Category: Automotive

When it comes to the future of the internal combustion engine, Toyota has long been on the cutting edge. Consider how the company went out early and successfully with the Prius hybrid line of vehicles and how it has come to define the category with the largest market share by far of any hybrid model.

Now, Seigo Kuzumaki, Toyota’s head of advanced R&D and engineering, is forecasting that the internal combustion engine will be dead as the principal form of vehicle power by 2050 and will power only about 10% of new vehicles as part of a hybrid system.

The impact on the environment will be profound. Kuzumaki says the reduction in emissions, compared with cars in 2010, will be 90%. Toyota’s technology plan coincides with growing policy making by governments. Last July, for example, United Kingdom Environmental Secretary Michael Gove sad that the sale of new 100% internal-combustion vehicles will be banned in his country by 2040.

That position differs dramatically from the espoused position of the current U.S. administration, which, in keeping with the Republican political party, continues to deny the impact of human-generated carbon emissions on climate change. The chief reason for that recalcitrance is the fear of carbon taxes on businesses, and the lack of cooperation on extensive environmental standards by other big industrial countries like China and India.

In the current tax legislation being drafted in the U.S. House of Representatives, there is a call, for example, to end tax incentives for EVs. “[This bill] would fully end the tax incentives for electric vehicles at the end of this year. That’s a shortsighted policy that will increase pollution and undermine an important and growing industry,” according to the Union of Concerned Scientists (UCS).

Toyota is off to a huge start in the production of electric vehicles, producing some 43% of all electric vehicles globally. It has sold more than 11 million Prius brand hybrid and EV vehicles worldwide thus far.

By 2020, Toyota plans to introduce a new family of EVs, which are expected to have a range of around 300 miles—the gold standard for consumer acceptance of EV vehicles.

Toyota is far from the only company making heavy investments in EVs. GM, Ford, Nissan, Volkswagen, Honda and luxury makes like Mercedes, BMW and Audi are all making heavy investments. What remains to be seen is how changing governments will set new standards, and at what pace. In the U.S., the Trump administration, for example, is trying to roll back standards set by the Obama administration that proceeded it.

And consumer tastes and preferences are an issue. Toyota and the other companies can bring out all the EVs they want. But it will take consistency of government policy to allow industry to make the appropriate investments required to meet the level of sales being predicted in the next few decades.

“The progress of our growing electric vehicle market [can’t be allowed to] stall, because America will fall behind other countries that recognize how critical this technology is to the future of transportation,” says Don Anair, deputy director of the Clean Vehicles program at the UCS.

Toyota Motor Corp upgraded its full-year operating profit forecast by 8 percent on expectations of a weaker yen but flagged a dour outlook for North America, its biggest market, where quarterly sales fell to the lowest in nearly three years.

Japan’s largest automaker is struggling to sell more cars in North America, where automakers are battling for customers with aggressive discounts, particularly on sedans as driver preferences shift to bigger SUVs and pick-up trucks. This has raised marketing costs for Toyota and other automakers.

Profitable growth in North America is important to Toyota to help it sustain big investments it is planning to make in fast-growing new technologies such as automated driving functions and artificial intelligence.

Toyota said on Tuesday it now expects full-year operating profit to come in at 2.0 trillion yen ($17.54 billion), up from a previous forecast of 1.85 trillion yen, based on a revised assumption that the yen will trade around 111 yen JPY= to the U.S. dollar, from 110 yen.

The updated profit forecast number is more or less similar to last year’s operating profit of 1.99 trillion yen and in line with forecasts of a profit of 2.04 trillion from analysts polled by Thomson Reuters I/B/E/S.

Toyota Executive Vice President Osamu Nagata said that the improved forecast was largely due to a positive currency impact, adding that marketing activities, including financial incentives in the United States, would cut into overall profitability this year.

“Weakening profitability in our U.S. operations is still having a negative impact,” Nagata told reporters at an earnings conference, adding that the shift in demand from sedans to SUVs and falling residual values of leased vehicles would continue to weigh on the company.

“We still have a lot of work to do there.”

In July-September, the maker of the Prius gasoline hybrid and the RAV4 SUV crossover sold around 672,000 vehicles in North America, down from around 684,000 a year ago. It was Toyota’s lowest quarterly sales there since the January-March 2015 quarter.

The automaker anticipates lower annual retail sales in the region for the year to March. At home, sales fell 4.2 percent during the quarter to 543,000 units.

QUARTERLY RESULTS, SHARE BUYBACK

Honda Motor Co Ltd (7267.T), Japan’s third-biggest automaker, and smaller Subaru Corp (7270.T) both reported earlier this month that they sold fewer vehicles in North America during July-September and spent more on incentives to whittle down inventories.

Nissan Motor (7201.T), the nation’s second-biggest vehicle maker, will report its results on Wednesday.

Toyota is fighting to stay competitive in the U.S. market, which is coming off a strong run that culminated in record sales of 17.55 million vehicles industry-wide in 2016. For the past year or so, Toyota has been raising the production of its Tacoma and Tundra pick-up trucks and its RAV4 SUV crossover, to capitalize on strong demand for larger models.

But improving sales in other markets have been offsetting weakness in the United States. Quarterly vehicle sales rose 8.0 percent in Europe, and 0.3 percent in Asia. In growing markets, which include central and South America, sales rose 0.6 percent.

“Even if sales in the U.S. have flattened out, they’re seeing growth in a lot of other markets, like ASEAN, Brazil and Russia, which were considered weak spots not so long ago,” CLSA managing director Chris Richter said.

Toyota posted a 10 percent rise in operating profit for the second quarter, exceeding analysts’ forecasts for 515.3 billion yen. It also announced a share buyback worth 250 billion yen, the latest in a series of buybacks it has been making over the past few years.