As interest rates remain high and inflation weighs on the consumer, affordability is a top concern in the auto market. Consumers are still interested in gas and hybrid vehicles as many EVs are costly and carry concerns about limited battery range. Executive Vice President of Toyota Motor (TM) North America Jack Hollis spoke with Yahoo Finance Reporter Pras Subramanian about hybrids, affordability in the auto market, and the EV transition.
Electric vehicles are just one piece of the challenge of electrification and carbon emissions reduction, Hollis says: "I think it's important to understand we need everybody to participate if we're going to really make a difference. If it's just EVs, if you look at it, it's only 8%. How much is that reducing when a majority of the people buying the EVs right now, are buying it as an extra vehicle in their fleet? There is a lot of pieces to this. That's why we think taking a little longer time to get to that goal will allow all of us to participate. "
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Editor's note: This article was written by Nicholas Jacobino
Video Transcript
PRAS SUBRAMANIAN: We're at the Auto Show, end of the day here, almost at the Toyota stand. I would say that the automakers, that the Japanese automakers and the Korean automakers are making a lot of headway here recently. And a lot of new models, different powertrains and that's really important for Toyota in particular. They really are pushing forward with the alternative powertrains like hybrids. Even stuff like natural gas and things like that.
But for the most part, they want to really give you more options. They say the consumer wants choice and I spoke to Toyota EVP, Jack Hollis, he's also head of motor sales there too. And he was talking about how the consumer really wants choice and one of those things is for hybrids. Here's what he had to say.
JACK HOLLIS: Well, Camry has been so good. As we stayed committed to the Sedan market having a new Camry come out 22 years in a row, best selling Sedan in America and it's fun to bring it out. The highlight of it is it's 100% hybrid. And so I think what people don't really realize in the Camry of how successful it's been, we've always stayed ahead of the curve on whatever powertrain, whatever we're doing. So to bring that in 100% hybrid, that's a big deal.
Adding the hybrid to Tacoma, another place. Again, it's electrifying our entire lineup. And then we come right back. We got some other ones still coming, Land Cruiser is not too far behind. And I think it's fun for our dealers to get excited about the next new product. But what's great is we've had a nice cadence. It's not all at one time. It's been spaced out over the last several years and we're really encouraged where we're going.
PRAS SUBRAMANIAN: Well, rounding out that product portfolio. Last year, you guys had a pretty good year here in the US. Those supply chain crunches were over. But also rolling out those new products. And Toyota famously didn't go too hard in EVs. They took their time, they spoke about what customers wanted. And where do you see that right now? Do you think that was the right move at this point?
JACK HOLLIS: Yeah. And here's the reason why it was the right move. The way to find out what you need to sell, I'm sorry that it's so simple is what is it the customer is asking for? What is it that our dealers are asking for? And give it to them. What we are hearing is that they want our EVs as an option. And the big question really becomes then what's the right percentages?
Some people want a gas engine and some people want a hybrid, and some people want a plug-in. And some people want an electric. Some people want a hydrogen. How are we giving that to the marketplace? So we're going to continue down that path of just listening to what that customer wants, and then provide it to them the best-- to the best of our ability.
PRAS SUBRAMANIAN: So as an example in the new Tacoma, that is a big seller for you guys. Now I believe it's going to be fully hybridized. Is that correct?
JACK HOLLIS: Not fully. So we'll still have the gas engine. We'll have the hybrid option. It's our max power. Yeah. That's correct. I force max, it's with tundra. Same idea, you have both options for you. But again, it's showing where we're seeing is customers, we have a certain base who is saying, I want this and another base are saying, I want that. We're giving it to them both.
PRAS SUBRAMANIAN: And also a more efficient way. So--
JACK HOLLIS: Absolutely.
PRAS SUBRAMANIAN: Speaking of efficiency recently in the US, they just changed some of the Biden White House EV transition rules, making it a bit easier for bigger manufacturers to build more cars like hybrids as opposed to going fully full EVs by let's say 2030. Those conditions beyond emissions and things like that have been loosened for a bit longer. From Toyota's standpoint, I know Toyota and also the industry were asking for a bit more time to have that transition in place.
Does that mean that we're not going to go fully EV at anytime soon?
JACK HOLLIS: Well, there's several things there. Well, because one part of it is, what's the question we're trying to answer with EVs? Are we trying to sell as many areas as possible. Well, I don't know what's the question-- the question really that we at Toyota continue to ask is, how do we reduce carbon emissions as fast as possible, everywhere possible with everybody participating?
See, our goal is to have everybody who in globally to participate in reducing carbon emissions. Does that mean EV is the answer? Well, some people in government has said it is. We're saying it's a answer. If we want to do it faster, if we want to have everybody included. And so there's a lot of pieces there. The EV itself is a very high transaction price. No everybody can pay that or infrastructure.
Not everybody can even have it in their home because they're living in an apartment or we can go on and on. What if you're in the cold states and how does cold affect the EV? So it is part of the solution. And so Toyota itself, we're all in on electrification. Meaning choice of hybrid plug-in hybrid EV and hydrogen to solve that question. The question or the issue that becomes is what's the question or what's the solution to the Biden administration's, their concerns.
And right now they're saying, well, it's EV. Because if you think about even though the EPA has changed last week, 2032 hasn't changed.
PRAS SUBRAMANIAN: Not that far-- not the long way.
JACK HOLLIS: It's not that-- well, it's a short time. If you consider the fact that in the last 10 years, we've gone from 0% to 8% of the market.
PRAS SUBRAMANIAN: I believe, full EVs. Yeah.
