Transport Committee - Plug-in vehicles, plugged in policy?Written evidence from Toyota

Executive Summary

Toyota’s UK businesses are a key part of our European and international operations. Toyota has invested over £2.1 billion in manufacturing since 1992 and the UK is one of our leading European markets.

Reducing the environmental impact at every stage of the vehicles’ life cycle is fundamental to our business, and we strive for zero emissions.

We see hybrid technology as a core platform that allows further progress in low-carbon, low emission (NOx and Particulate matter) vehicle transportation, through powertrains such as Plug-in Hybrid Electric Vehicles (PHEV), pure Electric Vehicles (EV) and Fuel Cell Vehicles (FCVs).

The evidence suggests that no single vehicle technology will match all requirements of sustainable mobility over time. There is unlikely to be one “technology winner”.

In order to help strive for challenging UK climate change and other environmental goals, it is vital that Government continues to treat all low-carbon technologies equally and encourages market adoption of a range of proven technologies.

Consumers need to be confident about reliability, durability and use of new technologies. Our leading experience of introducing hybrid technology demonstrates that it takes time to “embed” any new technology and win wider acceptance beyond a niche market of early adopters. As a result, volume expectations for new plug-in vehicles should reflect the likely rate of adoption in the early stages as adoption of low-carbon technologies is encouraged. Critically, decisions taken by insurance and residual value rating companies and organisations can also impact the market size for new technologies.

It is vital that all key stakeholders, including vehicle manufacturers and suppliers, energy and infrastructure providers and governments at all levels co-operate to help accelerate the progress of the low-carbon low emission vehicle market.

The creation and existence of OLEV as a cross-departmental team has had a real strategic impact on developments in this field, while the Automotive Council has also made hugely positive strides in providing a clear technology based road map for the sector. These are developments and structures that should be encouraged and built upon to help provide continued certainty for the automotive industry and UK low carbon leadership. We want to work in partnership with the Government in order to meet environmental objectives important to us all.

In order to support further take-up of low-carbon low emission vehicles, we welcome Government’s continued support for a medium to long-term policy framework. Fiscal incentives, amongst others, will have a continued key role to play. Industry research indicates that majority of consumers prioritise economic value over environmental value when purchasing a car.

Many incentives and initiatives implemented so far both by the previous and current Governments are to be welcomed, especially the Plug-in Car Grant (PiCG). Continuation and stability of such measures is important to avoid retreating too early from the incentive frameworks or supportive fiscal arrangements which are currently in place and which, if withdrawn prematurely, could negatively impact the consumer.

We welcome the Government’s approach to encourage lower carbon choices through the Vehicle Excise Duty and Company Car Tax (CCT) regimes, as well as first year enhanced capital allowances for ultra-low carbon vehicles. However, we were surprised by the statements made in March Budget 2012 to remove the First Year Allowance from Leasing and Rental companies. This decision may cause instability in the fleet market and send a mixed message right now, should such companies elect to increase their rentals on low carbon vehicles.

1. Toyota Worldwide

1.1 Toyota is one of the world’s largest automobile manufacturers, typically producing over seven million vehicles each year. Toyota vehicles are manufactured in 63 plants in 27 countries, and marketed in over 170 countries. In Europe alone we have nine manufacturing plants, R&D and logistics centres, and employ around 93,400 people, directly and indirectly.

2. Toyota in the UK

2.1 Manufacturing

2.12 Toyota Motor Manufacturing UK (TMUK) was our first manufacturing operation in Europe. We employ approximately 3,500 members and we have invested over £2.1 billion since start of production in 1992. We have two production operations in the UK—a vehicle plant at Burnaston near Derby and an engine plant in Deeside, North Wales.

2.13 To date, we have produced over three million vehicles and three million engines at TMUK, and over 85% of this production is currently exported overseas mainly to continental Europe. The UK remains our largest supplier base for our European operations, typically purchasing around €1 billion worth of parts a year from these suppliers.

