Toyota: When ‘Electrified’ Doesn’t Mean Electric (NYSE:TM)


Hybrid vehicles from Toyota

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I keep seeing more evidence that Toyota (NYSE:TM) senior management is not “getting” the message about electrification of transport, notwithstanding that its carefully-constructed messages seek to convey that they are actually on board with electrification of transport. Here I summarize very recent news about Toyota making a major investment in battery construction in North Carolina, which at first sight looks like a new intention by Toyota to at last embrace the BEV (Battery Electric Vehicle). Closer inspection suggests otherwise. The lack of engagement with electrification and insistence on staying with vehicles that contain an ICE (Internal Combustion Engine) is now seriously at odds with the rest of the industry, although the Japanese government remains compliant. This is a time for Toyota investors to consider whether continued shareholding, based on an assumption that Toyota will be able to eventually catch up with the rest of the industry, is a good idea.

Toyota to build a battery factory in the US

This week there have been reports of expansion of a major investment in battery production in Toyota’s North Carolina facility TBMNC (Toyota Battery Manufacturing North Carolina). It’s a big deal involving now a total of $5.6 billion, meaning 2,100 jobs and batteries for hybrids and capacity for BEVs in the US. Note that the funding also includes battery manufacture in Japan. Production in the US is scheduled to start in 2025. The way the press has interpreted the announcement is that this is about batteries for BEV, and indeed the Toyota announcement has “BEV” in the headline. So it isn’t surprising that the response to Toyota’s announcement about investing in battery manufacture in the US has been seen as confirmation that Toyota’s laggard status of not participating in the switch to the BEV is changing. The reality is that in the fine print Toyota makes clear that this is mostly about batteries for its hybrid vehicles (with an ICE).

Note what Toyota says in the fine print:

By 2025, Toyota’s 14th plant in North Carolina will begin to manufacture automotive batteries for electrified vehicles. With more electrified vehicles on the road than any other automaker, more than a quarter of the company’s 2021 North American sales were electrified.”

Just to be clear Toyota is selling essentially no BEVs in the US (or anywhere else). Almost all of its “electrified” vehicles are hybrids with an ICE. It makes a big deal of the Toyota Hybrid.

A statement reported from Toyota is as follows: “This investment is aimed at enabling Toyota to flexibly meet the needs of its various customers in all countries and regions by offering multiple powertrains and providing as many options as possible.” The company claims that hybrids are a valid way to reduce emissions, but the vehicle still gets all of its power from a gasoline engine.

I became sensitized by Toyota’s use of the term “electrified” when I attended an immersive art exhibition in Melbourne, Australia, for which Toyota was a primary sponsor. Toyota had a striking presentation which was titled “Live forward with Lexus electrified.” It sounded like Toyota finally acknowledged the BEV and was beginning to participate in electrification, which means exit from the ICE. However, the accompanying statement made clear that Toyota has no such intention. The accompanying text said: “It’s time to reimagine the way you move and live, with the Lexus UX250h Hybrid. After more than 15 years of perfecting hybrid vehicles, our commitment to pioneering electrification remains. The result? A vehicle that delivers a blend of fuel efficiency and exhilarating power, with reduced emissions and no need to plug in. Experience the feeling of seamless performance with fewer emissions and a Hybrid vehicle that charges as you drive. Every movement, intuitive and confident. Every journey, exhilarating and meaningful. Your future starts now.”… and the car on display was a Lexus UX250h hybrid vehicle….

Call me skeptical, but the major announcement about battery manufacture in the US seems quite similar, with clear focus on building batteries for hybrid vehicles. This is not electrification as there’s still an ICE in the vehicle.

Statistics from Japan on “electric” vehicles

It looks like the Japanese Government is coming into line with other countries concerning clean energy vehicles as it has a target that all new car sales in Japan will be environmentally friendly by 2035. The Japanese government refers to these vehicles as Clean Energy Vehicles (CEVs). The fine print shows that these vehicles include BEVs (Battery Electric Vehicles), PHEVs (Plug-in Hybrid Electric Vehicles) and FCEVs (Fuel Cell Electric Vehicles) and HEVs (Hybrid Electric Vehicles), although HEVs are not eligible for CEV subsidies. Dig into the statistics and you see that in 2020, 97.8% of new “electric” vehicles sold are in fact HEVs, which generate all of their power through burning gasoline. Just 1.1% of “electric” vehicles were PHEVs, with 1.1% being BEVs and 0.1% FCEVs.

The above statistics make clear that Japan is not accepting the end of the ICE (Internal Combustion Engine) era, and this is clearly in part due to Toyota’s lobbying.

What Toyota means by “electrified” vehicles

In 2021 Toyota (including Lexus) sold 9,615,157 vehicles worldwide. Of these 2,621,925 were “electrified” vehicles (27.2%). Toyota provides a breakdown on its “electrified” vehicle sales. “Electrified” vehicles were largely HEV (Hybrid Electric Vehicle) (94.7%). PHEV (Plug-in Hybrid Vehicles) comprised 4.3% of “electrified sales,” while BEV (Battery Electric Vehicles) comprised 0.5% of “electrified vehicle sales and FCEV (Fuel Cell EV, hydrogen) comprised 0.2% of electrified vehicle sales.

