Toyota hybrids crush it as Tesla’s woes hit Elon Musk

Elon Musk’s Tesla has had a rocky start to 2024, and that’s probably no surprise to Akio Toyoda. Toyota’s president has long been skeptical of electric vehicle hype, pushing his company to focus more on hybrids. It turned out to be a smart strategy.

Tesla shares have fallen about 24% since the beginning of the year, knocking Musk from his position as the world’s richest man, an honor now bestowed on French luxury tycoon Bernard Arnault.

Investors did not react well to Tesla’s fourth-quarter earnings, when the electric vehicle maker warned that this year’s sales growth could be “significantly lower” than last year, not reassuring when it cut prices in 2023 to support demand. In California, a key market, Tesla’s registrations actually fell in the fourth quarter, the first time this has happened in more than three years.

Toyota, by contrast, can’t produce its hybrids fast enough, and demand for these vehicles is strong without price cuts. The Japanese giant was the world’s best-selling automaker for the fourth consecutive year in 2023, selling 11.2 million vehicles globally, a respectable 7.2% increase from the previous year.

Tesla sold 1.8 million vehicles, by comparison, an impressive 38% year-over-year jump.

Hybrids versus electric vehicles

Toyoda, however, doesn’t believe electric vehicles will take over the world. Last month, he predicted that adoption of electric vehicles will peak at just 30%, saying they will share roads with hybrid, gas-guzzling, hydrogen-powered cars.

Hybrids, meanwhile, are in crisis, not just for Toyota but also for other automakers, including Ford and Honda. From January to November in 2023, hybrids accounted for 9.3% of new light vehicle registrations, beating electric vehicles by 1.8 percentage points, Reuters reported, citing data from S&P Global Mobility, and Toyota was the largest seller of hybrids in the United States, with more than a third of such registrations.

Edmunds wrote on its website in mid-December that the U.S. hybrid market share increased to 9.7% in November 2023, a 99% increase from the previous year, while the share of electric vehicles only increased by 25%. “The transition to full electric vehicles has slowed, and hybrids are the most convenient choice for most Americans looking for electrified options right now,” he added.

For many consumers, hybrids offer the advantage of burning less fuel than regular cars, being kinder to the environment and your wallet, without the range anxiety and other concerns that surround electric vehicles. (Hybrids maximize efficiency by alternating between gas and battery power.) It also helps that hybrids are priced much closer to traditional cars than electric vehicles.

Toyota, which will report earnings on Tuesday, with analysts expecting a strong quarter, sells electric vehicles, but despite rapid sales growth, they make up only a fraction of its shipments.

The automaker was at pains to point out that it is not “anti-EV,” but rather lets consumers choose what type of vehicle they want and offers to each king. Toyoda hinted at his philosophy a few years ago when he said: “Toyota is a department store of all types of powertrains. It’s not right for the department store to say, ‘This is the product you should buy.’”

To be sure, Toyota has its own problems, including recent recalls and, last month, suspending shipments of 10 vehicle models due to irregularities in engine certification testing. And some industry observers fear the auto giant will be caught by surprise if consumers switch to electric vehicles faster than expected.

But it has clearly put things right where hybrids are concerned, if not in the long run then at least for now.

In 2011, Musk laughed at electric vehicles made by Chinese rival BYD, which recently surpassed Tesla in global EV sales. And in 2022, Musk fired the hybrids as a “phase,” saying it was “time to move on” from them.

But many car buyers, we now know, don’t feel the same way.

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