Toyota’s New EV Plan Is a Big Reality Check

Getting drivers to adopt EVs — and buy into the technology transition — will require a fundamental shift in the company’s thinking.

Anjani Trivedi

15 Feb 2023, 12:07 PM IST

Koji Sato, incoming president and chief executive officer of Toyota Motor Corp., speaks during a news conference in Tokyo, Japan, on Monday, Feb. 13, 2023. Toyota announced several changes to its senior management as Sato prepares to take over as president and chief executive officer, including new heads of technology and finance.

(Bloomberg Opinion) -- As the world’s largest automaker transitions to the electric-vehicle era, it has a warning for the industry: It’s time to fundamentally rethink traditional manufacturing.

Toyota Motor Corp. this week unveiled its new game plan under incoming Chief Executive Officer Koji Sato, laying out several changes across the enormous business as it pushes harder toward electrification. The company will reshuffle senior executives, rejig its management structure (notably, all-male) and focus on electrification and intelligent cars.

Sato introduced the plan with a bold statement: “We must drastically change the way we do business, from manufacturing to sales and service.” To deliver EVs people want to drive, the company “must streamline the structure of the car,” he said, adding that Lexus — the luxury brand that he led — will spearhead the transformation. As part of this, the firm will restructure its vehicle production system at Kyushu and have a next-generation Lexus EV by 2026. All components in these models, “from the battery and platform to how a car is built,” will be geared for EVs.

Unlike its long history of troubled communication around electric cars, Toyota’s message was clear: This is a technology transition, not just another vehicle-making exercise. That means the changes to manufacturing won’t just be incremental shifts away from the internal combustion engine; rather, it will be a complete overhaul. Sato acknowledged that the fundamental differences — how energy is converted and used, and the aerodynamics — mean each part and process will have to be adapted for EVs.

That realization and its public acknowledgement is crucial. EVs aren’t just another vehicle with a different fuel or power source that can rely on existing factories. As automakers across the world race to keep up with production promises, committing billions of dollars to their electrification journeys, this is a much-needed reality check.

Manufacturing new-age cars isn’t a cakewalk — and it’s part of the reason scaling up has proven difficult. While it may seem like making EVs is an extension of ICE vehicles, it isn’t. In theory, EVs have far fewer components, so they should be simpler to produce. The reality is, the body architecture is unlike that of traditional ones, as is its assembly. EVs need a whole new set of electronics and wiring, while the parts require different modes of handling and storage, and are made using other machines. In some cases, it makes more sense for automakers to mothball a plant instead of converting it. In addition, much of the manufacturing process revolves around the battery, which accounts for almost 40% to 50% of the cost and presents a big technology hurdle.

Complex EV manufacturing is why, at one point, it took traditional automaker Volkswagen AG 30 hours to make one of their new ID.3 EVs and it took Tesla Inc. — a company focused entirely on EVs that has had horrendous production issues — a third of that.

For a firm that has been lauded for its production system prowess, known as the “Toyota Way,” this will be a big change. The group has constantly tweaked and streamlined its manufacturing processes to boost efficiency. It introduced the flexible body line in 1985 and went global with it a decade later; tested the set parts supply system that cut in-house costs and eventually became the fastest-ever production line, churning out a vehicle every 50 seconds.

There’s another side of manufacturing EVs. The new Toyota plan is also focused on intelligent cars and technology for them. As Simon Humphries, the new chief branding officer put it, “people want control over their own experiences,” and that means the firm will have to speed up integrating hardware and software so that drivers can adapt EVs to their diverse needs. These cars will have to replicate what a small pickup truck in Thailand or gas guzzlers in America do for drivers, or replace the small, sturdy vehicles meant for Indian roads. Getting customers to adopt EVs — and buy into the technology transition — means the company will need to keep up with this behavioral shift. To do so, Toyota will boost its efforts around Woven Planet Holdings Inc.(1), its mobility, software and intelligent-vehicle subsidiary.

Toyota’s EV charm offensive that began with the first CEO change in over a decade isn’t just an attempt to redeem itself from the EV laggard image anymore. For a company that has mastered the art of carmaking and managed to make millions of vehicles through severe crises, this is a serious shift that will likely pave the way for how EVs are manufactured en masse.