Dive Brief:

• Toyota will make 330,000 fewer vehicles than expected in October, saying in an SEC filing last week it plans to slash its annual production target by 40% due to the global semiconductor shortage and a rise in COVID-19 cases in Southeast Asia.
• Coronavirus outbreaks in Malaysia and Vietnam have led to a renewed shuttering of factories, and auto executives say the disruptions have further delayed orders of computer chips and other parts, exacerbating shortages.
• It is the second month in a row Toyota cut production, and the company said in the filing it has now lowered its annual forecasted production volume by 3%.

The official website of Toyota’s Mirai sedan is certainly not short on ambitious language. The model, whose name means “future” in Japanese, is hailed as a new standard for an “ecological car” that will “lead the hydrogen-based society from now on.”

The Mirai is just one example of Japanese carmakers commercializing hydrogen fuel cell vehicles (FCVs). Generating only water vapor and warm air as exhaust, their makers tout FCVs as a clean-energy alternative to traditional vehicles burning fossil fuels.

The move by Japanese carmakers to commercialize FCVs is part of a larger effort by the Japanese government to promote hydrogen as a fuel source of the future.

A comprehensive action plan released by the Ministry of Economy, Trade and Industry in March 2019 puts forth goals of 800,000 FCVs on the road, a nationwide hydrogen fueling network of 900 stations, and full commercialization of hydrogen power plants, all by 2030.

The plan also details efforts by private Japanese firms, including carmakers, utilities, investors, and industrial gas producers, to form consortiums that set up hydrogen production plants both in and outside Japan.

While Japan is not alone in putting together a government-led effort to develop hydrogen as a fuel source, none has put in as much effort in FCVs. For instance, China’s 2021-25 Five Year Plan includes details for government subsidies to develop hydrogen production and fueling networks. The US Department of Energy’s 2020 Hydrogen Program Plan seeks to identify and leverage existing domestic resources for the production of hydrogen.

However, in both countries, electric vehicles (EVs) are moving far ahead of FCVs, with China creating the world’s largest EV fueling network, consisting of 1.2 million stations in 2019, and the US hosting the most valuable EV manufacturer, Tesla.

Indeed, despite Japanese government efforts, FCVs remain far less popular than EVs both in and outside Japan. While 2.1 million EVs were sold worldwide in 2019, Toyota has only managed to sell 11,000 units of the Mirai from its launch in November 2014 to February 2021, hampered by its inability to sell it outside Japan and California, the only places where Toyota deemed a dense enough concentration of hydrogen fueling stations to be available.

The global nature of EV adoption raises the question of whether Japan is heading into another technological idiosyncrasy with its focus on FCVs.

The “video format war” of the 1970s and 1980s pitted Sony’s Betamax against the more globally used VHS, with Betamax losing the war despite being of arguably higher quality. Other examples of the “Galapagos effect,” or Japanese technology not accepted elsewhere, emerged with Internet-ready feature cell phones, contactless IC cards, digital broadcasting, and anti-earthquake construction methods.

Given the shrinking size of the Japanese domestic market and the expensive upfront investments in hydrogen production and fueling stations, it will be costly for Japan to end up in a technological Galapagos with FCVs.

Given that the most eco-friendly method of producing hydrogen at a commercial scale remains the use of electricity, it also seems rather redundant and expensive to take the extra step of converting electricity into hydrogen, known for being highly flammable, when the electricity can be directly used to power EVs.

As such, rather than risking a costly loss for FCVs on the global market, the Japanese government should concentrate on leveraging the country’s already advanced EV technology.

The latest rankings show that, in terms of the number of EV-related patents, 21 of the top 50 firms in the world are Japanese. But in terms of EVs sold, Japanese carmakers remain far behind their global peers, partly because Japan has fallen behind in the number of EV charging stations, with only 18,000 nationwide as of March 2020.

If the Japanese government de-prioritizes its focus on FCVs and shifts financial and policy support to promote EVs instead, it is conceivable that not only will the country be able to boost the number of EV charging stations, but its firms will be able to leverage existing technologies to become dominant in the global EV industry.

Toyota on Tuesday said it is happy to use scratched or blemished parts from suppliers as the world's biggest car producer tries to trim costs amid a production-curbing global chip shortage and rising material costs.

Toyota's acceptance of good enough by using parts it would have thrown away in the past marks a significant change both for a company renowned for stringent quality control and for Japanese manufacturing practices that often prioritized perfection over speed to market.

​​​​​​​"We are careful about the outside of our vehicles, the parts you can easily see. But there are plenty of places that people don't notice unless they really take a good look," Takefumi Shiga, Toyota's chief project leader for vehicle development said during a press briefing.

Toyota last month raised its operating profit outlook 12% for the year ending March 31, helped by favorable currency rates. It warned, however, that a shortage of semiconductors which was curbing production and increasing material costs were hurting its underlying profitability.

