Toyota has lengthy been criticized for its cautious embrace of electrical autos. However amid slowing demand, tariffs and the phase-out of tax incentives, the world’s largest automaker’s deliberate method seems to be more and more like a wise hedge.
The Japanese automaker reported yesterday (Nov. 5) that it bought 4.78 million autos globally between April and September, up 12 p.c from the identical interval final 12 months. That included 2.27 million hybrid electrical autos, a report excessive. Nonetheless, U.S. tariffs took a toll: working earnings fell by $3.3 billion from a 12 months in the past to $12.5 billion for the fiscal half-year.
Regardless of these geopolitical headwinds, demand for Toyota’s dependable passenger vehicles stays sturdy. CFO Kenta Kon advised buyers the corporate is struggling to maintain up with demand, saying it may well “barely cowl the demand.” In keeping with Kelley Blue E-book, sellers sometimes intention to maintain about 60 days of stock on their heaps. Toyota’s U.S. stock, against this, is hovering round 30 days.
Toyota has lengthy been hesitant to totally decide to battery-electric autos, however the firm is a frontrunner within the hybrid automobile area, touting its extra conservative, balanced method to electrification as the appropriate path ahead. Battery-electric autos are solely a sliver of Toyota’s world combine (simply 1.4 p.c of complete gross sales in 2024). The long-term danger, after all, is that markets like Europe and China, that are racing towards a completely electrical future, may go away Toyota lagging behind.
The corporate’s best-selling mannequin, the RAV4, can be provided solely as a hybrid or plug-in hybrid starting in 2026. Retooling factories for the brand new powertrains would require short-term shutdowns, doubtlessly tightening provide even additional. A slimmer vendor stock may additionally push up automobile costs for U.S. customers in early 2026.
Toyota’s small steps towards software-driven vehicles
The subsequent-generation RAV4 additionally marks one other turning level: it is going to be Toyota’s first software-defined automobile (SDV). Whereas startups like Tesla and Rivian constructed their vehicles round software program from the beginning, Toyota’s transfer represents a significant step into that area. The brand new RAV4 will characteristic Arene, a Woven by Toyota software program platform enabling over-the-air (OTA) updates—an early sign of Toyota’s digital ambitions and a reminder of how far it nonetheless has to go.
In typical Toyota vogue, the rollout is cautious. The 2026 RAV4 will debut options that rivals have provided for years, reminiscent of a smartphone-like cockpit interface, conversational voice instructions and OTA updates. However these updates can be restricted to ADAS methods and cockpit shows, not the deeper automobile capabilities that Tesla, Lucid and others repeatedly tweak by way of software program. The technique underscores Toyota’s effort to meet up with opponents, particularly these in China, which have already made software program a core a part of their autos.
Toyota now finds itself straddling two eras of the auto business: one constructed on mechanical excellence and one other pushed by software program, connectivity and local weather rules. Its hybrid-first technique has cushioned earnings as world EV momentum slows and tariffs rise. However the clock is ticking. If Toyota can lengthen its hybrid playbook into the software-defined, electrified period it’s hinting at with the brand new RAV4, it could retain its crown. If not, the conservative method that after protected it may quickly change into its best legal responsibility.
