Toyota partners with Suzuki, doubles its hybrid stakes in India

Toyota is revamping its strategy for India, doubling down on the condition that emerging markets will learn to love its hybrids, as long as the price is right.

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Known for its pioneering Prius, the Japanese carmaker has struggled to sell a large number of its hybrid Camry sedans since its Indian debut in 2013, partly due to a middle-class family earning more than eight times the annual income. Because of the sticker price.

This time around, Toyota is determined to do it differently with low-cost hybrids, four company and industry executives and suppliers said, which have provided previously unreported details about the carmaker’s sourcing, production and pricing strategy. did.

At the heart of the strategy is a drive to cut the cost of full hybrid powertrains built in India, where the automaker’s factories are running well below capacity, and are the major material sources within the country.

Toyota is also collaborating with motor partner Suzuki Motor. Majority owner of India’s largest car maker Maruti, To benefit from its low-cost engineering know-how and mild hybrid technology.

“The hybrid bet marks 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 run on electric power for the stretch while mild hybrid technology only complements the combustion engine to help cut emissions. However, the mild hybrid has a smaller battery and costs much less.

Toyota’s Indian strategy is at odds with global rivals Volkswagen, General Motors and India’s Tata Motors, which are racing to roll out pure electric vehicles (EVs), and criticism from investors for sticking with fossil-fuel hybrids. have to face.

Hybrids are generally cheaper than EVs as they usually have smaller batteries and are not dependent on charging stations, a key factor in markets like India where customers are price sensitive and the charging infrastructure can be poor.

Toyota declined to share details about cost savings, future product launches, car pricing strategies or production plans for full or mild hybrid models in India.

The world’s largest automaker told Reuters it wants first-time buyers in India to have full hybrids as a first step towards mass electrification, and that it will increase local sourcing and production to be competitive. Will continue

learn to love gentle

Toyota’s first new hybrid urban cruiser to hit India’s roads will be the Haider, a compact sports-utility vehicle (SUV) that is likely to cost around $25,000, two people with knowledge of the plans said. – Less than half the price of the Camry.

It will pit it against the popular midsize combustion-engine SUVs made by Hyundai Motor and Kia Motor in the fast-growing segment, which make up 18% of car sales in India, the world’s fourth-largest auto market.

However, the full hybrid header will be 31% more fuel efficient than the Hyundai and Kia diesel models, offering 28 km/l (65 mph) of economy, a key metric for Indian buyers.

To reduce costs, the Haider, which will be sold by Toyota and Suzuki, 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 lower-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 United States.

“The high-cost complexity of the hybrid is difficult to overcome, but it’s a good start,” said the Toyota source, who was not involved in Haider’s development.

The savings have also come from working with Suzuki to design and develop the SUV, as well as leveraging scale and pricing power with Maruti’s suppliers, which made it eight of the 10 best-sellers in India in 2021. model produced.

Still, there is a $3,400 difference between Toyota’s full hybrid and its comparable gasoline car in India, another source said, more than the typical difference of about $2,000 for Toyota in most countries.

To boost sales in India’s price-sensitive market, Toyota will also sell hirers with Suzuki-supplied mild hybrid powertrains, a significant departure for Toyota, which has long favored full hybrids.

People familiar with Toyota’s plan said the change is a recognition that Toyota has been unable to bring down the cost of full hybrids to the point where they can always compete on price in markets like India.

It also shows how Toyota is changing its strategy for different markets depending on what buyers are willing and willing to pay.

“As we reduce prices … we expect to increase our numbers as well as our market share,” Vikram Kirloskar, vice chairman of the Japanese company’s Indian arm Toyota Kirloskar Motor, 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 Bidadik

Another factor affecting the price of Haider is taxation. India levies a 43% tax on hybrids – the equivalent of a gasoline or diesel SUV and far higher than the 5% tax on EVs.

Sources said Toyota is lobbying to reduce taxes. The company said it wants New Delhi to support, including taxation, all green technologies that help India achieve its goal of reducing fossil fuel and carbon emissions.

So far, the government has shown no interest in extending its financial support beyond EVs.

Creating hybrid powertrains in India aligns Toyota with Prime Minister Narendra Modi’s campaign to promote local manufacturing, especially at a time when major car companies such as Ford Motor have left the country.

It also comes as India tightens fuel efficiency and emissions targets for carmakers. Selling the hybrid will help Toyota meet their regulatory requirements because the credits they earn will go toward offsetting the production of fossil-fuel vehicles.

At the Toyota Kirloskar Auto Parts factory in Bidadi, an industrial town near Bengaluru in southern India, the Japanese automaker’s new India strategy is already in motion.

A joint venture between Toyota, its parts partner Aisin Seki Company and India’s Kirloskar Systems, the plant is manufacturing the e-drives for the Toyota Hybrid System.

The e-drive ensures seamless switching between the engine and the electric motor, and shifting manufacturing to India, one of the four key components of the hybrid system, is a major step.

Toyota sees the Bidadi factory as a starting point for building a local supply chain for the EVs it will eventually bring to India.

“We now have core technology, be it electric vehicles or hybrids,” said Mr. Kirloskar.

‘It’s a huge bet’

The plant can make 135,000 e-drives a year on a single assembly line and increase it to more than 400,000 by adding two more.

Two sources said that about 55% of the raw material by value for the e-drive comes from India. Capital equipment, such as tools and dies, are also made there, although rare earth magnets for motors and some other components are imported.

A source said the cost savings on the Made-in-India e-drives are expected to be in “double digits” in percentage terms as compared to imported systems.

Toyota will export them back to Japan, along with hybrid cars manufactured there, to countries in Southeast Asia.

“India is one of the lowest cost destinations for these parts. We are competitive on this,” Mr. Kirloskar said, adding that he expects around 40% to 50% of exports, though it will be based on local demand. But can change.

Of the three other main hybrid components, Toyota already manufactures the engine in India, but the 1.8 kilowatt-hour (kWh) lithium-ion battery and power control units will be imported for now.

Toyota is manufacturing the Hyryder at its under-used and revamped plant in Bidadi, which has an annual capacity of 200,000 cars.

Over 50% of Hyder’s pre-orders are for the full hybrid, though those aware of Toyota’s production plans say it could settle at 30% to 40% with the cheaper, milder hybrid becoming more popular in India. Where most of the cars are sold at a low price. $15,000.

A person familiar with Toyota’s plans said, “Once the numbers go up, costs will come down to a point where hybrids will become mainstream. This will prepare the ground for an eventual switch to fully electric or fuel cell vehicles.” “

“It’s a huge bet but we know electrification is the future.”