The Supply Chain Matters blog highlights past comments from Akio Toyoda, former CEO and now Chairman of Toyota Motor, and now the potential realization of what he predicted.

 

Background

In a blog commentary published in February, Toyota’s CEO Leadership Change And An Accelerated EV Supply Network Strategy, Supply Chain Matters highlighted that Toyota CEO Akio Toyoda, a noted scion of this company’s family leadership, and who has been leading the auto maker since 2009, announced that he would be stepping down from his CEO role to that of Chairman.

In his leadership of Toyota, he had openly questioned the ongoing timelines of the global auto industry’s wholesale transformation toward an all-electric model offerings. His context was that of meeting global carbon neutrality targets along with the global availability and carbon emitting impact of electrical charging stations to support such a transition.  He rather steered the company toward providing varying power train options for consumers and for countries, which included hybrid power technologies.

Ultimately, in the midst of announcements made by Toyota’s global wide competitors regarding a wholesale transformation to battery powered vehicles, along with nervousness among the auto maker’s investors, Mr. Toyoda elected to hand over the reins of day-to-day leadership to a younger generation leader.

His successor as CEO, Koji Sato, who previously led the auto maker’s Lexus luxury vehicle division, subsequently called for an “EV-first mindset” including the accelerated development of supply chain and manufacturing methods optimized for EV vehicle platforms.

 

Industry Headwinds

Supply Chain Matters has featured multiple automotive industry transformation specific commentaries of the past several months.

Essentially, China based auto makers have been leading the charge to achieve volume leadership and lowest cost advantage in both domestic, and increasingly, export markets. They have done so by leveraging battery commodity supply and lower-cost production expertise.

Tesla, the deemed industry leader, innovator and industry competitive icon, has elected a recent strategy to reduce sticker prices across the vehicle lineup in an effort to seize market share and cause would-be start-up or traditional global automakers competitors to face the brute reality of not being able to achieve desired profitability thresholds to both make necessary expensive supply network investments and capacity needs for volume production break-even.

The results of that strategy came to light in the reporting of Tesla’s latest Q3 financial performance that missed on revenue and especially profitability objectives which caused investors to precipitate a 15 percent decline in the company’s stock price last week in questioning the poor performance.  We tagged our commentary as: The bloom is off the rose.

Over these past few weeks, the industry’s news cycle has further turned to caution as well as concerns relative to the timing of the market transition to sole EV powered vehicles, and the readiness of larger amounts of prospective buyers to want to acquire an EV powered vehicle over the next few years.

Industry media indicates that unsold inventories of EV vehicles remain on dealer lots as consumers are balking on the sticker price and the mileage ranges of offered vehicles. The Wall Street Journal’s published report: Automakers Have Big Hopes for EV’s; Buyers Aren’t Cooperating (Paid subscription), indicated in part:

The first wave of buyers willing to pay a premium for a battery powered car has already made the purchase, dealers and executives say, and automakers are now dealing with a more hesitant group, just as a barrage of new EV models are expected to hit dealerships in the coming years.”

The Chairman of South Korea based SK Group, a strategic battery supplier to Ford Motor, indicated to Bloomberg that amid the increased tensions between the U.S. and China, batteries for electric vehicles will remain higher for a longer period.

We also highlighted a decision by Ford to temporarily suspend the construction of a planned $3.5 billion Michigan battery production facility. We cited a published Reuters report indicating that: “Ford’s decision to pause work on a $3.5 billion electric vehicle battery plant in Michigan comes as some analysts question whether the U.S. EV market will grow fast enough to support all the new battery and assembly operations launched or under construction.”

Last week, General Motors announced the delay of at least a year for the launch of an EV powered pick-up truck to be produced in a factory in Orion, Michigan, amid lower than expected EV vehicle sales. According to business media reports, GM cited the need “to better manage capital investment while aligning with evolving EV demand.”

This week, General Motors and Honda Motor agreed to suspend a previously announced partnership focused on the development and production of a mass-market line of lower-priced EV vehicles.  GM also abandoned a declared target to build 400,000 EV powered vehicles by the middle of 2024 reportedly to ensure that the planned new models can achieve profitability objectives.

 

Akio Toyoda’s Moment

In a published report this week that was titled: Toyota Chairman Says People Are Finally Seeing the Reality About EV’s (Paid subscription), The WSJ highlighted remarks given by Mr. Toyoda at a Tokyo auto show event as part of his role as the named head of the Japan Automobile Manufacturers Association.

Specifically noted in his remarks was a statement: “There are many ways to climb the mountain that is achieving carbon neutrality.”

The report points out that Japanese auto makers, specifically Toyota, “have been more vocal about the market challenges that EV’s face in the near-term, including high costs, resource crunches and limited charging infrastructure.” Noted was that Japanese brands generally are awaiting market judgement as to whether to correctly read the auto buyer’s desires to purchase a solely EV powered vehicle in the near-term. The report cites Toyota’s head of sales for North America as indicating that the market for hybrid powered vehicles is “red hot” with Toyota seeking to produce as many vehicles as possible.

Mr. Toyoda’s noted observation was that: “Japanese industry strength in the EV era will come from practical car making “over a long period of time and from experiences of failure.”

Indeed, from our lens, this mat well turn out to be Mr. Toyoda’s I told you so moment.

 Stay tuned.

Bob Ferrari

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