How Toyota Squandered its Lead in Electric Vehicles and How it Can Get It’s Mojo Back

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Or “how the leader in electric cars (Toyota) lost their way”

Toyota 1 year stock price
Toyota’s 1 year stock price chart. Not giving the people what they want

The time was 1996 and I was walking down the tree lined street Omotesando dori in Tokyo. A Japanese friend called me to pick me up. He had somehow managed to get a Toyota Prius before it was launched and wanted to give me a ride. His nickname was Ryder after some movie character in Japan. Anyway, I was blown away that he had managed to get a hold of this mythical auto. Half electric half gas.

Back then, Japanese economy was still riding high. And memories of Japanese innovation were still fresh. Everyone knew the story of Akio Morita and how he wanted to listen to music while he played tennis and ordered his engineers to make something for him: the walkman. And Japan was still chafing from being called a “copycat” of American and European products. So Japanese inventions were very welcome.

He pulled up to the curb and I got in. It was eerie because the car made absolutely no sound. Like a golf cart. Very strange indeed. I was somehow waiting for it to run out of battery or breakdown but we had a very nice drive that Sunday evening. As we crossed the Rainbow bridge and looked back at Tokyo, I felt like a new era had dawned. The era of electric cars. Something like the Jetsons but more down to earth.

After that, when the car was released to the public the next year I started to see Prius’s everywhere. Most of my friends had one. Surfers all. We would ride to China to surf and the cars were so roomy, we could fit a couple boards in the cars: And our weekend surf trip gas costs went way down. No doubt about it, the Prius was revolutionary.

Not only did the thing get insane mileage. It was cool. And, defying all the predictions, was reliable as an old shoe. Right from the beginning. I don’t think people appreciate the incredible risk and achievement the Prius represents. This wasn’t some kids toy. This was a real car using a battery. Unheard of! What happens when it loses ability to recharge? Won’t that brick the entire car?

I was in the US recently and was shocked to learn a couple of things. One, in California the Prius has political overtones. If you have one you are en environmentalist apparently. And you like Obama. These shocked me as in Japan, it’s just a nice, reasonable, reliable car. No stigma attached. It amazes me how Americans can drag politics into cars.

I was in Silicon Valley recently and bumped into a Toyota mechanic that worked on Prius’s. I wanted to know what happens when the battery gets old. How do most people handle it. How much does it cost to replace.

He looked at me strangely and said, “I’m not sure. I’ve never replaced one. My mind melted. Here was an expert on fixing Prius’s tell me he didn’t have to replace batteries. In 2015, 20 years after the damn thing debuted and had never replaced a battery on a Prius. Talk about quality! Toyota should get a Nobel prize of something. I’m sure someone somewhere had to but suffice to say that the Prius is well built. It’s been said that ISIS vehicle of choice in Iraq is a Toyota 4×4 but I think they’re out of their minds. I’d get a Prius.

Anyway, despite leading the field, being the worlds largest car company, having an insane amount of consumer data, preferences showing consumers want an electric car, why hasn’t Toyota made one?

engineerThe answer is engineers. Japan’s biggest asset and biggest threat is engineers. Allow me to explain. I once worked for Chiyoda Chemical in Kawasaki, Japan. And I worked with engineers. Lots of engineers. And these guys were smart. Smart as the day is long. And cool guys too. They worked all over the world. (my dad is an engineer too so I know a thing or two about these guys) Anyway, engineers are a particular breed. By and large, there are not fond of salesmen who they consider to be unnecessary. I mean the thing is good, you can see that. What’s the point in having a guy tell you that? They look at the world and see a mass of uneducated people using “gifts” made by engineers.

If engineers didn’t exist, dams would collapse, buildings would collapse, cities would collapse upon themselves. But because there are engineers, these things work. So the average knucklehead can just get on his Suzuki scooter and drive 50,000 miles without changing oil. Even though the manual says to change every 5 meters. But the average guy pays no heed because he knows that the bike can handle much more abuse than it says in the manual.(hint that’s me we’re talking about here). Because of the engineers hard work.

