Carmakers navigate a rocky road towards zero emissions
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For years, Toyota revealed little about its plans for electric vehicles (EVs). But, as more and more carmakers went all-in on battery-powered cars, the Japanese group put aside its traditional reticence late last year — and showed off a long list of zero-emission models that it aimed to make in the future.
“Typically, the tradition in the company is to not make promises about specifics [when] we’re not actually sure exactly how we’re going to get there,” explains Gill Pratt, the carmaker’s chief scientist.
However, the company’s hand was “forced by our customers and what their expectations are . . . and so, as a result of changes in expectations, we’ve decided to show much more than we have typically shown before”, Pratt says.
Toyota’s dilemma — how to plot a course across uncharted land when investors are demanding to see each step — is one being felt in boardrooms across the sector as it speeds towards decarbonisation.
In the months since the pandemic lockdowns, governments have tightened emissions rules, and sales of electric cars have climbed significantly. Electric car sales overtook those of diesel vehicles in Europe last year while, in the UK, around one in eight new cars sold in May was an EV.
In the EU, sales of new petrol or diesel cars or vans will come to an end in 2035, following a decision by the European Parliament.
The scale of global EV ambitions was reflected at last autumn’s COP26 UN climate change conference.
Dozens of cities and governments signed a pledge to phase out the sale of polluting cars by 2040. General Motors, Ford, Volvo and Mercedes were among the carmakers that backed the deal, but some of the largest brands, including Toyota and Volkswagen, did not.
Since then, a few of the companies that did not immediately sign up have changed their stance. Stellantis, which for years was one of the most vocal sceptics about the societal impact of a wholesale push towards EVs, laid out plans to sell only zero-emission models by 2038.
The company’s handbrake turn was forced, in part, by the “framing of rules and regulations that define the way we should compete”, Stellantis chief executive Carlos Tavares told the FT’s Future of the Car summit last month in London. “We are competitors, we like to compete . . . and we intend to be at the edge of [EV] technology,” he said.
Industry bodies, however, continue to voice opposition to the targets. ACEA, the European Automobile Manufacturers’ Association, criticised the 2035 end date for sales of internal combustion-engined cars in the region.
“Given the volatility and uncertainty we are experiencing globally, day by day, any long-term regulation going beyond this decade is premature at this early stage,” says ACEA president Oliver Zipse, who is also chief executive of Germany’s BMW — one of the carmakers yet to set out plans to go fully electric.
Zipse calls for “a transparent review, halfway, in order to define post-2030 targets”. He argues that “such a review will, first of all, have to evaluate whether the deployment of charging infrastructure and the availability of raw materials for battery production will be able to match the continued steep ramp-up of battery-electric vehicles at that point in time”.
Accelerating the shift to EVs, as well as the investment needed to support it, will hit carmakers cash flows in the short term, analysts say. “These companies will need to make substantial investments, more quickly than previously expected, to develop and launch new battery electric vehicles (BEVs) and related parts,” analysts at Moody’s, the credit rating agency, point out.
“In addition, the transformation could also lead to restructuring costs at production facilities for internal combustion engines and related parts that cannot be used otherwise.”
As carmakers switch to EVs, they are also having to think about reducing emissions across their businesses. “We need to take . . . a 360-degree approach, which is much more than just the mobility devices,” Tavares told the FT event, referring to the vehicles.
“If you just look at the mobility devices, this is not going to work . . . you need to be on a 360-degree approach on energy, on raw materials, on carbon footprint, on the manufacturing of batteries, on recycling of batteries, and even on the tax revenues.”
The transition to zero emissions goes far beyond any one sector, though — which means some of the older silos are being broken down. Nowhere is this more evident than in automotive supply chains, which will be upended by the shift to electric cars. For example, Elon Musk, chief executive of EV-maker Tesla, told the FT event it was “not out of the question” that his company would buy a mining group.
“We would address whatever the limitations are on accelerating the world’s transition to sustainable energy,” he said. “It’s not that we rush to buy mining companies, but if that’s the only way to accelerate the transition, then we will do that. There are no arbitrary limitations.”
While Tesla has pushed vertical integration in an industry that traditionally outsources most of its work, other manufacturers are also open to taking supply chain business in house.
Ashwani Gupta, Nissan’s chief operating officer, says the Japanese carmaker “definitely should be thinking of going [to] the end of the supply chain”. He adds: “Today, Nissan directly deals with the mines. So, I think the day is not far [off] when we will be going up to the mines, saying that we want to control the whole value chain.”
The challenge for carmakers such as Nissan or Toyota — for which Europe, the most competitive EV market, is only a small part of their business — is shifting their business to all-electric sales while simultaneously finding a way to reduce emissions as early as possible without waiting for the nascent EV market to mature.
For Toyota in particular, it means not ditching its long-held strategy of focusing on hybrid technology. This is aimed at keeping its cars affordable, compared with EVs, and reducing emissions as much as possible in the short term, rather than waiting for the slow trickle of battery-only models to seep into the market.
The company’s first responsibility, Pratt believes, is to reduce emissions as much as it can today: “We have to be responsible shepherds of the earth.”