In today’s high-tech, high-stakes automotive industry, fortunes can change quickly, and there’s no better example of that right now than Toyota Motor.
Not long ago, it looked like Toyota was dangerously behind in electric vehicles. Tesla, the pioneer of electric cars, has grown rapidly to become the world’s most valuable automaker. Seeing Tesla’s success, other companies such as General Motors and Ford Motor concluded that large numbers of consumers were ready to switch to battery-powered cars and trucks, and began investing tens of billions of dollars to catch up.
Toyota, however, was more deliberate — or lethargic, its critics would say. It has introduced only two all-electric models in the United States so far, betting that its gasoline-electric and plug-in hybrid vehicles, for which it has become known, would remain popular and sufficient to tackle climate change for now.
Amidst all the excitement about electric vehicles in recent years, it seemed that Toyota just didn’t get it.
“I was shocked when I first heard about Toyota’s strategy because I could see what Tesla was doing,” said Earl Stewart, a Toyota dealer in Lake Park, Fla., who also enjoys driving a Tesla Model S.
But in the past six months, sales of electric vehicles have slowed, and American car buyers looking to cut their fuel bills and emissions are flocking to hybrids. Now Toyota’s sales are booming and the company is reporting huge profits.
“This isn’t the first time Toyota has proven me wrong, and it won’t be the last,” Mr Stewart said.
Toyota’s sudden strength is a reminder of how profoundly the auto industry is changing. The development of technologies such as electric vehicles, advanced microchips and software are transforming what was once a stable, slow-moving sector into a dynamic industry in which even fast-moving and well-run manufacturers can be derailed.
Toyota, a Japanese company, is the largest automobile manufacturer in the world. sold more than 11 million vehicles in 2023, six times more than Tesla. The company rose through the ranks of the industry slowly over half a century, first exporting small cars to the United States, then building factories in the South and Midwest, adding a luxury brand and expanding into segments dominated by its Michigan competitors, such as trucks full size.
Sometimes along the way, Toyota has bucked conventional industry wisdom. The introduction of the Lexus luxury brand in 1989 seemed like a risky bet until it outsold BMW and Mercedes-Benz. Twenty-one years ago, Toyota introduced the Prius, a small car with a compact gasoline engine and battery-powered electric motor.
The combination allows the Prius to travel 50 or more miles on a gallon of gas, and a plug-in hybrid model can make short trips without using gas. Other automakers dismissed the car as an oddity, but the Prius was a hit, and soon GM, Ford and others were developing their own hybrids.
Tesla CEO Elon Musk scorns hybrids, saying it doesn’t make sense to have two propulsion systems under the hood. Consumers don’t seem to care. Toyota offers more than two dozen hybrid or plug-in hybrid models, and they make up nearly 30 percent of its sales, far higher than most other automakers. Last year in the US market, Toyota sold 2.2 million vehicles — more than any automaker except GM
In January and February, Toyota’s US sales rose 20%, driven by an 83% increase in sales of its hybrid and plug-in models.
“We’re not saying EVs aren’t a good solution to carbon emissions,” said Jack Hollis, executive vice president of Toyota’s North American arm. “They are. It’s just not the only solution, and many of our customers are telling us they want options — hybrids, plug-ins and electric vehicles.”
The strategy is paying off. In the nine months that began last April, Toyota made a profit of $27 billion, nearly double its profit in the same period a year earlier. By comparison, Tesla’s $15 billion in 2023 earnings was about 19 percent higher than 2022 earnings.
Investors have noticed. The stock market now values ​​Tesla at less than half of its peak market cap of $1.2 trillion in November 2021 largely because its sales are growing more slowly and the profit it makes on each car is shrinking. Over the same period, Toyota’s valuation increased by about a third, to about $400 billion.
Mike Ramsey, an analyst at research firm Gartner, said Toyota’s hybrid strategy is strong and based on long-term logic, but changes in technology or the market could undermine the company’s future performance and position.
“Toyota seems to oscillate between dull and genius, depending on the current state of thinking about technology,” he said. “But no matter what, they still seem to sell more cars and trucks than anyone else.”
One big market where Toyota is struggling is China, the world’s largest car market. Many Chinese car buyers are opting for electric vehicles, helping domestic automakers such as BYD gain market share from Toyota, Volkswagen and other foreign manufacturers.
Toyota has other problems as well. Daihatsu’s subsidiary, which makes small cars, temporarily halted all production in Japan in December after it revealed it had cheated on safety tests.
For now, though, Toyota’s deliberate pace seems to be working overall, and several other major automakers have moved closer to the company’s path.
Mercedes-Benz, which had hoped to phase out internal combustion models by 2030, said last month it had pushed back that goal by at least five years. Ford has lowered production targets for electric vehicles and is slowing building factories that are supposed to make batteries for electric vehicles.
GM, which had stopped selling hybrids in the United States to focus on electric vehicles, has delayed the introduction of some battery-powered models. It also now plans to bring back hybrid and plug-in hybrid models, which dealers had been pushing for.
“The deployment of plug-in technology in strategic segments will deliver some of the environmental benefits of EVs as the nation continues to build out its charging infrastructure,” GM Chief Executive Mary T. Barra said in February.
Electric vehicles have so far failed to win over many car buyers because they are generally more expensive than combustion models or hybrids, even when government incentives are taken into account. The challenges of charging electric vehicles, concerns about their range and performance in cold weather have also caused some people to hesitate.
Hybrids don’t face many of these problems. Some hybrids cost only a few hundred dollars more than similar gasoline cars—a premium that owners can quickly recoup in fuel savings. Plus, regular hybrids never need to be plugged in.
Plug-in hybrid models, some of which can travel on electricity alone for more than 40 miles and have a gasoline engine for longer trips, have much smaller batteries than electric vehicles and can be recharged relatively quickly. But these vehicles, which make up a small part of the market, may not be as economically or environmentally beneficial when driven long distances on gasoline alone.
Toyota has plans to significantly increase production and sales of hybrids. A hybrid version of the Tacoma pickup is on the way. A redesigned Camry sedan, due this spring, will be available only as a hybrid.
The company will also offer a range of electric vehicles, said Mr. Hollis, the Toyota executive. About 30 models will arrive by 2026, when Toyota hopes sales of its electric vehicles in the U.S. will have grown to about 1.5 million vehicles a year. Last year it sold about 15,000.
In Florida, the new Toyotas that arrive at Mr. Stewart’s South Florida dealership barely make it onto the lot before they are sold. As of early March, it had only about 150 vehicles in stock, down from the 500 it carried before the pandemic.
This did not deter customers who are used to waiting months after ordering vehicles. At one point last year, it had 1,300 vehicles on order and customers for all of them.
“I’ve been selling Toyotas since 1975 and business is better than ever,” he said. “People line up to buy from me.”
