Toyota and Volkswagen are conspiring to dethrone Tesla by investing billions in electric vehicles.
The masters of mass production announced plans to invest $170 billion over the next decade to maintain their hegemony over an industry they have dominated.
Wednesday, January 5, 2022 | Chimniii Desk
Key Highlights
- Volkswagen AG and Toyota Motor Corp., on the other hand, are scale giants.
- Toyota's first mass-market worldwide EV is not scheduled to appear until mid-year.
- Welcome to the future showroom," he remarked, revealing plans to roll out 30 electric vehicles by the end of the decade.
- Toyota will devote 8 trillion yen ($70 billion) to electrification during that period, with half going to completely electric cars.
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The titanic battle for control of the automobile industry's future is about to get a whole lot more exciting. Tesla Inc., the pioneer and market leader, has dominated the new-energy era's early rounds, grabbing investors' imaginations with a vision for the next generation of automobiles and conquering the nascent market for completely electric vehicles.
Volkswagen AG and Toyota Motor Corp., on the other hand, are scale giants. The world's two largest automakers — each of which sold around ten or eleven vehicles for every one sold by Elon Musk last year — recognise that the age of the battery-powered vehicle has arrived and are strategizing on how to maintain dominance.
Within five days of one another last month, two masters of mass production announced plans to invest $170 billion over the next decade to maintain their hegemony over an industry they have ruled for decades.
Executives at these incumbents' highest levels are fully aware that the shift away from the internal combustion engine will not be orderly. It might get ugly — similar to what happened when Apple Inc. entered the mobile phone industry and dethroned once-dominant Nokia Oyj.
Following a year of unprecedented growth that saw Tesla become the most valuable automaker in history, the trillion-dollar issue is whether Musk's advantages heading into the next generation of carmaking are as insurmountable as his company's market value suggests.
"When the world's two largest automakers decide to go all-in on electric, it's no longer a matter of speculation — the mainstream is going electric," said Andy Palmer, the former CEO of Aston Martin and a former Nissan Motor Co. executive who is frequently dubbed "the godfather of EVs" for his role in developing the Japanese automaker's battery-powered Leaf. "I anticipate that the transition to electric vehicles will be more rapid than anyone anticipates."
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VW and Toyota's strategies for defending their turf are as dissimilar as one might imagine from proud German and Japanese industrial titans. One is coming out swinging, aiming squarely at Tesla, while the other is spending significantly in EVs but hedging its bets and waiting for the revolution's early stages to play out.
VW is the giant that is slugging Musk furiously, having expanded over 84 years into a stable of a dozen brands, manufacturing in over 120 locations worldwide and employing more people than the city of Detroit. VW Group earns around $280 billion in annual revenue through the production of vehicles ranging from the Tiguan and Passat badged automobiles to Lamborghini supercars and Scania heavy trucks.
VW has unveiled unmatched electrification budgets every year since Chief Executive Officer Herbert Diess took the helm. On Dec. 9, he unveiled his most ambitious plan to yet, allocating 89 billion euros ($100 billion) over the next half-decade on EV and software research.
Diess is continually comparing himself to Musk, to the point where he has admitted to irritating some inside VW's ranks. In October, he surprised Musk by inviting him to an executive conference attended by 200 of the automaker's senior executives.
VW began its EV journey with high-end cars such as the Audi e-tron and Porsche Taycan. It made a statement last year with more conventional options, including the ID.3 hatchback and ID.4 sport utility vehicle.
"Our transition will be rapid," Diess stated in March at a Tesla-style battery event, adding that it would be "larger than anything the industry has experienced in the last century."
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VW delivered over 322,000 completely electric vehicles in the first ten months of 2021, little over half of its 600,000 sales goal. According to Sanford C. Bernstein & Co. analysts, VW will sell approximately 450,000 electric vehicles this year, which "isn't the end of the world, but it's also not a reason to celebrate."
Diess remains unafraid. By the end of this year, the architecture shared by the ID.3 and ID.4 will underlie a total of 27 electric vehicles. VW will expand production of these models from five to eight plants — in Germany, China, and the Czech Republic — beginning with two more facilities in Germany and one assembly plant in Chattanooga, Tennessee.
VW's high-value EV cars have also performed well within the group. For example, the Taycan is on track to outsell the famous Porsche 911 sports vehicle. Porsche is planning to release further electrified vehicles in the coming years, including a fully electric version of its famous Macan SUV next year.
Toyota's long-held vision for the future was on display a few months ago at a racetrack in western Japan's hills. While the business brought along its battery-powered bZ4X electric SUV, Akio Toyoda drove a Corolla Sport H2 Concept vehicle fitted with a hydrogen-fueled engine around the circuit.
"As we move towards an uncertain future, we require various solutions," Toyota's founder's grandson stated during a Nov. 13 news conference. "We don't want to be confined to a single course of action."
