MEDICALJMP
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this article is a little long, but it details some of the obstacles being faced in the adoption of electric vehicles. I’m not sure why Toyota is so reluctant to jump into the electric vehicle programs for their company. It seems highly counterintuitive to where the market place is heading.
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Toyota Gets A Message About Battery Electric Vehicles For Mining
Feb. 12, 2021 12:06 AM ETToyota Motor Corporation (TM), TOYOFBBL, BHP, BHPBF...23 Comments8 Likes
Summary
Toyota Land Cruiser becomes a BEV for mine use
Sometimes revolutionary change comes from left field. And so it might be for Toyota (NYSE:TM). Eighteen months ago, I wrote an article for Seeking Alpha concerning Dutch firm Tembo repurposing Toyota Land Cruisers and HiLux vehicles as BEVs (Battery Electric Vehicles) for zero-emissions underground mining applications. My take was that this was an important market for Toyota and that it needed to pay attention. Seeking Alpha rejected the article because the Dutch firm was not a company that seemed substantial.
In October last year, NASDAQ-listed VivoPower (NASDAQ:VVPR) acquired a majority stake in Tembo. Thomas Gagan has written a valuable review of VivoPower recently. So suddenly the Tembo-modified Toyota BEV Land Cruisers and HiLux vehicles are in the NASDAQ spotlight. Here I explore what this might mean for Toyota. With Toyota up 24% to $161.56 in the past 6 months, perhaps this might be a time for Toyota investors to take some profits and see what happens concerning its electrification plans?
The Toyota Land Cruiser
The Land Cruiser is Toyota’s longest-selling and most esteemed vehicle. The 70 Series was first launched in 1984 and it is still going. This is a classic Toyota ICE (diesel) vehicle, but its use in mines (where it is the brand of choice) is problematic as diesel emissions underground need venting due to their toxicity.
Electrification of mining vehicles
It is clear that electrification of mining vehicles has been a big issue for some time, mostly because diesel emissions underground are expensive to address, needing expensive extraction of the polluting gases. The first Tembo-modified Land Cruiser was launched in Europe in 2016 and several companies have been involved in marketing various configurations of the Toyota vehicles in Australia since 2017. Tembo-modified BEV-Toyota Land Cruisers and HiLux vehicles are sold throughout Europe.
Last month mining giant BHP (NYSE:BHP) announced a partnership with Toyota Australia (its Melbourne-based product planning team) concerning a BEV version of a Toyota Series 70 Land Cruiser to review both underground and above-ground mining activities. Edgar Basto, President Minerals Australia BHP, is clear that this is about exiting diesel: “This partnership is another step in our ongoing studies into how we can reduce the emissions intensity of our light-vehicle fleet. Reducing our reliance on diesel at our operations will help achieve our medium-term target of reducing operational emissions by 30% by 2030.”
This isn’t the first attempt by BHP to investigate a fully electric 70 Series Toyota Land Cruiser. In 2018, it announced a partnership with West Australian company Voltra to trial its Voltra eCruiser at BHP’s Olympic Dam mine in South Australia for a 12-month trial. It was based on a new Series 79 Land Cruiser with a 42 kWh lithium phosphate battery as the power source and trials seem to be ongoing. The new announcement is different in that Toyota (admittedly through its Melbourne, Australia office) is engaged on the new study.
Here I suggest that the mining developments might become a trigger for Toyota to get more serious about BEV developments. Toyota Land Cruisers and HiLux vehicles are key Toyota vehicles. To date Toyota has resisted full electrification of vehicles that are likely to cannibalise its ICE vehicles in a major way. Toyota investors and those contemplating how to participate in the vehicle industry as it undergoes a once in a century transition, need to follow closely what Toyota does in relation to these new developments.
Tembo fast track solution to the problem of diesel-powered light vehicles in mining
Dutch company Tembo (now owned by VivoPower, see below) has provided light vehicle solutions for mining for many years. In 2015, Tembo was approached by a mining client with ~100 Toyota Land Cruisers who wanted to improve the working environment for its underground workers. The initial thoughts were to decrease emissions from the diesel vehicles, but a test drive of a German University-built Toyota Land Cruiser BEV led to a light-bulb moment that this was a major breakthrough for light transport in underground mining. The first test vehicle was ready in October 2016. The rest is history. Tembo has global sales and distribution channels (Australia, Africa, Europe and North America) but it is a niche player with revenue of just $2.3 million in the year ended December 31, 2019.
