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Toyota‘s Evolving Electric Vehicle Strategy: Cautious Progress and Calculated Bets

As the world‘s largest automaker, Toyota has been a pioneer in electrified vehicles for decades. The Prius hybrid, launched in Japan in 1997, revolutionized the industry and remains the best-selling hybrid worldwide with over 15 million units sold.[^1] But in the race to develop pure battery electric vehicles (BEVs), Toyota has been more of a tortoise than a hare.

While rivals like Tesla, Volkswagen and General Motors are rapidly scaling up BEV production, Toyota has taken a more measured approach. The company currently offers just one BEV, the bZ4X crossover SUV, alongside a handful of plug-in hybrid (PHEV) and hydrogen fuel cell (FCEV) models. Toyota executives have openly questioned whether consumer demand for BEVs will grow as quickly as some competitors expect.[^2]

However, there are signs that Toyota is starting to pick up the pace on electrification. The company plans to invest $70 billion in EVs over the next nine years and aims to sell 3.5 million BEVs annually by 2030.[^3] That would represent a major shift for a company that sold fewer than 1,000 BEVs worldwide in 2021.[^4] Let‘s take a closer look at Toyota‘s evolving EV strategy and what it means for the future of transportation.

The bZ4X: Toyota‘s First Modern BEV

Launched in mid-2022, the bZ4X represents Toyota‘s first serious entry into the modern BEV market. Co-developed with Subaru, the bZ4X is a compact crossover SUV designed to compete with the likes of the Tesla Model Y, Ford Mustang Mach-E, and Volkswagen ID.4.

Specification bZ4X
Range 250-400 miles (400-500 km)[^5]
Battery 71.4 kWh
Power 215 hp
Torque 248 lb-ft
0-60 mph 7.7 seconds
Starting Price $42,000

The bZ4X offers competitive specs and pricing for its segment but has faced some early challenges. In June 2022, Toyota issued a global recall of 2,700 bZ4Xs due to a risk of the wheels falling off.[^6] The issue was quickly resolved but it was an embarrassing setback for a company known for reliability. There have also been reports of reduced DC fast charging speeds in cold weather, a problem that affects many EVs but one that Toyota will need to address.[^7]

Despite these hiccups, the bZ4X is a solid foundation for Toyota‘s future BEV efforts. The company has hinted that the "bZ" (beyond zero) branding could be used for a family of up to seven new BEV models by 2025.^8 Toyota has also developed a flexible e-TNGA platform that can be used for a wide range of BEV body styles and sizes.[^9]

Hedging Bets on Hybrids, PHEVs and Hydrogen

While Toyota is starting to get serious about BEVs, it‘s not abandoning other electrified vehicle technologies. In fact, the company believes that a mix of hybrids, PHEVs, BEVs and FCEVs will be needed to meet the diverse needs of consumers and reduce global carbon emissions.[^10]

Toyota has long been a leader in hybrid technology and continues to see growth potential in this segment. The company sold over 2 million hybrid vehicles in 2021, accounting for nearly 30% of its global sales.[^11] Models like the Prius, Camry Hybrid and RAV4 Hybrid remain popular with consumers looking for fuel efficiency without the range constraints of BEVs.

Toyota also offers several PHEVs, which can drive short distances on electricity before switching to hybrid gas-electric power. The RAV4 Prime and Prius Prime are among the best-selling PHEVs in the U.S., thanks to their combination of efficiency, performance and flexibility.[^12] Toyota sees PHEVs as an important transitional technology as BEV costs come down and charging infrastructure expands.

Perhaps more controversially, Toyota continues to invest heavily in FCEVs powered by hydrogen. The Mirai sedan, launched in 2015, is one of only two retail FCEVs currently available in the U.S. Toyota believes that hydrogen has advantages over batteries in terms of range, refueling speed and scalability for larger vehicles like trucks and buses.[^13]

However, the lack of hydrogen fueling stations remains a major barrier to FCEV adoption. There are currently only 48 public hydrogen stations in the U.S., compared to over 50,000 EV charging locations.[^14] Toyota is working with partners to expand hydrogen infrastructure but it will be an uphill battle. Critics argue that FCEVs are a distraction from the more urgent need to scale up BEV production.[^15]

Innovating for the Digital Age

While Toyota may be playing catch-up in the BEV race, it‘s no stranger to innovation. The company has a long history of pioneering new technologies and business models, from the Prius to the Mirai to its investments in robotics and artificial intelligence.[^16]

In recent years, Toyota has been focusing on digitalization as a key enabler of its electrification strategy. The company has developed a suite of connected car services called Toyota Connected that use big data and machine learning to optimize vehicle performance, safety and convenience.[^17] For example, the Predictive Maintenance service can detect potential issues before they cause breakdowns, reducing repair costs and downtime.[^18]

Toyota is also investing in over-the-air (OTA) software updates, which allow vehicles to receive new features and improvements remotely. The bZ4X is Toyota‘s first model with OTA capability, which could help address issues like the charging speed problem more quickly and efficiently.[^19] Other automakers like Tesla have demonstrated the value of OTA updates for keeping vehicles up to date and improving the customer experience over time.

