Toyota Motor Corporation Chairman Akio Toyoda gestures during a press conference on rigging safety tests by its affiliate Daihatsu that affected 88,000 vehicles, in Bangkok, Thailand, May 8.ATHIT PERAWONGMETHA/Reuters
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
For decades, activist investors have been the tails wagging corporate dogs.
Typically, these rabble-rousers put pressure on companies because things are going wrong – sales and profits are headed in the wrong direction, operations are broken, or senior management is incompetent or corrupt.
And then there’s Toyota. Last fall activist investors, including progressive pension funds and asset managers in the U.S. and Europe, decided that being the best-selling automaker in the world three years running and leading the green revolution with its groundbreaking hybrid models wasn’t good enough. They pushed to oust board chair Akio Toyoda, its president and chief executive officer at the time.
The reason? Mr. Toyoda wasn’t drinking the electric-vehicle Kool-Aid quickly enough, was being cagey about the company’s climate lobbying efforts, and favoured a multi-option pathway to carbon neutrality that included hybrids, hydrogen and gas options, as well EVs.
In revealing remarks before he stepped down in January, Mr. Toyoda said executives who disagreed with a single-option EV strategy had felt silenced by the strong-arming of the environmental lobby. “They think it’s the trend so they didn’t speak out loudly,” he said of management.
This week, however, Toyota shareholders re-elected Mr. Toyoda to the board at the company’s annual meeting. Now, along with Koji Sato, the automaker’s new president, they will see if they can placate the EV fervour of the activist flank and still run a successful company.
The challenges faced by Mr. Toyoda and Mr. Sato reflect the increasing power of the environmental, social and governance (ESG) movement to push agendas that may put the viability of companies at risk.
There’s no suggestion the motivation of the ESG faithful isn’t well-meant – but it isn’t always practical when it comes to business sense. And in Toyota’s case, the company has raised legitimate concerns that a rapid, wholesale shift to EVs is perilous for the business, the supply chain and even the environmental health of the communities activists seek to protect.
Since EVs typically are built using about one-third fewer components than conventional gas-powered cars, suppliers to Toyota would feel the impact and jobs would be lost, a strong cultural as well as economic concern in Japan. There are also worries about ample global supplies of lithium, the main component in EV batteries. And there is the infrastructure – the lack of charging stations and the impact on power grids and the supply of clean energy from a massive shift to EVs in a short period of time.
Those concerns are exacerbated by EV mandates in certain places. In California, New York and other states, for example, all new car sales must by EVs by 2035. In California, where the power grid is already weak and subject to regular rolling shutdowns, the shift could be beyond problematic.
The U.S. infrastructure issues are so acute, Ford and General Motors recently announced deals to plug into Tesla’s charging network because the Biden administration has been slow to make a national grid a priority even though it is foundational to its green agenda.
Now, under Mr. Sato, the company has pledged to make EVs a more significant part of its product mix – but it will be a mix. Toyota plans to introduce 10 EV models by 2026, and projects EV sales of 3.5 million by 2030 – about 30 per cent of total sales.
Mr. Sato has not backed off the multi-option strategy of Mr. Toyoda, saying he would “absolutely not waver at all” from a lineup that includes EVs, gas vehicles, hybrids and hydrogen-fuelled cars.
“Our most important way of thinking about a carbon-neutral future is to prepare a variety of options considering local differences in energy and economic environments as well as society and culture,” Mr. Sato said. “Electricity, of course, but also hydrogen, and transiently hybrids and plug-in hybrids, are all promising technologies. We want to find possibilities in all options.”
The strategy may not be fashionable enough to appease everyone, but it makes sense. The dangers of rushing headlong into total EV immersion are not insignificant – and for Toyota, there are clearly worries it would put the business at risk.
Will it work? Those who bet against Toyota do so at their peril. The company didn’t become the world’s largest automaker by accident.
But Mr. Sato might soon find that, sadly, as with his predecessor, he too will have to bow to these activist investors.