The adoption of BEV-modified Toyota Land Cruisers and HiLux vehicles for mining applications must hurt. This is an invasion of a major market owned by Toyota. I find it hard to imagine that Toyota can allow this to continue without some response. It does indicate that the case for BEV vehicles is being accepted in many areas where BEV antagonists can’t even imagine that BEVs could compete.
The Toyota vehicles are the most commonly used light vehicles in mining around the world and their frame and powertrain are well-positioned for various conversions for the trade inside mines.
With health, safety and clean air big issues in underground mining, diesel-powered vehicles are threatened. A recent article addresses the dangers of diesel particulate matter in underground mines. Key advantages (in additional to being emissions-free) of the BEV Toyota vehicles are improved performance (instant torque), less noise and less vehicle heat load in deep mines. There are huge savings in operational costs and higher reliability of electrical components means less maintenance and therefore less downtime. Big savings on energy use come from reduced ventilation if all of the machinery is electrified and emissions-free (deeper mines, more savings).
VivoPower
In September 2020, VivoPower announced plans to acquire a 51% shareholding in Tembo for $4.7 million, with an option to acquire the remaining 49%. Following a capital raising, the 51% shares were acquired and then on 2 February 2021 VivoPower announced the acquisition of the outstanding 49% of Tembo, making VivoPower the 100% owner of Tembo.
VivoPower sees the acquisition as a useful vehicle for expanding VivoPower’s market for electric light vehicles beyond the Australian mining and infrastructure sectors. VivoPower CEO Kevin Chin claims a $36 billion market for electric light vehicles.
In January 2021, VivoPower (actually VivoPower and Tembo as this occurred before VivoPower acquired all shares of Tembo) announced a $US250 million agreement with Australian company GB Auto to be the exclusive Australian distributor of Tembo core products. GB Auto has committed to purchase at least 500 Tembo 4x4 e-LV electric conversion kits in year 1 of the 7-year agreement, and 2,000 kits in the first 4 years (which includes the first year commitment).
The $US250 million value involves the first 4 years of the agreement and includes the value of the converted Toyota vehicles. VivoPower suggests that GB Auto may take the products firstly into the mining industry but also more broadly. A likely focus will be a new 72 kWh lithium phosphate battery kit for Land Cruiser and HiLux models. The current battery is just 28 kWh which allows only short-range operation.
It is unclear at the moment if/how Tembo/VivoPower is engaged with Toyota on this project. Australian company GB Auto looks like a good partner for Australia, with deep connections to the mining industry. The Australian mining industry is a global leader and so it isn’t surprising that there is a significant role for Australian operations in the electrification of the Land Cruiser and HiLux vehicles.
It will be interesting to see if Toyota has a view as the project gets traction. The GB Auto deal crystallises a niche and early stage innovation. It seems that GB Auto has done the hard yards in the industry and it understands that there is a big pool of Toyota vehicles engaged in mining because these vehicles are greatly respected in the industry for quality and reliability.
The next question for GB Auto in Australia and VivoPower globally will most likely be a large number of privately-owned Land Cruiser and HiLux vehicles whose owners have an interest in electrification and getting away from diesel use. A lot of rural landowners in Australia have substantial solar PV installed and could easily charge a BEV Toyota effectively removing a significant cash drain for diesel, which will probably get more expensive.
Of course underground mining is a very specialised operation with vehicles often extensively modified, each being customised for specific applications. It seems that the vehicles used currently are not registered for road use, but there is no reason why they could not be registered. Existing versions of the VivoPower fitouts have 28 KWh lithium phosphate batteries and these have limited range, but a new 72 kWh battery system is becoming available. This may allow significant range (200+ km?) depending on how the vehicle is used.
It must be noted that a 2.5-ton “tank” is not a fuel-efficient vehicle. Watch this space to see how it evolves. AB Auto will fit out your new Toyota Land Cruiser or HiLux with a BEV modification and give you a deal on the new engine and drive train if you have the cash. It isn’t clear yet that such a deal will be attractive to an individual buyer and AB Auto is pretty preoccupied with the mining market, but it may only be a matter of time.