Shiga and other Toyota engineers are expanding a program begun in 2019 to meet component suppliers, even third tier ones, to assure them that scratches or blemishes are acceptable as long as they do not affect vehicles safety and performance, and are unlikely to be noticed by car buyers.

"It requires some courage on their part," Shiga said.

A visit to a company making plastic seat belt parts reduced the number of those component being rejected by three-quarters, he added.

Japan’s transportation ministry raided the offices of Hino Motors, a truck-making subsidiary of Toyota Motor Corp after the company admitted to falsifying emissions data.

Footage of the raid was broadcast on NHK, a public TV station, which showed the government agents entering the company‘s headquarters on Monday morning. That follows an announcement Friday from Hino that it had found “misconduct” in engine performance data that was used for exhaust emissions certificates, reports Reuters.

The company’s share prices fell by 17 percent Monday, the maximum daily amount allowed under Tokyo exchange rules after first falling on Friday, following the initial reports of irregularities.



“The government is aware that transportation ministry carried out a raid on the company to investigate the matter and the cause,” Chief Cabinet Secretary Hirokazu Matsuno said. “The matter is extremely regrettable, as it greatly undermines the trust of automobile users.”

Hino has suspended sales of three of its engines as well as the vehicles powered by them in Japan. About 115,500 vehicles in Japan are believed to be equipped with the engines in question, according to Toyota, which said that it is also investigating the impact this will have on its earnings.

“We would like to apologize for any inconvenience and concern this might cause customers who are currently using Toyota Coaster buses equipped with the engine in question,” wrote Toyota, in a statement. “For affected customers, Hino will confirm the correct specifications and, in consultation with Hino, Toyota will take appropriate action.”

Hino is just the latest Japanese company that has faced investigations over improper emissions tests. In 2018, the government said that Mazda, Suzuki, and Yamaha had all also improperly tested vehicles for fuel economy and emissions, while Subaru and Nissan were also scrutinized the year before.

Buying a new car is supposed to be one of the most exciting experiences and rightly so considering the amount of money involved. And yet, somehow, after the order is placed, everything is shrouded in mystery and there’s little you can do until the dealer calls you to tell you that your car has arrived. Toyota vows to offer more insight to its customers in the U.S. from the moment the car rolls off the production line and to the moment it gets on the dealer lot.
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Many people buy their new vehicles online these days, most of the time without even seeing them. This strips away a great deal from the whole ordering process, but the hard part only now begins. It’s that part from the moment you get your VIN and the moment the dealer calls with the exciting news your ride awaits you. Especially in the past months, this also involves painfully long waiting times when no one tells you where is your car and when it will get to you. That’s when the dealer does not want to mark up the vehicle you ordered because he knows it’s in high demand.

Well, some carmakers thought about this ordeal their customers are facing and came up with some clever solutions. After General Motors started testing a new order tracking system with Corvette customers, we learned Toyota will launch a similar program in about a week. The “Project ETA” will arrive at Toyota and Lexus dealerships in the U.S. this summer, after being introduced at a dealer’s meeting next week.

Project ETA, as its name suggests, will help locate the cars in the intricate logistics chain of the automaker and will provide estimates about the delivery date. According to Keith Robertson, group vice president for supply chain management at Toyota Motor North America, the new system should improve the transparency of where a vehicle is in the delivery process. It will also provide timely notifications to dealers when there is a delay.

“It would be great to have some transparency so that we could tell a customer that their vehicle was going to be here in two weeks, or 10 days, or four months, whatever, but be able to update them when something changes,” explains for Automotive News Danny Wilson, head of the Toyota National Dealer Advisory Council.

More like a delivery smartphone app, the Project ETA will offer a graphical representation of where a vehicle is in the production or delivery process. The delays would also be communicated through this system and alerts can be set for various steps in the delivery process. This is of great help to the dealers, allowing them to offer meaningful information to customers when asked.

Toyota to cut quarterly production to ease strain on beleaguered suppliers

March 11, 2022

TOKYO, March 11 (Reuters) - Toyota Motor Corp will scale back domestic production by up to 20% during the months of April, May and June, it said on Friday, to ease the strain on suppliers struggling with shortages of chips and other parts.

The move by Japan's largest automaker is the latest to spotlight the supply-chain difficulties hobbling the global auto industry as the COVID-19 pandemic drags on. The outlook has been further complicated by the crisis in Ukraine.

Toyota plans to reduce domestic production by about 20% in April, about 10% in May and about 5% in June from an earlier production plan, a spokesperson said. Production would still remain high as the previous plan factored in the need to make up for lost output, the spokesperson said.

The automaker's suppliers have been forced to deal with a number of changes to production plans due to chip shortages, and the reduced output should take some of the burden off them, the spokesperson said, declining to comment on the number of cars involved or the financial impact.

Toyota President Akio Toyoda told union members this week that without a sound production plan, suppliers risked becoming "exhausted" and that April through June would be "an intentional cooling off" period.

