Surprise CEO Switch At Toyota: How Will It Affect EV Strategy?
From “EV-First” Koji Sato To Toyoda-Protégé Kenta Kon
Three years ago, Toyota CEO Akio Toyoda stepped down and was replaced by a dark-horse candidate, Koji Sato, who immediately called for a “BEV-first mindset.” If Sato really meant it, that would signal a stunning reversal of Toyoda’s tunnel-visioned focus on hybrids, his repeated denigration of EVs, and his joining with the Trump administration to end California’s right to impose restrictions on cars using gasoline.
It seems Sato did mean it. It was he who launched the upgrade of the BZ3X (for China) and BX4X (for the whole world) battery EVs (BEVs). It was this initiative that more than tripled EVs from 1.9% of all Toyota global sales in 2024 to more than 7.5% in May of this year, his course correction that lifted Toyota from limbo to the world’s 8th-largest manufacturer of EVs during January-May of this year. For the details of this remarkable change, see my last memo.
Sato could not accomplish all that he wanted. In 2023, he said he wanted ten new EV models and sales of 1.5 million BEVs by this year. There are just a few new models and BEV sales in May were at an annual rate of just 350,000. Still that’s 2.7 times the level of May 2025 (see chart).
Now, however, after a reign of only three years, Sato was kicked upstairs in February, and replaced by Kenta Kon, an accounting expert who served for eight years as Toyoda’s personal secretary. Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory, told Reuters. “Toyota keeps emphasizing, over and over, that Akio Toyoda wasn’t involved in the personnel decision…which means he probably was involved.”
On his way out, Sato warned against complacency. “Unless things change, we will not survive.” Automate.com commented, “Sato’s concerns stem largely from the speed at which Chinese automakers are advancing in electric vehicles, software integration, and cost-efficient manufacturing.”
Kon has been giving mixed messages. At his first press conference, not a word was heard about EVs. Instead, accounting-minded Kon stressed the need for production efficiencies to lower the breakeven level if sales of certain models decreased. He said nothing about a new product mix so that some models, like EVs, could grow as others shrank.
Moreover, Kon canceled the Lexus LF-ZC BEV, which was set to debut this year and showcase new battery and manufacturing technologies. On the other hand, Lexus said it would use the technologies planned for the LF-ZC in EV variants of some of its current hybrid models. It will take some time to see what Kon actually does.
Still, regardless of whatever Toyoda, and possibly Kon, may prefer, Toyota still faces the competitive pressures that helped trigger Sato’s EV-first posture. Let’s look at those pressures.
The Strategic Predicament: Customers Shift From ICE, To Hybrids, And Even More So To EVs
Global sales of conventional gasoline (internal combustion engine) autos peaked in 2017 at 80 million units (96% market share) and have since plunged to a mere 55 million (69%) in 2024).
Source: https://www.iea.org/data-and-statistics/charts/global-new-car-sales-by-powertrain-2000-2024
The only question was what would replace ICE cars. Toyota believed it would be hybrids and hydrogen fuel cell vehicles (FCEVs). Hybrids were a big winner while FCEVs were, and remain, money down the drain. Then, EVs came on the scene. While Nissan was first with its Leaf, it was Tesla and then China that turned EVs into a vehicle that legacy automakers felt compelled to adopt. By 2020, fully electric battery EVs (BEVs) surpassed hybrids (HEVs) and now outsell both HEVs and Plug-in hybrids (PHEVs) 2:1 (see chart below).
Source: https://www.iea.org/data-and-statistics/charts/global-new-car-sales-by-powertrain-2000-2024
While legacy companies like VW, Honda, GM, Ford, BMW, and Hyundai have tried to succeed in EVs, they’ve struggled, as legacy companies often do when a new technology comes on the scene (see this post and this one). Some legacy executives blamed consumers for allegedly slowing their adoption. Sure, BEVs did not live up to some early projections, but does the BEV line in the chart above look like a slump to you?
This year, overall EV sales will grow slowly, mostly due to Donald Trump’s war on EVs and China’s reduced incentives. But in the rest of the world, sales of BEVs in May were up 47%(!) from a year earlier.
Still, many at Toyota have latched onto the consumers-don’t-want-it mantra and self-assuredly claim this proves the prescience of laser focus on hybrids. Consequently, until Sato’s ascension, Toyota refused to try, although for a few years it paid lip service to the notion. Instead, hybrids rose from 26% of all Toyota sales in 2021 to 45% as of January-May this year (see chart below). Meanwhile, BEVs languished at a trivial 1.5% as late as 2024.
Source: https://global.toyota/en/company/profile/production-sales-figures/202605.html#
Two Problems With the Hybrid-Only Strategy
Stock market investors are regularly warned that today’s profits are no guarantee of future success. I’d argue that the posture bringing Toyota so much profit today undermines its ability to make profits tomorrow. It’s hardly the first successful corporate giant to suffer this problem. GM and IBM made record profits just a couple of years before their near-death experiences in the early 1990s. IBM recovered while GM continued to slide.
I see two problems with Toyota’s excessive dependence on HEVs. In 2025, one in every four cars sold in the world was an EV. By 2030, says Goldman Sachs, BEVs alone will capture 25% of the market compared to just 12% for HEVs. By 2040, it forecasts that half of all cars sold worldwide will be BEVs, while hybrids will sink to just 9% (see chart below). For Toyota to ignore 25% of the market to focus on just 8% makes no sense.