I am pretty certain that Toyota is starting to pay attention and even if they do not want to make BEV versions of their Land Cruiser and HiLux vehicles, the clock is ticking as to when they will have to do it. A hybrid Land Cruiser or HiLux underground still emits toxic gases, so a hybrid is no solution.
The environment is moving quickly on BEVs
GM (NYSE:GM) is the latest company to make clear its plans concerning BEVs. Recently, it announced that it aspires to build its last ICE car in 2035. There are a lot of announcements about BEV adoption or banning of sale of new cars with an ICE in the period 2030-2035, so change is not far away.
Japan and South Korea are interesting countries in the traditional auto industry. Some divergence on events in these countries is evident.
South Korean exports
South Korean exports of fully electric cars (BEVs) increased by 66% in 2020 and they now comprise 19% of South Korean car exports. Exports of hybrids fell by 6% in 2020. Overall car exports from South Korea fell by 13%, so the fully electric sales were an outlier that bucked the trend. Most (68%) of the BEV exports were to the UK. This is a very different export profile to the Japanese car industry. Europe’s emissions standards mean that a BEV strategy is almost essential for sale in Europe.
Japanese Government on electric cars
I’m not sure who is influencing who, but Japan is a global outlier in the switch to BEVs. The adoption of fully electric vehicles in Japan lags other major economies, although this is often overlooked because Japanese electric car figures often include hybrids (which still have an ICE). Tokyo has a 2030 date and the rest of Japan 2035 for electrification (but not banning cars with an ICE). In Japan, fully electric vehicles (BEVs) comprised less than 1% sales in 2020, compared with 7% in German and 5% in China.
In early December 2020, there was the suggestion that vehicles containing an ICE could be banned from sale in the mid-2030s. This produced consternation from Toyota which has an aggressive program for expanding hybrid vehicle sales (see below). As a result of Toyota’s strong response, it is not clear at this stage what the position of the Japanese Government is regarding ban of cars with an ICE.
Toyota’s position on BEVs
As indicated above, the Japanese Government recently suggested that it is planning to ban sale of new ICE cars, with 2030 mentioned for conventional ICE cars and 2035 for hybrids (which still have an ICE). This was in line with the Japanese Government's commitment to zero net emissions by 2050 and the announcement by the UK of a 2030 ban for ICE cars and a 2035 ban for hybrids.
This seems to have produced a strong response from Toyota, although the following strong statement from Toyota President/CEO Akio Toyoda comes from reporting on the end-of-year press conference from the Japan Automobile Manufacturers Association. In a nutshell, Akio Toyoda thinks that adoption of BEVs will lead to the collapse of the business model of the current car industry. He may be correct.
But his reported dismissal of BEVs as leading to more greenhouse gas emissions than hybrids with an ICE has been shown not to be true in a number of studies, even with electricity grids that have a substantial fossil fuel base to their generation. Toyoda is predicting disaster for the grid if BEVs get traction. I’m not aware of experts who think that this is the case.
A question was asked about Japanese Government's plans for all vehicles to be electrified by 2030 on yesterday’s Q3 2021 earnings report. The following statement was made by Kenta Kon (CFO Toyota) “For electrification, inside of the Toyota Group, our understanding is that we have strength in the electrification technologies….Even with the Kei vehicles…probably we will start with the hybrids our strength area”. Only in Japan is a question about electrification assumed to include hybrids (which have the same sized ICE as a conventional ICE vehicle).
President Akio Toyoda is a little complacent about the competition. Here is what he said about Tesla late last year:
The above comments from Toyota President Toyoda maker it clear what is well-known in the industry, that Toyota is holding out from engagement with full electrification of Toyota vehicles. Instead Toyota maintains its dual hybrid/fuel cell (hydrogen) approach, which is based on BEVs not being capable of full participation in the transport industry. Instead Toyota has invested billions in hybrid designs which retain a substantial ICE (Internal Combustion Engine), plus pushing the development of hydrogen-powered cars. I’ve noted previously that Toyota now has a BEV presence in both Europe and China as participation in these markets effectively requires marketing at least a token BEV presence.
My point here is that Toyota is now being confronted with electrification of one of its most emblematic lines (rugged light vehicles) by other manufacturers using its vehicles to produce a modified BEV. The partnership with BHP, while token, indicates that it is being drawn into this area. Until now Tembo (now VivoPower) has been a small operation and this might explain why Toyota’s deal with BHP is a very initial testing of the waters by Toyota Australia. Perhaps the agreement with GB Auto above for 2,000 vehicles over the next 4 years might have Toyota management thinking differently about this. If the GB Auto deal ends up involving a broader market including individual Land Cruiser and HiLux customers, Toyota might view it differently.
