Toyota’s new chief set to steer conventional course towards electric future

The timing was a surprise but the choice was anything but. Toyota’s chief executive Akio Toyoda unexpectedly announced last month that he needed to step down as “an old-fashioned car guy” whose limitations in an increasingly digital and electric industry were being exposed, only to reveal his replacement would be his close disciple Koji Sato, another executive described as a regular “car lover”.

With the world’s leading automaker falling behind electric vehicle manufacturers due to its reluctant embrace of the technology, it was little wonder Toyota’s biggest leadership change in 14 years failed to impress analysts or investors, with its share price failing to pop on the news.

Sato, 53, is currently head of the premium Lexus brand and will replace Toyoda, 66, as president and chief executive on April 1, with the latter becoming chair. Analysts have said it is too early to judge whether the younger man could be a game-changer for the Japanese group’s electric vehicle strategy, or just a place holder until the next founding family member takes over.

The background of the incoming chief executive suggests he is not an iconoclast. The former chief engineer is also referred to as a “car guy” by his colleagues and joined Toyota in 1992 after graduating with an engineering degree from Waseda University, where he researched diesel engines.

According to Toshio Fujimura, a former Toyota engine engineer who is now a visiting professor at the Aichi Institute of Technology, Sato developed a love for driving cars after countless rides on test circuits when he was developing suspension and braking systems in the early part of his career.

“His incomparable passion for cars must be the biggest reason why he was chosen as the successor to Mr Toyoda,” Fujimura said.

He faces a formidable challenge in steering Toyota so it can hold on to its position as the world’s best-selling carmaker, while negotiating an industry shift from simply making cars to providing mobility services, using connected vehicles and self-driving technology.

Takaki Nakanishi, a veteran automotive analyst who runs his own research group, said a makeover under Sato would also have to involve a deeper commitment to accelerating the sales of electric vehicles.

The company, which has been exploring alternative hydrogen technology and is best known for its own hybrid systems that combine engines and batteries, has long resisted going “all in” on electric cars, warning that a swift transition would have wider consequences for society and the environment.

Critics say Toyoda, grandson of the company’s founder and chief executive since 2009, has reneged on his own pledge to become a carmaker for everyone, by delaying a large-scale rollout of electric vehicles. That has left Japan’s largest carmaker with just one mass-produced EV model — the bZ4X — in the market.

“Mr Toyoda couldn’t make a serious commitment to electric cars,” said Nakanishi. “There is no future in Toyota if Mr Sato can’t reverse its lagging electric business.” 

Sato caught Toyoda’s attention when he began serving under him as the chief engineer of the Lexus luxury coupe in 2016. Toyoda has been a keen racer, known as Morizo from a career that included taking part in the Nürburgring 24-hour endurance race, and Sato developed the flagship Lexus LC model, which also appeared in a race car version.

“Mr Sato is a true car lover,” said a former Lexus executive who worked with him. “He was able to produce a beautiful yet race worthy car, which became the basic concept of the Lexus brand.” 

However, those same car-loving qualities that impressed Toyoda could prove to be an Achilles heel, limiting Sato’s ability to reshape the organisation, according to Sanshiro Fukao, a senior fellow at the Itochu Research Institute.

“Mr Toyoda appointed a ‘car guy’ just like himself for the next chief executive,” Fukao said. “It is uncertain if Mr Sato can push Toyota’s electric strategy review forward in this rapidly changing car industry.”

Other analysts see Sato as one of several interim chief executives until Toyoda’s son, Daisuke, who is in his early 30s and currently senior vice-president of the company’s self-driving unit Woven Planet, is ready to head the group.

The current chief executive is also expected to retain significant influence over the company as he moves to become chair. “I told Sato: Don’t try to run the company on your own, but as a team,” he said, when announcing the leadership change.

To his credit, Sato, who is also Toyota’s current branding chief, spearheaded the electric transition of the Lexus division, which in 2021 pledged to make all its premium cars fully electric by 2035.

Analysts said that Toyota to date has not considered electric vehicles mainstream enough to be a moneymaking business and has been caught out by the rapid shift globally to electric vehicles.

People close to Toyota said it is in the process of overhauling its electric vehicle strategy, developing a dedicated platform that would be more cost-effective in mass-producing electric vehicles. The current one partly shares the structure with petrol vehicles and hybrids, with some elements unnecessary for electric cars, making it more costly to produce.

Kota Yuzawa, a Goldman Sachs analyst in Tokyo, said Toyota’s competitive advantage would be its ability to develop batteries internally rather than having to buy from manufacturers.

“As batteries account for 30 to 40 per cent of the electric vehicle’s cost, understanding the EV’s cost structure could help Toyota to win the battle in the end,” he said.

However, the company is yet to become firmly committed. “Toyota’s strategy is to make profit by producing mass-market products, and it argues battery electric cars today are not ready for the mass market yet,” said Satoru Aoyama, senior director at Fitch Ratings.

“Turning Lexus electric is an entry point that we expect to be widened to the mass market in the next decade or so,” he said, while adding that Toyota was unlikely to make its entire vehicle line-up electric.

That view is shared by automotive analyst Nakanishi, who cites Sato’s love for time-honoured technology.

“He is a defender of Toyota’s commitment to keep the internal combustion engine alive,” he said.