Toyota: dedication to hybrids puts future earnings at risk

Japan’s three biggest carmakers rank the lowest among global peers in decarbonisation efforts, according to analysis by campaign group Greenpeace. All three have pledged to speed up the shift to electric. But Toyota’s early struggles suggest catching up will be much harder than expected.

Toyota scored the lowest among top 10 automakers for the second straight year. It has yet to give up on its dedication to hydrogen fuel cell cars and hybrid cars.

Zero-emission vehicles made up just a smidgen of Toyota’s total sales last year. This compares with more than 8 per cent for US peer General Motors. Even so, Toyota’s shares, which have rallied since March lows, trade at 9 times forward earnings, a hefty premium to its greener peer GM.

Hybrids, a market for which Toyota has top share globally, are cleaner than cars powered solely by fossil fuels. It has pledged to aim for carbon neutrality by 2050 and to invest heavily in electric car battery production.

Yet early attempts to close the gap with global peers with its first mass-produced electric car for the global market have been rocky. It has recalled 2,700 of its snazzily named bZ4X SUV due to a risk the wheels could come off during sharp turns and sudden braking. The announcement came less than two months after the model appeared.

New rules phasing out all fossil fuel-powered car sales in major markets threaten earnings. Regulations in California, the biggest car market in the US, will require 35 per cent of new sales to be of zero-emission vehicles by the 2026 model year.

That is a problem for Toyota. North America accounts for about a third of its total sales and is its biggest market outside home. Toyota and Lexus accounted for more than half the hybrids sold in the US last quarter.

Toyota sold 2.4mn cars in North America in the year to March. Given California accounts for around 12 per cent of US sales, meeting the state’s target in under four years looks a stretch.