In the European and American markets, hybrids dominate, Toyota bets on small engines

Despite the rapid development of the global electric vehicle market, Toyota Motor Corporation remains firmly committed to small, efficient internal combustion engines and hybrid technology.

Toyota showcased a brand-new 1.5-liter inline-four engine in Tokyo, demonstrating its innovative achievements in small, efficient internal combustion engines. This engine features a short piston design that significantly improves fuel efficiency when used in combination with a battery pack. The engine is not only compatible with gasoline and diesel, but also adaptable to carbon-neutral fuels such as hydrogen and e-fuels.

Despite the rapid expansion of the electric vehicle market, Toyota continues to have confidence in the future of hybrid and internal combustion engines. Toyota's Chairman, Akio Toyoda, emphasized the importance of internal combustion engines at an event earlier this year, stating:

We will continue to keep the flame of the engine burning, and will not let all previous efforts go to waste.

However, industry experts have differing opinions on this strategy. Some analysts believe that Toyota may be underestimating the scale and speed of electrification transformation, especially with the strong rise of new energy vehicles globally, which are increasingly capturing more market share.

Currently, Toyota's hybrid strategy continues to be effective. As the growth of the global electric vehicle market slows down, hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs) are performing well in the European and American markets. Goldman Sachs analysts point out that while the growth rate of electric vehicle sales is declining, sales of hybrid vehicles will accelerate, especially in Europe and the United States.

This provides Toyota with the space to continue investing in hybrid technology. In the third quarter of 2023, Toyota saw sales growth driven by its hybrid technology, with hybrid vehicle sales soaring by 46% and net profit increasing by 86% year-on-year. Among them, the largest market for Toyota, North America, saw a strong growth in sales, with a surge of 28%.

Analysts note that hybrid models have relatively high profit margins, which is one of the reasons why Toyota and other automakers such as Stellantis and Ford continue to focus on this market. Previously, Goldman Sachs analysts pointed out that considering factors such as range, infrastructure development, and total ownership costs, hybrid vehicle sales will accelerate. The reasons for the expected continued slowdown in electric vehicle sales are threefold: 1) the second-hand car market tends to stay away from new energy vehicles, with relatively low residual value; 2) government uncertainties regarding policies for new energy vehicles; 3) shortage of fast charging stations.

We believe that the choice of hybrid vehicles may not only be due to their economic viability. In fact, hybrid vehicles have demonstrated higher horsepower performance than gasoline vehicles. The acceleration performance brought by the electric motor assistance provides drivers with driving pleasure, especially with the trend towards downsizing of internal combustion engines, this advantage becomes more prominent