Business Hub: Toyota NZ CEO Neeraj Lala on EVs, the ute cultural war and Govt timelines

The world’s car companies are at the precipice of the biggest change their industry has seen since the invention of the internal combustion engine.

As shown by many carmakers pledging to go all-electric over the next two decades, there’s a growing consensus that the shift is all but inevitable.

But the challenge now facing the industry is that manufacturers need to find a way to wean their customers off gas-guzzlers, while simultaneously making sure they sell enough fuel-efficient, hybrid and electric vehicles to offset the loss. It’s a tough balancing act, made all the more difficult by time pressures imposed by government regulations as nations look to decarbonise their national fleets.

There’s perhaps no better example of a company caught between these two worlds in New Zealand than Toyota. On the one hand, the company’s top-selling vehicle remains the Hilux ute, and on the other, the hybrid Prius has become the universal symbol of Uber drivers – a group more interested in fuel efficiency than most drivers.

The Toyota Yaris ZR hybrid, Lexus RX hybrid and Hilux Mako in Toyota New Zealand chief executive Neeraj Lala’s personal driveway are testament to the dual forces currently powering the company’s business model, but also presenting some of its biggest challenges.

Lala was flung into the deep end of this challenge when he was appointed to the top job a year ago, following the resignation of Alistair Davis after 12 years in the position.

In some ways it was a moment Lala had been preparing for since 1998, when he graduated from Massey University and walked straight into his first role at the motor company.

But he would never have been able to predict that his baptism of fire would involve navigating a pandemic as it wreaked havoc on supply chains and consumer confidence, while also ensuring Toyota was not left behind in the electric vehicle race.

This tightrope between short-term challenges and longer-term objectives is something Lala has had to become accustomed to every step of the way in his short tenure as just the fifth CEO to lead the company in the New Zealand market. So far, he certainly hasn’t had the privilege of using cruise control.

The Government upped the ante on the electric challenge this year by setting a target to reduce our emissions from 180g per kilometre travelled to 105g per kilometre by 2025, for all cars imported into the country.

The short runway to this change has been a cause of much consternation across the automotive industry, with critics questioning whether the deadline is realistic, given the competition New Zealand faces with other nations all pursuing a similar agenda to reduce their carbon emissions.

So how does Lala see it? Is four years enough time to meet the Government’s ambitious deadline?

“The penalties will start to kick in from 2023,” he says, indicating that the runway is even shorter than the objective suggests.

“We don’t currently have a pure electric car in New Zealand, but I’m confident that we will meet and exceed the target.”

The point Lala makes is that route to a cleaner fleet is not going to rely solely on pure electric vehicles. Hybrids, plug-in hybrids and smaller, fuel-efficient conventional vehicles will all pull the country in the right direction.

“We’re really encouraged that minister Michael Wood has included hybrids and low-emission petrol cars as part of the rebate scheme,” he says.

The one thing standing in the way of that objective is the New Zealand consumer’s love affair with grunty utes – which has long played out in a commercial battle between Toyota and Ford for bragging rights to the country’s top-selling vehicle.

But winning that battle doesn’t look as attractive as it once did. Does a company really want to be crowned with the title of selling the most of a product that is now a symbol of environmental harm?

“Hilux being the number one selling car in new Zealand is not our stated objective,” says Lala.

“Our stated goal is to be below our [emissions] target come 2023 and you can’t achieve that if Hilux exceeds more than about 32 per cent of our sales.

“So, as I’ve said to ministers and government officials, we will not be introducing more than about 32 per cent [of Hiluxes] in our mix of vehicles moving forward.”

Despite the EV culture war relying so heavily on the symbolism of the Toyota Hilux and Ford Ranger, Lala doesn’t buy into the notion that the nation has an unbending love for utes that will never be broken.

As is often the case with data, it largely depends on what you’re looking at. If you isolate vehicles into single models, then yes, you do see four utes in the top 10car models sold in New Zealand every year. But this doesn’t tell the full story.

“The reason there are four or five utes in the top 10 cars sold is because you’ve got so little choice. You really have three or four major ute brands,” says Lala, explaining that these cars feature so strongly on top 10 lists simply because there’s less competition.

When you dig into the data, it starts to tell a different story.

“July year to date, there were about 36,000 cars sold in the commercial market,” says Lala.

“If you take utes as a percentage of our total market, it comes in at less than 30 per cent. Utes represent just a third of our market. And 20 years ago, they were just on 20 per cent. So they’ve really only grown about 10 per cent. If you think of business growth over two decades, that is not an obsession.”