Honda Motor Co Ltd has said it would cut production by about 10% in two domestic plants through the end of this month.

Separately, Toyota suspended domestic production for one day at the beginning of this month after a cyberattack on a supplier, a halt that prevented the production of about 13,000 vehicles that day.

Toyota is planning to produce a record 11 million cars in fiscal 2022 as long as it can ensure a stable supply of chips.

Toyota, Honda Strike Pessimistic Note About 2022 Car Supply

Feb. 9, 2022 8:20 am ET

TOKYO — Japanese car makers said the stress on production from the pandemic was continuing, and a shortage of components was likely to stretch through this year, striking a more pessimistic tone than their peers in Detroit.

“It’s like everyone is grasping to get a supply of semiconductors,” said Seiji Kuraishi, Honda Motor Co.’s chief operating officer. “We’re not able to project a clear sales volume.”

Honda on Wednesday reported a 32% decline in net profit for the October-December quarter, which it said was largely due to falling vehicle sales. Also Wednesday, Toyota Motor Corp. again ratcheted down production forecasts, citing semiconductor shortages and the effects of the Omicron wave of Covid-19.

General Motors Co. and Ford Motor Co. expressed more confidence early this month that the global pinch in chip supplies would ease. GM said it expected to deliver 25% to 30% more vehicles to dealers this year, while Ford said it expected global vehicle deliveries to increase between 10% and 15%.

Until now, Toyota has been ahead in weathering the pandemic’s supply-chain crunches, helping it become the sales leader in the U.S. for the first time in 2021.

But as the pandemic drags on, even Toyota and its fellow Japanese auto makers are feeling the pinch. The Japanese companies begin their fiscal year in April and haven’t issued forecasts beyond the current quarter, but they described a tough year ahead.

“It is inevitable that the situation will continue to be unstable into next fiscal year,” a Toyota executive said Wednesday.

The chip shortage has led to empty dealer lots in the U.S. and record prices for new cars. While car makers’ bottom lines are mostly healthy, they have struggled with repeated pandemic waves as well as natural disasters in places such as Southeast Asia where chips are assembled.

Car makers worry that they are missing out on sales. “Our problem isn’t how many we can sell, it’s how many we can produce,” said Ashwani Gupta, Nissan Motor Co. ’s chief operating officer.

Nissan’s market share in the U.S. fell to 5.9% in January from 6.4% a year ago, according to Autodata. Toyota, Honda and Mazda Motor Corp. also saw their shares of the market decline.

Car makers tend to project demand on a quarterly basis, but Mr. Gupta said that has switched to weekly reviews as Nissan tries to direct its limited supply of semiconductors to the factories that need them most.

Still, increased sales prices in the U.S. have helped push Nissan back into the black. It reported a net profit in the October-December quarter equivalent to $282 million, compared with a loss the year earlier.

As recently as November, Toyota said it believed the worst was over. “Although there is some risk of production decreases, it will recover quite a bit,” Kenta Kon, Toyota’s chief financial officer, said at the time.

Instead, Toyota has trimmed production forecasts this year, including an additional cut on Wednesday. The semiconductor shortage is expected to reduce production of Toyota and Lexus vehicles by 100,000 to 200,000 units in March alone compared with the company’s earlier forecast.

Subaru Corp. also said it encountered unanticipated shortages in January. “We had to halt operations at our domestic production base,” said Chief Financial Officer Katsuyuki Mizuma. Subaru said it expected sales of 740,000 vehicles in the year ending in March, down by 90,000 from the previous projection in November.

The clock is ticking on Toyota's remaining electrified vehicle credits after the company announced it sold its 200,000th plug-in the second quarter, CNBC reports. That number triggers the eventual phase-out of EV credits under existing regulations. Starting Oct. 1 of this year, Toyota's credits will be halved every six months and terminated entirely in Q4 of 2023.

While Toyota's attitude toward expanding EV credits has been influenced by outside factors — namely organized labor — the company did co-sign a letter to Congress earlier this year asking for new legislation to raise or eliminate the 200,000-vehicle cap on federal EV tax credits. Both Tesla and General Motors have already exhausted their federal incentives; Nissan and Ford are close behind.

"The current program only provides the tax benefit to the first 200,000 customers for each automaker. To provide greater consumer choice, we ask that the per-OEM cap be removed, with a sunset date set for a time when the EV market is more mature," the letter also signed by representatives of GM, Ford and Stellantis said. "Eliminating the cap will incentivize consumer adoption of future electrified options and provide much-needed certainty to our customers and domestic workforce."

While the expiring credits mean customers will likely pay more out of pocket for pure electric and plug-in hybrid cars, that has not proved universally true. GM recently announced a significant price cut on the 2023 Chevy Bolt, and those who were interested in Toyota's new bZ4X electric crossover can still take advantage of the federal credit by visiting Subaru, which sells the same car as the Solterra — its first EV for the American market.