Of course the real challenge for Toyota is the pending arrival of a number of BEV competitors for the Toyota Land Cruiser and HiLux vehicle. The six vehicles in the above link are all American vehicles built from the ground up as BEVs, but operating in the space that the Land Cruiser and HiLux operate in. And the above is just the US. Most notable are the Tesla (NASDAQ:TSLA) Cybertruck, the Rivian RIT, the electric Ford F-150(NYSE:F), and the GM Hummer EV. If this lineup doesn’t cause some pause for thought by Toyota, I’m not sure what will.
Conclusion
I’ve been indicating for several years now that Toyota is in danger of missing out on the electrified transport revolution as it proceeds with a twofold strategy of seeking to monetise big investment in new generation hybrid vehicles while pushing its Hydrogen Fuel Cell developments. The latest news about the adaptation of Toyota vehicles in mining applications is another wake-up call. This goes to a central feature of the Toyota company, with more than 30 years dominating vehicles for rugged and off-road applications.
This is a sector of Toyota’s business that has delivered 7.9 million vehicles over the years. I know that Toyota is in great shape financially, but I continue to argue that the stakes are high for not participating in the BEV revolution. I’m cautious about Toyota’s future unless they change direction soon. The world is passing them by. Toyota has had a good run in the past 6 months (up 24%). Perhaps it might be a time for existing shareholders to consider taking a profit on the stock?
I am not a financial advisor, but I do pay attention to big changes in low emissions energy and electrification of transport. If my commentary helps when you discuss with your financial advisor investment in Toyota or more generally your participation in auto industry investment, please consider following me.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
https://seekingalpha.com/article/4405551-toyota-gets-message-battery-electric-vehicles-for-mining
———————————————————————————————————-
Toyota Gets A Message About Battery Electric Vehicles For Mining
Feb. 12, 2021 12:06 AM ETToyota Motor Corporation (TM), TOYOFBBL, BHP, BHPBF...23 Comments8 Likes
Summary
- Toyota is a big player in the light mining vehicle market, but diesel is a big problem in underground mining.
- VivoPower, which recently acquired Dutch company Tembo, sells refitted Land Cruiser and HiLux BEV vehicles.
- Recent agreement reached to supply at least 2,000 VivoPower/Tembo Toyota electric conversion vehicles to Australian company GB Auto over 4 years.
- The VivoPower deal has awoken Toyota, who are now working with BHP to test a single Land Cruiser BEV conversion.
- Is Toyota’s interest too little too late? Toyota’s real competition will come not from the refit of its own vehicles but from Tesla’s Cybertruck or a number of other BEV pickups.
Toyota Land Cruiser becomes a BEV for mine use
Sometimes revolutionary change comes from left field. And so it might be for Toyota (NYSE:TM). Eighteen months ago, I wrote an article for Seeking Alpha concerning Dutch firm Tembo repurposing Toyota Land Cruisers and HiLux vehicles as BEVs (Battery Electric Vehicles) for zero-emissions underground mining applications. My take was that this was an important market for Toyota and that it needed to pay attention. Seeking Alpha rejected the article because the Dutch firm was not a company that seemed substantial.
In October last year, NASDAQ-listed VivoPower (NASDAQ:VVPR) acquired a majority stake in Tembo. Thomas Gagan has written a valuable review of VivoPower recently. So suddenly the Tembo-modified Toyota BEV Land Cruisers and HiLux vehicles are in the NASDAQ spotlight. Here I explore what this might mean for Toyota. With Toyota up 24% to $161.56 in the past 6 months, perhaps this might be a time for Toyota investors to take some profits and see what happens concerning its electrification plans?
The Toyota Land Cruiser
The Land Cruiser is Toyota’s longest-selling and most esteemed vehicle. The 70 Series was first launched in 1984 and it is still going. This is a classic Toyota ICE (diesel) vehicle, but its use in mines (where it is the brand of choice) is problematic as diesel emissions underground need venting due to their toxicity.
