Transitions don't always mean great things for a company's stock as a new CEO's start can sow doubt among investors. But the appointment of Lexus boss Koji Sato as Toyota Motor (TM 0.78%) CEO promises to reverse the negativity surrounding the stock under current CEO Akio Toyoda. We have already stated why the change will be good for Toyota, but new developments have only reaffirmed what we've said earlier.
Toyota's pioneering role in successfully marketing gas-electric hybrids has led it to favor that powertrain even as demand for pure battery electric vehicles (EVs) continues to grow. But Toyota has a market to protect. Half of all hybrid vehicles sold in the United States in 2022 wore either the Toyota or Lexus brand.
New production plans
But reports have surfaced suggesting that's in the past. While Sato isn't scheduled to assume the role of chairman until April 1, his touch is already being felt. The Nikkei wire service reports that Toyota is planning to produce EVs at its Georgetown, Kentucky plant as soon as 2025, with half-year volumes expected to reach 10,000 units. More optimistically, the company expects to sell 1 million electric vehicles in 2026.
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Key Data Points
But beyond investing in manufacturing in the U.S., the Japanese automaker is also investing in its own battery manufacturing facilities. It plans to spend $3.8 billion on a new battery "megasite" in North Carolina to produce batteries for EVs and hybrids in the U.S., enabling domestic production of all required EV parts from manufacturing to final assembly as it battles both Tesla and China's BYD.
This would not only lead to economies of scale, but would also allow its EVs to become eligible for a $7,500 federal tax credit under the revised rules of the Inflation Reduction Act.
Still room at the table
Toyota currently offers two EV models: The Toyota bZ4X and the Lexus RZ, the latter just about to reach dealer showrooms. But both are built using a vehicle architecture originally designed for conventional internal combustion engine cars. Toyota now plans to build a unique scalable electric vehicle architecture for its future EVs, a practice already realized by Hyundai Motor Group's Hyundai Ioniq 5 and Ioniq 6 and the Kia EV6, as well as General Motors' BrightDrop Zevo 600 commercial van, Cadillac Lyriq, and GMC Hummer EV Pickup.
While Toyota may seem late to the electric vehicle marketplace, it's not. EVs accounted for 10% of global new vehicle sales in 2022, and 5.8% of new sales in the United States. As there aren't many mainstream EVs available at mainstream cost, those who are now purchasing EVs are early adopters.
So no one really knows how much the EV market will expand. Furthermore, there is still a lot of money to be generated from gas-fed internal combustion engines, considering that Toyota produced 10.5 million vehicles in 2022. This ensured that the company retained its position as the world's top-selling automaker for a third straight year. In comparison, second-place Volkswagen Group retailed 8.3 million vehicles during the same period.
And there is still plenty of time for Toyota to enter and build its presence in the EV market. Our advice to investors remains stronger than ever. Given the multi-billion-dollar EV investments Toyota must make in order to catch up to the competition, investors who presently own Toyota stock would be prudent to hang on to the shares. For those with a long time horizon, this makes for a good long-term play.