2.14 We have recently made two major announcements relating to our UK operations. Firstly, in 2010 TMUK became the first car and engine manufacturer to build a full hybrid model in Europe—the Auris Hybrid, including the first hybrid engine production located outside of Japan. This hybrid investment represented a major step in the roll-out of Toyota’s full hybrid technology and in the transition to low-carbon manufacturing in the UK and road transport more generally. Secondly, in 2011, an investment of more than £100 million was made to produce our new generation C-segment hatchbacks—including hybrid, petrol and diesel models—at our Burnaston plant, creating up to 1,500 additional jobs over the next two years.

2.15 TMUK is also one of five Toyota plants worldwide to be designated Sustainable Plant status, ensuring production facilities are designed to work in harmony with our local community and surrounding environment. TMUK was the first manufacturer in the UK to achieve ISO14001 standard for environmental management and also the first to reduce both waste to landfill and waste to incineration to zero.

2.16 Our vehicle plant this year became the first UK car manufacturer to install a large-scale solar array. Generating solar power on site to supply electricity to the plant underlines our commitment to reduce our carbon footprint further. The energy generated is capable of supplying enough power to build approximately 7,000 cars a year; saving up to 2,000 tonnes of CO₂.

2.2 Sales

2.21 Based in Epsom, Surrey, Toyota GB (PLC), is our National Marketing and Sales Company for Toyota and Lexus vehicles in the UK, employing approximately 350 members and supporting a total franchise network of approximately 235 retailers (Toyota and Lexus).

2.22 The UK is well established as one of Toyota’s largest European markets and a leading market for our environmental products. Toyota’s hybrid offering in the UK is set to grow this year with the introduction of an expanded vehicle line up, and by 2013 hybrid drive trains are expected to account for between 20 to 30% of our vehicle sales.

2.23 The Toyota brand has one of the lowest CO₂ emissions in the UK, despite a broader product portfolio with a sales fleet average of just 124.42g/km CO₂ (2011, source CleanGreenCars). This is compared to an industry average in the UK of 138.5g/km (2011, source CleanGreenCars).

2.24 In addition, in 2010, Toyota GB was one of the very first sales headquarters to achieve the Carbon Trust Standard in recognition of its past performance in reducing its carbon footprint (a 7.2% reduction in FY09 against the average of FY08 and FY07). The company has reduced its buildings carbon footprint by a further 18% in FY11*(*up to end Feb 12 YTD).

2.25 In 2009, Toyota GB was also the first vehicle manufacturer to start work with the Carbon Trust to lower the carbon footprint of its retailers. Toyota and Lexus retailers across the country are equipped with energy monitoring systems, have received energy management surveys and training.

3. Toyota and the Environment

3.1 For the automobile to remain a positive force for progress, we must continue to make the environment a priority management issue for our industry. Toyota believes that this is the only way that automakers can successfully meet the challenges of the future.

3.2 Reducing environmental impact is a key management priority for Toyota. This is fundamental to our business; we strive for zero emissions at every stage of the vehicles’ life cycle—from research and development through to design, use and disposal. Now, more than ever, we are committed to redoubling our efforts to develop advanced and innovative technologies. Freeing ourselves from a dependence on oil is key to realising a low-carbon society.

3.3 We believe there are three key themes for environmental responses (See Appendix, Slide A):

(i)Supporting energy diversity and reducing dependence on fossil fuels.

(ii)Reducing carbon dioxide emissions (global warming).

(iii)Preventing atmospheric pollution (improving air quality).

These challenges have, and will continue, to underpin our environmental technology approach, and we see hybrid systems as core technology for the development of various types of environmentally friendly vehicles.

4. Environmental Technology Leadership

4.1 Overall Approach

4.11 Toyota is the automotive industry’s leader for hybrid technology, introducing Prius—the first mass produced hybrid model—in 1997. Since then, Toyota has continued to expand its hybrid offering including Lexus and decided to make the UK its first location in Europe to build a hybrid vehicle in 2010. In 2011 in the UK, sales of Petrol-Electric Hybrids accounted for 92% of all Alternatively Fuelled Vehicles making it, still, by far the most popular alternative technology to conventional petrol or diesel ICE engines.

4.12 Toyota’s strategy of developing and marketing cleaner and greener vehicles involves the simultaneous exploration of a wide variety of technological solutions. This is a reflection of the broadly varying driving conditions, fuels, vehicle infrastructures and legislation present in various regions.

