For Toyota, electric cars will not become cheaper any time soon; for Brazil ethanol is the option

RIO DE JANEIRO, BRAZIL – COP26, the UN climate conference, was entering its decisive phase in the second week of November when a series of automakers and countries grandiosely decreed the death of the combustion car.

With the support of the European Union, Ford, Mercedes-Benz, GM, and Volvo declare that they will cease production of this type of engine in 2040, a fatal blow for lovers of the rumbling V6.

The European market is significant for the automotive industry, and it seems that soon only electric cars will be driving on the continent.

However, Germany, China, the United States, Japan, and India have not signed the commitment, nor have Renault-Nissan-Mitsubishi, Toyota, and Volkswagen (the latter two are the most prominent manufacturers globally).

This is a clear indication that the car manufacturers pay homage to the hype but then take off their rose-colored glasses again in day-to-day business and pursue realpolitik. Europe is not the world.

The divergence is partly related to geography. “We tried to grow sugarcane in Japan, but productivity was low,” says Masahiro Inoue, Toyota’s CEO for Latin America and the Caribbean. “There is a strip of latitude where it is possible to produce ethanol on a large scale that mainly covers Brazil, India, and part of Africa.”

In those regions, doing away with the combustion engine might not be wise, in the executive’s view. “For Brazil, carbon-neutral is ethanol. There is no need to abandon the technology,” says Masahiro.

Combustion engines, especially the so-called flex-fuel, which accept both gasoline and ethanol, should be part of Toyota’s portfolio for a long time. Masahiro doesn’t see the price of electric cars coming down anytime soon, not even in 20 or 30 years.

“The electric car only sells in the luxury segment,” says the CEO. “We will have battery vehicles, but we will focus on Lexxus.” The brand, in this case, is a competitor to the more luxurious Mercedes and BMW lines.

This position by Toyota may seem conservative. In Europe, however, the automaker was surprised by committing to sell only zero-emission cars by 2035, five years before the end of the combustion engine proposed by competitors. This does not mean selling only electric vehicles, but it is unlikely that European consumers will accept anything different.

By September of this year, more than 800,000 electric vehicles were registered in Europe, almost double the number registered in 2020. There is strong European resistance to fossil fuels, especially after the Volkswagen scandal, which was caught cheating on emissions data for its diesel vehicles.

HYBRID SINCE 1998

A good part of Toyota’s strategy is its history of developing hybrid engines, which unite combustion and battery. The Prius, the great exponent of the model, was launched in 1998 in Japan.

This technology, now allied to the flex-fuel engine, is the company’s big bet in the transition to zero-emission mobility. The Corolla line is already sold in Brazil with only flex or hybrid options. The price difference is 5%. “In two years, this higher price will be paid off with fuel savings,” says Masahiro.

Fuel costs, by the way, are a problem for Toyota’s strategy. It is much cheaper to charge the battery of a Renault Zoe. This electric car costs about 200 thousand reais than to fill the tank of a Corolla Cross Hybrid, which costs the same, although it is a much higher category car than the Zoe (Toyota is an SUV and Renault is a compact car).

In the current price range of cars sold in Brazil, the electric one from the French manufacturer needs to cost half of this if it wants to compete with other premium combustion compact cars, such as Hyundai HB20, Volkswagen Polo, Peugeot 208, or Toyota Yaris, all in the 100 thousand reais range.

In any case, if an electric car costs the same as a combustion car, from a financial point of view, it makes little sense to opt for the traditional engine.

For Masahiro, however, the issue goes beyond the law of the competitive market. The executive defends a broader approach to the problem, which considers Brazil’s actions to decarbonize mobility.

“The government needs to reallocate subsidies to cheapen ethanol,” says the CEO. “If all vehicles run on ethanol, carbon neutrality will already be achieved. If we think not just about the car, but about the car and energy, Brazil is the most advanced country in the world.” Electric, hybrid or renewable, one thing all automakers agree on: the future is carbon-free.

With information from Exame Invest