JACK HOLLIS: Full EVs. So full EVs have gone to 8% of the market. Now from 24 to 8 more years, so that was 10 years to get to there. The next eight years, we want to go to 67%. That's 10 years to get to 8%. Some of those math is very difficult. But we want to do is if you can use all of electrification to solve the consumer's desire to participate in reducing climate, now we can get somewhere.
We just think 2032 is a little too short term and we have to go a little bit longer so that the customer can come with us on that journey.
PRAS SUBRAMANIAN: So do you think that the hybrids, the plug-ins, mild hybrids, can they get us to where we need to be from a CO2 emissions point of view by 2032 for instance.
JACK HOLLIS: Absolutely. And I think one of the elements is that we have to remember, and I'm sure there's a couple of times, sorry, if we've said it before. But the amount of the minerals needed, we have to think about is our precious metals or limited resources. And one BEV, if you use the same amount of resources, I can build you six plug-in hybrids. Reducing significant amount of CO2 and costing about 6 to eight grand less per vehicle.
Or I can give you that same material that one or that six, and I can build you 90 hybrids at another six grand, less and much more affordable. So the issue is in each one of these, they're reducing carbon very quickly. But I'm getting more participation. And I think it's important to understand we need everybody to participate if we're going to really make a difference.
If it's just EVs, if you look at it, it's only 8%. How much is that really reducing when a majority of the people buying the EVs right now are buying it as an extra vehicle in their fleet. So there's a lot of pieces to this, that's why we think taking a little longer time to get to that goal will allow all of us to participate.
PRAS SUBRAMANIAN: Yeah, we're not just talking about, we're talking about passenger cars. I'm not talking about trucks and freight and things like that, that's another story. But they picture for Toyota in the US and your view the US market right now.
JACK HOLLIS: Yeah.
PRAS SUBRAMANIAN: People thought that the market would come down a bit, we might have a recession. But that's not happening right now. People are a bit more consumer-- confidence is higher. What are you guys seeing from your customers point of view? Are they still going to go through the dealerships and buying cars, and trucks?
JACK HOLLIS: So there's an industry answer and the Toyota answer. I'll start with your Toyota answer. From a Toyota answer standpoint, is we still have demand greater than supply. Now while we've handled all the supply chain issues, we're still seeing a significant demand for our vehicles and like we just talked about earlier, we have a lot of new products. So there's a lot of pent up demand still.
So you're going to see from a Toyota standpoint of continuing to have a very flat ground stock. We're not growing our ground stock because we're selling as many as we can build. So we're in a good place. What does that say about the industry? The industry itself is also going to see a little bit of growth this year. We're going to probably get real close to a 16 million market. Assuming that's the case and I still think it might even be over that.
And I don't know so much of its consumer confidence as it is more of a pent up demand. And the reason I say that is the average age of a vehicle now is over 12.5 years old. It's the oldest fleet in the history of the US.
PRAS SUBRAMANIAN: It's unbelievable.
JACK HOLLIS: So at what point that people are saying, it's time I have to go buy a vehicle. We're still seeing that play in some of the dragged on. You talk about long COVID. This is a long demand from COVID. And I still think that's really healthy for the industry.
PRAS SUBRAMANIAN: It's something more that COVID effect is still here with us. It was a massive effect on the industry. We're still seeing that uptake happen now. Last question, this is me a little bit more my personal viewpoint here. But are we going to see more manual transmission cars? The GR Corolla, enthusiast hit the-- Tacoma also comes with a manual transmission. Are you seeing a little bit of an uptake there from people that want a bit more of engagement that driving feeling?
JACK HOLLIS: So am I going to see a lot more? Probably not a lot more. Do you see the enthusiasts though who are demanding It? Yes. So like I said earlier, ask what the customer wants, deliver it to them. So we see a place for manual transmissions. We're even seeing from Toyota and some of the engineering is, how do you make a manual transmission work with an electric powertrain?
Well, that's going to be interesting as we're going. So I'm not going to give anything away yet. But we see the passionate driver as someone who are truly drivers, they're not going away from that manual any time soon. So how do we make that happen in still an environmentally friendly way? And those are some of the solutions we're still working on and we'll get to.
PRAS SUBRAMANIAN: So I had to ask about the manual transmission of course, me being me. But what really struck me from that conversation though was the whole aspect that they're not-- demand is not meeting-- their supply is still below demand. They need they have more demand than they can actually supply. And this is for a company that makes-- that sells several million vehicles a year. I mean, that's really astonishing. I think that's one of the main headlines here from that interview.
JARED BLIKRE: Yeah. And Pras, what I took away is, they're really the consumer, especially the American auto buyer wants to retain optionality. I got to think that the charging infrastructure status of the US is not quite up to snuff and range anxiety is a real thing. I'm just wondering how much does this factor into some of their business planning. What was your takeaway on that?
PRAS SUBRAMANIAN: I mean, he mentioned that the number of roadblocks that exist for the EV transition. That's one of them is the availability or lack of availability of chargers. He also mentioned high price that was a big thing. How do you get adoption in the mass market if EVs cost generally more money than their standard, the road going or gas powered car options. I think that's the big problems that Toyota sees in the transition as we speak right now.
And I want to briefly mention that we did-- we heard back from Toyota about what happened in Baltimore, the port closure there. Toyota mentioned that it's not affecting them right now. But they do have some effect on their exports. Toyota makes a lot of cars in the US that they export elsewhere and that's having somewhat of a small impact there from that Baltimore port closure.
JARED BLIKRE: All right. Pras Subramanian, looking good at the Auto Show there. Thanks for stopping by.