BIDADI: Toyota is relaunching its strategy for India, doubling down on the bet that emerging markets will learn to love its hybrids, as long as the price is right.
Renowned for its pioneering Prius, the Japanese automaker has struggled to sell many of its Camry hybrid sedan since its Indian debut in 2013, in part because of a list price of more than eight times the annual revenue of a car. middle class family.
This time, Toyota is determined to do things differently with lower-cost hybrids, said four company and industry executives and suppliers who provided previously unseen details of the sourcing strategy, production and pricing of the car manufacturer.
At the heart of the strategy is a drive to reduce the cost of full hybrid powertrains by manufacturing them in India, where the automaker’s factories are operating well below capacity, and to source key materials from the country.
Toyota Motor is also leveraging its cooperation with partner Suzuki Motor, majority owner of India’s largest automaker Maruti, to benefit from its low-cost engineering know-how and mild-hybrid technology. “The hybrid bet is a turning point.
It will be a litmus test for Toyota’s future and success in India,” a person with direct knowledge of Toyota’s plans told Reuters.
A full hybrid can be driven for periods on electricity, while mild hybrid technology only supplements the combustion engine to help reduce emissions.
However, mild hybrids have smaller batteries and cost much less.
Toyota’s India strategy is at odds with global rivals Volkswagen, General Motors and India’s Tata Motors, which are rushing to roll out pure electric vehicles (EVs), and is coming up against criticism from investors for sticking to hybrids fossil fuels.
Hybrids are generally less expensive than electric vehicles because they generally have smaller batteries and are not dependent on charging stations, important factors in markets like India where customers are price sensitive and the infrastructure of charging may be uneven.
Toyota declined to share details on cost savings, future product launches, car pricing strategies or production plans for full or mild hybrid models in India.
The world’s biggest automaker told Reuters it wants more first-time buyers in India to own full hybrids as a first step towards mass electrification, and will continue to ramp up supply and production premises to be competitive.
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Toyota’s first new hybrid to hit Indian roads will be the Urban Cruiser Hyryder, a compact sports utility vehicle (SUV) that two people familiar with the plan say will cost around $25,000, less than half the price of the Camry.
That would pit it against popular midsize combustion-engine SUVs made by Hyundai Motor and Kia Motor in a fast-growing segment that accounts for 18% of car sales in India, the world’s fourth-largest auto market.
The full hybrid Hyryder, however, will be 31% more fuel efficient than the Hyundai and Kia diesel models, delivering 28 km per liter (65 miles per gallon) of economy, a key metric for Indian buyers.
To bring down the cost of the Hyryder, which will be sold by Toyota and Suzuki, it will use a hybrid system originally developed for subcompact cars, or one size smaller, according to a Toyota engineer familiar with hybrid technology. .
Combining the hybrid system with a low-cost chassis and some of Suzuki’s upper body parts, the end result is an SUV on par or slightly cheaper than the Prius sedan, which starts at $25,000 in the US.
“The high cost of hybrid complexity is hard to overcome, but it’s a good start,” said the Toyota source, who was not involved in the development of the Hyryder.
Savings were also realized by working with Suzuki on the design and development of the SUV, as well as leveraging scale and pricing power with suppliers to Maruti, which produced eight of the 10 best-selling models. in India in 2021.
Even so, there is a $3,400 cost differential between Toyota’s full hybrid and its comparable petrol car in India, another source said, greater than the typical differential of around $2,000 for Toyota in most countries.
To boost sales in the price-sensitive Indian market, Toyota will also sell Hyryders with a mild-hybrid powertrain supplied by Suzuki, a significant departure for Toyota which has long championed full hybrids.
The change is an acknowledgment that Toyota has been unable to reduce the cost of full hybrids to the point where they can still compete on price in markets such as India, people familiar with the planning said. from Toyota. It also shows how Toyota changes its strategy for different markets, depending on what buyers want and are willing to pay.
“As we bring prices down…we hope to increase our numbers as well as our market share,” Vikram Kirloskar, vice president of Toyota Kirloskar Motor, the Japanese company’s Indian unit, told Reuters. Toyota’s next hybrid for India will be a multi-purpose vehicle, or people carrier, expected later this year or early 2023, two sources said.
Building in bidadi
Another factor affecting the price of the Hyryder is taxation. India levies 43% taxes on hybrids – on par with petrol or diesel SUVs and well above the 5% tax on electric vehicles. Toyota is pushing for a tax cut, sources said.
The company said it wants New Delhi to provide support, including fiscal support, for all green technologies that help India meet its goal of reducing fossil fuels and carbon emissions. So far, the government has shown no interest in extending its tax support beyond electric vehicles.
Manufacturing hybrid powertrains in India aligns Toyota with Prime Minister Narendra Modi’s drive to boost local manufacturing, especially at a time when major automakers such as Ford Motor have left the country.
It also comes as India tightens fuel efficiency and emissions targets for automakers.
Selling hybrids will help Toyota meet its regulatory requirements, as the credits they get will be used to offset the production of fossil-fuel vehicles.
At the Toyota Kirloskar Auto Parts factory in Bidadi, an industrial town near Bangalore in southern India, the Japanese automaker’s new Indian strategy is already in motion.
A joint venture between Toyota, its parts subsidiary Aisin Seiki Co and Kirloskar Systems in India, the plant manufactures electric motors for the Toyota hybrid system.
The E-Drive provides seamless switching between engine and electric motor, and moving manufacturing of one of the four key components of the hybrid system to India is a major milestone.
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Toyota sees the Bidadi plant as a starting point for building a local supply chain for the electric vehicles it will eventually bring to India. “We now have the core technology, whether it’s an electric or hybrid vehicle,” Kirloskar said.
“It’s a huge bet”
The factory can manufacture 135,000 E-Drives per year on a single assembly line and could increase that figure to over 400,000 by adding two more.
About 55% of raw materials by value for E-Drives come from India, two sources said. Capital goods, such as tools and dies, are also manufactured there, although rare-earth magnets for motors and some other components are imported.
Cost savings on Indian-made E-Drives are expected to be in the “double digits” in percentage terms over imported systems, a source said.
Toyota will also re-export them to Japan for hybrid cars built there, as well as to Southeast Asian countries. “India is one of the cheapest bases for these coins.
We are competitive on that,” said Kirloskar, adding that he expected around 40-50% to be exported, although that could change depending on local demand.
Of the other three main hybrid components, Toyota already manufactures engines in India, but the 1.8 kilowatt-hour (kWh) lithium-ion batteries and power control units will be imported for the time being.
Toyota manufactures the Hyryder at its underutilized and renovated Bidadi plant, which has an annual capacity of 200,000 cars.
More than 50% of Hyryder pre-orders are for the full hybrid, although people familiar with Toyota’s production plans say that could be 30% to 40% as the cheaper mild hybrid becomes more popular in India – where most cars sell for less than $15,000.
“Once the numbers increase, the cost will reach a point where hybrids become mainstream.
This will lay the groundwork for an eventual shift to fully electric or fuel cell vehicles,” said a person familiar with Toyota’s plans.
“It’s a huge gamble, but we know electrification is the future.”