Understanding Toyota’s electrification strategy

Happy Saturday morning, and thanks for tuning in.

This week, Toyota announced it would “supercharge” its Randolph County battery plant, bringing the company’s total investment to $13.9 billion and 5,000 jobs across a seven million-square-foot campus by 2030.

The announcement drew national attention because of its sheer size, and rightly so. By comparison, Apple’s planned RTP complex totals about $1 billion and 700,000 square feet of office space – a small fraction of the Toyota investment.

But the details of Toyota’s planned production lines add yet more intrigue to a strategic business decision that has garnered far less attention.

Whereas other automakers have, at least publicly, signaled they’re all in on fully electric vehicles, Toyota has been far more circumspect, focusing instead on a diverse array of “electrified vehicles.”

Has Toyota seen around corners other companies are just now noticing?

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“People are finally seeing reality,” Toyota Chairman Akio Toyoda said last week, just days before the company announced its additional $8 billion North Carolina investment.

It was an exclamation point on his long-held skepticism about the industry’s transition to fully electric vehicles. Nearly a year ago, Toyoda told reporters, “People involved in the auto industry are largely a silent majority. That silent majority is wondering whether EVs are really OK to have as a single option. But they think it’s the trend so they can’t speak out loudly.”

Rather than go all in on battery electric vehicles (BEVs), Toyota has continued investing in an array of electrified vehicles, especially hybrids.

In a bold (by corporate standards) communication to Toyota dealers in April 2023, the automaker explained its bearish outlook on BEVs in America.

First, a dearth of new mines and refineries for critical minerals will create “an imbalance between the raw materials and final production” of batteries.

Second, there are not enough public chargers for BEVs. To meet federal goals by 2030, the company notes, 400 new chargers must come on line each day. In 2021, the pace was just 50 per day.

Third, BEVs are more expensive than non-battery electric vehicles, and they require a $1,300 home charger to boot.

Perhaps most compellingly, the company argued that the raw materials necessary for one long-range BEV could instead create six plug-in hybrid electric vehicles or 90 hybrid electric vehicles. “The overall carbon reduction of those 90 hybrids over their lifetimes is 37 times as much as a single battery electric vehicle,” the communication concludes in bolded font.

It’s a rational math argument that accounts for consumer preferences and price sensitivities. In a potential effort to guard against complaints from environmentalists about eschewing an all-BEV, all the time model, Toyota has emphasized that its business decision will cut more carbon emissions and faster.

Consumer trends seem to support Toyota’s more conservative outlook. “Electric vehicles are winning headlines, but it’s hybrids that are winning buyers,” Kelly Blue Book reported in March. Of the 10 most-shopped electrified vehicles, BEVs accounted for just three. The rest were hybrids – and Toyota dominated the list.

Still, the company’s position puts it at odds with American regulatory edicts. Toyoda addressed this friction in a 2022 press conference: “As I see it, establishing regulations should be the final step. It is unfortunate that regulation inevitably leads the way, restricting the options for potential solutions. Personally, I’m not sure whether this is really the way to make end-users happy.”

In the same press conference, Toyoda said he views regulations requiring BEVs to account for half of all new cars by 2030 as “a tough ask…under current conditions, 50% looks difficult to achieve.”

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With that context, let’s revisit Toyota’s North Carolina announcement. The lead paragraph says the added investment “support[s] Toyota’s multi-pathway approach to global vehicle electrification.”

The “supercharged” plans for the site increase the number of battery production lines for BEVs and plug-in hybrids from two to 10. That’s in addition to the four planned battery production lines for traditional hybrid vehicles.

The North Carolina facility, then, will churn out batteries to power Toyota’s diverse array of electrified vehicles.

Toyota’s North Carolina battery plant is certainly leading the way on the company’s – and the state’s – transition to lower emissions. But Toyota’s diverse approach stands apart from the monolithic BEV-only narrative that’s consumed most media reports about the industry.

It seems probable that Toyota’s measured, long-term thinking will set the company apart once again. This time, the Triad will reap some of the rewards.