Will Toyota Cancel the Rav4 EV before producing 2600 ?

[TonyWilliams]

http://www.plugincars.com/will-toyota-cancel-rav4-ev-compliance-car.html

http://insideevs.com/will-toyota-cancel-the-rav4-ev/

Occasionally, the subject comes up amongst we Rav4 EV owners concerning how much money the Rav4 EV actually costs Toyota to sell in California. Toyota must either sell 2600 cars through 2014 to earn California Air Resources Board - Zero Emission Vehicle (CARB-ZEV) credits, or buy those credits on the open market which allows them to sell hundreds of thousands of profitable oil burner cars in California.

Currently, six "Very Large Manufacturers" are selling ZEV cars in California to meet this mandate.

Manufacturer - Vehicle used for compliance:

1) GM - Spark EV
2) Ford - Focus EV
3) Fiat/Chrysler - 500e
4) Toyota - Rav4 EV
5) Nissan - LEAF
6) Honda - Fit EV

In the near future, BMW, Hyundai, Kia, Mazda, Mercedes and Volkswagen will be added to that list. Four additional manufacturers would also be required to comply with the ZEV requirements, but would be allowed to meet their obligation with PHEVs.

It's no secret that Toyota doesn't like non-hybrid battery electric cars, and the recent ramblings of a Toyota executive in Europe only reinforced that further. Earlier this year, the trade group representing Toyota and other manufacturers, including GM, attempted to stop CARB mandates yet again, this time through the EPA. Thankfully, the very existence of a successful Tesla selling only electric vehicles (and expensive ones, too) at 400-600 per week made the trade group's cries that "nobody wants EVs" seem a bit insincere.

Their petition was declined this time, but ten years ago it was successful. When CARB did relent then and remove the ZEV mandate, the original Rav4 EV from 1997-2003 was cancelled almost immediately, alongside the much more famous cancellation of the GM EV-1. A total of 1,484 were sold or leased of the first generation Rav4 EV.

The current Rav4 EV's replacement for CARB-ZEV compliance has already been revealed, and few were surprised that is wasn't a battery car at all, but instead a hydrogen ZEV, scheduled to arrive in California late next year. Toyota isn't the only one doing this.

With that background, the question remains; if Toyota can't get CARB to repeat the events of ten years ago and let them just build oil burning cars, and Toyota doesn't want to build ANY pure battery electric vehicles, wouldn't it be cheaper to just buy the CARB-ZEV credits from Tesla (that Toyota owns a minority share of) instead of building the Rav4 EV? Tesla has already earned over $60 million dollars from selling those credits.

Toyota has already paid at least $60.1 million to Tesla for the background work on the Rav4 EV. That work includes "the successful completion of certain at risk development milestones" and the "delivery of prototype samples", for example. In other words, the basic engineering and design work.

So, how much does it cost per Rav4 EV unit today? If we divide the total of just the development costs billed to Tesla (and not Toyota's internal development costs, which included crash testing, etc) by the 706 Rav4 EVs delivered since September 24, 2012, we get $85,000 per each car delivered so far. Yes, if Toyota delivered all 2600 cars, those fixed expenses to Tesla would drop to $23,000 per unit.

Here's my breakdown to date:

$85k = $60,000,000 / 706 vehicles sold. The $60 million fixed Tesla costs are for everything except the actual hardware per delivered car.

$15k is my wild guess of the cost of a basic "glider" Rav4 EV (engine-less car).

$40k per drive-train / battery / hardware from Tesla to be installed in the "glider".

That adds up to:

$140,000 net cost per car delivered to date. That's without marketing costs, Toyota's engineering costs, spare parts stockpiles, assembly tooling, warranty expenses, etc.


$40,000 equals my guess of the typical net price to Toyota per sale with all of Toyota's discounts. Discounts offered by Toyota are typically $7,500 to $15,000 from the $51,000 total window sticker price. Therefore, there is:


$100,000 loss per car if production stopped today. Multiplied by 706 cars is a total of $70,600,000 lost. If Toyota built all 2600, the Tesla fixed costs are lowered by $62,000 per car so that 2600 multiplied by $38,000 lost per car equals $98,800,000 total program cost.

That's $28,200,000 in additional expenses if the entire 2600 are produced that could be used to buy those credits instead.

CAR PROBLEMS

The Rav4 EV has had a number of technical problems, some of which are still unresolved. My particular car has had the motor assembly replaced, the heater, the DC to DC computer and the battery pack was dropped to replace the charge port that failed. Over 30 days in the shop in 9 months of ownership. My car is not isolated in these issues.

