Toyota Races For EV Reboot With Focus On Tesla

Toyota (7203.T) is considering a reboot of its electric-car strategy to better compete in a burgeoning market it has been slow to penetrate, and has stopped some work on existing EV projects, four people familiar with the still-developing plans said.

The proposals under evaluation, if approved, would amount to a significant shift for Toyota and amend the $38-billion EV rollout plan the Japanese automaker announced in 2021 to better compete with the likes of Tesla (TSLA.O).

A working group within Toyota has been entrusted with formulating plans by early 2023 for improvements to its existing EV platform or for a new architecture, the four sources said.

In the meantime, Toyota has halted work on some of the 30 EV projects announced in December, which according to sources and a document reviewed by Reuters include the battery-electric Crown and Toyota Compact Cruiser crossover.

Toyota said it was devoted to carbon neutrality but refused to comment on specific initiatives.

The company said in response to questions from reporters.

“In order to achieve carbon neutrality, Toyota’s own technology – as well as the work we are doing with a range of partners and suppliers – is essential.”

These four sources refused to be named because the plans have not been announced.

The revamp under consideration could slow the launch of EVs already on the drawing board. But it would also offer Toyota a chance to compete with a more efficient manufacturing process, as industry-wide EV sales exceed Toyota’s previous projections.

In addition, it would deal with criticism by environmental groups and green investors who argue that Toyota, once a darling of environmentalists, has been too slow to adopt electric vehicles. As part of a review, Toyota is considering a successor to its EV-building technology called e-TNGA, which rolled out in 2019. That would enable Toyota to cut down costs, the people said.

The first EV developed on e-TNGA — the bZ4X crossover — was released into the market earlier this year although its rollout was ruined by a recall that forced Toyota to halt production from June. Production resumed earlier in October.

Tesla As A Benchmark For Toyota

The review was prompted in part by the realization by some Toyota executives and engineers that Toyota was losing the factory cost war to Tesla on EVs, the sources said.

Toyota’s planning had supposed demand for EVs would not boom for several decades, the four people said.

Toyota developed e-TNGA so that EVs could be built on the same assembly line as hybrids and gasoline cars. That made sense formed on the assumption Toyota would require to sell about 3.5 million EVs a year – almost a third of its current global volume – by 2030 to remain competitive, the sources said.

But sales of EVs are rising faster. Automakers globally now predict plans for EVs to make up more than half of total vehicle production by 2030, part of a wave of industry-wide investment that now amounts to $1.2 trillion.

Toyota’s former chief competitive officer Shigeki Terashi is conducting the automaker’s EV review, according to six people with knowledge of the work, including two people immediate to Toyota. Terashi failed to reply to a request for comment.

Terashi’s team has been classed as a “BR” or “business revolution” group within Toyota, a term used for significant changes including a revamp of its production and development processes twenty years ago.

“What’s driving Mr. Terashi’s effort is the EV’s faster-than-anticipated takeoff and rapid-fire adoptions of cutting-edge innovations by Tesla and others,” one of the people said.

All six individuals refused to be identified because of the confidential nature of the plans. Terashi’s team is looking at an option to extend e-TNGA’s usefulness by combining it with new technologies, three of the sources said.

Terashi could also suggest retiring e-TNGA sooner and going for an EV-dedicated platform built from the ground up. That could take about five years for new models, two of the sources said. “There is little time to waste,” said one.

Toyota is working with suppliers and contemplating factory innovations to cut down costs like Tesla’s Giga Press, a massive casting machine that has simplified work in Tesla plants.

One area under review is a more thorough approach to an EV’s thermal management – combining, for example, electric powertrain temperature control and passenger air conditioning – that Tesla has already mobilized, the sources said.

This could enable Toyota to decrease the size and weight of an EV battery pack and reduce costs by thousands of dollars per vehicle, making it a “top priority” for Toyota suppliers Aisin and Denso, one of the sources with knowledge of the matter said. Aisin (7259.T) and Denso (6902.T) had no immediate comment.

The recognition within Toyota, the world’s leading automaker, that Tesla has imposed a new benchmark for EV manufacturing costs marks a serious reversal.

A decade ago when Toyota acquired a stake in Tesla and the two worked together to build a battery-electric version of the RAV4, most Toyota engineers thought Tesla’s technology was no threat, two of the sources said.

“They concluded back then there wasn’t much to learn,” one of the sources said.

Toyota halted production of the electric RAV4 in 2014 and sold its stake in Tesla in 2017.

By 2018, when Toyota finally set up a dedicated zero-emissions division and started developing an e-platform, Tesla already had three models on the road.