The key point about Toyota’s hybrids is that almost all are exclusively powered by burning gasoline. The ICE in the car charges a battery. There’s no possibility of avoiding use of gasoline in more than 94.7% of Toyota hybrids. There’s a small group of plug-in hybrids whose batteries can be charged by plugging into the grid, but these vehicles have a battery that can only power the vehicle for a short distance. And then there’s a tiny number of true BEVs and even smaller number of hydrogen-powered cars.

The point about the switch from ICE to BEV is to end use of gasoline and a major part of not only transport but also total emissions. This parallels electrification of power grids through solar PV and wind so that emissions are very small in the power sector, which is a second major source of emissions due to combustion of coal or natural gas.

I don’t understand the use of the term “electrified” as it relates to hybrids. Most people think of electric cars as those powered solely by batteries.

Recall of the first serious BEV release by Toyota

To reinforce my skepticism about Toyota’s commitment to electrification and the BEV, one has to wonder what’s going on with its first serious BEV release. Toyota is the biggest car maker in the world, yet it recalled its global release of the BZ4X BEV in June, within two months of launch and the BZ4X remains recalled. The problem is associated with wheels possibly falling off. It’s clear that BEVs have very high torque capacity, but there are millions of BEVs on the road now, so surely the world’s biggest and most successful car maker can resolve this problem? Toyota is offering customers an outright buyback of the vehicle or exchange vehicle until the problem is resolved. Why is it taking so long?

Toyota promotes a new performance hybrid with 28 mpg fuel consumption

Given the above commentary about Toyota’s direction on its “electrified” vehicle sales, it’s perhaps not surprising that it recently promoted its latest Crown Platinum full-sized sedan performance hybrid that has 28 mpg fuel efficiency. This brings the concept of “electrified” motoring close to the absurd.

Toyota performance hybrid

Toyota Crown performance hybrid (Toyota)

Crown Platinum hybrid : Source Toyota

Toyota and hybrids in India

Toyota has a longstanding argument with the Indian Government about its (Toyota’s) insistence on maintaining ICE vehicle manufacture, which it seeks to designate as “electrified” through selling hybrid vehicles with an ICE and small battery. Toyota has not been successful in its Indian hybrid strategy, but it has not given up and now plans to sell cheaper hybrids with some manufacture in India.

The recent announcement concerning Volkswagen’s partnership with Mahindra & Mahindra on 5 BEV vehicles to be implemented on the Volkswagen MEB electric vehicle platform, with a goal of 1 million BEVs during the life of the partnership, is an indication as to the thinking of the Indian Government

BEVs are taking over from hybrids

To reemphasize that Toyota is the outlier in the switch from ICE to BEV, hybrids are clearly losing out as the world switches to the BEV (with no ICE). Conventional hybrids in particular are under threat. This type of hybrid covers ~95% of Toyota’s “electrified” vehicles.

Is there enough electricity to run fully electrified ground transport?

Toyota’s underlying theme is that it delivers to customers what they want (except that they aren’t giving their customers a choice about BEVs because they essentially don’t have them in their product lineup). A subtext of this is that in many parts of the world electricity doesn’t work and you need gasoline powered cars. This is why Toyota keeps trying to get the Indian government to accept their hybrids and treat them like BEVs.

It’s worth investors taking time to understand what is happening with electricity grids. Jay14150 is doing the hard number crunching on this and his findings are amazing. For example when he compared June 2021 with June 2022 power supply to the Texan grid, he found that MWh of power produced were flat for coal (slight decline) and gas. With renewables, wind was up 26% and solar up 50%… this is about power actually delivered to the grid.

More generally in the US, offshore wind is just getting started but there are 34 projects with 28 GW of capacity in the planning. This is a whole new source of clean, reliable power that is coming. China will have 1,200 GW of renewables by 2030 and India 450 GW. These are powerful statistics that indicate that grid electrification is underway. Sure there will be challenges and it will take time, but the momentum is building for electrification of both power and transport.


It’s a dog-eat-dog world. When you are on top and things change, if you don’t change you don’t stay on top. Investors in top dogs often think that they can’t go wrong with “tried and true.” Look no further than the confidence of Exxon Mobil (XOM) investors about the company that has given them good times for what seems like forever. Exxon is still on top, but the way things are moving it clearly can’t stay there because their products have to stop being used. Same story for Toyota. Both Exxon and Toyota are still the leading companies in their respective industries, but it can’t last. Investors need to look at reality and not what senior managements of both companies are trying to project. The world is changing fast. UK group InfluenceMap analyses how the automotive sector is responding to climate change through electrification of transport. The Japanese auto industry is the worst performer in terms of zero emissions vehicles and climate policy engagement. Toyota is ranked last of 12 major auto manufacturers on performance and organization engagement in climate policy. Time is running out. This is a time for Toyota investors to consider whether Toyota is any more a suitable company for investment in the auto industry.

I’m not a financial advisor but I follow closely the massive shift from the internal combustion engine to full electrification of transport. I hope that my comments are of interest to you and your financial advisor as you consider investment in Toyota.

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