Japanese automakers have been the laggard in the industry in the move to electric vehicles.
But finally, the largest of the Japanese automakers – Toyota Motor (TM) – has awoken and has joined the race for EV supremacy. The company only sold about 20,000 electric vehicles globally last year, but looks to expand annual sales to 1.5 million units by 2026 and 3.5 million EVs by 2030.
On June 13, Toyota announced it will introduce high-performance, solid-state batteries and other technologies to improve the driving range and cut costs of future electric vehicles.
The announcement of this strategic pivot sent its shares more than 10% higher last week to a 52-week high. The stock is now up nearly 20% year-to-date.
The company's technology roadmap – covering aspects as varied as next-generation battery development and a radical redesign of factories – were the automaker's fullest disclosure of its plan to compete in the fast-growing market for EVs, where it has lagged rivals led by Tesla (TSLA).
Solid-State Battery Breakthrough?
Toyota's goal is to release an electric vehicle powered by an all-solid-state battery as early as 2027, with a technology that is expected to more than double the car's range from a single charge. Its plans call for developing a solid-state battery capable of a roughly 9300 mile range from a charge of less than 10 minutes.
Extending the life of solid-state batteries has long been an issue keeping the technology from attaining commercial viability.
With a charging time of 10 minutes or less, current solid-state EV batteries can power a travel range of approximately 745 miles -- 2.4 times that of conventional liquid electrolyte batteries. The Tesla Supercharger network - the largest of its kind - offers the equivalent of 200 miles, from a charge of 15 minutes.
However, electrodes for a solid-state battery have been known to expand and contract repeatedly in charging cycles. This causes electrodes to eventually detach from the solid-electrolyte material, compromising the battery.
That's why existing solid-state batteries are capable of being recharged only hundreds of times at best -- far less than the thousands of charges required for a battery in today's EVs.
But now, Toyota says that it has overcome that challenge, trumpeting a “technological breakthrough”. The company is a leader in solid-state batteries, holding well over 1,000 patents. If it clears the next major hurdle – developing mass-production capabilities – the company has the potential for completely redrawing the EV landscape.
A massive opportunity is there, waiting. The market for all-solid-state batteries will reach $25.38 billion in 2040, according to the research firm Fuji Keizai.
Toyota's Challenge
But Toyota will have quite a mountain to climb. . . . .
The ability to scale up production and lower costs is THE key to popularizing solid-state batteries. The batteries now cost anywhere between $430 to $2,500 per kilowatt-hour to manufacture, according to the Japan Science and Technology Agency. This is four to 25 times the nearly $100 per kWh for lithium-ion batteries!
Maybe that's why Toyota is hedging with better-performing lithium iron phosphate batteries as well. This is a cheaper alternative to lithium-ion batteries and have spurred EV adoption in China, the world's largest EV market.
By 2026, Toyota will release a next-generation EV with a range of roughly 620 miles on a 20-minute charge. For comparison, the long-range version of the lithium-ion-powered Tesla Model Y, the world's best-selling EV, can drive for about 330 miles, according to the EPA.
Engineers Win, as Do Shareholders
Toyota has adopted a good strategy, led by its engineers, which have been considering a reboot of the company's EV strategy since 2022 in order to become competitive in the EV space.
The recently revealed roadmap shows that, under new CEO Koji Sato, Toyota has adopted much of the revamp that engineers have been developing as options for many months. That includes the use of electric-axle and other technologies.
For example, the company is developing a dedicated EV platform to reduce the cost of new models, and a heavily automated assembly line that would do away with the conveyor belt system that dates back to Henry Ford over 100 years ago.
In Toyota's "self-propelling" assembly line, cars under production would drive themselves through the process. The company will also use Giga casting to cut production costs. This is an innovation pioneered by Tesla using massive, aluminum casting machines to reduce vehicle complexity.
Keep in mind that Toyota's manufacturing process was already the gold standard of the auto industry.
Can Toyota beat Tesla in EV race? Unlikely, but possible. If it does indeed have a breakthrough regarding solid-state batteries, it could be a game changer.
Even if it doesn't, shareholders will benefit from its serious entry into the EV market, thanks to the strategy shift being implemented by the new CEO.
I believe the stock is a good buy in the 155 to 170 range. And you collect a 2.5% dividend yield too.
