Toyota has long been criticized for its electric car innovation. But between scoeding cuts, tax rates and the phase-out of tax incentives, the world’s largest automaker’s path is looking like a smart hedge.
The Japanese automaker reported yesterday (November 5) that it sold 4.78 million vehicles worldwide between April and September, 12 percent from the same period last year. That includes 2.27 hybrid electric vehicles, a record high. However, US prices took a toll: revenue fell by $3.3 billion from last year to $12.5 billion in the first half of the fiscal year.
Despite those geopolitical accolades, demand for Toyota’s loyal passenger cars remains strong. CFO Kenta Kon told investors that the company is struggling to keep up with demand, saying it “can cover demand.” According to Kelley Blue Book, sellers typically aim to hold about 60 days of inventory on their lots. TOYOTA’s US inventory, by contrast, is on foot for about 30 days.
Toyota has been known to be fully committed to battery electric vehicles, but the company is a leader in the hybrid vehicle space, touting its conservative, balanced approach to electrification as the right way forward. Battery electric vehicles are the only sliver of global Toyota (1.4 percent of total sales in 2024). The long-term risk, of course, is that markets like Europe and China, which are racing towards an all-electric future, could leave Toyota behind.
The company’s best-selling model, the RAV4, will only be offered as a hybrid or plug-in hybrid starting in 2026. Bringing back the new PowerTrains factories will require a temporary shutdown, to ensure continuity. Slimmer Dealer Inventory could also drop car prices as early as 2026.
Toyota’s small steps towards software-driven cars
The next-generation rav4 also marks another turning point: it will be the first software-defined vehicle (SDV). While Tesla and Rivian first built their cars around software from scratch, Toyota’s move represents a big step in that direction. The new rav4 will include areate, which was announced by the TOYOTA Software Platformation that allows updates over the Air (OTA) – the first signal of Toyota’s digital ambitions and a reminder of how far it still has to go.
In typical Toyota fashion, the emissions are cautious. The 2026 RAV4 will release features that rivals have offered for years, such as smartphone-like cockpit displays, interactive voice commands and OTA updates. But those updates will be limited to ADAS systems and cockpit display, not deep car functions in tesla, lucid and others always with software. The strategy underscores Toyota’s effort to catch up with competitors, especially those in China, who have already made software an integral part of their cars.
Toyota now finds itself confusing two eras of the auto industry: one built on mechanical excellence and the other driven by software, communication and weather regulations. Its hybrid-first strategy has a dark payoff as global pressure tightens and tax rates rise. But the clock is ticking. If Toyota can import its hybrid playbook into the software-defined ERA, the Electrified ERA puts it right with the new rav4, it could keep its crown. If not, the once-secured approach may have led to the greatest debt ever.