Secondly, other companies are now encroaching on the hybrid turf that Toyota claimed as a virtual monopoly. In 2025. Toyota sold 4.4 million HEVs worldwide. By contrast, Honda sold just 400,000 hybrids and Ford just a quarter million. But these firms are just getting started, and Hyundai-Kia has now entered the fray. Kia alone is reportedly on track to sell 700,000 HEVs globally this year. In the first half of 2026, Hyundai sold 450,000 HEVs in the US alone, up 67% from 2025. So, as the years pass, Toyota is likely to have a smaller slice of a diminishing pie.
Stubbornness Loses Sales and Share
It’s easy to understand the numbers that rationalize smugness at Toyota. While other Japanese automakers are hurting badly because they produce neither EVs nor hybrids en masse, Toyota HEV dominance has so far enabled it to maintain its global market share at around 11-12% during 2021-25.
HEVs helped not just in the US, where Toyota gained from Trump’s war on EVs. Consider Europe, where BEVs alone now account for 23% of all auto sales and where that fact is one reason Chinese companies now outsell Japanese automakers. It is other Japanese companies that have borne the brunt of the damage. By contrast, hybrids have so far enabled Toyota to maintain its overall share, and they account for 80% of all Toyota sales in Europe. Of course, Toyota was also helped by raising the BEV share of its sales in Europe from 4% in 2025 to 12% in May 2026.
Still, there are danger signs that, unless Toyota steps up its EV game, it may no longer be the world’s top automaker in five or ten years. That is particularly true in parts of the world where overall auto sales are growing fastest. But many in Toyota’s leadership overlook this evidence due to “confirmation bias,” i.e., paying most attention to facts that confirm one’s preconceptions. It is the most successful companies that so often close their eyes to the need to change.
In China, Toyota’s sales have dropped from 1.9 million in 2021 to an annual rate of 1.6 million during Jan-May 2026. Its market share has fallen from 20% to just 16% (see chart below). In May, Toyota’s sales were down 31%(!) from the year before. One reason is that EVs hit a record 63% of all auto sales, and BEVs alone reached a record 42%. HEVs have a meager 4-5% share. Without a strong EV presence, Toyota will lose most of the market that, only a few years ago, accounted for one in five of the autos Toyota sold globally (see chart below).
Then there is Southeast Asian Six (Thailand, Indonesia, Malaysia, Vietnam, Philippines, and Singapore). In 2023, they accounted for 10% of Toyota’s global sales. What makes the Six really pivotal is that sales are growing fast: 2025 sales were up 16% from 2021. And it’s a region Japanese companies once dominated. Not anymore. In 2019, the proportion of Japanese cars in Thailand was close to 90%, but now it’s only 68%. Conversely, since 2019, the Chinese share among the Six has increased from less than 1% to 12%. While other Japanese automakers have suffered more, the damage is beginning to hit Toyota as well. Its market share fell from 29.4% in 2023 to just 27.3% in January-May of this year.
EVs Now A Mass Market Item in Dozens Of Countries
With each passing year, the global share of BEVs alone continues to rise, belying claims of a slump. The chart below shows how many countries surpass each BEV market-share marker from 2020 to 2025. In 2020, only 15 countries had passed the 5% BEV share. By 2025, it was 50. A 5% share may sound small, but experts say that once it passes 5% or 10%, it usually keeps growing. Only three countries reached the 15% milestone in 2020; by 2025, it was 24.
Source: https://iea.blob.core.windows.net/assets/23cc1f1c-c869-4a39-ac51-457725c87103/EVDataExplorer2025.xlsx and (June forecast for 2026) https://assets.bbhub.io/professional/sites/44/EVO2026-Executive-Summary.pdf
If you think these are only small countries, look at the chart below. In 2025, EVs surpassed 5% in countries with 45% of the global population and 10% in countries with nearly 40% of the global population. This year, the share of the population passing the 5% mark will likely grow to around 65% as India, and perhaps Japan, join the 5% club. Meanwhile, the share of the population where BEVs alone account for more than 40% of auto sales will likely rise to 20% as China passes 40%.
In 2025, among 60 countries. Japan ranked third-to-last in the BEV domestic sales share. If the surge launched by Sato continues, Japan should rank much higher in 2026.
Source: https://www.iea.org/product/download/023453-000412-023061
Several major changes suggest that the global EV momentum, especially BEV momentum, will continue. One is cost. China is still the only large market where EVs are, on average, cheaper to buy than comparable ICE cars. But things are moving in the right direction. In major European markets, the BEV price dropped from 34% in 2024 to 17% in 2025. The American price gap dropped 12 percentage points from 2024 to 2025.
Bottom Line
Japan needs more BEV models to suit the wide variety of tastes and countries. It cannot rest on the laurels that Koji Sato achieved. From January through March, the upgraded BZ4X ranked in the top 20 EVs by global sales each month. But the model dropped out of the top 20 in April and May. So, initial enthusiasm is not sufficient to sustain the growth Toyota needs.
The handwriting is on the wall. Will Toyota’s leaders heed (or even read) the message?
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Thanks for putting this challenge into a global perspective. Word on the street in Japan is that Japanese automakers are investing heavily in next-generation solid-state EV batteries, which are expected by 2030 and should be a game-changer. I suspect this is why Toyota has been holding off.
Interesting global market numbers. The Chinese automobile market is down 20% YoY in 1H2026 - https://xcancel.com/thinkercar/status/2076600609860645344#m
That probably partly explains why we are seeing Chinese manufacturers selling cars outside China extremely cheaply.