Toyota/Hino FCEV truck

Proposed heavy-duty fuel cell truck Hino/Toyota partnership Source Hino

Toyota (NYSE:TM) continues to be the auto manufacturer which refuses to acknowledge that the manufacturing of vehicles with an ICE (Internal Combustion Engine) is coming to an end. In a commentary recently about the pace of Toyota’s electrification progress, Seiya Nakao (Chairman & President of Toyota China Engineering and Manufacturing) indicated that Toyota is progressing with electrification faster than expected and hence the company might reach its 2030 target of 5.5 million electrified vehicles by 2025, 5 years earlier than planned, although 2025 is not a formal target. This does not indicate that Toyota plans to produce 5.5 million fully electrified vehicles, as 4.5 million of these vehicles are expected to be hybrids (i.e., include an ICE). Should Toyota continue to produce ~10 million vehicles annually, it seems likely that Toyota expects to still sell ~90% of its cars with an ICE in 2025.

Toyota still seems to assume that it can obfuscate about electrification, by including hybrids with an ICE (Internal Combustion Engine) in its electrification characterisation. This ignores that bans on cars with an ICE include hybrids, even though their drive train might be electric. Announcements about plans to ban new cars containing an ICE are being brought forward in Europe and California.

Here I expand on these issues and suggest that Toyota is playing an increasingly risky game of denying the coming rapid electrification of transport.

Toyota continues to plan to sell predominantly cars with an ICE for the next decade

Here is a Figure produced in a recent report by Deloitte “New Market. New Entrants. New Challenges. Battery Electric Vehicles.Electric vehicle forecast

This figure focused my mind on what Toyota has planned in terms of its participation in the electrification of transport. Deloitte predicts that in 2030 there will be 4 major players in BEV production (annual production: Volkswagen (OTCPK:VWAGY) 5 million, Tesla (TSLA) and BYD (OTCPK:BYDDF) each 3.9 million, Geely (OTCPK:GELYF) 3.5 million) along with a group of unnamed new entrants comprising ~5.8 million vehicles. Six companies/groups are predicted to produce ~0.5-0.75 million BEVs annually (SAIC, GM (GM), BMW (OTCPK:BAMXF), Daimler (OTCPK:DDAIF), Toyota, Renault (OTC:RNSDF)-Nissan (OTCPK:NSANY)-Mitsubishi (OTCPK:MMTOF)).

This figure shows clearly what I’ve been seeing for some time. Toyota does not plan to be a major participant in the massive shift to BEVs as Toyota produces ~10 million vehicles annually and its goal for 2030 for BEVs is ~0.77 million. Instead, it plans to continue to produce primarily cars with an ICE (either conventional ICE vehicles or hybrids) plus presumably a very small number of FCEVs (hydrogen-powered Fuel Cell Electric Vehicles).

Of course, this might change as reality dawns on Toyota (and other major car makers), but the longer the delay, the greater the risk.

The figure also highlights which companies are serious about leading the BEV revolution. Obvious players are Tesla, BYD and Geely. Anyone who still thinks that Volkswagen isn’t serious about becoming a (the?) leading BEV manufacturer might reflect on recent plans by Volkswagen in China, which are additional to the previously announced ~$39 billion spend on its global electrification of transport. Volkswagen plans to spend a further ~$17 billion with three JV partners (SAIC, FAW and JAC) on Chinese electric car mobility plans by 2024. The first BEV vehicles in China based on the Volkswagen MEB platform will be finished possibly even this month.

Upcoming bans on sale of new cars with an ICE

The above Deloitte report indicates that ~20 major cities worldwide plan to ban ICE cars by 2030 or sooner. The list of countries considering bans on new ICE vehicles is getting long, including influential markets in the UK, California and China. Europe has a patchwork of countries and cities with low emissions zones if not hard bans, which makes Europe a zone where BEVs are favoured.

California: Governor Newsom recently announced banning of new cars and passenger trucks with an ICE (Internal Combustion Engine) by 2035. This brings forward and formalises a ban that had been considered for 2040. For medium and heavy-duty trucks, the goal for emissions-free transport is 2045. The rationale for the action is that bold action is needed to address the climate crisis. Newson claims that transport accounts for 50% of California’s greenhouse gas emissions. The Governor made clear he will use the government’s marketing power to push zero emission vehicles and drive down costs. The Californian ban is being taken seriously as far away as Europe, where the German car industry is unhappy about such a rigid ban in a major and influential market.

UK: The UK has been progressively moving forward with plans to ban sale of vehicles with an ICE (both petrol and diesel), from 2040 to 2035, and now it seems that by the end of this year a ban from 2030 might be implemented. This is a dramatic change.

China: China is using an incentive-based approach to electrification of transport, but this is a very serious approach with the likelihood of 50-60% of all sales being new energy vehicles by 2035.

Politics and electrification

The US position

2020 will end with a fork in the road on environmental action, with very divergent views by the Trump administration and the Biden campaign. With a $2 trillion program on the environment over its first 4 years, the Democrats foreshadow a major shift, which will dramatically impact the pace of electrification and exit from ICE vehicles. A Biden administration has a comprehensive action plan for climate, which covers electrification of transport in particular, but which also has a much bigger agenda in aiming to return the US to the position of a global citizen and leader.

The following section from Joe Biden’s climate plan is significant, especially when taken in the context of China’s new 5-year plan (see below) and Europe already being well down the path of climate action, especially electrification of transport.

