How Long Can Toyota Put Off Figuring Out EVs

Outside of EVs, Toyota is doing not only fine, but great. While it has lagged behind even old-school competitors in transitioning its production lines to all-electric models, the past year made that look smart. Demand for electric cars continued to grow, but not as quickly as the $3 trillion auto industry had wagered while pouring untold billions of dollars into their development. Toyota’s products, meanwhile, were about two-thirds internal combustion, one-third hybrid and 0.1% electric, and it cleaned up. It pulled further ahead of its longtime rivals (Volkswagen, Hyundai, GM) and is estimated to have sold more than 11 million vehicles in 2024, compared with 1.8 million for Tesla and 4.3 million for BYD (1.8 million of which were electric). Chairman Akio Toyoda has insisted on a “multi-pathway strategy,” which in practice has meant hybrids, gas-guzzlers and even hydrogen-powered cars. Although Toyoda, who’s 68, ceded the role of chief executive officer to former Lexus boss Koji Sato in 2023, the chairman’s word remains the one that matters.

Toyoda has fiercely defended his multi-pathway strategy as a function of customer demand, but there’s something personal to it as well. Apart from his family legacy, he’s a lifelong fan of race cars and, as he said at the Tokyo Motor Show some years back, “the smell of gasoline and a lot of noise.” His commitment to old-school automaking has left Sato, the newish CEO and a veteran Toyota engineer, to figure out the details of securing the company’s future without massively overhauling its present.

When he took the CEO job in 2023, Sato promised Toyota would sell 1.5 million battery-electric cars in 2026. At this point, that’s looking more like a fantasy. But occasional peeks inside Toyota’s facilities have suggested something resembling a game plan. 

It’s not just Toyota that’s having trouble future-proofing itself. GM, the leader among Detroit’s Big Three automakers, has walked back its pledge to go all-electric by 2035. Ford, which has set up a separate electric division, has put some of its EV strategy on hold. Volkswagen AG is investing as much as $5 billion in electric startup Rivian Automotive Inc., which is a long way from paying off. Rivian has been losing an average of $39,000 on every vehicle it sells.

There is, of course, a precedent for Toyota’s leadership in this area. It’s called the Prius. Kids who grew up in one can scarcely imagine how radical it was in the late 1990s to combine a gas engine with an electric motor to get nearly 50 mpg in a mass-market car. The added complications effectively doubled the cost of the drivetrain over conventional models and guaranteed Toyota would lose money on every hybrid sold for years. This move was, in many ways, seemingly anathema to TPS. But Hiroshi Okuda, the firebrand who was Toyota’s president and then chairman for about a decade starting in the mid‑’90s, pushed to spend the money to diversify the company’s technology and footprint.  Okuda has since largely disappeared from official company histories. He broke ranks by opposing the Toyoda family’s return to control.

Today there’s a Toyoda who’s been tasked with thinking boldly. Daisuke, Akio’s son, is senior vice president at a subsidiary working on self-driving technology and other longer-term bets. But right now that’s not where Toyota is headed. Instead, earlier this year the company announced it’s working on a whole new class of internal combustion engines that will one day be able to burn different types of liquid fuel, including cleaner ones such as hydrogen. Toyota says the engines’ smaller size and higher output will make them ideal for next-generation hybrids.

“We know there will be critics who think, ‘Why now?’ ” Nakajima, the CTO, said from the sidelines of a Le Mans-style endurance race at Fuji Speedway this spring. “We know EVs are the future. But until we get there, we’re going to keep trying to get better at what we do best.”