Can Toyota catch up in battery-electric game?

TOKYO — Just three years ago, when his competitors were already selling all manner of electric vehicles, Toyota Motor Corp. President Akio Toyoda finally ordered the startup of his company's EV project.

But he took a surprising approach.

Toyoda asked its leaders to think like a startup. Funding wasn't guaranteed, he told them: Make a pitch like a Silicon Valley hopeful soliciting big-time investment for a novel idea.

Despite the Japanese giant's posture as an automaker with vast financial resources, the EV venture's initial business plan didn't exactly win megafunding. Toyoda seeded it with just ¥960 million ($8.9 million).

But for Koji Toyoshima, the former Prius chief engineer appointed to lead what was then just a four-man EV team, simply getting a green light from the boss was a victory.

"He said, 'Spend two months and come back to me with an idea,' " Toyoshima recounted of Toyoda's marching orders. "He said, 'Whether the company gets larger or smaller is all up to you.' "

It was 2016, and Toyota was already late to the global EV game. Today, Toyota's EV program hardly looks any bigger — at least from the outside. It doesn't have a pure battery EV on sale anywhere in the world.

But that's about to change in a big way.

Toyota has been quietly at work for three years, methodically engineering not merely an electric car, but a comprehensive plan to catch up and become competitive. Now Toyota, buoyed by its $10 billion r&d war chest, is poised to put the plan into action and make up for lost time.

"There is no turning back," said Toyota's global design chief, Simon Humphries, who was tasked with creating a styling language for the company's debut lineup of full EVs.

The first fruits arrive next year with EVs for China and Japan. Those will lead off a full family of EVs and mobility spinoffs that Toyoshima and Humphries have in the works.

But there is more to the plan.

Toyota's gambit also entails a new way of making cars. The company has devised a more efficient development process, exclusively for EVs. It fully leverages the scale and expertise of the entire Toyota Group of affiliated companies, from Subaru, Suzuki and Daihatsu to its family technology suppliers Denso and Aisin Seiki. And the battle plan focuses on next-generation technologies, such as solid-state batteries, and a new interchangeable vehicle platform for a great leap forward.

"Toyota never does anything halfway, and now they are finally moving at full force," said Christopher Richter, senior auto analyst at CLSA Asia-Pacific Markets.

Toyota intends to spotlight its EV ambitions at this week's Tokyo Motor Show. On display will be an autonomous electric people mover called the e-Palette, the LQ electric pod car, additional EV concepts and even a self-driving battery that can recharge other cars on the go.

The products signal that Toyota wants to do more than catch up — it wants to leapfrog rivals that had a significant lead, including General Motors, Volkswagen and newcomers from Silicon Valley and China.

Toyota's newfound zeal embodies a spirit that is sweeping Japan's auto industry as it grapples with the once-in-a-century upheaval unleashed by an onslaught of new automotive technologies and competitors.

Electrification will be the clear theme at the Tokyo show. Mitsubishi Motors Corp. will show a four-motor electric crossover concept. Nissan Motor Co. will preview a battery-powered minicar. Honda Motor Co. will unveil a redesigned Fit small car with a new two-motor hybrid powertrain. And Mazda Motor Corp., long a champion of internal combustion engine expertise, will show its first mass-production EV.

Toyota's entry into EVs was part of a wider reset.

Toyoda wanted to imbue the new division with the speed and creativity of a startup. That meant setting up a structure outside Toyota's traditional byzantine bureaucracy. And that took time.

But the result was the creation of a leaner, flatter and faster development process.

Toyoshima's engineering side started with four people, and even today as products move through development, it still has just 350. Fewer than half of them — 150 — came from within Toyota Motor; the rest came from its partner companies.

The unit is called the ZEV Factory, short for zero-emission vehicle, and its engineers work in a building on the grounds of Toyota's Motomachi assembly plant instead of in the automaker's bustling tech center. Toyoshima, the ZEV Factory's general manager, surveys the premises from a standing desk he says is designed to promote "discussion, rather than just reporting to your superiors."

Meetings are rare and key business decisions are made quickly, requiring just three hanko signoff stamps — one from the project leader and one each from Toyoshima and Executive Vice President Shigeki Terashi, the global r&d chief.

