Lexus chief's ascension comes at make-or-break moment for Toyota

The world’s No. 1 automaker has a new CEO, and the transition of power could not have come at a more pivotal time.

Toyota Motor Corp. on Thursday surprised the market when it announced that Lexus President Koji Sato will take over from Akio Toyoda, the grandson of the venerable Japanese carmaker’s founder, effective April 1.

While Toyoda will remain as chairman, Sato, a Toyota lifer who joined the company more than 30 years ago, will be tasked with guiding the automaker through what could be the most challenging period in its 86-year history. That’s because as consumers embrace electric cars in ever greater numbers, Toyota is falling behind, according to some critics and analysts.

Although the Japanese carmaker leads when it comes to the sheer volume of cars it produces — expected to come in at 9.2 million units for the fiscal year that ends in March — it lags in the shift to electrification, a pivot spearheaded by Tesla Inc.

Under Toyoda’s stewardship, Toyota has taken a more nuanced approach, believing vehicles powered entirely by batteries are only one path toward a cleaner transport future. Gas-electric hybrids and hydrogen-powered cars also will also play a part, Toyoda has long argued.

As recently as September, Toyoda said battery-electric vehicles “are just going to take longer than the media would like us to believe.”

The company is on a mission to reduce CO2 emissions, but doesn’t want to limit its focus to all-battery cars. “In this diversified world, in an age where we do not know what the correct answer is, it is difficult to make everyone happy with only one option,” it said.

Toyota’s messaging contrasts with many of the world’s legacy automakers, which have laid out largely straightforward ambitions to phase out combustion-engine cars entirely. Volkswagen Group has already racked up cumulative sales of 1.7 million pure electric cars, according to BloombergNEF, while Chinese giant BYD Co. is at 2.7 million.

Elon Musk’s Tesla has sold around 3.3 million EVs.

Whether the focus under Sato will shift is yet to be seen. However, with Toyoda staying on as chairman, it’s unlikely Toyota’s overall approach to electrification will drastically change.

In January, Sato and Toyoda appeared on stage together at the Tokyo Auto Salon, a showcase for modified cars, where they unveiled a pair of vehicles converted to run on electricity and hydrogen.

“Perhaps the decision is less about producing efficient, affordable cars and more about creating a young, cool image around EVs,” Iwai Cosmo Securities Co. analyst Shoichi Arisawa said on Thursday.

While Toyota regularly sells more than 10 million vehicles a year, Tesla has set a long-term goal to more than double that volume. For now, Toyota has plenty of breathing room from a total vehicle sales perspective. Musk said Wednesday that Tesla has the potential to make 2 million cars this year.

If Toyota’s reluctance to fully commit to battery-electric vehicles continues, Sato, a 53-year-old mechanical engineer by training, will run the risk of presiding over the world’s No. 1 automaker falling too far behind on the cars of the future.