PLANO, Texas—Jim Lentz, Toyota Motor North America Inc. CEO, has mapped out a strategy for the auto maker's regional operations that will keep the Toyota and Lexus brands active in sedans as the company focuses on spreading fuel-saving hybrid technology across its lineup.
The strategy means that Toyota is taking a decidedly on-brand wait-and-see approach to full battery-electric vehicles, even as it settles into its new corporate home here.
Meanwhile, Lentz says growing trade issues present the biggest threat to the North American auto market. He said the overall market remains healthy, if in a slight decline, but trade issues could quickly spiral and hurt consumers and dealers combined.
Lentz, 63, spoke to several Automotive News editors in March. Here are edited excerpts.
Toyota has settled into Texas now, and this seems like a very challenging place to sell battery-electric vehicles. What does it take to successfully sell EVs in a market like this?
Provided that you can charge in 20 minutes, and you can go 400 miles on a charge, it might work. But I think that's the way it's going to be for the general population anyway; people want vehicles with range of 350 or 400 miles, and they want to be able to refuel—whether it's hydrogen or gasoline or electricity—in a relatively short period of time. And once technology can do that, without a big premium paid, I think you'll see people even go electric here.
Given the lower maintenance requirements, will dealers market EVs with the same zeal that they do internal combustion vehicles?
I think dealers steer vehicles to what customers want to buy. So if customers want to buy EVs, dealers would sell EVs. The interesting thing about the revenue stream of EVs is, I'm not convinced that EVs don't have a revenue stream from a service standpoint. They need tires; they need windshield wipers; they need shocks—there is maintenance required over time. They may not need oil changes, but if consumers want them, they're going to buy them. I just don't believe that there are dealers that believe in selling fossil fuel vehicles and, philosophically, that creates the inability to sell an electric vehicle. I just don't buy that. Dealers would sell horses if that's what people wanted. That's what dealers do. They make a market for used cars. We believe in the franchised dealer model.
How does Toyota's hybrid strategy play out as the industry moves more steadily toward EVs?
Part of it is, hybrids in the past have always been associated with Prius. It's always been about economy. As that changes, as with the new hybrid RAV4, where the hybrid powertrain is fun to drive; the new Corolla, where the hybrid powertrain is fun to drive—I mean, today the industry is roughly 3 percent hybrid, and we are roughly 9 percent. That 9 percent for us is going to move to 15 percent by 2020, because vehicles like RAV4 are going to be 25 percent hybrid. Corolla will be a larger percentage hybrid; Camry is already a larger percent hybrid; RX, Highlander, right on down the line.
We think that hybrids are going to be really our mainstay because it's a way for those that want performance to get performance and for those that want to get much better fuel economy to get much better fuel economy without making that step to a pure EV that is quite a bit more costly, and you have range anxiety and other issues to go with it.
Toyota has offered battery-electric vehicles before and withdrawn them. Will Toyota have a full EV to retail in the future?
At some point in time. I think, to be frank, the EV company that we have, their efforts are really geared more towards China and Europe. As Europe moves further away from diesel and to electrics, and China is already moving toward electrics, I think you'll see our first EVs come to those markets. Eventually, when we think there's a business for EVs, we'll have EVs. The good news is, they will have been developed for other markets, so we'll be able to adapt them rather quickly for the U.S. But right now, the tough part about EVs is, there's just not much of a business for EVs.
That seems to indicate a huge collision is coming.
As technology improves, and new batteries come out—solid-state batteries, whatever that innovation may be—at some point, when EVs and ICEs are in parity in terms of price, that's when things change. But until that point, if people are paying thousands of dollars in premium for EV, and fuel prices are still $2.50 a gallon? I think it's a tough sell.
Do you have a guess on when that will occur?
I don't, because I think it's going to take multiple generations of new batteries to come out, provided fuel doesn't spike. If fuel was $6 a gallon? This is a totally different story.