Will Toyota’s solid state battery win bring the magic back?

According to Refinitiv, 17 analyst “buy” ratings blew the Toyota shares in this week’s rally.

It’s hard to believe that a century old leviathan, whose sales for pure battery-electric vehicles in 2022 were only 1.8% of Tesla, and whose global bestseller, the Corolla, was outsold by Elon Musk’s Model Y during the first quarter 2023, has done so.

The Japanese company was accused of entering into the global EV race reluctantly and half-heartedly. The bZ4X, its flagship EV model, was given a code name that was a door entry code and recalled soon after launch due to real concerns about the wheels falling off.

Toyota announced last month that it had achieved a breakthrough in “solid state”, a technology that, in theory, could allow for lighter, faster-charging, and more powerful batteries.

Toyota stated that the durability problems of the past had been resolved with various caveats. The company acknowledged the challenge but believes it will be able mass-produce, commercialise, and install a solid state battery in a car as early as 2027. But success is not guaranteed. Toyota’s chief technology officer, who said that the company didn’t see solid-state battery technology as the ultimate solution for the company, does not sound psychologically committed to this technology.

Markets often ignore these details. For many investors, however, the possibility of Toyota having pulled ahead of its rivals in a great tech race of the past raises awkward questions for those that had written off Japan’s power of innovation in general and Toyota’s in particular. Who would miss the chance to see Japan’s largest company in possession of a battery that can propel a car for 1,200km after a 10-minute charge?

CLSA autos analyst Christopher Richter says that this is just a part of Toyota’s renewed glow. Toyota also announced the rollout dates for four additional battery technologies.

Certains have felt desperation. The tech announcements were intended to convey two messages: First, that Toyota was now genuinely committed to EVs, and second, in a world in which many EV makers are reliant upon others to develop and commoditise battery technology, Toyota has a magic differentiator in that it is able to do this in-house. Both messages could use a good kick to the tyres. Toyota’s ability to make technological advances is not enough for long-term trust.

The challenge is framing this issue in a manner that accurately measures success against ambition. Toyota is the number one automaker in the world, both by production and by sales. Toyota is no longer the world’s number one automaker, due to the rapid changes in the automotive industry and the success of Tesla and, perhaps, China’s BYD.

The company has suffered a heavy psychological blow. It has dominated the combustion engine industry for decades. Newcomers are few, and its advantages as an incumbent are large. Toyota was aware that the world is moving towards EVs, and the market wants it to do so. However, they were unwilling to compete in a field where there are few barriers for new entrants.

Toyota’s announcement that it will compete in the EV market is a clear indication that it deserves reevaluation. Not least, because a company with such deep pockets and resilience as Toyota thrives when it is faced with calamities. Instead of focusing on solid-state batteries we should ask three questions.

First, is it possible to quickly and completely transmit the cultural changes that have been declared at Toyota’s top? Second, is it really necessary to say: Kaizen? The Toyota-perfected method of small continuous improvements got the company so far. It may not be a good formula in this time of great disruption, but who’s to say that the magic won’t return when EVs become the dominant form of life?

Third, has the rapid rise of streamlined players such as Tesla blinded the markets to Toyota’s global range and complexity? The shift to EVs may have flattered the Tesla proposition that a small handful of models and a cars-are-just-iPhones-on-wheels attitude is right: in 10 years, the market may decide otherwise.