Timing matters. When it comes to planning the transition to electric vehicles, several Japanese automakers may have gotten it right, despite appearing to be lagging at first.
Rather than rushing headlong into electric vehicles, Toyota, Honda and Mazda have focused on hybrid vehicles as a more practical transition, achieving great success. Both have enjoyed rising hybrid sales, which has helped them achieve record or near-record profits. This places them in a good financial position to invest in electric vehicles today, with the aim of entering the fray in earnest in the second half of this decade.
Meanwhile, EV sales growth, while still strong, has slowed recently, prompting Ford and GM to scale back their production plans. That’s partly because a first wave of EV enthusiasts have already purchased their vehicles, and everyday car buyers are more likely to be disappointed by higher prices, range anxiety and poor value. resale, among other concerns.
Tesla, in a call with investors last month, warned of “significantly lower” sales growth this year after a disappointing fourth quarter. CEO Elon Musk said his electric vehicle maker is “between two big waves of growth” as it aims to start production of a new, more affordable model late next year. One difference with the second wave of growth for Tesla is that, unlike the first, it will face intense competition from Japanese automakers, whose pushes into electric vehicles have been aided by rising hybrid profits, putting them on a stronger financial base.
Hybrids more than “a phase”
In 2022, Musk dismissed hybrids as a phase, saying it’s “time to move on” from them. He may be right in the long term, especially as regulators around the world push harder for EV adoption to meet climate goals. In California and New York, zero-emission mandates loom over the automotive landscape. Both states will require all new passenger vehicles sold to be zero-emission by 2035.
But for now, many consumers are opting for hybrids, which use less fuel than traditional vehicles – easier on the environment and the wallet – although they still require occasional trips to the gas station.
Currently, car buyers are concerned about the disadvantages of electric vehicles, said Jeffrey Guyton, Mazda’s chief financial officer, as reported by Automotive News. “Our strategy is to follow regulation, yes, but also pay close attention to what real customers want,” he said.
Mazda, thanks largely to strong hybrid sales, reported record profits in the fiscal third quarter ended Dec. 31, 2023, and is approaching the same for the full year ended March 31.
Guyton said hybrids are receiving more attention among U.S. consumers thanks in part to growing interest in electric vehicles.
“I think hybrid is benefiting a little bit from the hype around electric vehicles,” Guyton said. “Now there is a flattening of the electric vehicle market. And I think the people who were screaming about electric vehicles and promoting electric vehicles decided, well, if we can’t get people to go pure electric, hybrid is a good alternative.”
While electric vehicles accounted for less than 1% of Mazda’s global sales until last September, the automaker expects it to reach 40% by 2030. By then, it hopes to sell seven or eight EV models. It recently created an autonomous division to build electric vehicles on a new scalable platform, with the first models expected to launch in 2025-2027.
Likewise, Honda has enjoyed increased sales and profits thanks in large part to hybrids. Two hybrid models accounted for a quarter of Honda’s total U.S. sales in 2023. But Honda also aims to introduce 30 new electric vehicle models globally by 2030, at which point it expects electric vehicles to make up 40% of its sales in North America.
Getting ready for electric vehicles, indeed
Toyota, the world’s top automaker for four straight years, feels vindicated after being widely criticized for not jumping on the electric vehicle bandwagon soon enough. It doesn’t launch its first electric vehicle, the bZ4X, until 2022. (Ford, by contrast, launched its first electric vehicle, the Ford Focus Electric, in 2011.) But this month, Toyota said it expects to reach a record operating profit for the fiscal year. which ends March 31, crediting increased sales of hybrid vehicles in all of its major markets.
“We think the market is now rethinking the potential of hybrid products, which are a key strength of Toyota,” Goldman Sachs analysts wrote in a recent research note.
But while Toyota reaps profits from hybrid vehicles, it also has big plans for electric vehicles. In November 2023, it promised to produce 3.5 million electric vehicles a year by 2030, with dozens of different models across its Toyota and Lexus brands. To put that into perspective, Tesla sold 1.8 million electric vehicles last year. And as early as 2027, Toyota plans to introduce new solid-state batteries that will enable longer ranges and faster charging times than current lithium-ion batteries.
In October 2022, Akio Toyoda, then CEO of Toyota, said that electric vehicles “will take longer than the media would have us believe,” thanks in part to insufficient charging infrastructure. Meanwhile he stressed the importance of hybrids, insisting that Toyota will continue to offer a wide variety of powertrains and let consumers decide for themselves.
Last month it predicted that electric vehicles would capture only 30% of the market and would share the road with hybrid, traditional and hydrogen-powered vehicles.
But that doesn’t mean Toyota won’t push hard into the electric vehicle space. Last year, Toyoda, whose grandfather founded the Japanese auto giant, stepped down as CEO and became president, making way for a new management team better able to transition to electric vehicles.
“I’m an old-fashioned person when it comes to digitalization, electric vehicles and connected cars,” Toyoda said. “I can’t go beyond being a car enthusiast, and that’s my limit. The new team can do what I can’t do.”