Toyota Motor Corporation was founded by Kiichiro Toyoda in 1937 as a spinoff from his father’s company, Toyota Industries, in order to manufacture automobiles.
Almost 78 years later, in 2015, the company has more than 50 factories in over 25 countries and regions and remains the world’s biggest automaker by number of cars sold. The Japanese company sold 10.23 million vehicles in 2014, beating both Volkswagen and General Motors.
But, throughout Toyota’s history everything has not always been perfect. Dark clouds gathered over the company when the expected level of the company’s production vastly decreased after the 2011 tsunami disaster in northeastern Japan. The situation became even worse when Toyota experienced massive recalls, especially in the U.S. After the recalls, President Akio Toyoda had even temporarily halted expansion to focus on quality control, worker training and enhanced efficiency at existing plants.
It seems that Toyota learned its lesson and is ready for further growth. Actually, the recent announcement of an ambitious plan to produce almost only hybrid and fuel cell cars by 2050 might be the herald of a new age for the company.
Let’s take a look at the strengths and weaknesses Toyota has now and how promising its future might be.
Undeniably, Toyota’s biggest advantage is the great quality of its products. Vehicles produced by the company are durable and long-lasting, and the evidence of their reliability is the statistic which states that almost 80% of all Toyotas sold 20 years ago are still on the roads today.
This company’s strength could not have been built without the concept the necessity of constant improvement of the quality of its products and processes, called Kaizen. Toyota surpassed its competitors by insisting on the engagement of all of its employees (rather than only specialists) in the process of improvement. In fact, each employee has the ability to address the problems which occur in factories and even stop production lines in the case of equipment malfunction, quality issues, or late work.
Moreover, the Kaizen philosophy combined with the lean manufacturing standard, which focuses on improving production speed and quality through reduction of waste, allows the company to regularly cut costs and increase expenses on its R&D activities. Every year, Toyota spends over $9 billion on research on future automobile technologies. Nine billion dollars per year means more than one million dollars per hour, which is more than any other company in the world. Needless to say, the results of this vast amount of investments can be observed in the growing number of global patents, which foreshadow more innovation coming from this famous brand.
The company already has already had a major impact on alternatives to the gasoline-powered market by producing other vehicle types including hybrids, pure electrics, and fuel cells. Toyota has outpaced its competitors and other famous brands and has been crowned as the leading Global Green Brand. Last year, the company was ranked number one among Green Brands by the Interbrand Survey.
This dominance began with the Prius campaign in 2004 when Orlando Bloom and half of the celebrities in Hollywood arrived at the Oscars in Toyota Prius cars. This made a very big impact on American society, and since then the importance of hybrid-powered cars has continually increased. When the first Prius hit the road in 1997, it was considered a niche. As of the end of last year, Toyota has sold more than 2 million Prius hybrids in the U.S., which is more than half of the total 3.5m hybrid cars sold in the U.S. alone.
This success is effectively supported by dealerships in 170 countries and more than 50 factories in over 25 countries and regions. This is a solid basis for further expansion in the hybrid car market, as well as a great starting point in the battle for the title of leading company in the world of futuristic cars.
“History repeats itself” - the materialization of this proverb might be the biggest threat for this Japanese company. Toyota overtook GM in 2008 and has held the No 1 position every year except 2011, when a tsunami in northeast Japan disrupted production and allowed GM to retake the lead. During the Japanese earthquake, tsunami and resulting nuclear crisis, Toyota’s operations were affected to the extent that it took over six months before a complete recovery was possible.
The delay in the launch of two models caused an estimated production loss of over 140,000 vehicles; the company’s profits fell by over 30%, and it lost its position as the largest automaker in the world. This natural disaster revealed the biggest weakness of the company, which is a vulnerability of its supply chain.
Drawing on this experience, Toyota has begun to monitor more closely factories with which it cooperates. Nowadays, in the case of any threat to a component which lacks an alternative, Toyota encourages the suppliers to diversify production locations or choose a different part to produce. For now, it is hard to say whether the Japanese have done enough to save their precious company from further supply chain related threats, but, for sure, if they didn’t do their job well we will hear about it.
The second most important threat (but not less severe) for any carmaker is the risk of a decline in its reputation and potential lawsuits as a result of serious safety scandals. A perfect example of this is Volkswagen, which has been knocked off the top spot for global car sales by Toyota, and is likely to stay behind the Japanese firm for the foreseeable future as the emissions-rigging scandal takes full effect.
But not only Volkswagen has its problems. Only in 2014, Toyota recalled more than 6.5 mln cars worldwide to fix a variety of problems, including faulty steering wheels and seats.
In 2009/10 the scale was even larger, and the company recalled 10 million cars over problems with a sticky accelerator pedal linked to fatal accidents. The recall of millions of cars, including bestsellers such as Prius, Lexus and Camry, set the company back $2 billion in extra costs. So, even though Toyota is carefully improving the quality of its processes, there are still challenges that they will need to face to remain in the leading position.
The Japanese automaker’s is definitely determinated to lead in the market of futuristic cars that drive themselves. This can be seen in the $1 billion in investments that the company is making in Silicon Valley for research and development in artificial intelligence and robotics. The competition in this field is tough. On the one hand, the automakers such as General Motors, Tesla and Nissan are competing on autonomous driving market, but on the other hand, the competition is not limited to automakers and includes also tech giants such as Google, Apple and Uber.
Furthermore, Toyota for sure wants to make use of the growing interest in ecological and environmentally-friendly cars, including pure electrics and fuel cells. The company is already testing a number of all-electric vehicles. In Grenoble, Toyota has experimented with a vehicle-sharing service of the three-wheeled i-ROAD, which looks like a cross between a motorcycle and Smart Car.
Investments on innovation also can be seen on Toyota’s flagship product Toyota Camry, the release of which is expected this year. For instance, each Camry will have a mandatory Bluetooth Hands-Free Connectivity feature, and Toyota is the first-ever automaker to do this.
But, Toyota’s future is not only connected to innovation, but also growth in and of itself. Japanese has its eyes on the growing demand for cars among the middle class in China, and wants to raise its market share there by 4% by offering more small cars. The company expects to spend about $1.3bn on the new facilities, opening them in 2018 in China and 2019 in Mexico, to achieve this goal.
The prognoses for the Japanese company are very optimistic. On the one hand, the company should aggressively expand its dominance in the hybrid car market and nurture its innovations and ambitious plans for the future. On the other hand, Toyota should work hard to minimize the possibility of major risks like recalls and the vulnerability of its supply chain.
Novak Djokovic, one of the greatest tennis players in the world, said that staying on top of the mountain is harder than climbing it. Toyota seems to understand this, but we will closely watch its attempts to remain on top.