Toyota's new CEO Koji Sato believes the popular Japanese automaker can make big profits on EVs with just three basic steps. However, as we've seen other carmakers amid the transition, it may not be as easy in practice as it is on paper. We'll have to wait and see if the new CEO's efforts are a quick success, or if it's simply too little, too late.
CEO Sato, who just took the reigns on April 1, 2023, recently went over Toyota's future strategy, which is largely revamped from not long ago. The plan aims to increase EV production and profitability by 2030. At a media event, Sato shared via Automotive News:
"It will be a different concept from what we've had until now. In the Step 3 timing, productivity should be significantly enhanced."
Toyota is currently in stage one of its new plan, with the second part of the plan coming around 2026, and the final efforts in place by 2030. Toyota aims to produce some 1.5 million EVs globally by 2025 and 3.5 million by 2030. Improved productivity and economies of scale will mean lower prices, which should work to drive sales volume.
Sato made it clear at the press talk that Toyota is now just getting started. The company has, for years, taken its time with EVs. This continued even as its rivals moved forward with the transition. Amid much criticism, the Japanese automaker now arguably has some major catching up to do.
So, how does Toyota go from barely scratching the surface of the new technology to high levels of production and notable profits in the years to come?
Starting with "Step 1," which was already in play before CEO Sato took over, Toyota launched the first of its line of bZ-branded EVs on a new purpose-built platform. Sato notes that this was a learning experience for Toyota, as the bZ4X wasn't exactly what you'd call a successful vehicle launch. However, the EV's issues may be what Toyota needed as a wake-up call. The new CEO admitted:
"We are going to make quick improvements and modifications so that the product appeal and product strength can be improved. And we'll do that in accelerated manner."
Moving on to CEO Sato's "Step 2," Toyota will integrate the Arene automotive operating system, which is currently being developed by its software arm, Woven.
With the purpose-built platform and proposed lineup of EVs in place – complete with the "quick improvements and modifications" – it makes sense to get the successful software system into place as soon as possible. Today's successful EV makers are just as much software companies as they are automakers.
Sato touts "Step 3" as being the culmination of the automaker's combined plans and efforts, as a sort of "three-layered cake." He says Toyota will transition to a new structural body and layer the Arene operating system with updated software services. With the new body will also come a re-engineered purpose-built EV platform that maximises space, performance, and efficiency.
With Tesla currently leading the EV by a rather wide margin, Toyota must greatly increase its EV volume to get its future margins where they may need to be to best compete. Tesla's margins currently sit at around 20%, which is impressive considering the number is still so high after many price cuts. Meanwhile, Toyota's margins are at around 10%.
The Japanese automaker aims to increase its margins and EV profitability by continuing its goal of 10 million vehicles produced annually. However, depending on the market, many of those cars will still be more profitable hybrids rather than fully electric cars. Sato added:
"Ten million-unit volume is already there. It is a strong foundation that will enable us to accelerate investment into new domains of r&d. Ten million units is our biggest strength."