Tesla Earns Five Times More Per Vehicle Than Toyota
Toyota earns just over $1,800 per vehicle sold. Tesla earns over $9,500 per vehicle sold. What is holding Toyota back?
Nikkei Asia has recently reported that Toyota earned less than one fifth as much per vehicle sold compared to Tesla from April to December 2022. That is a shocking difference. What is Tesla doing right, or what is Toyota doing wrong that can explain such a drastic result? Toyota makes a wide range of well-regarded vehicles. They sell well and have a solid reputation. But Toyota makes 240,000 yen in net profit per unit and Tesla nets 1.26 million yen per unit. Even Chinese EV automaker BYD earns about 200,000 yen in net profit per vehicle. Not too far off from Toyota. BYD was founded in 2003, the same year as Tesla. Toyota was founded 66 years earlier in 1937. How can these newer companies earn as much or even much more than Toyota?
We reported a couple weeks ago that Toyota President Akio Toyota was stepping down. One of the main reasons was his reluctance to fully embrace all-electric vehicles. It turns out that reluctance could be costing the company billions of dollars. Toyota’s ‘multi-solution’ strategy that manufactures gasoline vehicles alongside fuel cell and electric vehicles is costly. It has exposed Toyota to drastically rising material costs. Tesla makes only EVs and they are more protected from a costlier environment. From April 2022 to December 2022 Toyota’s raw material costs increased by 1.1 trillion yen compared to the previous year. That is over $8 billion. Tough to earn a profit with costs soaring like that.
Too Many Models
Toyota is the best-selling automaker in the world. They have a total portfolio of about 50 vehicles. They range from regular internal combustion engines to hybrids to EVs. Tesla is much more streamlined with only four models on sale. The large lineup of Toyota vehicles means Toyota relies on roughly 400 different suppliers. And when material costs go up for the supplier, Toyota has been footing most of the bill. When fuel prices rise Toyota ends up paying for 70 to 80 percent of that increase.
Cut Back on Key Fobs
What can Toyota do? First up they need to increase production. In 2023 Toyota plans to sell 10.6 million vehicles under the Toyota and Lexus brand. If they can hit that goal, they would realize a greater economy of scale that would bring their costs down. But the semiconductor shortage is making that seem like a pipe dream. Toyota recently downgraded their 2023 production target to just 9.1 million vehicles. Toyota is looking at ways to produce more vehicles with fewer semiconductors. One way to do this is to provide only one keyless fob with every Lexus instead of two. If that is done, that would free up enough semiconductors to produce approximately 100,000 more vehicles.
Looking Ahead
Toyota is still profitable and sells a lot of vehicles. They are by no means on the brink of bankruptcy or anything of the sort. But they are leaving billions in profits on the table. You might think that is no big deal. Afterall it is not your money. But developing a new vehicle is very expensive. If Toyota makes more money, they can spend more in R&D. The more they spend the more exciting vehicles we get to drive. So, we all win. It will be interesting to watch when Koji Sato takes over Toyota what changes are made. Will that mark the beginning of Toyota finally going all-in on EVs? That seems likely but no matter what, Toyota has a long way to go to increase profits.
Images: Toyota
