In today’s high-tech, high-stakes auto industry, fortunes can change quickly, and there’s no better example of that today than Toyota Motor.
Not long ago, Toyota seemed to have fallen dangerously far into electric cars. Tesla, the electric car pioneer, has grown rapidly to become the world’s most important automaker. Seeing Tesla’s success, other companies, such as General Motors and Ford Motor, decided that a large number 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, is more deliberate – or lazy, its critics will say. It has introduced only two fully electric models in the United States so far, betting that its gas-electric hybrid and plug-in hybrid vehicles, for which it has become known, will remain popular and sufficient to meet climate change today.
Amidst all the enthusiasm for electric cars in recent years, Toyota seems to have missed it.
“I was surprised 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 his 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 tailpipe emissions have flocked to hybrids. Today Toyota’s sales are booming, and the company is reporting big profits.
“This isn’t the first time Toyota has proven me wrong, and it won’t be the last,” said Mr. Stewart.
Toyota’s sudden surge is a reminder of how profoundly the auto industry has changed. The development of technologies such as electric cars, advanced microchips and software is turning the once stable and slow sector into a dynamic industry where even fast-moving and efficient manufacturers can be thrown off course. .
Toyota, a Japanese company, is the largest automaker in the world; it sold more than 11 million vehicles by 2023, more than six times more than Tesla. The company climbed the industry ranks slowly over half a century, first exporting small cars to the United States, then building factories throughout the South and Midwest, adding a luxury brand and expanding into segments dominated by its Michigan-based rivals, such as full-size pickup trucks.
Several times along the way, Toyota has bucked conventional industry wisdom. The introduction of his high-end Lexus brand, in 1989, seemed like a risky bet until it overtook BMW and Mercedes-Benz in sales. Twenty-one years ago, Toyota introduced the Prius, a small car with a compact gasoline engine and an electric motor powered by a battery.
The combination allows the Prius to go 50 or more miles on a gallon of gas, and a plug-in hybrid model can make short trips without using any fuel. Other automakers dismissed the car as a curiosity, but the Prius was a hit, and soon GM, Ford and others developed their own hybrids.
Tesla’s chief executive, Elon Musk, despises hybrids, saying it makes no 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 about 30 percent of its sales, higher than most other automakers. Last year in the US market, Toyota sold 2.2 million vehicles — more than every automaker except GM
In January and February, Toyota’s US sales rose 20 percent, boosted by an 83 percent 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. They’re not the only solution, and many of our customers are telling us they want choice — hybrids, plug-ins, and EVs”
The strategy pays off. In the nine-month period beginning in April, Toyota earned $27 billion, nearly double what it earned from the same period last year. By comparison, Tesla’s $15 billion revenue in 2023 is about 19 percent higher than its 2022 figure.
Investors took notice. The stock market now values Tesla at less than half its peak market capitalization of $1.2 trillion in November 2021 in large part because its sales growth is slower and its profit per car is falling. During the same period, Toyota’s value 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 harm the company’s future performance and status.
“Toyota seems to oscillate between dullard 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 like BYD to gain market share from Toyota, Volkswagen and other foreign manufacturers.
Toyota has other problems, too. The subsidiary of the Daihatsu company, which produces small cars, all production was temporarily halted in Japan in December after it was revealed that it had cheated on safety tests.
For now, however, Toyota’s deliberate pace seems to be working across the board and many other big 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 was pushing that goal back by at least five years. Ford has lowered production targets for electric cars and is slowing construction at plants that are supposed to make batteries for electric cars.
GM, which has stopped selling hybrids in the United States to focus on electric vehicles, has delayed the introduction of some battery-powered models. It is also now planning to reintroduce hybrid and plug-in hybrid models, pushed by dealers.
“Deploying plug-in technology in strategic segments will deliver some of the environmental benefits of EVs as the country continues to build out its charging infrastructure,” said GM chief executive Mary T. Barra in February.
So far, electric cars have failed to win over many car buyers because they are generally more expensive than combustion or hybrid models even when government incentives are taken into account. The challenges of charging electric vehicles, concerns about range and their performance in cold weather have also made some people skeptical.
Hybrids don’t face many of those issues. Some hybrids cost just a few hundred dollars more than comparable gasoline vehicles — a premium that owners quickly recoup in fuel savings. In addition, regular hybrids do not need to be plugged in.
Plug-in hybrid models, some of which can travel on electricity alone for more than 40 miles and have gasoline engines for longer trips, have smaller batteries than de- electric vehicle and can be recharged relatively quickly. But these vehicles, which make up a small portion of the market, may not be as financially or environmentally beneficial when driving long distances on gasoline alone.
Toyota has plans to significantly increase hybrid production and sales. A hybrid version of its Tacoma pickup will be released. A redesigned Camry sedan, due this spring, will only be available 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 expects its US electric vehicle sales to increase to about 1.5 million vehicles a year. Last year it sold around 15,000.
In Florida, the new Toyotas that arrived at the dealership of Mr. Stewart in South Florida barely made it to the lot before they were sold. At the beginning of March, he had only about 150 vehicles in inventory, down from the 500 he used to carry before the pandemic.
That hasn’t deterred customers who are used to waiting months after ordering cars. At one point last year, he had 1,300 cars on order, and customers for all of them.
“I’ve been selling Toyotas since 1975, and business is better than ever,” he said. “People lined up to buy from me.”