Ongoing problems remain; for instance, the car fails to charge on the 31st day of every month on a timer, as it just did on July 31, 2013, even after getting the updated firmware that allegedly fixed charge timer issues, and my repeated complaints to the dealer about these issues.

But, all this doesn't yet address the singular biggest issue with the current Rav4 EV; the car doesn't sell well. In June 2013, only 44 were sold. Toyota made several aggressive changes to pricing and the sales only went up to about 100 for the month ending July 2013. They still have to sell 2000 more cars.

So, is it cheaper to cut the losses now and buy credits instead of delivering more cars? With potentially $28,200,000 in additional costs to Toyota to sell 2000 more cars, there's some very serious considerations to make. It's impossible for me to know any potential offer on the table, but if Tesla or some other company offered them a sweetheart deal on ZEV credits that cost less than $28 million, would they cancel Rav4 EV? Let me know in your comments below.

 

[Ampster]

Great analysis Tony. The Smart ED has been selling since May and gets either Mercedes or Daimler credits.

There has be a lot of discussion on the Tesla Motors Club about how much selling those credits helps the bottom line of Tesla. My understanding is unless a company buys ZEV credits they must pay a fine and the price of that fine somewhat establishes a ceiling for credits. I can't find the exact number but I thought I read it was in the neighborhood of $10,000 and if Toyota bought those credits instead of building the RAV it would have cost them just $26,000,000 in fines. Something must be wrong with my assumptions for if that were the case wouldn't it have been cheaper for Toyota to just pay the fine in the first place? Toyota get some small credits from the Prius also but it is not anywhere what a ZEV vehicle gets them.

 

[waidy]

Below response is from my pal after I sent him a message asking Toyota's plan for complying the CARB requirements. For those who are interested in the "Tesla Inside" Rav4EV, act now before it sold out. As my pal say: it will eventually become a "collector's item". As for the service, I have no doubt that Toyota will continue the servicing and provide replacement parts. My 2002 Rav4EV had no problem getting service and replacement parts when anything fail (well, I should note that I didn't have any part fail on the 2002 Rav4EV other than the break pads and wheel bearings). Toyota even helps source and take care of battery pack replacement for other 1st gen 2002 Rav4EVians.

--------------Begin
Hi Waidy,
You probably have seen the official response
"Toyota believes that the execution of the retail program launch was very successful. A comprehensive marketing program, strong dealer support,and an enticing pricing level were keys to this success. However, sales levels were very low. As a result, no business case could be made for continuing sales of the RAV4 EV at these volumes. We believe that advances in hybrid technology and other advanced systems have a much greater potential for the environment and Toyota."

I am not aware of any excess of parts from Tesla. I assume whatever parts will be assemble into finished vehicles and sold. I think there may have been some promotions but they were not widely offered so I think the number of closeout vehicles were very small.

I know the marketing program was watched carefully. The older unit sold poorly too as you know, but various items were blamed. I think this car will become a collectors items like the older one.

The real issue is about cost and price point. Nissan is trying a lower price this year in an attempt to get more volume. Volume is essential because Toyota production only works economically at moderate to high volumes.

There is now a great deal of effort to launch the commercial fuel cell vehicle in a couple of years. There are some people in company very enthused about this $50,000 car. It has great range. It's price range will make it a lower volume car as well. I will watch that roll out with great interest.
-----------end

 

[TonyWilliams]

This is what the "new" CARB players bring to the table:

BMW - i3
Hyundai - I think they can use Kia credits... not sure
Kia - Soul EV
Mazda - ?
Mercedes - Smart ED and B Class EV
Volkswagen - eGolf


All manufacturers must report by May of the calendar year following the compliance model year; e.g., for 2008 model year, report is due may 1, 2009. Manufacturers may update reports until September. Manufacturers have two years to make up a ZEV deficit, or they are subject to penalties outlines in Health and Safety Code 43211:

$5000 penalty per vehicle not produced

http://www.arb.ca.gov/msprog/macs/macs.htm

 

[TonyWilliams]

Of course, my math in the above article uses liberal rounding, since the actual additional cars for Toyota to produce is slightly less than 1900, and there are obviously cars on dealer's lots. www.Cars.com reports that there are 149 Rav4 EVs on dealer lots right now in California. That leaves about 1750 additional cars to produce.