So if engineers are so good in Japan, how could they possibly have ruined Toyota’s lead in the industry? And while we are on the subject, how did Apple destroy the Japanese cell phone industry? How how did the Koreans and Chinese get a large share of the electronics market? And air conditioners? And microwaves and on and on. In a nutshell, why is Japanese industry losing market share year after year.?

remoteThis is the part where you have to do something. Physical. OK, stand up. Walk around your house. Look for Japanese electronics and remote controls. Do it now. Got them?  Do you know how to use it? Or is it a confusing mess of tiny buttons with no discernible function? Are you deathly afraid of somehow pressing the wrong button and messing up your perfect setting? Do you have a sinking feeling if you ever accidentally lean on it, maybe after a beer or two, and hear the ominous…beep. The beep means you need to get a sledgehammer and smash it to bits and give yourself 50 wet spaghetti noodle lashes. Why is this the case? Because engineers made that remote.

An engineer would look at your incorrect settings, play with it for a few seconds and whala! The thing works like normal and how has green tea aroma air. Because that’s apparently a setting inside the complicated monster. You see. Engineers run Japan and they like it that way.

So here’s how it all ties in together. Engineers think they know better than you. They make stuff. You use it. And should be happy about it.  Why can’t you use the remote? What’s wrong with you? That is Japanese companies opinion. I lived there forever and can tell you with assurance. And it hurts Japan in ways they can’t imagine.

Back to Chiyoda in Kawasaki in 1996, Chiyoda was an amazing company. They had it all. The best engineering. The deepest knowledge. Vast experience building power plants and large projects all over the world. It really was a pleasure to know those guys and gals and I’m better for it. But Chiyoda had one major problem and it relates to Toyota and the Prius. The problem was a Sales and Marketing division. They didn’t have one.

Their competitors Bechtel (again my brother and dad worked there) and Flour got all the good projects. They were inferior to Chiyoda in knowledge. In skill. In my opinion, Chiyoda and Mitsubishi were far and away the better engineering firms back then. If you wanted a huge waterway through Libya, call Chiyoda. But they sucked at sales. Hopeless.

When the Chiyoda team lost a sale, the team would say, over a few sake and chuhai, “well their engineering team is not nearly as good as us so they’ll come back. Once they realize how complex it is. and on and on. But the clients didn’t come back.

It sounded like the rationalization of man who just lost his girlfriend. She’ll realize I’m the better man. She’ll come back once she realizes all I did for her. How much I love her and so on. Except she never does come back.  The clients didn’t either and Chiyoda is a shell of it’s former self.

Here’s where the rubber meets the road. Toyota is essential to the Japanese economy. The network of suppliers. The group companies. Toyota employs something like  99% of the population in Japan. (just kidding but it’s essential to both business and confidence in Japan.I’m exaggerating the numbers but not the essence. If Toyota falls, Japan will implode. “At least we have Toyota….”

Japanese people have watched Samsung grow from almost nothing to be bigger than all the Japanese electronics companies combined; they watched Renault buy Nissan; Hon Hai/Foxconn bought Sharp: But these are all bit players compared to Toyota. Toyota is the big daddy in Japan. Many hate it because they squeeze their suppliers worse than a pit bulls chew toy but they all respect it. The Japanese spirit. Toyota is like a hinoki beam at a Japanese temple to the economy.

Toyota is run by engineers in Japan at least. Luckily they were forced to setup US operations during the anti-Japan protests in the 80’s. (when I moved to Asia)  Toyota is a rare company that really is efficient to the core and that’s because of the Japanese engineering side. And Toyota cars are getting more stylist and better at marketing, that’s the foreign side. I know it’s complicated and Japanese have caught on blah blah blah but this is an essential truth. Most large Japanese companies that don’t have foreign operations are Zombie Companies. They had new blood, new thinking, different ways of looking at things, they were forced to adapt, kicking and screaming to the digital age. To change. This was their saving grace. Toyota has this. They just don’t seem to have enough…

Back to the Prius: Gotta give them credit, Toyota engineers did the impossible. Essentially they made a Chevy Volt (dual gas, electric) back in the stone ages. And it’s so good that every Uber driver in Silicon Valley is required to use on or they will be shot by a lazer from space. Well maybe not that bad but the things are so reliable and impossible to destroy, they take over like a virus. And we are talking about a very complicated car. Gas is too complicated as we are learning looking at what Mr. Musk is getting up to. Electric cars are simpler, have less moving parts, less heat loss and are much more reliable.

