Toyota's hybrid-first strategy is yielding huge profits


In today's high-tech, high-stakes auto industry, fortunes can change rapidly, and there is no better example of this than Toyota Motor.

Some time ago it seemed as if Toyota was lagging dangerously behind in the matter of electric vehicles. Electric car pioneer Tesla has grown rapidly and become the world's most valuable automaker. Seeing Tesla's success, other companies such as General Motors and Ford Motor concluded 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.

However, Toyota was more deliberate – or lazy, its critics would say. It has only introduced two fully electric models in the United States so far, betting that its gas-electric hybrid and plug-in hybrid vehicles, for which it is known, will remain popular and help combat climate change for the time being. Will be enough to address.

Amidst all the enthusiasm for electric vehicles over the past few years, Toyota didn't seem to get it.

“When I first heard about Toyota's strategy I was surprised because I could see what Tesla was doing,” said Earl Stewart, a Toyota dealer in Lake Park, Florida.

But over the past six months, sales of electric vehicles have slowed, and American car buyers are turning to hybrid vehicles looking to cut their fuel bills and tailpipe emissions. Now Toyota's sales are increasing rapidly and the company is earning 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. Developing technologies such as electric vehicles, advanced microchips and software are transforming a stagnant, slow-moving sector into a dynamic industry in which even fast-moving and well-run manufacturers can be swept aside.

Toyota, a Japanese company, is the world's largest automaker; It sold more than 11 million vehicles in 2023, six times more than Tesla. The company slowly climbed to the top of the industry 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 areas dominated by its Michigan-based rivals. Did, like, full-size pickup trucks.

A few times along the way, Toyota has bucked the industry's conventional wisdom. The introduction of its expensive Lexus brand in 1989 seemed 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 electric motor powered by batteries.

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 gasoline. Other automakers dismissed the car as a curiosity, but the Prius was a hit, and soon GM, Ford and others developed hybrids of their own.

Tesla's chief executive, Elon Musk, disdains 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 about 30 percent of its sales, which is much higher than most other automakers. Toyota sold 2.2 million vehicles in the US market last year – more than every automaker except GM.

In January and February, Toyota's U.S. sales rose 20 percent, driven 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 division. “They are. They're not the only solution, and a lot of our customers are telling us they want options – hybrids, plug-ins and EVs.

The strategy is succeeding. In the nine-month period starting last April, Toyota made $27 billion in profit, nearly double what it earned in the same period a year earlier. By comparison, Tesla's $15 billion profit in 2023 was about 19 percent more than its 2022 figure.

Investors have taken notice. The stock market now values ​​Tesla at less than half its peak market capitalization of $1.2 trillion in November 2021 as its sales are growing more slowly and the profit on each car is falling. Over the same period, Toyota's valuation has increased by nearly a third to nearly $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 be oscillating between a dullard and a genius based on the current state of thinking about technology,” he said. “But it doesn't matter, they still 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 gain market share from Toyota, Volkswagen and other foreign manufacturers.

Toyota has other problems, too. The company's Daihatsu subsidiary, which makes small cars, temporarily halted all production in Japan in December after it was revealed that it had cheated on safety tests.

However, for now, Toyota's deliberate pace is working overall and several other big automakers are getting closer to the company's path.

Mercedes-Benz, which had been hoping to phase out internal combustion models by 2030, said last month it had pushed that goal back by at least five years. Ford has lowered production targets for electric vehicles and is slowing construction at plants that are supposed to produce batteries for electric vehicles.

GM, which stopped selling hybrids in the United States to focus on electric vehicles, has delayed introducing some battery-powered models. Now it also plans to re-introduce hybrid and plug-in hybrid models, which the dealers had emphasized on.

Mary T. Barra, GM's chief executive, said in February, “Deploying plug-in technology in strategic areas will provide some of the environmental benefits of EVs as the country continues to build out its charging infrastructure.”

Electric vehicles have so far failed to win over many car buyers because they are generally more expensive than combustion or hybrid models, even after taking government incentives into account. The challenges of charging electric vehicles, range concerns and their performance in cold weather have also made some people hesitant.

Hybrids don't suffer from many of these problems. Some hybrid cars cost only a few hundred dollars more than similar gasoline cars – a premium that owners can quickly make up for in the form of fuel savings. Plus, the regular hybrid never has to be plugged in.

Plug-in hybrid models, some of which can travel more than 40 miles on electricity alone and have gasoline engines for longer trips, have much smaller batteries than electric vehicles and can be recharged relatively quickly. Could. But these vehicles, which make up a small portion of the market, may not be as economically or environmentally beneficial when driven long distances on gasoline alone.

Toyota plans to significantly increase hybrid production and sales. A hybrid version of its Tacoma pickup is coming out. The redesigned Camry sedan, due this spring, will be available only as a hybrid.

Mr. Hollis, the Toyota executive, said the company also will introduce a range of electric vehicles. About 30 models will arrive by 2026, when Toyota expects its U.S. electric vehicle sales to grow to about 1.5 million vehicles a year. Last year its sales were around 15,000.

In Florida, new Toyotas arriving at Mr. Stewart's dealership in South Florida barely make it far before they are sold. At the beginning of March, they only had about 150 vehicles in inventory, down from the 500 vehicles they had before the pandemic.

This has made no difference to customers who have become accustomed to waiting months after ordering vehicles. At one point last year, they 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 are lining up to buy from me.”


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