I'm sure there must be at least 50 in the pipeline from the assembly point in Woodstock, Ontario. That leaves 1700 more to actually produce. If the below quote is the only penalty ($5000 per car), that's only $8,500,000 in penalties!

 

[mhkp]

Without knowing the financial details this is difficult to discuss. There may be other reasons why Toyota continues down this road. Developing a hydrogen car cant be cheap either.

I guess that maybe producing small quantities of compliance cars is like 'insurance.' If they bet 100% on buying credits from Tesla as their compliance strategy and Tesla goes under, or gets bought by GM/Ford, and refuses to sell them further credits, it would set them back a few years as well as potentially cost them more in the long run.

 

[mhkp]

Of course, my math in the above article uses liberal rounding, since the actual additional cars for Toyota to produce is slightly less than 1900, and there are obviously cars on dealer's lots. http://www.Cars.com reports that there are 149 Rav4 EVs on dealer lots right now in California. That leaves about 1750 additional cars to produce.

I'm sure there must be at least 50 in the pipeline from the assembly point in Woodstock, Ontario. That leaves 1700 more to actually produce. If the below quote is the only penalty ($5000 per car), that's only $8,500,000 in penalties!

Why not just pay the penalty, right? Much cheaper. $8.5 million is what Toyota earns in interest on investments in a day probably.

 

[evbuddy]

I always wondered why Toyota did not sell RAV4EV under lexus brand (under a different model name). I am sure the market reception
would be much better for a $50K car. It would have satisfied CARB requirements too.

I would think withdrawing from the EV market would hurt toyota & lexus credibility in their future EV endeavors. What they are doing seems to be very contrary BMW/MB/Nissan and few others. You already have invested to make some vehicles and have a stake in Tesla, why not use that to learn and use it as backup plan if fuel cell does not pan out. I would hate another gas like distribution model with fuel cell cars.

 

[user 340]

Tony,

Thanks for this information and another great analysis of the RAV4 EV cost situation for Toyota. I have just one minor quibble / potential correction re. Toyota's costs on the Tesla harrdware.

Here's my breakdown to date:

$85k = $60,000,000 / 706 vehicles sold. The $60 million fixed Tesla costs are for everything except the actual hardware per delivered car.

I'm OK so far with the above statement. Toyota paid Tesla $60M for engineering and development not related to unit production costs, and that comes to $85K per car if only 700 are sold.

$40k per drive-train / battery / hardware from Tesla to be installed in the "glider".

I don't get the $40K per car unit cost of the Tesla bits. I thought that Toyota had a $100M contract with Tesla (http://www.bloomberg.com/news/2011-07-20/tesla-wins-100-million-toyota-supply-deal.html), where $60M was for the engineering & development (as above) and the remaining $40M was to cover production costs for 2600 vehicles. That comes to $15,400 = $40M / 2600 unit production cost, not $40K. It is considerably higher than $40K if Toyota is on the hook for the full $40M if fewer than 2600 units are ordered.

Regardless, you make a strong point that Toyota is losing a LOT of money on each car. If you adopt the revised per unit costs above, then Toyota still loses $13.5K per car if all 2600 are produced. Total losses would be $35M. If they stopped now, total program losses would be $53M, or $75.4K per car. They do recoup about $10K per car if the unit costs are only the $15K glider plus the $15.4K Tesla unit cost. Also, if they stopped now and bought CARB ZEV credits at $10K per vehicle, this would cost them an extra ~$20M. That would give Toyota an extra incentive of $10K per vehicle to keep going. Are the hassles worth $20K per vehicle to them?

 

[TonyWilliams]

Thanks for checking my math. Obviously, everything is a guess. Yes, $100 million was the "advertised" cost to do this, but we have hard data on the $60.1 million. There is NO WAY that Toyota is getting drive trains with a 50kWh battery for $15k each.

Sounds like a standard "project cost overrun" to me. But, in my defense, I did arrive at about $100 million this way, except it's no really total program cost, but total program LOSS:

"If Toyota built all 2600, the Tesla fixed costs are lowered by $62,000 per car so that 2600 multiplied by $38,000 lost per car equals $98,800,000 total program cost."

 

[TonyWilliams]

"Toyota believes that the execution of the retail program launch was very successful. A comprehensive marketing program, strong dealer support,and an enticing pricing level were keys to this success. However, sales levels were very low. As a result, no business case could be made for continuing sales of the RAV4 EV at these volumes. We believe that advances in hybrid technology and other advanced systems have a much greater potential for the environment and Toyota."

I think this quote is word for word from the cancellation of the ORIGINAL Rav4 EV, 1997-2003.