  • Rally the rest of the world to meet the threat of climate change. Climate change is a global challenge that requires decisive action from every country around the world. Joe Biden knows how to stand with America’s allies, stand up to adversaries, and level with any world leader about what must be done. He will not only recommit the United States to the Paris Agreement on climate change – he will go much further than that. He will lead an effort to get every major country to ramp up the ambition of their domestic climate targets. He will make sure those commitments are transparent and enforceable, and stop countries from cheating by using America’s economic leverage and power of example. He will fully integrate climate change into our foreign policy and national security strategies, as well as our approach to trade.

The recent Presidential debate had a surprise section on climate change. It was clear that Joe Biden has a well-articulated position on climate, while the Trump administration aggressively plans to withdraw from International climate action (by withdrawing from the Paris Agreement).

EPA Administrator Andrew Wheeler has ridiculed recent Californian plans to ban new cars with an ICE in 2035. Expect a continuation of the attacks on electrification by the Trump administration should it win the November election. California has a big influence on the transport industry and change in that state will be influential across the country. There is little doubt that a Biden administration would work closely with California in pushing for electrification of transport.

The outcome of the US election will indicate one of very different paths on electrification of transport. It is doubtful that a second term Trump administration could stop the rise of BEVs, but the pace of change would be very different from that of a Democratic administration.

China’s new 5-year plan

China’s 14th 5-year plan will be discussed later this month. However, in late September Xi Jinping announced at the UN General Assembly that, like Europe, China is increasing its ambition to take action on climate change and become carbon-neutral by 2060.

The 2020 Beijing Auto Show actually happened this year and electric cars were at the center of this show. Electrification of transport seems set to expand substantially in China.

Big hydrogen-powered truck in the US by next year?

Big Japanese companies are usually quite conservative about major plans and they rarely go out on a limb to announce targets that will be almost impossible to meet. Yet the announcement this week that Toyota plans, through a partnership with Hino Motors (OTC:HINOF), to have a demonstration big truck in the US by next year seems a very big promise and if achieved, likely to be something that will take a long time to turn into a vehicle that is available for market entry. The Toyota/Hino partnership began with plans for a big FCEV truck in Japan. The plan is to develop a FCEV based on Hino’s Profia 25 ton truck by installing 2 fuel cell stacks being developed for Toyota’s Mirai FCEV. The goal is to have a range of 600 km.

While hydrogen is still being made from natural gas, Toyota really needs to stop calling this an emissions-free vehicle, as there are large emissions in the making of the hydrogen fuel.

Nikola (NASDAQ: NKLA) troubles

The troubles experienced by Nikola recently can’t help boost confidence in FCEV trucks. I’ve been sceptical about Nikola for some time as its claims didn’t seem to be soundly based. A report by short seller Hindenburg Research has been aggressively rebutted by Nikola Founder Trevor Milton, but Milton himself is not without controversy having resigned from the company.

Shares of Nikola have been in rapid decline since peaking in early June at almost $80 and bottoming at less than $18. The share price has recovered somewhat in the past few days of trading, closing yesterday at $25.00. Until it becomes clearer how things stand at Nikola, I’m cautious about extravagant claims about the existence of a functional FCEV big truck. A planned partnership with GM (NYSE:GM) still seems to be alive, but time will tell if it gets consummated.

Tesla big Semi

One certainty is that the above plans concerning big FCEV trucks will spur on Tesla to get its big Semi to market, even though it has a lot of irons in the fire currently. Elon Musk loves to prove a point and the Semi is one of his big plans. He is also on the record as being very negative about the concept of fuel cell vehicles.

Tesla has resolved to build both the Semi and Cybertruck at a new US plant in Texas. This facility will also manufacture new generation Tesla batteries.

Massive batteries are needed to power the Semi. It is now clear that while technically things are in good shape, the scale-up of manufacturing of batteries for the Semi (and Cybertruck) will now be delayed until 2022.

Walmart Canada announced at the end of September that it has increased its order for the Tesla Semi to 130 trucks. Other large companies with Tesla Semi orders include UPS (NYSE:UPS) (125), PepsiCo (NASDAQ:PEP) (100) and Anheuser-Busch (NYSE:BUD) (40).

As with most things Tesla, there are those who have followed closely Tesla’s achievements compared with those who can’t get their heads around the scale of the ambition. Readers will be aware that my take on Tesla is that it is “for real” and its achievements to date give one confidence that Tesla will continue to outperform.

And then there are the hangers-on…. An interesting one is to refit Tesla Semi vehicles as motorhomes. New Zealand company Vanlifer, which does custom camper vans out of Auckland (but also London?), has on its website a blog for custom fitout for the Tesla Semi. Admittedly, it is a bit early off the mark as it will still be a while before the Semi gets released, but the concept makes a lot of sense and the cost is not likely to be out of line with quality big mobile home fitouts.


The clock is ticking for Toyota, which maintains its denial of the BEV, instead relying on being able to maintain its dual strategy of hybrids plus fuel cell vehicles, while indicating that even the electrified vehicles it plans to produce will mostly (~80%) have an ICE. This means that ~90% of vehicles produced by Toyota are planned to have an ICE in 2025 or maybe 2030. This represents a relatively small planned change from the world’s 95% vehicles with an ICE in 2019. At some stage, Toyota will have to reassess its current strategy. There are many Toyota enthusiasts (I was in that camp for a long time) who think that Toyota will change at an appropriate time, but my take is that it is running out of time to make the change successfully. Therefore, I am increasingly cautious about Toyota’s prospects because full electrification of transport is coming and I don’t think that a FCEV solution is going to be part of that.

I am not a financial advisor but I do pay attention to the dramatic changes as transport gets electrified. If my comments help you and your financial advisor to see possible investment in Toyota in a different light, please consider following me.

Disclosure: I am/we are long BYDDF. 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.

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