Toyota To Unveil Revamped BEV Strategy (NYSE:TM)

Toyota Motor Corp. (NYSE:TM) has placed itself in the crosshairs of the mainstream media and environmental activists with its corporate strategy to achieve carbon neutrality by 2050, which emphasizes the sale of models using a variety of engine technologies, including gas-electric hybrids, gasoline and BEVs.

The mainstream media such as The New York Times and non-governmental groups such as Public Citizen favor an accelerated push to emissionless BEVs, an approach favored by General Motors Co. (GM), Ford Motor Co. (F) and other global automakers. An automaker’s price tag for an all-out push to BEVs as quickly as possible is steep, upwards of $50 billion to design new models, build battery plants and develop mineral resources that currently are in short supply.

Toyota has embarked on an approach that relies heavily on energy-efficient gas-electric hybrids because, in Toyota’s view, an insubstantial public charging infrastructure – as well as a presumed consumer hesitation to switch to BEVs – makes a company’s huge investment in BEVs too big a financial risk. Meantime, Toyota has introduced its first BEV, the bZ4x, in the U.S. The new BEV, which was recalled almost immediately with mechanical problems, has been conferred mediocre reviews.

Defensive crouch

Meantime, the automaker has been placed on the defensive for its more conservative stance toward BEVs. Akio Toyoda, the automaker’s president and chief executive, in December said:

I believe we need to be realistic about when society will be able to fully adopt Battery Electric Vehicles and when our infrastructure can support them at scale. Because just like the fully autonomous cars that we were all supposed to be driving by now, I think BEV’s are just going to take longer to become mainstream than the media would like us to believe. And frankly, BEV’s are not the only way to achieve the world’s carbon neutrality goals.”

At the same time, Toyota evidently has concluded that its BEV strategy can be improved. Suppliers to Toyota will be meeting with the automaker in February, at which time they will learn about revisions to its BEV strategy.

Toyota has been revising a $30 billion, three-stage plan for developing and releasing EVs it announced late last year, Reuters reported in October. Realization that Tesla vehicles are simpler to build and more profitable has, in part, triggered Toyota’s rethinking.

Competitive pressure

According to Reuters, which reported on the supplier meeting in a story on Dec. 12, the revisions are meant to close the gap in vehicle competitiveness with models by industry leader Tesla and China’s BYD. A strong possibility is that Toyota will its intention to create a new BEV vehicle architecture, which eventually will replace the current one on which bZ4X and the soon-to-introduced Lexus RZ luxury BEV are based.

Toyota New Generation Architecture (TNGA) used for gasoline and gas-electric hybrid models like the Toyota RAV4. A modified TNGA, called e-TNGA, permitted the BEVs to be manufactured on the same assembly lines as conventional models.

A new architecture, designed and optimized for BEVs only, would pave the way for major structural changes to the vehicle and possibly dictate a separate assembly line and permit a less costly manufacturing process. Because the TNGA architecture must accommodate an engine in the front of the vehicle, space is needed ahead of the cabin and for supporting structures that protect occupants in case of an accident.

In BEVs, the battery – the heaviest component of the power train – is located under the vehicle. Thus, with Tesla and other BEV-dedicated vehicle architectures, the front compartment can be smaller and lower, allowing more room for passengers and better use of space. Additionally, Toyota is understood to be considering a new centralized computing format – employed by Tesla and a few others – rather than a distributed electrical format, with separate controllers for features such a windows, lights, infotainment center and so forth.

What soon may become is clear is whether Toyota will accelerate introduction and production of BEV models once a new strategy has been decided. Toyoda has said that because resources for batteries are limited worldwide, his company can actually limit more emissions by emphasizing sale of gas-electric hybrids – which require a smaller battery – instead of concentrating scarce resources to produce BEVs, which need large batteries.

Toyoda has argued that the future of carbon reduction will be best served by a number of different technologies, not exclusively by zero-emission vehicles. He believes that his viewpoint on batteries is widely shared in the automotive industry – though it isn’t openly expressed.

Mr. Toyoda told reporters during a visit to Thailand, as reported in The Wall Street Journal:

People involved in the auto industry are largely a silent majority. That silent majority is wondering whether EVs are really OK to have as a single option. But they think it’s the trend so they can’t speak out loudly.

Toyota shares have been battered over the past year, down about 26% in value – mostly a consequence of the overall fall of the market since the Federal Reserve decided to tighten credit. GM and Ford each have each lost significantly more value, 44% and 45% respectively.

With a dividend paying nearly 3%, Toyota shares at the current price appear to be a superior value among global automakers – in large part because the company’s carbon reduction strategy is measured, sensible and low risk.

Toyota is weathering a storm, partly comprised of macroeconomic headwinds and partly from a court of public opinion heavily influenced by media and non-governmental organizations. Akio Toyoda is proving to be a flexible, analytic leader who – while sticking to his guns – is double-checking all options to ensure his company’s bright future in an automotive world moving toward fewer emissions and, eventually, none at all.

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