 

[user 340]

There is NO WAY that Toyota is getting drive trains with a 50kWh battery for $15k each.

Good point - that is very cheap for the battery / motor / inverter / ECU etc.

The difference between $15K and $40K per unit production cost is enough to tilt the balance sheet to where they recoup some cash or not per additional vehicle sold, once you consider the cost of paying for ZEV credits or penalties for ones not made. It may have made sense to continue production if they were able to stick to the original total $100M Tesla costs, but it may be better for Toyota to cut their losses if the Tesla unit costs are in the neighborhood of $40K per car (plus support headaches). I would not be surprised if cost overruns were 50-60% of the original Tesla contract value of $100M.

 

[Khaihon]

I always wondered why Toyota did not sell RAV4EV under lexus brand (under a different model name). I am sure the market reception
would be much better for a $50K car. It would have satisfied CARB requirements too.

I would think withdrawing from the EV market would hurt toyota & lexus credibility in their future EV endeavors. What they are doing seems to be very contrary BMW/MB/Nissan and few others. You already have invested to make some vehicles and have a stake in Tesla, why not use that to learn and use it as backup plan if fuel cell does not pan out. I would hate another gas like distribution model with fuel cell cars.

I speculate that by selling under the Lexus name, the trim would be too low end compared to Toyota's normal Lexus offerings and by offering higher end trimming/features, it would compete in the Tesla space. Yes, Tesla should win either way, but Elon probably didn't want the remote possibility of an EV with Tesla guts superior to their own highly anticipated offering (Model S).

BTW, did Toyota kill off their Scion EV entirely or offering it only as part of a fleet? Why wouldn't they sell/lease the remaining 1700 as a fleet offering?

Also, with Toyota having almost no interest in BEV, how much did they make off of Tesla's stock (which I would assume they would sell off their stake soon)?

 

[evbuddy]

> but Elon probably didn't want the remote possibility of an EV with Tesla guts superior to their own highly anticipated offering (Model S).

That makes sense. Don't think Tesla would have wanted $60K Lexus SUV EV get a lead on Tesla Model X.

 

[evbuddy]

I will interesting to see how lexus(toyota) respond luxury brand competition. BMW I3 (I believe 40000/year capacity) and Mercedes EV are just around the corner.

 

[TonyWilliams]

I will interesting to see how lexus(toyota) respond luxury brand competition. BMW I3 (I believe 40000/year capacity) and Mercedes EV are just around the corner.

Toyota/Lexus will respond with a hydrogen car. Already announced.

Daimler makes the Smart ED in teeny tiny volume and Mercedes B-Class with the same drive train our Rav4 EV has, except with a teeny 28kWh (meaning 24kWh useable) battery. That will likely be their primary compliance car.

BMW won't have the i3 until next summer, and that 40,000 capacity means NOTHING. Nissan has "150,000 capacity" and they produce 30,000.

 

[evbuddy]

Is Mercedes B-Class a compliance car?

>BMW won't have the i3 until next summer, and that 40,000 capacity means NOTHING.
It means BMW thinks there is a volume market (just like nissan & tesla) and wants to be player.

 

[TonyWilliams]

Is Mercedes B-Class [EV] a compliance car?

Of course, just like the Rav4 EV.

Currently, six "Very Large Manufacturers" are selling ZEV cars in California to meet this mandate.

Manufacturer - Vehicle used for compliance:

1) GM - Spark EV

2) Ford - Focus EV

3) Fiat/Chrysler - 500e

4) Toyota - Rav4 EV

5) Nissan - LEAF

6) Honda - Fit EV

In the near future, starting 2015, BMW, Hyundai, Kia, Mazda, Mercedes and Volkswagen will be added to that list.

BMW - i3

Hyundai - I think they can use Kia credits... not sure

Kia - Soul EV

Mazda - ?

Mercedes - Smart ED and B Class EV

Volkswagen - eGolf

 

[mhkp]

I'm just shocked that Toyota is going in the hydrogen direction. Big gamble. But Honda is doing the same with Clarity.

That being said I don't really understand the cost/benefits of hydrogen fuel cell cars.

At least I'll have a collectors' Rav4ev for few years. Maybe I'll get a good offer on eBay!

 

[Ampster]

............
Daimler makes the Smart ED in teeny tiny volume..................

Smart ED sales were 58 in July and 173 Since mid May. Smart (MB Finance) has just lowered the cost of the lease to $139 plus tax per month with $2399 out the door.