Looking further ahead, Toyota is exploring new business models and revenue streams enabled by electrification and digitalization. The company has launched a Mobility Services Platform that includes car sharing, ride hailing, and subscription-based leasing.[^20] These services could help Toyota tap into the growing demand for flexible, on-demand transportation, especially in urban areas.

Accelerating the Electric Future

As battery costs continue to fall and charging infrastructure expands, the market for BEVs is expected to grow rapidly in the coming years. BloombergNEF projects that BEVs will account for 10% of global passenger vehicle sales by 2025, up from just 2.7% in 2021.[^21] By 2040, BEVs could represent over half of all new car sales worldwide.[^22]

Toyota‘s cautious approach to BEVs has put it behind some competitors in the near term. The company ranked 10th in global BEV sales in 2021, far behind leaders like Tesla, Volkswagen and GM.[^23] However, Toyota‘s massive scale, strong brand, and proven ability to innovate could help it catch up quickly as the market matures.

In addition to expanding its own BEV lineup, Toyota is also partnering with other companies to accelerate the transition. In China, Toyota has a joint venture with BYD to develop and produce battery electric sedans and SUVs.[^24] In Europe, Toyota has teamed up with Stellantis to design and build compact BEVs for the Japanese and European markets.[^25] These partnerships could help Toyota spread the costs and risks of electrification while tapping into new markets and technologies.

Ultimately, Toyota‘s success in the electric future will depend on its ability to balance innovation with pragmatism. The company needs to move faster on BEVs to keep up with changing consumer preferences and regulatory pressures. At the same time, it can‘t afford to abandon its core strengths in quality, reliability, and efficiency. By leveraging its scale, expertise, and partnerships, Toyota has the potential to become a leader in the electric age, just as it did with hybrids.

The road ahead is not without challenges and uncertainties. The global supply chain disruptions, geopolitical tensions, and economic headwinds could all impact the pace and direction of electrification. But one thing is clear: the future of transportation is electric, and Toyota will need to adapt and innovate to stay ahead of the curve. With the right strategy and execution, the Japanese giant could help drive the world towards a cleaner, smarter, and more sustainable future.

[^1]: Toyota Passes 15 Million Hybrid Electric Vehicles Sold Globally
[^2]: Toyota exec: EVs not the only answer that will meet environmental goals
[^3]: Toyota to invest $70B in electrification efforts
[^4]: EV Data Center
[^5]: 2023 Toyota bZ4X
[^6]: Toyota recalls electric cars over concerns about loose wheels
[^7]: Toyota bZ4x charging speed is reduced even at moderately cold temperatures

[^9]: Toyota e-TNGA Platform
[^10]: Trying to go all-electric by 2035 would cost Japan over $100bn a year
[^11]: What Percent Of Toyota‘s Global Sales Are Hybrids And Plug-in Hybrids?
[^12]: 10 Best-Selling Plug-in Hybrids In The United States In 2022
[^13]: Toyota‘s Hydrogen Car Business Is Going from Strength to Strength
[^14]: Alternative Fueling Station Locator
[^15]: Hydrogen Cars: A Distraction On The Road To Electrification
[^16]: From pioneering the Prius to using AI for engine design, Toyota continues its journey of innovation
[^17]: Toyota Connected: Bringing Big Data to Cars
[^18]: Introducing Toyota‘s Predictive Maintenance in Sweden
[^19]: Toyota‘s first EV with a steering yoke enables over-the-air software updates
[^20]: Toyota Launches New Mobility Ecosystem and Concept Vehicle
[^21]: Electric Vehicle Outlook 2022
[^22]: Hydrogen Cars: A Distraction On The Road To Electrification
[^23]: Global Plug-in Vehicle Sales December 2021
[^24]: Toyota and BYD launch new EV company with FAW
[^25]: Toyota and Stellantis to jointly develop large commercial vans for Europe