Ichiro Suzuki
The global car industry is on a new trend since late 2023. Battery-powered electric vehicles (BEVs), or EVs as casually called, are not selling well. The EV market has been struggling with price cuts and rising inventories. According to an industry report, in August 2023 it took about twice as long to sell an EV in the U.S. as it did in the previous January.
EVs remain more expensive than internal combustion engine vehicles primarily due to the car industry’s century old experience in producing the latter. Rising interest rates have made EVs less affordable to customers. Dependability of EVs remains a lingering concern. Even if charging points have spread more quickly than original expectations, its infrastructure is weak compared to that of gas stations and is concentrated in California in the case of the U.S. At the outset of the 2020s, the outbreak of the pandemic sparked the sales of EVs, as the rise of work-from-home reduced the necessity of driving to the office every morning, relieving drivers from a charging concern. Early adopters made a move to buy EVs since it’s been long said that they are the cars of the future. In addition to subsidies, being environmentally-conscious made them feel good. A few years later, however, demand form this minority group of customers has peaked out. A greater segment of customers is not as high-minded as early adopters. Many of them intellectually understand environmental concerns, but they are outweighed by shorter-term issues such as affordability and interest rate costs as well as charge point networks that lack depth.
So here comes a flurry of announcements on EVs to start 2024. Tesla is cutting prices to stimulate demand both in the U.S. and China. Ford is cutting F-150 Lightning EV productions. GM misses EV production goals for 2023 by a wide margin. Hertz dumped EVs, including Tesla, for fuel-powered cars. Mercedes-Benz has scrapped a plan to make their cars 100% EV by 2030. At the end of February, Apple has abandoned its car project that has been going on for at least ten years, to shift resources to generative AI as everyone else is doing. (Apple has chosen not to think differently.)
On top of these, driverless cars, which are closely intertwined with EVs, have hit a stumbling block. GM announced halting of its driverless taxi Cruise operation following a single fatal accident. In San Francisco’s Chinatown mobs vandalized a driverless car and set on fire during the Chinese New Year holiday. These episodes show that people are not yet ready for cars that drive without humans. It is already proven that AI-powered driverless cars are far less prone to accidents than human-driven cars. A very small number of driverless cars’ accidents, however, are reported sensationally whereas thousands of accidents don’t make headlines, at least in the national media. Then people react violently to such very small incidents. Statistically proven safety of driverless cars doesn’t make people feel secure. Safety standards can be written into regulation with numbers but it still fails to give people psychological comfort. This matter of safety and feeling secure is often cited as one of the reasons behind heavy regulations in Japan, that stifle economic activity. Japanese people want to feel secure on top of being assured of safety. While American consumers have been considered as rational generally, they are not entirely rational when it comes to cars, as it turned out.
Ten years ago, it was expected that driverless cars would be roaming the roads around the developed world in the mid-2020s. Ten years later, experimental driverless taxi operation is struggling in San Francisco, a city more tech-friendly city than anywhere. It appear to take much longer time for driverless cars to crowd the roads. This means that cars are not becoming smartphones-like gadgets anytime soon. With original expectations on the advent of driverless cars and tech companies’ interest in cars, software, or operating systems, has been believed to become a decisive factor for EVs. Such expectations has probably went too far. Silicon Valley is capable of offering dazzling software that enables a number of amazing functions. Consumers, or drivers/ owners of cars, may not be ready for such stunning software yet. Unlike smartphones that are catering to geeky Gen Zers, the dominant segment of car owners is represented by middle-aged men and women who are already grappling with the functions they are offered by today’s cars. The industry went ahead of the market, having been too obsessed with what they can technologically deliver. Toyota has been developing its own operating system, Arene. It is set to be installed on Toyota cars beginning in 2025. While what it can do, especially as opposed to Tesla, Google, BYD, etc., remains to be seen, OS might make smaller differences on attractiveness of cars than was believed earlier.
For years, Akio Toyoda has been advocating multi-paths for mobility’s future. He sees coexistence of EVs, hydrogen/ fuel cell vehicles (FCVs) and hybrid vehicles (HVs), not a future dominated by EVs. Having pioneered in HVs in the 1990s Toyota still leads the industry in its technology. Some believe that EU regulators’ ban on HVs was aimed at squeezing Toyota out. Though he was widely mocked for his projection of EV’s trajectory when it took off during the pandemic years, he didn’t waver. Caught off-guarded certainly by EVs’ sudden rise, Mr. Toyoda firmly held onto his belief in the multi-paths way.
A year after stepping down after fourteen years as CEO, Akio Toyoda is suddenly looking like a sage, with surging profits and all time high share prices for the company his grand father built. Toyota Motor is currently free from excess capacity that is hitting other car makers including Tesla. The recent downturn has given Toyota, not an EVforerunner, a time to catch up. Its EV project is in the hands of new CEO Koji Sato, who was instrumental in successful development of FCVs. Toyota under Sato is widely expected to roll out EVs powered by solid state batteries, the next generation of EV batteries. About ten years ago, driving a Tesla was considered to be a cool thing among top 1% Californians, including tech wizards. In the mid-2020s, Tesla ownership is much less special. At the outset of this decade, EV frenzies were sparked among somewhat broader segment of well-off drivers, but such frenzies are cooling. Driving cars appears to be settling at what it has always been. In the mean time, driverless cars’ struggle shows that the biggest change in the car industry in hundred years is progressing much more slowly than it was once expected. It is still essential for a car maker to keep producing reliable, quality cars at reasonable prices, with good after-service. That’s what Toyota excels in, and the company’s future doesn’t look bad.
About the author: Mr. Suzuki is a retired banker based in Tokyo, Japan.