4.13 The evidence suggests that no single vehicle technology will match all requirements of sustainable mobility over time. We believe that in the future, several types of eco-car will co-exist. Toyota is therefore investing in a number of technologies to address key concerns of CO₂ reduction, air quality and energy diversity. This has led to developments and leadership in hybrid technology, plug-in electric hybrid vehicles (PHEVs) and electric vehicles (EVs), cleaner petrol and diesels, fuel cells (FCVs) and alternative fuels.

4.2 Hybrid Technology

4.21 Toyota’s sophisticated full hybrid system delivers maximum fuel efficiency and is engineered to automatically monitor driving conditions to decide whether to run on electricity, petrol or both, using a smooth flow of power between the two sources. The battery never needs manual charging as it is recharged automatically by regenerative breaking or power from the petrol engine.

4.22 For Toyota, hybrid technology will continue to act as the core platform to allow further progress in low-carbon vehicle transport. Our unique full hybrid technology enhances the efficiency of existing internal combustion engine powertrains by delivering very low fuel consumption and less harmful tailpipe emissions (NOx and PM).

4.23 Switchable EV mode, unique to full hybrid technology delivers silent, emissions-free (at point of use) fully electric urban driving over short distances. Our full hybrid technology has also been designed to be modular and adaptable to work with different energy sources (See Appendix, Slide B). This means it can be readily used in PHEVs, EVs and FCVs.

4.24 Market potential is expanding fast and we will have nine new or fully renewed hybrids in Europe by end 2013, and have a target of 20% hybrid sales by 2013 in Europe. Toyota has sold over 3.6 million hybrids to date, including more than 400,000 in Europe and just over 93,000 in the UK. Together with our current generation Prius and Auris hybrid models we are expanding our range in the UK with the introduction this year of the Prius+ (seven seater version), Prius Plug-in hybrid and the Yaris hybrid.

4.25 Our premium brand Lexus, saw significant 2011 sales increase in Europe (43,637 units, +40% versus 2010) making it the fastest growing premium brand in Europe. 2012 will mark the introduction of five new or updated Lexus vehicles in Europe including the new RX, a true series/parallel hybrid system with the world’s lowest premium crossover CO₂ emissions starting at just 140g/km. See Appendix, Table 1, for a table of some Core Toyota Hybrid Model CO₂ emissions—UK Market.

4.3 Toyota Powertrains for the future

4.31 Our powertrain direction for the future is summarised in the Appendix, Slide C. The slide highlights a range of powertrains from hybrid, PHEVs, EVs and Fuel Cell Vehicles (FCVs). Toyota believes that the electrification of transport can play an important role towards greater sustainable mobility.

4.32 This is because plug-in vehicles (PIVs) offer a promising solution for reducing consumption of fossil fuels and supporting energy diversification whilst also contributing to CO₂ and other emissions reduction such as NOx and particulates impacting air quality.

4.4 Plug-in Hybrid Electric Vehicles—“The best of both worlds”

4.41 Toyota’s Prius Plug-in hybrid is a full hybrid equipped with a stronger lithium battery that can be recharged from the grid, resulting in extended electric vehicle range.

4.42 We refer to PHEV as “the best of both worlds”. It offers the benefits of electric vehicles with zero tailpipe emissions (when in use phase) in the city, but none of the restrictions to driving range.

4.43 Toyota will introduce its new Prius Plug-in hybrid this summer into the UK and sales have already commenced in Japan. The new Prius Plug-in hybrid can drive for around 15.5 miles in zero emissions EV mode. It has a homologated CO₂ emissions figure of just 49g/km and remarkable fuel efficiency of 134.5 mpg (European homologation combined cycle). Starting price will be £27,895, inclusive of the UK Government’s Plug-in Car Grant.

4.44 In terms of initial sales target for the first full year, we have a sales target for Europe of around 6,500 units, with the UK being a key front-runner market.

4.45 We commend the work being undertaken by OLEV looking at how consumers can be enabled to charge at home and off-peak. It is important that consumers are supported to charge at home, ensuring that both the physical infrastructure is reliable and in place, as well as being able to access value-for-money tariffs.

