Despite the rejection of the shareholder proposal, the shareholders' meeting conveyed some positive messages from the organizational changes made by Koji Sato since he took office. The most marked example is that Takero Kato, the president of Toyota's BEV Factory, gave a strong answer to a shareholder's question, "Will Toyota be able to beat Tesla in the future?" on the stage. Kato said that Toyota would change the future of automobiles and the way they are manufactured through electric vehicles. He also mentioned how the unification of the organization (the integration of development, production, business, and overseas operations) would accelerate the development of electric vehicles, and how the simplification of the production process would help Toyota face the reality of an aging society.
The details of Kato's presentation at the shareholders' meeting came from the Toyota Technical Workshop 2023, held on June 8. At the workshop, Kato presented the technological power of solid-state batteries, which now have a range of over 1,000 kilometers, rivaling or even surpassing that of hybrids. The Toyota Group will also undergo radical changes in the development and manufacture of electric vehicles. Specifically, 90 parts of the front axle and 85 parts of the rear axle will be integrated into two single components, which will reduce the cost of parts development and investment in factory facilities by 50%, similar to Tesla's use of a giant casting machine, the giga press, to produce the rear section of the Model Y chassis.
In terms of electric vehicle production planning, Toyota plans to produce "1.7 million vehicles across five models" and achieve the goal of selling 1.5 million electric vehicles by 2026. This plan includes 600,000 large SUVs, 240,000 large sedans, 120,000 large MPVs, and 360,000 each of midsize SUVs and small hatchbacks. The five planned types of new vehicles, together with the Lexus RZ, Lexus NX, Toyota bZ4X, Toyota bZ3, and Toyota Proace that are already on the market, are exactly the 10 electric models that President Koji Sato said would be launched by 2026.
Judging from all kinds of signs, however, Toyota's current electric vehicles are likely to be transitional models. In the future, Toyota will use large die-casting machines to produce greatly streamlined chassis components. This, coupled with the so-called "self-propelling production technology," will effectively reduce manufacturing costs while creating a lean production process. The result will be a cost structure that enables Toyota to compete with Tesla.
In a previous article, Strategic thinking in the midst of trending EVs, Part II, I discussed the strategic implications of the rise of electric vehicles. I specifically mentioned Tesla's "Unboxed Process," a revolutionary new production method that breaks with the traditional assembly line model that has been the mainstay for the past 100 years or so. The Unboxed Process divides the vehicle into six parts, which are then produced simultaneously in a fishbone pattern. This has several advantages. First, it makes the production line more flexible, allowing Tesla to easily switch between different models. Second, it reduces the investment in factory facilities, (especially in the body factory and paint shop in the front section). Third, it allows for a more modular design of the factory building. The design can work without the traditional linear process and with six blocks of production arranged in parallel. In addition to the Unboxed Process, Tesla's electric vehicles also use about 40% fewer parts than traditional internal combustion vehicles. This further simplifies the production process and makes it more similar to the modular production of computers. The most concrete realization of Tesla's new production methods is the company's upcoming Gigafactory Mexico. This factory, almost 100% automated, will apply the fishbone paradigm to the production configuration. It is expected to revolutionize the auto industry and go far beyond the imagination of all the traditional automakers.
At the shareholders' meeting, new President Sato referred to "inheritance and evolution" as a way to lead Toyota in the future. He particularly discussed how Toyota could build on the TPS (Toyota Production System) with a more efficient EV production process. This is an interesting point, as it indicates that Toyota is looking to innovate its manufacturing process in order to compete in the growing EV market.
What we know for sure is: Toyota has confirmed that the company will introduce a giant die-casting machine into the EV production process and innovate the current car manufacturing process, but whether the new process will be modeled after Tesla's fishbone production process remains unknown. Further confirmation may come in 2025, when Toyota Motor Manufacturing Kentucky (TMMK) is commissioned to build the next generation of 3-row electric SUVs. As EV parts are evolving into modules to reduce the complexity of assembly, I believe that it is an irreversible trend to replace the assembly line production of traditional internal combustion engine automobile factories with EV production modules. How valuable is it to use traditional automobile factories in the rapidly growing EV market? How can EV factories that have already started production improve the efficiency of their current production lines and minimize production costs to face the next tougher competition?
The existing automakers are adopting different strategies to compete in the EV market. Tesla is taking a high-volume approach, building gigafactories that can each produce at least 500,000 units per year. BYD remains competitive by vertically integrating its supply chain to reduce costs and entering new markets outside of China. BYD's strategy is paying off, as the company has made significant progress in Brazil and Thailand, where the company is planning to build new EV factories for greater market share. BYD's move challenges Toyota's assumption that demand for EVs in third world markets is lower than in advanced countries due to inadequate charging infrastructure and the relatively high price of EVs. Toyota has firmly believed that only a "multiple-product approach that combines gasoline cars, hybrids, and electric cars" would meet the needs of different regions worldwide. Toyota may need to reconsider its strategy, as it could lose market share in China, the US, and Europe if it cannot keep up with the EV wave. Additionally, Toyota's existing advantages in Central and South America, Southeast Asia, and Oceania could be eroded by emerging EV brands from China and Southeast Asia. We should closely monitor how Toyota responds to the above challenges.
Finally, Toyota is investing heavily in hydrogen fuel cells for commercial vehicles. The company's Hydrogen Factory, which will be established in July, plans to sell 100,000 hydrogen fuel cell vehicles by 2030, with a focus on light commercial vehicles and large trucks. At the end of May this year, Toyota's Hino and Daimler's Fuso formed a joint venture to establish a large commercial vehicle company, a sign that hydrogen fuel cells are gaining traction in the commercial vehicle market. The joint venture will allow the advantages of hydrogen fuel cells to be tested in more real-world markets. By 2030, we may see a divergence between the popularity of battery-electric vehicles for passenger cars and the frequent use of hydrogen fuel cells for large trucks, buses, and light commercial vehicles.
About the author - Kenny Liu
Graduated from Dept. of Aeronautics and Astronautics, Cheng Kung University in 1988, started his auto industry career since July 1990 after two year military service. Starting as a service engineer and a temp technician, product marketing specialist in Peugeot/ Daihatsu, marketing and dealer channel specialist in VW LCV from March 1992, then field manager in GM Taiwan from Feb. 1994, sales and service / parts head in Ford Lio-Ho from Sep. 1998 till retirement in May 2019. Kenny then started to work for JLR Taiwan as sales/service head and consultant/ lecturer. After that, he was invited to work at a Suzuki dealer of Taipei as the general manager until April 2022.