Toyota has triggered electric vehicle alarmism by announcing it will lower sales targets of its iQ EV hatchback to just 100 units of this all-electric vehicle (EV). The news came accompanied by some damning quotes, with Toyota head of vehicle development Takeshi Uchiyamada opining that the “capabilities of electric vehicles do not meet society’s needs.“ Many have been quick to misinterpret this as a new development – an unexpected vote of no confidence in EVs.
However, the reality is that Toyota has never pursued all-electric vehicles in earnest. While competitors were developing cars like the Nissan Leaf EV and Chevrolet Volt heavy plug-in hybrid (PHEV), Toyota instead opted to focus on more incremental hybrid electric vehicles (HEVs) and development of a light PHEV. It worked – the company hit a 2-million-unit home run with its Prius line of hybrids that now includes a light PHEV. In this context, Toyota’s hardly backing off its commitment to electrification generally – indeed, by 2015 it will offer 21 hybrids, tripling its current count.
Lux Research predicted this EV disappointment three years ago (see the report “Unplugging the Hype Around Electric Vehicles” — client registration required) and reinforced that take last year (see “Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market” — client registration required).” The reality is that HEVs and light PHEVs are simply far more economical now, given high battery costs, and will remain so for years to come. As a result, in 2020 sales of HEVs and light PHEVs with be 16 times greater than those of heavy PHEVs and EVs.
The announcement has several key implications. First, it reinforces the divide: Toyota’s hybrids and light PHEVs on one side, against Nissan’s EV (and Chevrolet’s heavy PHEV) on the other. Nissan has bet billions, and could be dealt a huge loss. Secondly, it means the world’s largest carmaker’s clearly defined strategy is an implicit rebuke to the investment by the U.S. and other governments in EVs and subsidies. The political fallout could be severe, especially following flops like Solyndra. Third, it paints the agreement with Tesla (jointly developing the RAV4 EV) as a hedge by Toyota rather than core to its strategy.
However, there are opportunities abound in the EV market, and Toyota is aware of this. Contrary to claims in the press of “misreading demand and battery technology“, this EV downsizing fits into a consistent long-term plan for Toyota: the Prius as a high-volume hybrid, the iQ and RAV4 EVs as “compliance vehicles”, and fuel cell vehicles a long-term goal. Other carmakers should follow suit: There is a solid opportunity for hybrids and light PHEVs and an excellent one for micro- and mild hybrids (see the report “Every Last Drop: Micro- And Mild Hybrids Drive a Huge Market for Fuel-Efficient Vehicles“ — client registration required).