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Toyota exec: Battery electric car sales driven by subsidies, not natural demand

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Toyota exec: Battery electric car sales driven by subsidies, not natural demand

➤Incentives are driving sales for battery electric vehicles, rather than natural demand, so Toyota Motor Corp. is also investing in hybrid, fuel cell and plug-in technology as part of its electrification strategy.

➤ The automaker will stay in the passenger car market as other automakers cut sedan production in favor of SUVs and trucks, as it believes consistency in segments keeps costs and confusion down.

➤ As the White House and California battle over the future of vehicle emissions standards, Toyota is advocating for a nationwide rule while some automakers make state-level deals.

Jack Hollis, group vice president and general manager of Toyota Motor North America's Toyota division, sat down with S&P Global Market Intelligence on Sept. 26 at Toyota's North American headquarters outside of Dallas. The following transcript of the conversation was edited for clarity.

S&P Global Market Intelligence: Other automakers have cut sedan production to focus on SUVs and trucks, but Toyota is still offering sedans. How does Toyota balance its products with changing consumer preferences?

Jack Hollis: [The market] is always going to have these consumer preference changes. For many, many years it was always a car-driven 60-40 split. We've now just seen that cycle expand and now being 70-30 [with 70% of the market share SUVs and trucks]. But 30% of a 17 million market is still 5 million-plus vehicles. Who's going to service those people who want that? I want us to be that. If other people want to compete for it, great. If they want to give it all up, we'll take it.

I'm surprised at people leaving the sedan industry when we saw what happened with trucks when people left just 10, 12 years ago. The history lesson was everybody left the small pickup compact truck, and [the Toyota] Tacoma took 50%, 60% market share. The idea of jumping out and back in is so costly. It's so costly to restart a brand. That's why we're making a decision to stay in all of that consistently.

Is it the manufacturing aspect that makes it costly?

The costliness to jump in and out of a segment is very costly, not so much for the manufacturing plants. That can be. It's also in the eye of the consumer and the marketing that has to relaunch into something new when you've gone away. That is costly. We will never look at the short-term profit or loss, or the short-term customer preference. There's always an eye to the long term. So we would rather stay in a market, have it less marginal profit for us, but be able to stay in that over the long term. So sometimes we miss out on a complete boom. Sometimes we don't reach the highest level that somebody else could have if we had gone all into one thing. But we also don't have any of those downs. When you're in and out of [segments], dealers get confused, customers get confused. From a manufacturing side the flexible production allows us to move models in and out in a very cost-efficient manner.

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Jack Hollis is the group vice president and general manager for the Toyota division at Toyota Motor North America.

Source: Toyota Motor Corp.

Toyota is introducing battery electric vehicles in China, but what does the future of electrification look like in the U.S.?

I think a lot of people are asking questions about what are Toyota's electrification, meaning battery electric, solutions when the marketplace is about 1% of the entire industry. We've had hybrids out for 20 years and it still only makes up less than 3%. How long is it going take for electrification — unless you're China and you mandated every car has to be electric, well then everything changes. But without that, the people who are buying electric are taking advantage of incentives. That's not natural demand. What is natural demand? It might be zero, it might be a quarter percent, and it might be a lot more.

Toyota is going to be there regardless of whatever way we go. We will have electric vehicles here. The company is continuing to invest in these four different technologies — battery electric, hybrid, plug-in hybrid and fuel cell. It's not taking one away to go to another one. It's keep growing through all of them. It's very difficult for any company to force demand and lose money on the product that you're forcing demand on. And that's what you're seeing a lot of our competitors doing right now. We do see battery electric has a lot of value, and battery breakthrough is going to need to occur to make that happen. We will expand to that as we continue to take care of customers' desires with range and cost [through hybrids] until you can get to battery electric.

With the fuel-cell-powered Mirai, the only refueling stations are in California?

We've partnered since day one with infrastructure creation. Sometimes it's been through direct finances, sometimes through technology. Unfortunately, California is somewhere between nine months and almost two years behind their rollout of their promises to the infrastructure. The reason I say between nine months and two years is it's depending on what was promised and what was planned. The state has not delivered at the same speed at which we're intending to be a part of. That's from an infrastructure standpoint. There are two other pockets [in the U.S.] that have been approved. The Northeast, which was held up because of watching what's happening in California, and the Pacific Northwest.

Where does Toyota stand on choosing a fuel-economy plan? It was reported that Toyota was one of three automakers invited to the White House to stand with President Donald Trump's plan instead of California's. What are the next steps for Toyota in that regard?

Toyota has always advocated for rules that cover every person in the U.S. One set of rules that we all have to follow treated fairly by all manufacturers the same way. That's what Toyota would advocate for. To break it down by California or why 1 percentage of states have this or that, what it does is it adds cost to the vehicle you're going to buy. I don't know how many consumers would like to see price increases on their vehicles of $2,000, $3,000, $5,000, $7,000, $10,000. For every regulation that is put on and for every increase to those regulations, there is a cost involved. There has to be some sort of minimum, some sort of regulation that needs to protect environments, I get all that. At some point, there's such a diminishing return that you're just raising prices on people to the point where they can't purchase a vehicle. Whenever it's 50-state rules, 50-state emissions, 50-state anything, it's always better for the customer.