Toyota’s $ 13.6 billion plan to (try to) catch Tesla too late?

Toyota (NYSE: TM) plans to spend nearly $ 14 billion to develop batteries and battery supply chains for electric vehicles (EVs) by 2030, with the big bet that new technologies and the vast scale of the business can reduce battery prices by 30% or more from current levels.

While Toyota is the world’s largest seller of gasoline-electric hybrids, it lags behind its competitors, including Volkswagen (OTC: VWAGY) and General Motors (NYSE: GM) by committing to a range of fully electric products.

That is finally about to change, the company’s chief technical officer, Masahiko Maeda, said in an investor and media briefing last month. But is it too late?

What Toyota Said About Its Battery Strategy

Toyota sees cost and performance as key barriers to widespread consumer adoption of electric vehicles. It will spend 1.5 trillion yen, or roughly $ 13.6 billion, to meet both over the next few years.

This money will be spent on a few different technologies.

  • Semiconductor batteries. These are sort of a holy grail for electric vehicles, promising less weight, shorter recharge times, and improved safety over current lithium-ion cells. Significant obstacles remain, as current prototypes of solid-state batteries are difficult to manufacture and do not last long. But Maeda said Toyota is on track to introduce its own solid-state batteries by 2025, and that they could be used in hybrid and fully-electric vehicles.
  • Improved lithium-ion batteries. Maeda said Toyota will introduce a lower-cost lithium-ion battery with improved performance later in the decade. Battery life is the center of attention: Toyota expects its upcoming bZ4X battery-powered electric crossover SUV to still be able to deliver 90% of its battery performance after 10 years of operation.
  • Nickel-metal hydride batteries too. Toyota recently introduced a significantly improved version of the nickel-metal hydride batteries that it uses in most of its hybrid models. The new batteries have a so-called “bipolar” structure that roughly doubles their power density, which means Toyota can deliver equivalent performance with fewer batteries, reducing the cost and weight of its hybrid models.

Maeda said Toyota expects to be able to produce more than 200 gigawatt hours of batteries per year by 2030 at about half the cost of current lithium-ion batteries.

“We focus on safety, long life and high level quality to produce good batteries with low cost and high performance,” said Maeda. “What Toyota values ​​most is developing batteries that customers can use with peace of mind.”

Toyota hybrids have been the envy of the industry for years. But it has fallen behind its competitors in the development and delivery of battery-electric vehicles. Image source: Toyota.

What it means: Toyota is finally embracing this EV thing

For several years, Toyota executives have argued that long charging times and high battery costs would ultimately limit the mass adoption of fully electric vehicles, despite the success of You’re here (NASDAQ: TSLA) and the intense consumer interest in electric vehicles from global automakers like VW and Ford Motor Company (NYSE: F).

This reflection was visible in the research and development expenses of the company. Toyota made a big bet on hydrogen fuel cells, believing that the quick “recharge” time – a fuel cell vehicle can be refueled in about five minutes – would make the technology more viable than battery-powered electric transmissions.

Toyota has also maintained – and this was reiterated by Maeda – that gasoline-electric hybrids will continue to have an important role to play for at least a few decades. The company argues that hybrids may be a greener option than BEVs in areas where most of the electricity is produced with fossil fuels.

But these efforts show that Toyota has finally accepted, perhaps reluctantly, that BEVs are likely to become the dominant technology over the next 10 to 20 years, at least in the developed world. For auto investors wondering about the state of play, I think Toyota – with its massive global manufacturing footprint and supply chain – needs to be seen as a major competitor as the world shifts to electric vehicles, although the company’s current product portfolio does not. not yet show it.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Frances R. Smith

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