Toyota Risks Irrelevance If Major EV Pivot Isn’t Quickly Implemented

A week ago, the biggest manufacturer in the world — Toyota — finally acknowledged that electric vehicles are the way of the future when it issued two significant statements. However, it might be a little bit late for a company that revolutionized manufacturing 50 years ago.

The first revelation was about Toyota creating a committed electric vehicle platform following its terrible, ill-fated BZ4X venture. The next was about Akio Toyoda, the current CEO of Toyota, stepping down in April, paving the way for a new leadership team that will propel Toyota into a new chapter of what the ideal transportation system should look like.

Toyota offers little in a market that is transforming swiftly. All-electric vehicle sales in Germany as well as in the United Kingdom hit 33% in December, rising from no more than 10% in the two countries just two years prior. In December of last year, BEVs accounted for 25% of the Chinese market, compared to only 5% over the previous two years.

Due to the complexity of the automotive industry, expanding current production is significantly simpler and quicker than creating new lines of production for novel items. Considering that only 0.2% of Toyota’s manufacturing is made up of electric vehicles, this presents a serious issue. Even though Toyota is the biggest automaker across the globe, it isn’t among the 20 top producers of electric vehicles.

As of October, Toyota had sold approximately 14,000 BEVs worldwide, a rate of production below 20,000 units annually, compared to BYD’s 911,140 and Tesla’s 1,310,000 BEVs in 2022. In the UK and Germany, completely electric vehicles currently make up one-third of new vehicle sales. As the year ends, this might reach 50%. In Norway, the BEVs’ sales market share increased from 30% in 2018 to 80% in 2022. That translates into a 50% market share in only five years. That means Toyota will lose approximately one-third of the market it can serve in these nations.

Given the rapid growth of the electric vehicle market, before Toyota launches its electric vehicle lineup in 2027 or 2028, BEVs will account for almost 50% of all new vehicle sales, and practically none of these vehicles will come from Toyota.

For Toyota, the situation is significantly worse. As customers become more conscious of the transformation going on, Cathy Wood of Ark Invest forecasts that all-electric vehicle sales will account for 90% of auto sales worldwide in 2027, collapsing the demand for gas-powered vehicles.

Will Toyota make a miraculous shift to electric vehicles? It is challenging to increase car production significantly. Despite an unprecedented growth rate, Tesla needed nine years to comfortably produce one million electric vehicles per year. Assuming Toyota can produce BEVs at the same rate as Tesla, BEV output will reach only a million units in 2031, which would still amount to a 90% decline in Toyota’s sales.

Toyota’s ability to withstand the present EV revolution is unclear. This is the sobering reality that Koji Sato, Toyota’s new CEO, must face as startups such as Atlis Motor Vehicles Inc. (NASDAQ: AMV) position themselves to exploit any gaps that the legacy carmakers delay to leverage.

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