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Business News/ Opinion / Online-views/  Toyota might be losing the future to bigger R&D spenders
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Toyota might be losing the future to bigger R&D spenders

The radical technological advances that are reshaping the global car industry threaten to leave behind any automakers that are not prepared for the changes

Toyota is still a mammoth innovator, it’s got a $1 billion Google-style skunkworks to develop autonomous cars, the world’s best-selling new-energy vehicle in the form of the Prius, plus the Mirai hydrogen fuel-cell car. Photo: APPremium
Toyota is still a mammoth innovator, it’s got a $1 billion Google-style skunkworks to develop autonomous cars, the world’s best-selling new-energy vehicle in the form of the Prius, plus the Mirai hydrogen fuel-cell car. Photo: AP

Sydney: Ensuring a smooth ride is all very well, but drivers need to be thinking about their destination if they hope to get anywhere. That’s a lesson Toyota Motor Corp. needs to learn before its rivals start to overtake.

Shares of the world’s biggest carmaker fell the most in three months on Tuesday after third-quarter results released after the previous day’s close.

The biggest worry in those numbers shouldn’t be the yen: While currency effects hacked 205 billion yen ($1.8 billion) off third-quarter operating profit, the sharp reversal in the Japanese currency after the US election means foreign exchange will provide all of the 150 billion-yen improvement in Toyota’s full-year forecast. The deeper problem for shareholders is Toyota’s curiously pessimistic assessment of the future.

ALSO READ: Honda cites growing electric car demand for Hitachi venture

A look at the front page of Toyota’s investor presentation illustrates the problem:

The cover stars are the latest iterations of the Toyota Camry—a vehicle first introduced in 1982—and the Camry Hybrid, a decade-old line based on the hybrid technology that Toyota first rolled out when the original Prius models went on sale 20 years ago. Even President Akio Toyoda couldn’t help making a joke out of calling the Camry “sexy" in a speech to the Detroit motor show last month.

Compare this with Daimler AG, which led its investor presentation the previous week with an image of the Tron-styled grille of its EQ electric concept vehicle:

If you think pretty pictures don’t give much useful information to investors, you might want to dig through the numbers, too.

Toyota’s forecast research and development spending in the year through March is unchanged from the previous quarter at 1.07 trillion yen. With Daimler upgrading its own plans, that’s now just a sliver ahead of the average 8.1 billion euros ($8.8 billion) the German company has committed to spending this calendar year and next.

There’s a very real chance that Daimler—which makes less than one passenger car for every four coming off Toyota’s production lines—could soon be spending more on developing the next generation of automobiles.

The fall in the yen under Abenomics has helped turn Toyota’s slowing pace of R&D investment into an outright decline in dollar terms, but it’s not sufficient to explain the weakness. After all, 10 of Toyota’s 15 design and research centers are outside Japan. Among the 10 carmakers that turn out more than 3 million vehicles a year, its R&D as a percentage of sales is well below the average.

ALSO READ: Toyota raises full-year profit outlook on weaker yen, cost cutting

This spending matters because the radical technological advances that are starting to reshape the global car industry, from battery electric vehicles, to self-driving technology and shared ownership, threaten to leave behind any automakers that aren’t prepared for the way the world is changing.

Toyota is still a mammoth innovator, just behind Apple Inc. as one of the top 10 R&D investors globally, according to data compiled by Bloomberg. It’s got a $1 billion Google-style skunkworks to develop autonomous cars, the world’s best-selling new-energy vehicle in the form of the Prius, plus the Mirai hydrogen fuel-cell car.

Still, its deals with oil companies to push hydrogen technology have a distinctly Betamax feel to them at a time when the rest of the industry is making leaps and bounds with battery electric technology.

In 2015, Toyota was the only one of the world’s top five global automotive manufacturers not to also be one of the top 10 electric vehicle manufacturers. Just three months ago, it finally appeared to admit it had backed the wrong horse, conceding it may have to start mass production of battery electric vehicles after all.

Perhaps the sort of visions of the future promulgated by Volkswagen AG, Daimler and Ford Motor Co. are unrealistic. If Toyota was intoxicated decades ago from the white heat of technology rather than making reliable, affordable and profitable cars, it would probably never have got where it is today. R&D is notorious for burning piles of money on moonshot projects that fail to produce any return on investment.

Gadfly has often shared Toyota’s somewhat dubious view of those developments, particularly in car-sharing and autonomous vehicles—but guiding a business is a lot harder than writing opinion columns, and carries a lot more responsibility. Toyota needs to boost innovation, if only as an insurance policy. Too much skepticism about the future risks looking like insouciance. Bloomberg

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Published: 07 Feb 2017, 05:01 PM IST
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