With seven million deaths worldwide, every year attributed to air pollution, and transport accounting for 20% of global CO2 emissions, the need for modes of transport with low or no CO2 emissions is paramount if we want to achieve climate stability and healthier societies. Electricvehicles can lower emissions, but not all manufacturers are considered sufficiently sustainable for investment by Triodos IM. It might surprise you to learn that Toyota has the leading edge and that Tesla has a way to go to catch up. We spoke with Caithlin Marugg, Investment Analyst, to find out why.
Toyota gets the green light
With the early introduction of the Prius model in 1997, Toyota was way ahead of its competition. Since then it has sold more than 15 million hybrid vehicles and has continued to innovate and evolve. It currently offers 36 electrified vehicle models in 90 countries around the world, and within the next five years, it wants to launch 40 new or updated vehicles. According to the European Environmental Agency, the new vehicle CO2 emissions of Toyota are the lowest in Europe.
Marugg tells that Toyota is far better-positioned than Tesla to meet the Triodos-IM transition themed investment strategy requirements. Amongst other things, key strengths relate to its:
- positive, open and responsive engagement;
- challenging zero emission targets for new vehicles, life cycle and plant;
- production adaptability;
- product differentiation strategy;
- embedded continuous improvement; and
- vehicle end-of-life goals that incorporate circular economy principles.
Toyota also has extensive research on core electrification technologies and notably deliberately skipped the current generation of ion-lithium batteries and has put all of its efforts into next generation solid state batteries, which have better performance and require substantially less rare earth metals and chemicals.
“Toyota not only has a strong track record and reputation for reliability, safety and low cost of ownership, it is a global leader in electrified engine technology and battery development. Its manufacturing platforms can be readily transformed to produce other types of electrified vehicles, and it has the scale to develop, invest in and roll out new types of vehicles and technologies,” says Marugg.
“Triodos does not only look for pure play sustainability companies that are innovative in a niche but also looks for companies that are transitioning to a more sustainable future. There is significant value in companies that have scale and that can adapt their existing systems,” says Marugg.
Toyota’s management strategy is underpinned by innovation, evolution, and teamwork. This approach has kept Toyota in their leading position for a long time and “is a strong point of difference between Tesla and the way the two companies work,” says Marugg.
So why not Tesla?
It’s not all bad news for Tesla. It has sold around 800,000 vehicles to date, including its sleek Model 3, the best-selling plug in model in the world. The company’s mission and products are fully in line with Triodos-IM’s vision, growth prospects are excellent, and it has helped bring electric vehicles to mainstream markets. As a smaller company it can also be more disruptive in the way it operates.
However, there were several areas of concern that translated into a decision to not invest in Tesla: “The major concerns with Tesla relate to governance issues,” says Marugg. “In 2018 its CEO, Elon Musk, received stock options worth $2.3 billion, creating a massive liability risk and limiting smaller shareholder power. By comparison, Toyota’s CEO Akio Toyoda earns around $1.8 million. There were also allegations from the US Securities Exchange Commission that Musk shared non-public information via social media, which influenced the company’s stock price.”
Raising more red flags, Triodos-IM research also uncovered that Tesla intimidated and threatened employees to prevent unionisation in the US. The company is also accused of having poor working conditions in its car factories and forcing its employees to work long hours, leading to health and safety issues. Furthermore, the company failed to prevent child labour in its supply chain for cobalt sourcing in Congo. At the time of the analysis, Tesla had difficulties ramping up production. Attempts were made to engage with Tesla on several issues, but dialogue was strenuous as it mainly highlighted the positive impact of its products.
“It is not only important for a company to have a sustainable product, but to also have a sustainable production processes, working conditions and supply chains” says Marugg.
Stock price considerations
Looking at stock prices, Toyota again came out on top: “Right now we are seeing that Tesla’s stock price is going through the roof, but we really believe that what we pay for shares should be balanced against company earnings. In Toyota’s case it’s fair, but in Tesla’s case, we think that the stock is significantly over-valued. Tesla is treated like a tech company, but it is mainly an automotive company and it has some fierce competition. This is not reflected in the price,” says Marugg.
The trends continue towards low-emission vehicles, intelligent cars, autonomous driving, and car sharing. Technologies are also heavily under development, and hydrogen vehicles are expected to become even more attractive due to their zero emissions, long-term storage capacity, and pricing improvements.
Twenty years ago, electric vehicles were really a niche market, but now they are becoming more and more mainstream. There’s a big push from European governments too. In Europe, between 2019-2021 car manufacturers are required to reduce the average emissions of their new fleet by around 29%.
“There are so many changes in technologies, exciting changes in hydrogen and battery driven cars, and plug-ins, not to mention automated driverless vehicles and connected vehicles. These are very important trends for the coming decades, and it’s going to be really interesting to see how it evolves,” says Marugg.
Toyota Motor is a Japanese, global car company that designs, manufactures, assembles and sells passenger cars, mini vehicles and commercial vehicles. It contributes to our investable sustainable transition theme of Sustainable Mobility and Infrastructure. The company sells Toyota passenger cars, Lexus luxury cars, Daihatsu mini vehicles and Hino trucks. The company manufactures and sells over 10 million vehicles per year in every region of the world, and has a strong reputation for safety, reliability and low maintenance costs. Toyota is also famous for its ' kaizen' cost control and efficiency improvement philosophy.
Toyota Motor contributes to Sustainable Development Goals:
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