4.46 UK Prius Plug-in hybrid Early Demonstration Results

4.461Working in partnership with EDF Energy, Toyota has already leased 20 Prius Plug-in hybrid vehicles (previous generation models) to London-based businesses and Government organisations to monitor both vehicle performance and charging patterns.

4.462Interim findings from Toyota and EDF Energy’s demonstration give encouraging, real-world data that show the technology can deliver greatly improved fuel efficiency and lower emissions in urban driving.

4.463At the same time, the car’s easy to drive character and its ability to cover long distance trips without range anxiety is being appreciated by drivers and fleet operators taking part in this program.

4.464The London findings, which support intelligence gathered from Toyota Prius Plug-in hybrid programmes Europe-wide, indicate that the majority of journeys logged by users are at an average speed and cover an average distance, which allows the greater fuel efficiency and low emissions benefits of Prius Plug-in hybrid to be realised. Initial fuel consumption data indicate performance is 27% better than an equivalent diesel.

4.5 Pure Electric Vehicles—A primary mode of transportation for shorter distances

4.51 Toyota believes pure EVs are very suitable for short-range usage and city environments, and we are planning to bring our compact IQ EV model to market in Europe in 2012.

4.52 The current state of battery technology is one of the main barriers preventing further development of EVs. There is still a pressing need for further research and development.

4.53 We currently see the practical usage scenario for electric drive-only vehicles as being for short distance commutes due to the limited range of the batteries, the amount of time it takes to charge the batteries, the current cost of batteries and the lack of charging infrastructure.

4.6 Fuel Cell Vehicles—nearest vehicle yet to an ultimate eco car

4.61 Alongside hybrids, PHEVs and pure EVs, we believe that FCVs will play an important future role in realising a low-carbon society.

4.62 Our FCV is based on our hybrid system in which the combustion engine is replaced by a stack of fuel cells and the petrol tank by a hydrogen tank. Fuel cells generate electricity from the reaction between the hydrogen in the tank and oxygen in the air. The only emission is water vapour.

4.63 We plan to commercialise a fuel cell sedan type vehicle in 2015, where supply infrastructure is taking shape. This is important as limitations including infrastructure, hydrogen supply and clean hydrogen production are still challenges to overcome.

5. The Consumer Journey

5.1 Industry research indicates that the majority of consumers prioritise economic value over environmental value when purchasing a car; and that the “environment” as a “purchase” choice does not rank within the top ten of key decision making criteria. This is a trend which has seen little change over the past 10 years.

5.2 This is why “financial” incentives and signals are important in supporting the ambition of encouraging consumers to purchase vehicles with new lower emission technologies—beyond just the expected financial returns of lower running costs.

5.3 Consumers also need to be confident about the reliability, durability and use of new technologies. Manufacturers have to build trust. With regard to PIVs, this is even more evident with issues such as range, infrastructure and battery charging times.

5.4 Toyota’s leading experience of introducing hybrid technology demonstrates that it takes time to “embed” new technology and win wider acceptance beyond a niche market of early adopters. We believe consumers will require time to adapt to technologies and behaviours.

5.5 This can be exemplified in the Appendix, Slide D. Please note the shallow rate of adoption of hybrid vehicles (globally) between 1998 and 2005. More mass market adoption and penetration has accelerated only over the last five years or so, and this is due to factors such as: an increase in our hybrid product range; continuing development of the technology; the consumer becoming more familiar with such technology and its benefits; a number of governments putting in place measures to incentivise low-carbon vehicle choice in support of transport and environmental objectives.

5.6 Toyota would argue that expectations for new PIVs should be similarly modest in the early stages, and perhaps even more so because of the need for external charging. This is why it is critical to ensure we have a “package” of measures and influences over the medium to long term to encourage take up.

5.7 Such measures will ultimately include: consumer grants/incentives; national tax benefits/relief (VED/Benefit in Kind/Capital writing down allowances); adequate and supportive infrastructure; awareness raising and confidence building programmes. Equally, the consumer will also be influenced through local or regional measures such as exemption from congestion charging schemes and local parking restrictions and from access to priority vehicle lanes. Critically, decisions taken by insurance and residual value rating companies and organisations can also impact the market size for new technologies.

