New Toyota CEO plans to overhaul the company's electric vehicle strategy

Having recently made sweeping changes to its leadership team, Toyota Motor Corp (7203.T) is now looking at revamping its factory floor as it makes plans to move forward with a new, dedicated platform geared toward battery electric vehicles, according to four people familiar with the matter.

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There has been speculation that Koji Sato will confirm that there will be a new EV architecture in place during his first briefing as CEO on Friday, one of the people has said.

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The status of the approval of the plan was, however, not immediately clear as of Thursday evening, so it was unclear if they had been formally approved.

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It is becoming increasingly apparent for the world's biggest automaker that if it wants to drive down production costs and turn its all-electric business into a profitable one as its Silicon Valley rival has done, it needs to match Tesla Inc's (TSLA.O) design and manufacturing innovations, a person said.

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The company continues to study the issue, according to a source.

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It is expected that Toyota will implement a new electric vehicle platform at the end of this year as a result of a far-reaching review of its electric vehicle strategy conducted last year.

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Toyota has been slow to push into battery electric vehicles. Yet, if it were to make such a move, it would place the automaker on the same level as its global rivals. This company's current production architecture, dubbed the e-TNGA system, was launched in 2019 and allows it to produce electric vehicles on the same assembly line as gasoline cars and hybrids.

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The E-TNGA manufacturing system, however, cannot provide the cost savings that Tesla has achieved through its massive Giga Press casting machines, as well as other manufacturing innovations.

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It was decided that the sources would not be identified because the information was confidential. Toyota, when asked for a comment, said that there would be an opportunity for questions at Friday's briefing.

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During the recent internal presentation held by Toyota, Sato, the hand-picked successor of the late Toyoda, the emphasis was on the need for a dedicated battery-electric platform, a way to manage the heat generated by the battery that is competitively priced, as well as other innovations that influenced Tesla's playbook, according to a third party.

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Apparently, Shigeki Terashi, the former chief competitive officer responsible for the EV strategy review, gave a briefing to the executive board during the briefing.

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The e-TNGA platform was supposed to be used in a number of projects and several of them are now being delayed or canceled as a result, according to a separate source.

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A Long Time Coming

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There has been a long overdue shift for Toyota, say critics.

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Toyota has experienced record sales of battery electric cars over the course of the last few years under former CEO Akio Toyoda, the founder's grandson who became chairman of the company on April 1 when Sato took over as president.

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"There have been some statements made by Akio Toyoda when he was CEO of Toyota that have made it sound as if hybrid vehicles are going to be around forever. But in reality, they are your backup, it's your hedge. EVs have to be first," said CLSA analyst Christopher Richter.

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There has also been an increasing amount of advocacy by environmentalists and investors that Toyota needs to move faster in order to remain competitive.

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During the third quarter of this year, Tesla posted a profit that was nearly eight times higher than Toyota's, in part as a result of the company's ability to simplify production and cut costs throughout the process.

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By 2030, it is estimated that EVs will account for more than half of the total vehicle production on a global basis. Keeping up with that demand will be a key challenge for Toyota. At the moment, it has fallen short - the bZ4X, its first battery electric vehicle, has suffered an early recall and has had limited sales to date.

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The lack of battery electric models available from Toyota in the United States, where the growth of EVs outpaces that of the overall market, seems to be a significant factor in Toyota's poor performance in this area. While Toyota (TM.N) reported a decline of nearly 9% in U.S. sales in the first quarter, General Motors (GM.N) saw a significant increase of 18%, as fleet and commercial customers demanded more electric vehicles.

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As of the first quarter of this year, GM has sold more than 20,000 electric vehicles while Toyota and its luxury brand Lexus have sold approximately 1,880 electric vehicles. Even though Toyota/Lexus sales of electrified vehicles - mostly hybrids with a scattering of battery-electric and hydrogen vehicles - came in just under 119,000 units, that represented a decrease of 10.7% when compared to last year.

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S&P Global Mobility revealed in November that the vast majority of U.S. consumers making the switch to electric vehicles are doing so because of Toyota and Honda Motor Co (7267.T).

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Taking into account the recent growth of electric vehicles in the United States, Katherine Garcia, director of the Clean Transportation for All Campaign at the Sierra Club, says that if Toyota does not pursue electric vehicles under Sato, the company will be leaving money on the table.

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It was also anticipated that Sato would outline a strategy for his Friday briefing that would emphasize "diverse powertrains", one of the people said. The president will emphasize that even while it ramps up EV production, gasoline hybrids will remain a key part of the company's business.

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The slow pace of Toyota's adoption of electric vehicles has also caused some of its suppliers to privately express their concerns.

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Several suppliers, none of whom would like to be identified, have been exploring the possibility of increasing their business with other manufacturers so that they might hedge their risk with regard to electric vehicles, according to a Toyota executive who declined to be identified.

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The executive added that this may or may not change depending on how the automaker handles its strategy in the future.