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Toyota's hybrid-first strategy is generating big profits| GuyWhoKnowsThings

In today's high-tech, high-stakes automotive industry, fortunes can change quickly, and there's no better example of that right now than Toyota Motor.

Not long ago, it seemed as if Toyota had They have fallen dangerously behind in electric vehicles.. Tesla, the pioneer of electric cars, has grown rapidly and become the most valuable automaker in the world. Seeing Tesla's success, other companies, such as General Motors and Ford Motor, concluded that large numbers of consumers were ready to switch to battery-powered cars and trucks and began investing tens of billions of dollars to catch up.

Toyota, however, was more deliberate (or lethargic, its critics would say). So far it has only introduced two all-electric models in the United States, betting that its Gas-electric hybrids and plug-in hybrid vehicles.for which he has become known, would still be popular and would be enough to address climate change for now.

Amid all the enthusiasm for electric vehicles in recent years, it seemed like Toyota just didn't get it.

“I was surprised when I first heard about Toyota's strategy because I could see what Tesla was doing,” said Earl Stewart, a Toyota dealer in Lake Park, Florida, who also likes to drive his Tesla Model S.

But in the last six months, Sales of electric vehicles have slowed., and American car buyers looking to reduce their fuel bill and tailpipe emissions have been flocking to hybrids. Now Toyota's sales are booming and the company is reporting huge profits.

“It's not the first time Toyota has proven me wrong, and it won't be the last,” Mr. Stewart said.

Toyota's sudden strength is a reminder of how profoundly the auto industry is changing. Developing technologies such as electric vehicles, advanced microchips and software are turning what was once a stable, slow-moving sector into a dynamic industry in which even fast-moving, well-managed manufacturers can lose their way.

Toyota, a Japanese company, is the largest automobile manufacturer in the world; sold more than 11 million vehicles in 2023, more than six times more than Tesla. The company slowly rose through the ranks of the industry over half a century, first exporting small cars to the United States, then building factories throughout the South and Midwest, adding a luxury brand and expanding into segments dominated by its Michigan-based rivals, as full-size pickups.

At times along the way, Toyota has challenged conventional industry wisdom. The introduction of its exclusive Lexus brand in 1989 seemed like a risky bet until it surpassed BMW and Mercedes-Benz in sales. Twenty-one years ago, Toyota introduced the Prius, a small car with a compact gasoline engine and an electric motor powered by a battery.

The combination allows the Prius to go 50 miles or more on a gallon of gasoline, and a plug-in hybrid model can take short trips without using gasoline. Other automakers dismissed the car as a curiosity, but the Prius was a success, and before long GM, Ford, and others were developing their own hybrids.

Tesla CEO Elon Musk despises hybrids, saying it makes no sense to have two powertrains under the hood. Consumers don't seem to care. Toyota offers more than two dozen hybrid or plug-in hybrid models, and they account for nearly 30 percent of its sales, far more than most other automakers. Last year in the U.S. market, Toyota sold 2.2 million vehicles, more than all automakers except GM.

In January and February, Toyota's U.S. sales rose 20 percent, driven by an 83 percent increase in sales of its hybrid and plug-in models.

“We're not saying electric vehicles aren't a good solution to carbon emissions,” said Jack Hollis, executive vice president of Toyota's North American division. “They are. They're just not the only solution and many of our customers have told us they want options: hybrids, plug-ins and electric vehicles.”

The strategy is paying off. In the nine-month period beginning last April, Toyota made $27 billion in profits, about double its profits from the same period a year earlier. By comparison, Tesla's $15 billion profit in 2023 was about 19 percent higher than its 2022 figure.

Investors have taken notice. The stock market now values ​​Tesla at less than half of its peak market capitalization of $1.2 trillion in November 2021, largely because its sales are growing more slowly and the profits it makes on each car have been falling. Over the same period, Toyota's valuation has risen by about a third, to about $400 billion.

Mike Ramsey, an analyst at research firm Gartner, said Toyota's hybrid strategy is sound and based on long-term logic, but changes in technology or the market could undermine the company's future performance and position. .

“Toyota seems to range between boring and cool, depending on the current state of thinking about the technology,” he said. “But no matter what, they still seem to sell more cars and trucks than anyone else.”

One big market where Toyota is struggling is China, the world's largest auto market. Many Chinese car buyers are opting for electric vehicles, helping domestic automakers like BYD win market share of Toyota, Volkswagen and other foreign manufacturers.

Toyota has other problems too. The company's Daihatsu subsidiary, which makes small cars, temporarily stopped all production in Japan in December after revealing that he had cheated in security tests.

For now, however, Toyota's deliberate pace appears to be working overall, and several other major automakers have moved closer to the company's path.

Mercedes-Benz, which had hoped to phase out internal combustion models by 2030, said last month it had pushed back that goal by at least five years. Ford has lowered production targets for electric vehicles and is slowing construction of plants that are supposed to produce batteries for electric vehicles.

GM, which had stopped selling hybrids in the United States to focus on electric vehicles, has delayed the introduction of some battery-powered models. It now also plans to reintroduce hybrid and plug-in hybrid models, which dealers had pushed for.

“Deploying plug-in technology in strategic segments will deliver some of the environmental benefits of electric vehicles as the nation continues to build out its charging infrastructure,” GM CEO Mary T. Barra said in February.

So far, electric vehicles have failed to convince many car buyers because they are generally more expensive than combustion or hybrid models, even after taking into account government incentives. The challenges of charging electric vehicles, range concerns and its performance in cold climates They have also made some people doubt.

Hybrids don't face many of those problems. Some hybrids cost only a few hundred dollars more than similar gasoline cars, a premium that owners can quickly recoup by saving fuel. Plus, regular hybrids never need to be plugged in.

Plug-in hybrid models, some of which can travel on electricity alone for more than 40 miles and have a gasoline engine for longer trips, have much smaller batteries than electric vehicles and can be recharged relatively quickly. But these vehicles, which make up a small part of the market, may not be as financially or environmentally beneficial when driven long distances on gasoline alone.

Toyota plans to significantly increase production and sales of hybrids. A hybrid version of its Tacoma pickup truck is being launched. A redesigned Camry sedan, due out this spring, will be available only as a hybrid.

The company will also offer a range of electric vehicles, said Hollis, the Toyota executive. About 30 models will arrive through 2026, when Toyota expects its U.S. electric vehicle sales to have risen to about 1.5 million vehicles a year. Last year he sold around 15,000.

In Florida, new Toyotas that arrive at Mr. Stewart's South Florida dealership barely make it onto the lot before being sold. At the beginning of March, it only had about 150 vehicles in inventory, down from the 500 it used to carry before the pandemic.

That hasn't deterred customers who have become accustomed to waiting months after ordering vehicles. At one point last year, it had 1,300 vehicles on order and customers for all of them.

“I've been selling Toyotas since 1975 and business is better than ever,” he said. “People are lining up to buy from me.”

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