So why in the hell doesn’t Toyota have an electric car?  I’ll tell you what I think but you can probably already guess. Engineers think fuel cells are better. Engineers like fuel cells. They are complicated. Hydrogen blows up. Designing a fuel cell (hydrogen) car is like making a dress for a rhinoceros. It’s challenging. The whole thing looks like a can of beans with botulism. Or to give an attractive example, like a kimono.

Have you ever tried to take one off a lover? It’s like unwrapping a ball of string the size of Yankee stadium. I felt like I was on candid camera. Like someone should pop out and congratulate me for doing it. I was exhausted. But enough about kimono’s and undressing. On second thought, while we are on the topic, she looked lovely and I couldn’t’ understand why they wrapped her up like a full body zombie, tourniquet.

So Toyota hasn’t made an electric car for the same reason your remote control on your television still is impossible to use. In the old days, Japan was so far ahead of the rest of the world that we consumers would just bite the bullet, admit it’s our fault, and try to get the damn heater back on. But when Apple started offering apps that work with Korean air conditioners and were exceedingly simple and intuitive, we made the switch.

Although I cannot see it myself, thinking back to those awesome engineers at Chiyoda I bet they are right. Maybe fuel cells would be better in a perfect world. But this isn’t that. It’s the real world. Tesla just took orders for more preorder cars that anyone could have predicted. The consumers have spoken. And they want electric.

I know some of you are saying, “electric cars pollute too! oil, coal, nuclear are used to make electricity!” With a wide grin. But guess what? Consumers don’t care. They didn’t buy the Prius to save the environment. The bought for a number of all too human reasons.

Consumers originally bought Prius’s to look cool. To have street cred as an eco warrior. Toyota didn’t realize this an accidentally made one model without the “hybrid” badge and guess what? No one wanted them. So they put it back. Consumers are fickle. Even they can’t tell you what they want. (see Steve Jobs entire life) but it’s your job as a business person to find out.

Me too. I’m illogical and emotional when it comes to buying things. I make up all kinds of logical excuses to convince myself but at the core, it’s a gut emotional decision. I’m foaming at the mouth to get a Tesla Model 3. I also will buy the new Macbook.. because I heard it will be the first redesign on 8 years and I want to look cool sitting in Starbucks spilling coffee all over my pants.

Not only do consumers want electric + battery, they think it’s the future. It doesn’t matter what anyone thinks. If consumers think that, it will happen. Damn the torpedos They will buy them.

But it’s worse than that Toyota. Consumers don’t want dangerous exploding canisters in their car. Even if engineers think they are pretty safe. They don’t want trucks driving around their neighborhoods full of hydrogen. Then don’t want highly explosive filling stations next to their home or office.

Think about it this way. They are divorcing their first husband (gasoline) and want a new one that doesn’t have the slightest resemblence to the old one.(electric).  So fuel cells, with their explosive, smelly, dangerous fuel is too similar. They don’t want a “new fuel”, they don’t want “clean diesel” they don’t want another fuel that will run out in our future. They don’t want smelly stuff either.

They certainly don’t want poorly guarded, highly explosive hydrogen trucks roaming the countryside which will be the supply chain for hydrogen. They don’t want fossil fuels. (95% of hydrogen is produced using fossil fuel and coal). ATTN investors, auto producers. When people make a change they often go extreme and hydrogen is just too damn much like gasoline.

charger
This is what consumers want

They want simple. They want new. They want the future and not the past. They want a simple cute plug to go in their car. That’s it.

Stop listening to your engineers and start listening to the exciting future that will be, for better or worse, the future.

Footnote. I sincerely hope Toyota gets the message before they blow through their $20 billion cash.

Any questions or comments please email me at [email protected] I appreciate you reading to the end and would love to hear from you 🙂 Have a good one!

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