Electric Cars Are Splitting The Automobile Industry In Half

In industry, as established as the automotive industry, it’s rare to see the industry leaders diverge as fundamentally as they are today. By vehicles sold, Toyota and the VW Group are the two largest automakers in the world. When it comes to the future of electric cars, the two companies have taken firmly opposed stances.

On one side, we have Volkswagen (VW) Group, which also owns Audi and Porsche. In the aftermath of their Diesel emissions scandal, VW Group has re-invented itself with the help of new Chairman Herbert Diess. Diess has taken an aggressive stance towards electric vehicles, putting the urgency of the transition in clear terms for his managerial team. The message was simple: if we don’t adapt quickly, we die.

Under Diess, VW has poured tens of billions of dollars into electric vehicles. The strategy has just begun to pay dividends — in 2020, VW Group was the number two manufacturer of electric cars behind only Tesla. 2021 should be even bigger for the automaker, which included the introduction of the ID.4, their first serious attempt to break into the North American market.

However, their ambitions are even bigger. By 2025, VW Group intends to be the largest manufacturer of electric vehicles globally. This is a lofty goal – current market leader Tesla is ramping up production at a break-neck pace and won’t give up their crown without a fight.

VW also isn’t alone in their electrification efforts; major automakers all over the world are introducing impressive new electric models and making big commitments for future sales and investment. Some brands— such as Volvo, Jaguar, and General Motors — have even made commitments to go all-electric in the coming years.

On the other side of the spectrum is Toyota. Toyota executives have repeatedly thrown cold water on the future of electric cars, with the President of Toyota, Akio Toyoda, recently stating that electric cars are overhyped. A recent report from the International Energy Agency showed a sharp contrast between Toyota and most other major automakers. Daimler (owner of Mercedes) plans for 50% of their sales to be electric by 2030 — more than 1.25 million units annually at 2017 production levels.

General Motors hopes to be all-electric by 2035. Toyota, the largest automaker in the world by vehicles produced, aims for just 1 million annual sales by 2030.

At current growth rates, 10% of vehicles sold globally could be electric as early as next year. Yet, in Toyota’s vision they will struggle to hit that number by 2030. This puts Toyota nearly a decade behind the market as a whole.

Instead, Toyota belongs to a dwindling group of automakers that are still investing heavily in fuel cell vehicles (which run on hydrogen). Despite substantial investment, the tech has failed to lift-off like electric cars. US sales of the Mirai, Toyota’s only fuel cell model, have stagnated since it’s 2014 release. After climbing to just over 1,800 units in 2018, sales fell to 1,500 units in 2019 and just 499 units in 2020.

Toyota also remains heavily invested in hybrid vehicles. Unlike plug-in hybrids, regular hybrids can’t be charged. Instead, they take gas and convert to to electricity to power the motors. While hybrid cars are typically a bit more expensive than their normal gas counterparts, they can usually achieve substantially better fuel economy. Unlike plug-in electric models, they still must be powered by fossil fuels.

Once the pioneer of the hybrid category, Toyota remains committed to the future of this segment. Hybrid sales have seen their ups and downs over the last 15 years — largely due to the oscillating price of gas. Long-term growth seems uncertain.

Yet, their focus on hybrids seems to at least paid off this year. Their hybrid segment saw substantial growth in 2020, and it helped Toyota to meet tightening regulations in Europe. It’s likely that the near term future will continue to see growth for hybrids in areas with the strictest regulations (such as the European Union). Whether this segment has the long-term growth necessary to secure the future of Toyota is yet to be seen.

Of course, neither automaker is putting all of their eggs in any one basket. VW still has a fuel cell project going, though it seems to be a very low priority for the company. VW is also trying to push hybrids of their own, likely a short-term compromise to meet tightening fuel economy regulations in Europe.

And despite their skepticism, Toyota still produces electric cars. To date they have focused on plug-in hybrids — gas cars that also have a small battery — but they reportedly plan on introducing all-electric cars in the future. Most indications are that these vehicles will arrive later than their competitors and most likely sell fewer units. Still, it’s obvious that the two heavy-weights have bet the future of their companies on completely different horses.

In a world where automakers are increasingly trending towards all-electric vehicles, Toyota’s reluctance stands out. Once hesitant of electric vehicles, Volvo reversed course, admitting there was no future for internal combustion engines and planning to go all-electric in less than a decade. General Motors, Jaguar, and Lotus have done the same, though on somewhat different timelines.

Transitioning too quickly isn’t without its risks. While planning for an electric future, automakers still primarily rely on traditional vehicles to drive current profits. Yet, whatever the future holds, it’s clear that the automotive industry is primed for a level of disruption it hasn’t seen in decades. It’s likely that either VW Group or Toyota will come out on the losing end of the transition. If current trends don’t slow, that loser seems much more likely to be Toyota.