Diversification is one thing; oblivion is quite another. Toyota, which pioneered hybrid powertrains with the Prius, has admitted to being "a little bit late" to fully electric vehicles – and that was four years ago. Toyota's first mass-market worldwide EV is not scheduled to appear until mid-year.
However, just weeks after completing scorching laps in a hydrogen car, Toyoda swapped his racing overalls for a suit and tie and provided an unparalleled view at a slew of future items to the public. When the first curtain was opened at a press conference on a man-made island in Tokyo Bay, he was flanked by five electric vehicles.
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Toyoda performed a brief sales pitch for each vehicle before raising his palms to the sky and revealing 11 additional battery-electric models behind another curtain. "Welcome to the future showroom," he remarked, revealing plans to roll out 30 electric vehicles by the end of the decade.
Toyota will devote 8 trillion yen ($70 billion) to electrification during that period, with half going to completely electric cars. By the end of the decade, the manufacturer hopes to sell 3.5 million electric vehicles yearly, nearly doubling the target established just seven months ago.
Toyota required considerable prodding to arrive at this position. With cautious remarks from executives contradicting the industry's widespread enthusiasm for EVs, some investors and environmental groups chastised the automaker for being slow to respond. Last summer, Anders Schelde, chief investment officer of Danish pension fund AkademikerPension, which owns Toyota stock, stated that he did not believe management's stance on EVs was a long-term winning strategy.
Schelde said his fund was beginning to examine its assets more broadly to ensure they line with the Paris Agreement's goals of limiting global warming to well below 2 degrees Celsius. "Toyota needs two or three years to mend its ways," he stated in an interview.
This type of criticism was a source of contention for Toyota, with time spent at high management meetings debating why its messaging on carbon neutrality was not well received. Last month's EV event in Tokyo was the latest in a series of events held around the world to convey the company's nuanced message of allegiance to hybrids and hope that the hydrogen-powered cars in which the company has invested years of research and investment will gain traction alongside battery-only vehicles.
At the start of December in Brussels, the firm pledged to be ready to offer solely zero-emission vehicles throughout Europe by 2035. A few days later, in North Carolina, it invited the governor and hundreds of other guests for a press conference to announce the state would host the company's first battery plant in the United States, a $1.29 billion investment.
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While Toyota's assault must be taken seriously, VW's EV campaign demonstrates that shifting to electric will not be as simple as flipping a switch.
And Tesla is scaling up on its own. As the company neared the end of a year in which it delivered over 936,000 vehicles — an increase of nearly 90% — it announced plans to invest up to 1.2 billion yuan ($188 million) in its two-year-old Shanghai plant to upgrade equipment and expand production beyond its stated capacity of 450,000 units per year. It will add an additional 4,000 employees to the site, bringing the total to over 19,000.
Additionally, two new assembly plants — one outside Berlin and one in Austin, Texas — are preparing to begin producing Model Ys. And there is plenty demand to accommodate all of this additional supply. Wait times for the Model 3 and Y have surpassed six months, Tesla's investor relations chief Martin Viecha recently addressed a Deutsche Bank conference.
"With market demand for EVs clearly outpacing the industry's capacity to produce, success in EVs is no longer about the order book, but rather about production capacity, supply security, and cost, all of which Tesla believes it has a significant advantage," Deutsche Bank analyst Emmanuel Rosner wrote in a note.
Others believe Tesla will be dethroned as new entrants muscle their way into the burgeoning market. According to IHS Markit, Tesla's EV market share in the United States will decline to 20% by 2025, from slightly more than 50% currently.
Significant investment "will position Toyota and Volkswagen to compete more effectively against EV experts," according to Anna-Marie Baisden, head of automotive research at Fitch Solutions. "For a long time, we have believed that established automakers will have certain advantages over startups, like scale, manufacturing experience, and brand loyalty."
Along with reconfiguring their manufacturing lines and model lineups, VW and Toyota will need to compete with Tesla on another front: software.
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Initial sales of the ID.3 were hampered by VW's inability to get crucial technological features to work. Customers initially received vehicles that lacked some functions, including the ability to connect smartphone apps to the vehicle's display screen. Rather than wirelessly transmitting a remedy to owners — like Apple and Tesla do with their iPhones — ID.3 owners were required to visit their dealer to have their car serviced.
Joey Mandel's experience exemplifies this. The employee in the music festival sector in Los Angeles' Woodland Hills district was the first to purchase an ID.4 electric SUV from his local dealership. He's had his share of glitches - the audio occasionally cuts off, and the vehicle occasionally refuses to disengage from its charging plug.
Mandel, on the other hand, is still pleased with his purchase. He has had no difficulty travelling to events around the West Coast, owing to VW's "well-developed" charging network.
"It's not a Tesla in terms of technology," Mandel explained, "but for those who are fearful of making the switch to electric vehicles, Volkswagen keeps things pretty normal."
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