Toyota Will Send Its Hybrids To The Breaker’s Yard

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MELBOURNE, Dec 14 (Reuters Breakingviews) – Toyota Motor (7203.T) will make another major strategic shift in the coming months. The $250 billion Japanese carmaker in December dramatically increased its electric-vehicle ambitions. But the company run by Akio Toyoda is still devoting as much investment to hybrid vehicles. That is about to change.

Like rival Nissan Motor (7201.T), Toyota has become an electrification laggard, ceding the early lead the Prius hybrid model gave it 25 years ago. Now, after a series of announcements in September and December, it intends to spend $35 billion on batteries and electric vehicles. That’s double Nissan’s recent underwhelming target, but still shy of the 73 billion euros Volkswagen (VOWG_p.DE) has committed.

Nonetheless, Toyoda now reckons his company can sell 4 million pure electric vehicles a year by 2030 – double the amount forecast just three months earlier. That would be impressive.

He has not, however, let go of Toyota’s love of hybrid engines. These are slated to account for another 4 million vehicles sold in nine years’ time. Toyota is also dabbling in hydrogen technology for passenger cars, even though that’s better suited to large trucks and buses. The carmaker argues such technologies can effectively reduce pollution, and was one of several that refused to support a COP26 pledge to stop selling gasoline-powered vehicles by 2040 read more . It has also lobbied hard against purely electric propulsion requirements and more stringent tailgate emissions standards, the Sierra Club points out.

Its lobbying pressure appeared to pay off in Australia, where Toyota enjoys a 20% market share. The government’s “Future Fuels Strategy”, unveiled in November at the company’s Hydrogen Centre in Melbourne, assumes hybrids will make up most of the electric cars on the country’s roads by 2030. But that would only cumulatively reduce transportation greenhouse gases by just one month’s worth of emissions at 2019 rates. read more

Until recently, shareholders didn’t sweat these points. Aside from the occasional blip, Toyota’s stock over the past decade generally traded between 9 and 12 times forward earnings estimates, well ahead of traditional rivals, as befitting its market-leading pre-tax margin.

Then EV-touting Ford Motor (F.N) and General Motors (GM.N) started to gain on Toyota’s valuation, despite far lower projected margins, per Refinitiv data. That may have sparked Toyoda into action. Sending his hybrid-heavy strategy to the breaker’s yard would allow for an even smoother ride.

(This is a Breakingviews prediction for 2022. To see more of our predictions, click here.)