Electrification of mining vehicles
It is clear that electrification of mining vehicles has been a big issue for some time, mostly because diesel emissions underground are expensive to address, needing expensive extraction of the polluting gases. The first Tembo-modified Land Cruiser was launched in Europe in 2016 and several companies have been involved in marketing various configurations of the Toyota vehicles in Australia since 2017. Tembo-modified BEV-Toyota Land Cruisers and HiLux vehicles are sold throughout Europe.
Last month mining giant BHP (NYSE:BHP) announced a partnership with Toyota Australia (its Melbourne-based product planning team) concerning a BEV version of a Toyota Series 70 Land Cruiser to review both underground and above-ground mining activities. Edgar Basto, President Minerals Australia BHP, is clear that this is about exiting diesel: “This partnership is another step in our ongoing studies into how we can reduce the emissions intensity of our light-vehicle fleet. Reducing our reliance on diesel at our operations will help achieve our medium-term target of reducing operational emissions by 30% by 2030.”
This isn’t the first attempt by BHP to investigate a fully electric 70 Series Toyota Land Cruiser. In 2018, it announced a partnership with West Australian company Voltra to trial its Voltra eCruiser at BHP’s Olympic Dam mine in South Australia for a 12-month trial. It was based on a new Series 79 Land Cruiser with a 42 kWh lithium phosphate battery as the power source and trials seem to be ongoing. The new announcement is different in that Toyota (admittedly through its Melbourne, Australia office) is engaged on the new study.
Here I suggest that the mining developments might become a trigger for Toyota to get more serious about BEV developments. Toyota Land Cruisers and HiLux vehicles are key Toyota vehicles. To date Toyota has resisted full electrification of vehicles that are likely to cannibalise its ICE vehicles in a major way. Toyota investors and those contemplating how to participate in the vehicle industry as it undergoes a once in a century transition, need to follow closely what Toyota does in relation to these new developments.
Tembo fast track solution to the problem of diesel-powered light vehicles in mining
Dutch company Tembo (now owned by VivoPower, see below) has provided light vehicle solutions for mining for many years. In 2015, Tembo was approached by a mining client with ~100 Toyota Land Cruisers who wanted to improve the working environment for its underground workers. The initial thoughts were to decrease emissions from the diesel vehicles, but a test drive of a German University-built Toyota Land Cruiser BEV led to a light-bulb moment that this was a major breakthrough for light transport in underground mining. The first test vehicle was ready in October 2016. The rest is history. Tembo has global sales and distribution channels (Australia, Africa, Europe and North America) but it is a niche player with revenue of just $2.3 million in the year ended December 31, 2019.
The adoption of BEV-modified Toyota Land Cruisers and HiLux vehicles for mining applications must hurt. This is an invasion of a major market owned by Toyota. I find it hard to imagine that Toyota can allow this to continue without some response. It does indicate that the case for BEV vehicles is being accepted in many areas where BEV antagonists can’t even imagine that BEVs could compete.
The Toyota vehicles are the most commonly used light vehicles in mining around the world and their frame and powertrain are well-positioned for various conversions for the trade inside mines.
With health, safety and clean air big issues in underground mining, diesel-powered vehicles are threatened. A recent article addresses the dangers of diesel particulate matter in underground mines. Key advantages (in additional to being emissions-free) of the BEV Toyota vehicles are improved performance (instant torque), less noise and less vehicle heat load in deep mines. There are huge savings in operational costs and higher reliability of electrical components means less maintenance and therefore less downtime. Big savings on energy use come from reduced ventilation if all of the machinery is electrified and emissions-free (deeper mines, more savings).
VivoPower
In September 2020, VivoPower announced plans to acquire a 51% shareholding in Tembo for $4.7 million, with an option to acquire the remaining 49%. Following a capital raising, the 51% shares were acquired and then on 2 February 2021 VivoPower announced the acquisition of the outstanding 49% of Tembo, making VivoPower the 100% owner of Tembo.
VivoPower sees the acquisition as a useful vehicle for expanding VivoPower’s market for electric light vehicles beyond the Australian mining and infrastructure sectors. VivoPower CEO Kevin Chin claims a $36 billion market for electric light vehicles.
In January 2021, VivoPower (actually VivoPower and Tembo as this occurred before VivoPower acquired all shares of Tembo) announced a $US250 million agreement with Australian company GB Auto to be the exclusive Australian distributor of Tembo core products. GB Auto has committed to purchase at least 500 Tembo 4x4 e-LV electric conversion kits in year 1 of the 7-year agreement, and 2,000 kits in the first 4 years (which includes the first year commitment).
