expected the company's experience would give it an advantage in manufacturing and marketing pure-battery electric models as well. But Toyota has a market to protect; half of all hybrid vehicles sold in the United States in 2022 were either Toyotas or its Lexus luxury marque.

So it's little wonder that Toyoda remains among the fiercest opponents of pure battery electric technology -- the area where Tesla, not Toyota, leads. Toyoda believes that a better solution for his company is a mix of types of EVs, including gas-electric hybrids, plug-in hybrids, and fuel cell electric vehicles, which burn hydrogen to make their electricity.

As a result, Toyota has exactly one pure plug-in battery electric vehicle currently on the market: the Toyota bZ4X. That SUV has not been widely embraced by consumers, in part due to supplier shortages and a manufacturing glitch that led Toyota to halt production and recall all manufactured units. Since then, the bZ4X has resumed production.

But of the 504,016 electrified vehicles Toyota sold in the United States in 2022, a mere 1,220 -- less than one-quarter of 1% -- were pure-battery electric vehicles. That's a drop in the bucket, given that 809,739 EVs were sold in the U.S. in 2022.

Playing catch-up

Yet the ascension of 53-year-old Sato bodes well. Toyoda has charged him with transforming Toyota into a mobility company -- a strategy already being executed by other automakers.

But Sato will be saddled with plans developed by Toyoda, including an investment of tens of billions of dollars in EVs by the end of the decade. Among the items is a $3.8 billion EV battery manufacturing facility in North Carolina. By 2030, Toyota expects its global EV volume to reach 3.5 million annually. And given that Sato rose through the ranks under Toyoda's leadership -- and that Toyoda will maintain influence as company chairman -- it's unclear how radically or rapidly Sato will shift the automaker's strategy.

While Sato has stated that he plans to fast-track Toyota's electrification efforts, this most likely means that all of the company's EV plans will be reviewed, meaning any actions to electrify the lineup may be delayed even as competitors bring more of their own EVs to market.

Among Toyota's plans is one to develop a common vehicle architecture for all of its EVs -- a different one than the one currently being used for the Toyota bZ4X and the forthcoming Lexus RZ EV. But other automakers have not only developed common EV architectures, they're already selling cars that are built on them -- the Cadillac Lyriq, GMC Hummer, Hyundai Ioniq 5, Kia EV6, Nissan Ariya, and Volkswagen ID.4 among them.  

Current Toyota shareholders would be wise to hold onto the stock, given its price relative to its 52-week trading range. But they also should keep an eye on the profit-draining multibillion-dollar EV investments the company needs to make in order to catch up to the competition. While its well-respected brand supports its chances of success, nothing is guaranteed in the automotive business, so the next period ahead warrants watching.