5.8 The UK Government’s (DECC) Carbon Plan has set the target of halving greenhouse gas emissions in the 2020s, putting the UK on a trajectory towards an 80% reduction by 2050 while maintaining energy security, and minimising costs to consumers. The UK Government Carbon Plan recognises that road transport and cars make a significant contribution with domestic transport emissions making up nearly 25% of UK total emissions and states that Electric Vehicles and other low carbon transport sources will also be pivotal to emission reduction efforts.

5.9 This ambitious challenge demonstrates the importance of a coordinated approach in partnership between industry, government and stakeholders to foster an environment which will support the development and uptake of ultra-low emission technologies including Hybrid, EVs, PHEVs and FCVs. Furthermore, European legislation regulating emissions from new cars already provides a legal framework which industry is striving towards.

6. Supporting the Take Up of Plug-in Vehicles

6.1 Wherever we operate, we want to work in partnership with Government in order to meet environmental objectives important to us all. We have been encouraged by the current UK Coalition Government’s (as we were with the previous Labour administration’s) determination to play a leading role in the development of low-carbon low emission vehicles, both in terms of production and market development. Early measures already developed and adopted by UK Government to signal the UK as a leading market have been recognised by international Head Offices abroad.

6.2 In terms of developing a market for plug-in vehicles, we strongly endorse and welcome the following steps that have been taken:

Office for Low Emission Vehicles (OLEV): The creation and existence of OLEV has had a real strategic impact. It is to the UK’s credit that it has led the way internationally by facilitating the creation of a team which allows joined-up work between various governmental departments including Department for Transport, Department for Business, Innovation and Skills and the Department for Energy and Climate Change.

UK Automotive Council: Similarly, the development of the UK’s Automotive Council has been a hugely positive step for the sector. Most notable has been the development of the Technology Roadmap, which has set a long-term vision for the whole automotive industry to help bring new innovations in reducing CO₂ to market—including plug-in technology. (See Appendix, Slide E).

6.3 Taxation Treatment: We welcome the Government’s approach to encourage lower carbon choices through the Vehicle Excise Duty and Company Car Tax (CCT) regimes, as well as first year enhanced capital allowances for ultra-low carbon vehicles. This is a welcomed direction and adds to the point about a “package of measures”. Key early customers will also be fleets and businesses who will benefit from these measures. We encourage continuity of these measures as any unexpected changes to the treatment of low-carbon vehicles in relation to CCT and capital allowances could have a detrimental impact on the uptake of such technologies and deter fleet and business purchasers from making decisions on the basis of cost of a vehicle over a number of years. This is why we were surprised by the statements made in March Budget 2012 to remove the First Year Allowance from Leasing and Rental companies. This decision, as mentioned earlier may cause instability in the fleet market and could send a mixed message impacting market development right now.

6.4 The Plug-in Car Grant (PiCG): The PiCG has provided a strong starting platform to promote plug-in vehicle uptake and help address consumer acceptance concerns. Specifically, the early consultation on the criteria for the PiCG with industry was invaluable in order to ensure credible performance criteria and sufficient lead times for our sector. The latest decision to continue with the PiCG scheme for the lifetime of this Parliament (until 2015) is also strongly welcomed, and will continue to provide the early market with some degree of certainty.

6.5 Plugged-in Places (PiPs): Equally, the Plugged-in Places scheme has been an important step forward for low-carbon vehicle infrastructure. A “national” infrastructure spread will eventually be required if plug-in technology is to become a viable option for more of the population. The forthcoming development of the National Chargepoint Registry will also be vital in helping make plug-in technology more viable for the consumer, allowing them to understand where they can charge their vehicle on a national scale. It is also important that the infrastructure installed meets the technological requirements of the various vehicle technologies, as for example not all PHEVs including the Prius Plug-in hybrid require fast or rapid charge.

6.6 Ultra-Low-Carbon Vehicle Demonstrations: Both the Technology Strategy Board and CENEX ran competitions in support of trials of low-carbon vehicles in the UK including PHEVs and pure EVs prior to market introduction. Critically these trials achieved international exposure, and helped generate greater consumer awareness, and their key findings have undoubtedly helped both industry and the Government with market preparation.