The $US250 million value involves the first 4 years of the agreement and includes the value of the converted Toyota vehicles. VivoPower suggests that GB Auto may take the products firstly into the mining industry but also more broadly. A likely focus will be a new 72 kWh lithium phosphate battery kit for Land Cruiser and HiLux models. The current battery is just 28 kWh which allows only short-range operation.
It is unclear at the moment if/how Tembo/VivoPower is engaged with Toyota on this project. Australian company GB Auto looks like a good partner for Australia, with deep connections to the mining industry. The Australian mining industry is a global leader and so it isn’t surprising that there is a significant role for Australian operations in the electrification of the Land Cruiser and HiLux vehicles.
It will be interesting to see if Toyota has a view as the project gets traction. The GB Auto deal crystallises a niche and early stage innovation. It seems that GB Auto has done the hard yards in the industry and it understands that there is a big pool of Toyota vehicles engaged in mining because these vehicles are greatly respected in the industry for quality and reliability.
The next question for GB Auto in Australia and VivoPower globally will most likely be a large number of privately-owned Land Cruiser and HiLux vehicles whose owners have an interest in electrification and getting away from diesel use. A lot of rural landowners in Australia have substantial solar PV installed and could easily charge a BEV Toyota effectively removing a significant cash drain for diesel, which will probably get more expensive.
Of course underground mining is a very specialised operation with vehicles often extensively modified, each being customised for specific applications. It seems that the vehicles used currently are not registered for road use, but there is no reason why they could not be registered. Existing versions of the VivoPower fitouts have 28 KWh lithium phosphate batteries and these have limited range, but a new 72 kWh battery system is becoming available. This may allow significant range (200+ km?) depending on how the vehicle is used.
It must be noted that a 2.5-ton “tank” is not a fuel-efficient vehicle. Watch this space to see how it evolves. AB Auto will fit out your new Toyota Land Cruiser or HiLux with a BEV modification and give you a deal on the new engine and drive train if you have the cash. It isn’t clear yet that such a deal will be attractive to an individual buyer and AB Auto is pretty preoccupied with the mining market, but it may only be a matter of time.
I am pretty certain that Toyota is starting to pay attention and even if they do not want to make BEV versions of their Land Cruiser and HiLux vehicles, the clock is ticking as to when they will have to do it. A hybrid Land Cruiser or HiLux underground still emits toxic gases, so a hybrid is no solution.
The environment is moving quickly on BEVs
GM (NYSE:GM) is the latest company to make clear its plans concerning BEVs. Recently, it announced that it aspires to build its last ICE car in 2035. There are a lot of announcements about BEV adoption or banning of sale of new cars with an ICE in the period 2030-2035, so change is not far away.
Japan and South Korea are interesting countries in the traditional auto industry. Some divergence on events in these countries is evident.
South Korean exports
South Korean exports of fully electric cars (BEVs) increased by 66% in 2020 and they now comprise 19% of South Korean car exports. Exports of hybrids fell by 6% in 2020. Overall car exports from South Korea fell by 13%, so the fully electric sales were an outlier that bucked the trend. Most (68%) of the BEV exports were to the UK. This is a very different export profile to the Japanese car industry. Europe’s emissions standards mean that a BEV strategy is almost essential for sale in Europe.
Japanese Government on electric cars
I’m not sure who is influencing who, but Japan is a global outlier in the switch to BEVs. The adoption of fully electric vehicles in Japan lags other major economies, although this is often overlooked because Japanese electric car figures often include hybrids (which still have an ICE). Tokyo has a 2030 date and the rest of Japan 2035 for electrification (but not banning cars with an ICE). In Japan, fully electric vehicles (BEVs) comprised less than 1% sales in 2020, compared with 7% in German and 5% in China.
In early December 2020, there was the suggestion that vehicles containing an ICE could be banned from sale in the mid-2030s. This produced consternation from Toyota which has an aggressive program for expanding hybrid vehicle sales (see below). As a result of Toyota’s strong response, it is not clear at this stage what the position of the Japanese Government is regarding ban of cars with an ICE.
