This article was originally published by TheStreet on June 3, 2014
By Sarfaraz A. Khan. Research Asst. Gohar Yousuf
NEW YORK (TheStreet) -- The world's leading automaker, Toyota Motors (TM_) has completely given up on electric cars. Instead, the company is focusing on hybrid and hydrogen-based vehicles.
It's a big change.
About two weeks ago,Toyota decided that it will end its relationship with Tesla (TSLA_) after its agreement with the electric car maker expires this year.
Toyota entered into a $100 million agreement with Tesla under which the latter supplied electric powertrains for a version of Toyota's RAV-4 sports utility vehicle. The electric SUV, however, turned out to be a flop, which prompted Toyota to end its relationship with Tesla.
Moreover, Toyota has also said that it believes that the future of long-distance travel lies in hybrids, plug-in hybrids and fuel-cell powered cars. The electric vehicles are only good for short-range travel.
For hybrids, Toyota is working on improving fuel efficiency and expanding its portfolio by the end of the decade.
Meanwhile, the company is laying the groundwork for the highly anticipated launch of its hydrogen-powered vehicle in 2015.
Toyota's American depositary receipts have dropped by 5.9% for the year to date, and were trading in the high $114 range as of noon Tuesday.
Toyota is the biggest player in the hybrid vehicle market. The company's iconic Prius hybrid vehicle has been the top-selling vehicle in California, the largest vehicle market in the U.S., for two years in a row, ahead of Honda's (HMC_) Civic and Tesla's Model S.
Moreover, Toyota has announced that it has developed a computer chip for hybrid vehicles whichwill improve fuel efficiency by 10%.
Moreover, the new system, which is significantly smaller and weighs four times less than the conventional system, can also be installed in a larger number of vehicles. This will enable to company to significantly grow its portfolio of hybrid vehicles, which currently includes 24 hybrid passenger car models and one plug-in hybrid model.
The company says that it can start installing the new systems in its vehicles by 2020.
A possibility in expanding the hybrids portfolio is good news, since Toyota is getting better at selling hybrid cars. Earlier in January, the company revealed that it sold a million hybrid vehicles in under nine months, a record. So far, the company has sold more than 6 million hybrids, more than any other automaker.
Over the next couple of years, the company has said that it will launch 15 new hybrid cars. This should continue to fuel Toyota's growth in this niche in the coming years.
Besides hybrid, Toyota is also focusing on hydrogen-powered vehicles. So far, unlike electric vehicles, the hydrogen-powered cars have not taken off in the U.S., largely due to the lack of infrastructure. This may, however, change in the near future. And when it does, Toyota will be there to reap the rewards.
California is leading the way in developing the necessary infrastructure that will support the growth of hydrogen-powered vehicles. The state, which has already given legislative support by enacting strict fuel-emission laws, is building hydrogen fueling stations.
California currently has 10 hydrogen fueling stations, with 16 under development. It has earmarked $47 million for building an additional 28 stations. Moreover, Toyota has given $7.2 million to FirstElement Fuel to develop at least 19 hydrogen fueling stations. This should be enough to support more than 10,000 hydrogen cars.
According to Toyota's estimates, California will have more than 70 hydrogen fueling stations by 2018.
Last year, the Energy Department launched a public-private partnership, called H2USA, to promote the growth of hydrogen-powered vehicles.
Toyota has said that it plans to bring a hydrogen fuel-cell-powered sedan to California in 2015. The car will accelerate to 60 miles per hour in 10 seconds, travel up to 300 miles on a full tank and be refueled within five minutes.
Although hydrogen cars have been expensive, the costs have dropped by more than 90%. Toyota reportedly developed its hydrogen-powered Highlander for a sale price of $1 million; the new vehicle due next year is estimated to have a price tag of between $50,000 and $100,000.
At this price, Toyota's sedan could give Tesla's Model S, which sells for $70,000, a run for its money. Meanwhile, Toyota's rival Hyundai has already brought its hydrogen vehicles to the U.S.,while Honda will launch its hydrogen sedan in 2015.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