6.7 Mixed Signals and Early Retreat on Tax Treatment: The Government must ensure that further adoption of new automotive technologies is not hindered by retreating too early from the incentive frameworks or supportive fiscal arrangements currently in place. Announcements in March 2012 Budget will lead to more normalisation of PIVs for UK tax treatment as they will reduce the relative incentive to run PIVs. Whilst this “normalisation” timing has been set for around 2015, the impact on market development is likely to be today. We encourage a coordinated cross-departmental approach by Government on policies relating to low carbon which needs to also appreciate the benefits of low emission vehicles from an air quality perspective.

7. Lessons From Other Countries

7.1 It is encouraging to see the UK as a leading candidate country in Europe for the development of a low carbon vehicle market. Analysis of the landscape undertaken by the Society of Motor Manufacturers and Traders (SMMT) shows that uptake of vehicles is of a comparable level to that of other major markets in Europe. For example, for the whole of 2011, UK electric vehicle registrations represent a total market share of 0.06%, compared to 0.11% in France, 0.05% in Spain and 0.07% in Germany. The United States and Japan are demonstrating some higher levels of registrations with 0.16% and 0.36% market share respectively.

7.2 Other Governments are showing similar commitment to the UK, with purchase incentives available for example in France (worth up to €5,000), Spain (worth up to €7,000), Ireland (worth up to €5,000), and Portugal (worth up to €5,000). In the United States, the offer of a tax credit up to a maximum of $7,500 is available.

7.3 However, not all countries have taken a technology-neutral stance, with some choosing to differentiate between pure EV and PHEV which may have a detrimental impact on the market and the consumer choice and fails to recognise the important long-term cost savings and emissions benefits which PHEV offers. We strongly endorse and commend the UK Government’s technology neutral approach which is crucial to support the consumer journey, wider technology competition and ultimately a greater level of environmental benefit.

8 Guiding Principles

8.1 In order to continue to establish a more mainstream market for plug-in vehicles and ultra-low carbon vehicles we would continue to strongly endorse the following guiding principles:

8.11Positive Stakeholder Approach: Genuine electric mobility can only succeed in the longer term with the support and commitment of all key stakeholders including vehicle manufacturers and suppliers, energy and infrastructure providers and governments at all levels (European, national, regional and local).

8.12Strategic, consistent and longer term policy framework: In order to establish a more mainstream market for plug-in vehicles there will need to be in place a continued package of measures including targeted consumer incentives and fiscal measures, improved education and awareness campaigns, and supportive and adequate infrastructure.

8.13Encouragement for consumer adoption: All stakeholders need to work together to encourage wider uptake of low-carbon low emission products. Consumer awareness and adoption of low emission technologies is a key challenge.

8.14Residual Value Setting/Insurance: We consider it important that the insurance industry and vehicle manufacturers who are bringing PIVs to market engage with each other extensively in order that they fully understand the technologies involved and the extent to which vehicle manufacturers strive through design, engineering and manufacture to minimise repair costs and also costs associated with write-off were this to occur. Whilst consultation with vehicle manufacturers is an integral part of the process leading to the establishment of insurance group ratings, to ensure an appropriate depth of understanding, such consultation and discussion should be especially thorough in the case of PIVs.

8.15Fiscal incentives/Taxation: These have a role to play in supporting early and emerging markets for plug-in technologies. We commend the Government’s PiCG as a signal for low-carbon leadership, and welcomed its continuation to 2015. The supportive treatment of PIVs and low-carbon vehicles within national tax structures will also continue to have an impact both positively and negatively; and thought needs to be given to treatment and incentives post 2015 to provide greater levels of certainty for an emerging market.

8.16Equal technology treatment (PHEVs and EVs): We support equal treatment of low emission technology use. Governments—national and local—should not be in the business of picking winners and losers, but should set the key targets and parameters around which manufacturers and others can compete.

8.17Durable, reliable and safe product: Increasing consumer confidence and acceptance will not only come from environmental performance but also product quality, durability, reliability and safety. Manufacturers will have to continue to build trust.

8.18Standardisation: the need for standardisation of plugs and sockets is equally as important in this journey. Compatibility of existing and planned infrastructure to any uniform standard agreed and emerging is vital.

Final Remarks

We welcome the opportunity to respond to this consultation and we welcome your consideration of the feedback submitted in this paper.

APPENDIX

April 2012