Toyota’s position on BEVs
As indicated above, the Japanese Government recently suggested that it is planning to ban sale of new ICE cars, with 2030 mentioned for conventional ICE cars and 2035 for hybrids (which still have an ICE). This was in line with the Japanese Government's commitment to zero net emissions by 2050 and the announcement by the UK of a 2030 ban for ICE cars and a 2035 ban for hybrids.
This seems to have produced a strong response from Toyota, although the following strong statement from Toyota President/CEO Akio Toyoda comes from reporting on the end-of-year press conference from the Japan Automobile Manufacturers Association. In a nutshell, Akio Toyoda thinks that adoption of BEVs will lead to the collapse of the business model of the current car industry. He may be correct.
But his reported dismissal of BEVs as leading to more greenhouse gas emissions than hybrids with an ICE has been shown not to be true in a number of studies, even with electricity grids that have a substantial fossil fuel base to their generation. Toyoda is predicting disaster for the grid if BEVs get traction. I’m not aware of experts who think that this is the case.
A question was asked about Japanese Government's plans for all vehicles to be electrified by 2030 on yesterday’s Q3 2021 earnings report. The following statement was made by Kenta Kon (CFO Toyota) “For electrification, inside of the Toyota Group, our understanding is that we have strength in the electrification technologies….Even with the Kei vehicles…probably we will start with the hybrids our strength area”. Only in Japan is a question about electrification assumed to include hybrids (which have the same sized ICE as a conventional ICE vehicle).
President Akio Toyoda is a little complacent about the competition. Here is what he said about Tesla late last year:
It is a brave conventional car manufacturer to dismiss Tesla in such condescending terms.
The above comments from Toyota President Toyoda maker it clear what is well-known in the industry, that Toyota is holding out from engagement with full electrification of Toyota vehicles. Instead Toyota maintains its dual hybrid/fuel cell (hydrogen) approach, which is based on BEVs not being capable of full participation in the transport industry. Instead Toyota has invested billions in hybrid designs which retain a substantial ICE (Internal Combustion Engine), plus pushing the development of hydrogen-powered cars. I’ve noted previously that Toyota now has a BEV presence in both Europe and China as participation in these markets effectively requires marketing at least a token BEV presence.
My point here is that Toyota is now being confronted with electrification of one of its most emblematic lines (rugged light vehicles) by other manufacturers using its vehicles to produce a modified BEV. The partnership with BHP, while token, indicates that it is being drawn into this area. Until now Tembo (now VivoPower) has been a small operation and this might explain why Toyota’s deal with BHP is a very initial testing of the waters by Toyota Australia. Perhaps the agreement with GB Auto above for 2,000 vehicles over the next 4 years might have Toyota management thinking differently about this. If the GB Auto deal ends up involving a broader market including individual Land Cruiser and HiLux customers, Toyota might view it differently.
Of course the real challenge for Toyota is the pending arrival of a number of BEV competitors for the Toyota Land Cruiser and HiLux vehicle. The six vehicles in the above link are all American vehicles built from the ground up as BEVs, but operating in the space that the Land Cruiser and HiLux operate in. And the above is just the US. Most notable are the Tesla (NASDAQ:TSLA) Cybertruck, the Rivian RIT, the electric Ford F-150(NYSE:F), and the GM Hummer EV. If this lineup doesn’t cause some pause for thought by Toyota, I’m not sure what will.
Conclusion
I’ve been indicating for several years now that Toyota is in danger of missing out on the electrified transport revolution as it proceeds with a twofold strategy of seeking to monetise big investment in new generation hybrid vehicles while pushing its Hydrogen Fuel Cell developments. The latest news about the adaptation of Toyota vehicles in mining applications is another wake-up call. This goes to a central feature of the Toyota company, with more than 30 years dominating vehicles for rugged and off-road applications.
This is a sector of Toyota’s business that has delivered 7.9 million vehicles over the years. I know that Toyota is in great shape financially, but I continue to argue that the stakes are high for not participating in the BEV revolution. I’m cautious about Toyota’s future unless they change direction soon. The world is passing them by. Toyota has had a good run in the past 6 months (up 24%). Perhaps it might be a time for existing shareholders to consider taking a profit on the stock?
I am not a financial advisor, but I do pay attention to big changes in low emissions energy and electrification of transport. If my commentary helps when you discuss with your financial advisor investment in Toyota or more generally your participation in auto industry investment, please consider following me.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
https://seekingalpha.com/article/4405551-toyota-gets-message-battery-electric-vehicles-for-mining
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