Electric drive spooks Japan car executives

Toyota and Mazda — the two Japanese automotive groups most sceptical about electric vehicle technology — have finally revealed plans to mass-produce battery-powered cars. They are late to a game that most of the world’s carmakers — including Volkswagen, Daimler, General Motors and Jaguar Land Rover are already playing, as they confront the rise of US electric vehicle start-up Tesla.

But, even as many see a golden age of electric vehicles just around the next corner, it is hard to ignore a sense of unease privately expressed by some Japanese car executives as the industry makes a unified drive towards electrification.

In announcing their intentions, both Toyota and Mazda stressed that they had no choice but to prepare an electric vehicle offering to meet stringent regulations on carbon dioxide emissions in both China and the US. Their decisions were passive, rather than a proactive move to capture the electric vehicle market. Neither indicated they had made any major breakthroughs in battery technology — nor did they express confidence in making money from electric vehicles.

In fact, just a week before Mazda revealed its plan to launch an electric vehicle in 2019, Kiyoshi Fujiwara, who heads the group’s research and development, conceded that selling electric vehicles is not rewarding in purely economic terms. “Battery prices have not come down enough,” Mr Fujiwara said. “The more carmakers compete to extend the driving range (of electric vehicles), the more their profits will decline.”

There was no indication at all that the two companies had overcome their past scepticism towards electric cars, over the limitations on range, refuelling time and power caused by their lithium ion batteries.

Until now, Mazda — well known for a dogged focus on petrol and diesel engines — has focused on advances in conventional technologies, such as improved powertrains, to help it meet emissions regulations without turning to electric vehicles or hybrids. In fact, even as it prepares an electric vehicle and plug-in hybrid, the carmaker is pushing ahead with plans to release diesel cars in the US next year.

Toyota, the manufacturer of the Prius gasoline-electric hybrid, meanwhile continues to push for hydrogen fuel-cell vehicles, which it has argued provide a driving range and refuelling time comparable to petrol-powered cars. It hopes to negotiate the time lag until hydrogen infrastructure is in place by producing plug-in hybrids.

In the meantime, it has underscored its commitment to electrification by setting up an in-house venture company to develop electric vehicles, but this unit consists of only four people.

This caution on electric vehicles has served the two companies well until now, as high battery costs have stopped affordable electric cars from becoming a reality. But battery costs are set to fall faster over the next decade, causing Goldman Sachs to estimate that sales will rise from 250,000 units in 2015 to 4m units by 2025.

If that now makes an entry into the electric vehicle market inevitable, then an carmaker as big as Toyota, with nearly $10bn in annual R&D spending, can at least afford to offer a full line-up of environmentally friendly cars. However, for a small company like Mazda, with one-tenth of Toyota’s R&D budget, stretching its resources could be more risky — especially if carmakers still do not know how to make electric vehicles pay. Volkswagen, Europe’s biggest carmaker, has announced plans to reduce its workforce by 5 per cent in an attempt to reduce costs and invest in electric vehicles.

And with so many carmakers offering their consumers the choice of an electric car, there remains the question of how each company can distinguish its product. Car batteries are sourced from a limited number of players including Panasonic, Samsung and LG — making it difficult for battery technology to set cars apart. Toyota, Volkswagen and others may also find it difficult to replicate Tesla’s success in creating a strong electric vehicle brand.

Analysts warn that electric vehicles may face another turning point in 2020 if the global supply of electric vehicles surpasses the amount of demand from consumers.

Regulatory obligations may push companies to enter the electric vehicle market, but that alone will not be enough to convince consumers to purchase their products. That leaves all carmakers with a big challenge — and one that is much harder to meet if they themselves are unconvinced of the electric car’s long-term potential.

kana.inagaki@ft.com