(More) Straight Talk About Toyota’s Electric Vehicle Strategy
Thanks so much for all your feedback on my first blog post.
Today I’ll respond to that feedback, as well as some input from the press, and provide more detailed answers about Toyota’s Electric Vehicle strategy.
Has Toyota dragged its feet on Battery Electric Vehicle (BEV) investment because of its investment in Hydrogen Fuel Cell Electric Vehicles (FCEVs)?
No. Here are the facts:
Toyota spends about $10 billion per year on R&D.
That pays for a lot of R&D on fuel cells, but it also pays for over a thousand scientists, including over a hundred in the US, working on battery R&D. And so far they’ve generated one of the largest battery patent portfolios of any company, including far more patents on solid state batteries.
So you aren’t dragging your feet on BEVs?
No. Not only was Toyota an early developer of our own BEV, we were also an early investor and joint developer with Tesla. Until now, high battery costs have prohibited a more widespread effort, but by 2030 we expect that:
- approximately 20% of our global vehicle production will be BEVs; and
- approximately 70% of US vehicle production will be electrified (BEVs, PHEVs, FCEVs, or HEVs)
Toyota is ALL IN on the Biden Administration’s goal of 50% of US vehicle production being BEVs, PHEVs, or FCEVs by 2030.
But why pursue four different types of drivetrains? Isn’t that wasteful of R&D investment?
Toyota is known for being scrupulously efficient in manufacturing and has helped other companies become more efficient using concepts from the Toyota Production System (TPS).
But being efficient about R&D means managing the risk of lost opportunities if we make decisions too soon. And it also means developing products for diverse customers, not just a category of customers.
This boils down to two principles:
- The solution to uncertainty is diversity, and
- What is best for the average person is not best for every person.
Let’s talk about each of these principles in turn:
1. The solution to uncertainty is diversity.
This is a profound, fundamental lesson from nature.
Sure, it feels more satisfying to make bold predictions and decisions right away, and put all of our eggs in one basket. But making decisions too soon is foolish.
We know that total carbon emissions in transportation must be drastically reduced, and we know that BEVs are part of the solution.
However, we do not know (nor, in truth, does anyone know) whether BEVs are the entire solution.
Why is that?
It is because the solution to long term carbon emissions will involve large changes to many of the world’s energy and production systems, and tomorrow’s technology will be different than today’s.
We can of course calculate the marginal costs and benefits of making changes to current energy and production systems with today’s technology. But optimal incremental strategies now do not accurately predict the best strategy in the future.
Faced with this uncertainty, our strategy is to place several bets on several promising pathways, including BEVs, and adapt our strategy as we learn.
This is the core idea of Toyota’s philosophy of Kaizen and the approach of every investor who diversifies their portfolio to manage uncertainty.
It is also the strategy nature has used so successfully for evolving life on earth.
2. What is best for the average person is not best for every person.
Everyone understands this principle when it comes to clothing: maximizing a group’s total comfort isn’t achieved by making everyone wear size “medium.” The same is true for mobility.
As battery technology improves and the carbon emissions from the electrical power grid decrease, long range BEVs will become more attractive, both from a practicality and environmental point of view, to the average customer.
Does this mean that in 2030, the greatest net carbon reduction would be achieved by making every customer buy a long range BEV?
No, it does not.
For some customers, particularly those that live in areas with low carbon intensity electrical power generation and easy access to rapid (level 3) charging infrastructure for long trips, replacing a gasoline fueled car with a long range BEV will be the best way for them to contribute to carbon emission reduction.
But for other customers in different circumstances, the best way to contribute to carbon emissions reduction will be different — perhaps a PHEV or an FCEV. For example, for a customer using their car mostly for commuting in an area with fewer high speed chargers, a PHEV would make more sense.
The animated chart below, produced by our open-source, peer-reviewed simulation tool, illustrates this point. It compares net lifetime carbon emissions for several Toyota Vehicles to current BEVs made by other manufacturers. It examines both the average US electric power generation carbon intensity and the lower electric power generation carbon intensity of California.
This chart shows that even with the lower carbon intensity electric power grid of California (a reasonable estimate for what the overall US grid might be like in 2030), diverse types of EVs have lifetime carbon emissions that are similar to BEVs.
Note that the scale of the Y axis is arbitrary — the relative results would be the same regardless of the time period chosen. In this case, five years was selected to give meaningful scale because it is the average duration of US ownership for new vehicles.
This means that in 2030, more people in more circumstances will be able to contribute to carbon reduction, and greater net carbon reduction can be achieved, if we provide customers with a diverse EV portfolio of choices that includes both BEVs and other options.
But isn’t it true that PHEVs don’t achieve their potential high carbon reduction in real world use, particularly in Europe?
We know that PHEV owners with low-range PHEVs, poor access to overnight charging locations, or company-provided gas credit cards (that disincentivize electric charging) more frequently refuel with gasoline than necessary.
But these factors are reasons to fix those problems — not reasons to dismiss PHEVs!
Modifying company “gas card” policies, using slightly larger batteries in PHEVs (such as in the RAV4 Prime), and installing more overnight charging infrastructure with some rapid chargers is a more practical way to reduce carbon sooner than building only BEVs and installing the many more rapid chargers an all-BEV approach would require.
Doesn’t your argument about “right sizing” battery packs depend on a shortage of battery supply?
No. “Right sizing” battery packs into diverse types of EVs, and limiting the ramp-up speed of global battery production, is a good idea even if battery supply is not otherwise limited.
Batteries are continuously improving. Compared to current technology, future battery technology (including possibly Toyota’s solid state batteries) will be produced with less carbon emissions, reduced environmental impact, at lower cost, with higher performance, and with fewer recycling problems.
By spreading today’s battery cells across a diversity of EV types now, we can maximize carbon reductions immediately. Then, as battery technology improves, we can ramp up production of more efficient, less carbon intensive batteries.
Here’s an analogy: Cell phone technology allowed developing countries to leapfrog wired telecommunications infrastructure. It would have been a waste of time and resources for these countries to have invested heavily in wired telephone infrastructure when cell phone technology was just around the corner.
We believe there is a corollary with the evolution of battery technology.
Summary
Can Toyota meet aggressive, results-oriented, quantitative limits on how much carbon may be emitted over a vehicle’s entire lifetime?
Yes, we can.
Will Toyota meet this challenge by producing millions of Battery Electric Vehicles (BEVs)?
Yes, we will, and we will also offer other drivetrains for customers in circumstances where those vehicles are a better carbon reduction choice.
We believe the best approach, as the Biden Administration has proposed, is for policymakers around the world to insist on results, and allow innovators like Toyota and our competitors to create diverse solutions to achieve those results.
In years past, when other pollutants were of greatest concern, governments established limits on the amount of emissions permissible and necessary fleet fuel efficiency, and then allowed the private sector, including Toyota, to innovate catalytic converters, engine control systems, and new types of drivetrains to meet those limits.
We believe this proven approach of driving innovation by focusing on outcomes — rather than prescribing particular technology solutions — is the best way to reduce carbon emissions.
Carbon is the enemy, not a particular drivetrain.
Battery Electric Vehicles are wonderful ways to reduce carbon for some customers. Other types of electrified drivetrains are best for other customers, especially in the near future.
I believe we should use all the tools in the toolbox.
