New Toyota CEO Sato touts three-step plan to big EV profitability: 'We've just started'

TOKYO – For Toyota Motor Corp. raking in big profits from electric vehicles is as easy as 1, 2, 3.

That's the vision from new CEO Koji Sato, who outlined a three-step strategy to "significantly enhanced" productivity and profitability by 2030 through Toyota's coming line of electric vehicles.

"It will be a different concept from what we've had until now," Sato, 53, said during a media roundtable Friday. "In the Step 3 timing, productivity should be significantly enhanced."

Sato, who took office April 1 with the task of speeding up the Japanese carmaker's slow start in the global EV race, said the world's biggest automaker’s first stage comprises the rollout of all its EVs currently on the market, including such nameplates as the bZ4X crossover.

From now, Toyota enters the second phase, when it will quickly incorporate learnings and improvements from those EVs into forthcoming model introductions. That stage will last until around 2026, when Toyota will have built up enough capacity to sell some 1.5 million EVs globally.

The third phase kicks off in 2026, when Toyota introduces a completely new EV platform along with its Arene software system for cars. That will allow Toyota to leverage a new vehicle software system to unlock new revenue streams, business models and hyper-efficient product development cycles.

The new setup being developed will enable Toyota's future EVs to double their range, thanks to more efficient battery use and require half the investment and development resources.

The improved productivity will allow Toyota to lower prices and help drive volume, Sato said.

After reaching worldwide EV volume of 1.5 million vehicles in 2025, Toyota envisions achieving sales around 3.5 million globally by 2030 when Step 3 vehicles are in full swing.

Speaking of the envisioned EV acceleration, Sato said: "We have just started."

Three steps

Step 1 kicked off last year with the current line of bZ-branded electric vehicles that ride on the e-TNGA platform. But the launch of the lead-off vehicle, the slow-selling bZ4X crossover, was marred after Toyota had to recall the nameplate over concerns that the wheels could fall off.

Sato said Toyota was learning from its missteps and incorporating them into upcoming models under Step 2.

"We are going to make quick improvements and modifications so that the product appeal and product strength can be improved," he said. "And we'll do that in accelerated manner."

Step 3 will incorporate the Arene automotive operating system being developed by the carmaker's renamed software subsidiary Woven by Toyota, formerly known as Woven Planet.

Sato described Toyota's future EV, in Step 3, as being a kind of three-layered cake, with a new structural body, a middle layer of the Arene operating system and a frosting of software services.

The mechanical underpinnings traditionally thought of as a vehicle platform will be reengineered to maximize performance of the EV drivetrain and the use of space and packaging.

The Arene operating system will be a simplified interface allowing all the car's components to talk to each other. It will also allow for quick and easy software updates that add value.

Finally, the overlaying software applications will deliver a next-generation, software-defined vehicle experience that opens the door to new cashflows and business opportunities.

"Software will bring about something new unprecedented for vehicles," Sato said.

The Toyota boss declined, however, to detail those potential business opportunities.

Leverage 10 million

Toyota is under increased pressure from a wave of new rivals from Silicon Valley to China that are challenging tradition with new ways of building and selling cars. These newcomers, unburdened by holdover costs of decadesold factories, supply chains geared around internal combustion and convoluted distribution networks, are also reaping unprecedented margins.

S&P Global, for example, estimates Tesla's profit margin at 20 percent. Toyota's operating margin, robust by traditional industry standards, stands around 10 percent.

Underpinning Toyota's hopes for better EV profitability is the company's mammoth 10-million vehicle volume, Sato said. Anchored by balanced sales in different regions around the globe and a lineup of profitable gasoline-hybrid vehicles, Toyota has plenty of cash to fund the EV push.

For example, Toyota sees big potential for hybrids in emerging markets. Expanding business in places such as Southeast Asia, Latin America and Africa will generate profits that Toyota can plow into EVs for places such as the U.S. and Europe, where overall volume growth is expected to taper.

Toyota already achieves better profit margins on hybrids than from gasoline-only vehicles.

"Ten million-unit volume is already there," Sato said. "It is a strong foundation that will enable us to accelerate investment into new domains of R&D. Ten million units is our biggest strength."

Being ready to sell some 1.5 million electric vehicles in just four short years would still account for a modest fraction of Toyota's worldwide sales volume. Yet achieving that goal would still be an Olympian jump for the company. Toyota sold only 25,000 full electric vehicles globally in 2022.