That's a radical departure for Toyota, a company accustomed to bureaucratic reviews. The normal decision-making process for big questions requires 10 signoffs, including one from Toyoda himself.

On Humphries' design side, Toyota carved out a self-contained studio for the EV team at a dealer training facility outside Toyota City. Some 20 stylists, computer designers and modelers share a room with four clay model milling machines and have enough space for three simultaneous projects.

The setups are intended not just to speed up development, but to give engineers and designers extra latitude and opportunity to let their imaginations flow.

"Time is absolutely critical," Humphries said during a recent tour of the new studio. "The last thing you want to do is to bring out something that's out of date with the market. We are gaining more time for creativity. That's the most important thing."

Planners spent three years of incubation envisioning a full lineup of vehicles, not just a single model. One common criticism of Toyota's competitor Nissan is that it made a global splash as an early mover in EVs, introducing its electric Leaf in 2010 — but it has yet to put another major EV onto the market.

"Toyota learned from the mistakes of others," said Richter, the CLSA analyst. "They let others take risks when there wasn't even a commercial reason to be in the EV business."

Toyota's commercial push begins next year with an electrified version of the C-HR subcompact crossover for China and a new two-seat minicar for Japan with a range of 62 miles. But Toyota has designs for at least six variants based on a newly created EV platform. There will be a large SUV, a medium SUV, a medium crossover, a medium minivan, a medium sedan and a compact car.

In addition, Toyota intends to introduce a plethora of battery-powered runabouts: a boxy mini EV for commercial use, a seated-type scooter, a standing-type scooter and a wheelchair link that connects to manual wheelchairs and pulls them along with an electric motor. Those plans are on top of the LQ pod car and e-Palette, both of which are expected to be on Tokyo streets when the city hosts the 2020 Summer Olympics.

Humphries designed the full spread before taking the plans to Toyoda in March. The designer said the broad portfolio approach was to avoid focusing on a single EV model.

"Why so many were done together was to say, if we had a group of EVs, this is the potential," Humphries said. "After seeing those models, he was much more optimistic about the future for EVs."

All told, Toyota plans to release 10 battery- powered vehicles worldwide by the early 2020s.

The devil in the details will be to convert costly EVs into a profitable business. Toyota is already the world's top seller of electrified vehicles, such as its Prius. But it took years before its trademark hybrid vehicles broke even.

Toyota's new gambit will rely on partnerships and new revenue streams.

"As a standalone business, electric vehicles will probably never be profitable," Toyoshima said. "There was a need to develop a group of vehicles through comprehensive planning."

The goal was to spread costs by simultaneously developing six EVs, he said.

To minimize its own investment, Toyota invited participation from Subaru, Suzuki, Daihatsu and some 20 suppliers. The size of their contributions, much of which came in the form of personnel, is based on how many EVs the group expects to eventually sell, Toyoshima said.

Toyota is also diversifying its partnerships to include Chinese makers BYD Co. and Contemporary Amperex Technology Co., in addition to Japanese player Panasonic Corp.

Toyota said in June that it aims to sell about 5.5 million electrified vehicles annually around the world by 2025, five years ahead of its original game plan. It expects pure EVs to account for fewer than 1 million of those.

But by expanding its electrified offerings to scooters, urban mobility and eventually mass-transit concepts such as the e-Palette, Toyota aims to create an EV ecosystem for scale, reuse and recycling. The idea is to loop in leasing, sharing, peripheral services and used-vehicle sales.

Wringing extra revenue this way will be key, said Koji Endo, a senior auto analyst with SBI Securities Co. But managing rapidly plunging resale values of EVs will be a huge challenge.

"It's one thing to come up with vehicles, but the entire battery ecosystem is another," said Endo, noting the trend toward ever cheaper and better batteries. "It will be tough and time consuming."

Toyoshima knows this is the biggest question mark. Toyota's brand image is intrinsically linked to its reputation for quality and durability. An EV that loses half its value simply won't do.

The goal, he said, is a battery that keeps 90 percent of its range, and thus its value, after 10 years. Even with that, Toyoshima concedes, there is a long road to EV profitability.

"It will take at least 10 years," the 58-year-old engineering veteran said. "It probably won't happen while I'm still working with the company."