Toyota already operates 14 manufacturing plants in North America, almost all of them in the U.S., and that number will grow, a top company official said Thursday, as the industry giant responds to the newly enacted Inflation Reduction Act.
The IRA features a number of provisions that will impact the auto industry, including new incentives for the sale of battery-electric vehicles. Automakers will be encouraged to source raw materials and then assemble vehicles either in the U.S. or countries with favorable trade relationships.
Toyota will “totally” expand U.S. production, said Jack Hollis, the newly appointed executive vice president of Sales at Toyota Motor North America. “Yes, it’s incentivized (the company) and you will see more.”
While Hollis wouldn’t discuss specific plans, there are reasons to expect Toyota to set up one or more plants to produce what Hollis described as the “slew” of battery-electric vehicles it’s developing. To qualify under the revised EV incentive program that goes into effect next year, manufacturers will not only have to produce them within the boundaries defined by the IRA, but also rely on locally sourced raw materials and fully assembled batteries.
More EVs coming in the U.S.
Toyota already signaled it would eventually produce battery-electric vehicles in the U.S., last October announcing a 10-year, $3.4 billion investment into what it described as its “electrified future.”
The automaker only recently launched its first long-range BEV, the bZ4X. But the model has gotten off to a rough start. It recently recalled the first 260 of the crossovers sold in the States when it was discovered a manufacturing defect could cause a wheel to fall off.
Sales were halted as well, though the bZ4x “will be back soon” in Toyota showrooms, Hollis said Thursday during a meeting of the Automotive Press Association in Detroit.
It’s unclear how the problems with the new BEV will impact Toyota’s electrification strategy but the automaker has been far more reluctant to shift to pure battery power than key competitors like General Motors, Ford or Volkswagen.
In the long term, said Hollis, Toyota foresees an “all-electric” industry. But, “(a)s much as everyone wants to talk about EVs, the marketplace isn’t mature enough and (there isn’t a) ready-enough infrastructure.”
The numbers being pushed by EV proponents — the Biden administration targeting 50% of the new vehicle market by 2030 — appears to be too much too soon, the new Toyota sales chief added. “Are consumer being pushed into something they don’t want?” Hollis asked. If so, he warned, we could see “consumers pushing back.”
Not opposed, just cautious
It’s not that the largest of the Japanese automakers is opposed to electrified powertrain technology. Its global President and CEO Akio Toyoda has repeatedly argued that the best solution for the near to mid-term sees a mix of conventional and plug-in hybrids and hydrogen fuel-cell vehicles, as well as pure electric models.
Toyota is one of only a handful of automakers currently selling fuel-cell vehicles (FCVs), its Mirai model limited to a few regions, including northern and southern California, due to a limited hydrogen distribution network. As that system has grown, said Hollis, demand for the Mirai has grown.
But Hollis agreed with one journalist who suggested that one of the most promising opportunities is to use fuel-cell technology to power heavy duty trucks. Hydrogen can deliver longer range and quicker refueling times than today’s batteries for Class 7 and 8 semis, he noted.
Hollis spent over an hour with the Detroit-based press group, marking his first extended session with journalists since taking on the sales job last month. He covered a broad range of topics with many of the questions focusing on the ongoing semiconductor shortage and the inventory problems that has created.
While the lack of semiconductors has been a big issue, Hollis noted that there have been all sorts of shortages disrupting global automotive production. “It’s like whack-a-mole. We keep asking ourselves what happens next.”
For Toyota, the situation is so bad that its typical U.S. dealer now has barely a 36-hour inventory of vehicles on hand. The industry norm is closer to 60 days.
While many in the industry hoped the crisis would be over by now, Hollis forecast “We’re going to deal with this for one more year.” It will only be around the third quarter of 2023 that manufacturers will finally be able to get their factories running smoothly enough to outpace deliveries.
A new day dawning
But Hollis stressed he doesn’t see the industry, Toyota in particular, returning to pre-pandemic business-as-usual. The industry has realized it is “more efficient” to keep lean inventories on dealer lots and sell for MSRP, rather than go back to the haggling approach that was the norm before COVID struck.
If anything, new car buyers appear to be comfortable with that approach, many customers preferring to order vehicles in advance that are customized to their specifications.
But not everyone is pleased with the new norm, Hollis was reminded, the APA panel moderator noting that many dealers have been tacking on thousands of dollars in mark ups. The Toyota sales chief acknowledged that is a problem. But he said when he hears about a dealer getting greedy he quickly gives them a call and reminds them of the long-term impact.
A study released by GFK Automotive earlier this month found that buyers forced to pay over MSRP are more likely to change dealers when next in the market. And a sizable number told researchers that they’ll also change brands.
The semiconductor crisis and subsequent shortage of inventory has contributed to a sharp run up in new vehicle prices which reached an average $48,182 in July, according to Kelley Blue Book. That was a $139, or 0.3% month-over-month increase. And the average transaction price was up $5,126, or 11.9% from July 2021.
“Affordability and access to transportation has to be addressed,” Hollis acknowledged.
As inventory levels eventually return to normal, that should help, he suggested, adding that automakers may also have to ramp up production of the sedans they’ve been phasing out. They’re generally less expensive than the SUVs and CUVs that today dominate the U.S. market.
One way or the other, Hollis said, “If we don’t find an answer” for rising prices, “We could face a significant problem.”