Lala says that if you’re looking for growth and a true indication of which cars New Zealanders really want, you should turn your attention to the compact SUV market.

“The top 10 or the number one selling car in New Zealand doesn’t matter. What does matter is what we’ve seen over the last five years. And what we’ve seen is the car market grow just over 23 per cent. In that time, compact and medium SUVs have grown over 300 per cent.

“Even small to medium-sized enterprises are looking at SUVs for their fleets.”

The lesson is that if you do want to decarbonise the fleet of the future, the focus should be on offering consumers compact and medium-sized SUVs that reduce the overall carbon footprint.

“If you look at what’s coming in at the moment, it’s fuel-efficient and electrified vehicles in this segment – and that is a brilliant transition.”

These are the insights driving Toyota’s decisions on which vehicles it needs to prioritise in bringing to the market in the coming years. Lala says the company plans to have seven battery electric vehicles in the New Zealand market within the next four years.

“With the exception of our large SUVs, which are more application- or purpose-built vehicles, all of our compact, small and medium [vehicles] will predominantly be electrified in the form of a hybrid power train. And that’s what’s going to help us achieve our targets.”

Toyota is going to push that strategy with a number of new vehicles coming into the market over the next 12 months.

“We will have our first fully electrified compact SUV this year, as early as next month, and that will be in the Lexus platform. That car will qualify for the clean car rebate. And we will then also have our first electrified vehicle in the Toyota lineup, which will be on the Rav4 platform, in the middle of next year.”

While Lala is optimistic about New Zealand’s ability to make the transition to electric vehicles, an area that concerns him is the lack of emphasis on the safety of vehicles coming into the country.

“I was disappointed that we would offer rebates to cars that do not meet the five-star safety rating. I do think that is a mistake. I think allowing three-star cars to enter New Zealand and receive a rebate is not a good decision.”

He says that decision runs against the grain of work the Ministry of Transport has done over the years in trying to make our roads safer.

“We’ve seen them invest millions of dollars over the years to encourage people to buy safer cars for your children. So the strategy with the rebates is a concern. Those sorts of compromises are dangerous.”

One question that has followed Lala throughout the EV debate is when New Zealand can expect to see its first electrified ute.

“Electrification of utes is one of the most difficult pieces of technology to get right,” he says.

“Even though a hybrid currently has a tow rating of two and a half tonnes, it doesn’t give customers the confidence that it can perform at the level they need. Introducing that technology with a lot of torque is very difficult, so I can’t see us having an electrified version of the Hilux in the next 18 months.”

Speculation on the impending arrival of an electric Hilux has already spurred Lala to release a stern statement this year saying it is “irresponsible to suggest customers stop buying non-electric vehicles” in anticipation of an electric alternative. He says the businesses and workers that need high levels of torque and towing capability should expect to rely on the Hilux for at least the foreseeable future.

This isn’t the only time Lala has had to step in to correct claims being made about electric vehicles. Early last month, he says, Toyota received hundreds of phone calls following headlines claiming that hybrids would be included in the feebate scheme as soon as it kicked off. The reality was that it only applied to plug-in hybrids – a subtle but important difference that affected many consumers.

“We’re dealing with a hugely complex area,” the Toyota boss says.

“When we refer to electrified vehicles, we are referring to cars that share common components: lithium-ion batteries, electric motors, a power control unit and usually some fuel cells. We refer to hybrids, plug-in hybrids, battery-electric and fuel cells as electric cars.”

The rules applying to these vehicles aren’t uniform, which lends itself to confusing consumers, the media and even government officials about what actually applies in which circumstances. And the relentless rush to get information out only leads to that uncertainty being further exacerbated.

Which is to say that Lala can expect to field a few more questions from consumers in the following months. Hopefully, none are inspired by what has been written here.

Quick facts:

Name: Neeraj Lala
Job: Toyota New Zealand chief executive officer
First job:Harfords Menswear – sales assistant
Worst job: Not yet experienced a worst job
Family: Married for 24 years, with three children (two girls and a boy)
Current cars: Toyota Yaris ZR hybrid, Lexus RX hybrid and a Toyota Hilux Mako
Dream car as a kid: Corvette Z06 and my very own 1988 Honda Civic GTi
CEO you admire: Elon Musk. I may not agree with all his theories, but I admire his courage and passion to voice and execute what he believes. I also see him as a Jack of all trades, automotive, technology and space exploration. He doesn’t think outside the box, he thinks beyond the box.

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