DTGHF - Does Toyota Need Partners For BEV Developments

2023-06-13 10:47:54 ET

Summary

• Toyota keeps BEV developments at arms length from Toyota brand through planned complex Japanese partnership in trucking (with Daimler Trucking) and “last mile” commercial vehicles (with Suzuki and Daihatsu).
• US Toyota bZ4X owners get free access to EVgo charging network, a net cost to Toyota, whereas Ford and GM access Tesla fast charging with commercial benefit to all parties.
• Toyota makes choice a big feature; with ~10,000 BEVs available in the US in 2023 and ~500,000 hybrids sold in 2022, the choice for a BEV buyer is another brand.
• Toyota releases the bZ3 BEV in China with BYD batteries, engine and electric control system.

When you are on to a winner, you don't often offer a share of the spoils of success with competitors. Toyota ( TOYOF ) ( TM ) has a dominant position in the auto industry and with few exceptions it doesn't share ownership of its successes with others. However, in the area of electrification, Toyota makes it part of its electrification strategy to keep BEV vehicles away from home brand Toyota. Very recently, Toyota has announced two complex deals for BEV vehicles with several partners. Here I explore what this means. It seems more of the same as regards Toyota and BEVs; keep them away from the real Toyota vehicles. A curious exception is China, where Toyota has released the bZ3, which is dominated by Chinese technology. I remain doubtful that Toyota is serious about the exit from the Internal Combustion Engine.

We live in times when attack seems to be regarded as the best line of defense. And so it is with Toyota's attempts to get on the front foot. Toyota's line is that it leads the electrification of the car industry and gives customers choice : " We currently offer more low and zero emissions vehicles combined than any other automaker to give customers the most choices to reduce their carbon footprint." The uncomfortable point (for Toyota) is that Toyota offers just one BEV (Battery Electric Vehicle) in the US, with negligible sales, and not much more elsewhere.

There is quite a lot of activity on the fringes, which I summarize here.

Toyota JV with Daimler Truck on Japanese trucking, which will have Hino and Mitsubishi Fuso as wholly-owned subsidiaries

The waters are murky and the complexity is high in a Japanese four company (Toyota, Daimler Truck, Hino Motors, and Mitsubishi Fuso Truck & Bus Corp.) proposed initiative on trucking. From Toyota's perspective, this seems to be a way to offload the scandal-plagued 50.1% stake Toyota has in Hino Motors. Daimler Truck Holding ( DTRUY ) is the majority shareholder of Mitsubishi Fuso Truck & Bus Corp. If the deal goes ahead, Daimler Truck Holding and Toyota will have equal stakes in the holding company, which they eventually hope to list on the Prime Market of the Tokyo Stock Exchange.

Underneath the corporate complexity are plans to work on low carbon technologies, including hydrogen. There seems to be a grab-bag of other technologies to be considered in the JV, including autonomous driving, net connected services, and (an afterthought?) electric vehicles.

It all sounds like stuff that Toyota doesn't really want to face.

Partnership with Suzuki and Daihatsu on "last mile" BEV tiny commercial minivans

In what was probably an announcement timed for release at the recent G7 meeting in Hiroshima, Toyota, Suzuki ( SZKMY ) and Daihatsu ( DDMGF ) announced joint prototype development of a tiny BEV for last mile commercial deliveries at the Japan Automobile Manufacturers Association exhibit. Curiously, given Toyota's effective absence from the global BEV market, the electrification technology is being provided by Toyota. The range is only ~200km, which seems problematic even for a "last mile" delivery vehicle. This vehicle will be released with separate branding by each of the participating companies (Daihatsu: Hijet EV, Suzuki: EVery wagon, and Toyota: Pixis), a development that makes little sense to me, but perhaps it works in Japan. Is this just for the Japanese market?

Partnership on a BEV with BYD in China seems more real, but is it a Toyota?

Toyota realises that it needs to have a presence in the Chinese BEV market because so far in 2023 24% of new car sales in China are BEVs. Toyota seems to have acknowledged that it is behind Chinese BEV technology by releasing a Chinese technology-based BEV, the bZ3, in China. The point is that the bZ3 has an LFP (lithium iron phosphate) battery, BYD ( BYDDF ) electric motor technology, and also BYD's electric control system. So Toyota hasn't had a role in the core BEV technology in the bZ3. This vehicle is only to be sold in China, and specifically, it will not be released in Australia, where the BYD Atto 3 BEV is having a successful entry. I'm not sure how BYD will manage Toyota selling a BEV in China that is similar to BYD's own BEV vehicles, other than the numbers of bZ3 Toyota vehicles likely to be produced seem to be small.

Partnerships that make sense

There are partnerships that make sense because both parties clearly benefit. A good example in the BEV space is recent agreements between Tesla ( TSLA ) and both Ford ( F ) and GM ( GM ) on access to the Tesla charging network. For Tesla, this provides a new revenue stream for its chargers, while for Ford and GM, both companies get access to an already existing charging network.

The Tesla/GM and Tesla/Ford deals have clear commercial benefits for each party.

Toyota does have an agreement with EVgo ( EVGO ) charging company in the US to provide free charging for its bZ4X BEV for a year. If this involved a significant number of vehicles it might be relevant (although a net cost to Toyota), but the bZ4X has a chequered history since its release and recall in 2022. The plan is for just 10,000 bZ4X sales in the US this year. Note that Toyota still focuses on its "electrified" (rather than electric) sales, which are predominantly hybrids. In 2022, Toyota sold more than 500,000 "electrified" vehicles in the US in 2022.

Conclusion

I've been following Toyota for some time, and I have a personal interest because I was a 24-year Lexus owner who Toyota gave the choice to seek another manufacturer when I wanted my next car to be a BEV. I chose a BYD Atto 3. I'm pretty sure I'm not the only rusted-on Toyota former owner who has exercised choice about a BEV purchase. Here I've looked at recent deals that Toyota has embraced/is embracing that speaks to where the company sees its future in full electrification. It seems mostly about keeping the ICE (Internal Combustion Engine) alive while partnering on BEV projects outside of the core Toyota brand. Given that almost all manufacturers plan to exit manufacture of the ICE, Toyota's current focus on hybrids with an ICE (notwithstanding intentions about a switch to the BEV in the future) is brave. It gives investors who think that there is a future in the ICE, a clear investment choice. For me, I'm very happy with my BYD Atto 3 BEV and also my investment in BYDDF.

I'm not a financial advisor, but I follow closely the electrification of transport. I hope that my perspective is of interest to you and your financial advisor as you consider investment in Toyota.

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