The Engine as the Heart vs. the Car as a Smartphone on Wheels: Toyota’s $9 Billion Bet

Akio Toyoda’s philosophy of “preserving the engine” and Toyota’s securing of roughly $9 billion in investment firepower
The electrification of automobiles: V2L and energy arbitrage
If EV bottlenecks are resolved, high-efficiency engines could be isolated like Betamax

As the automotive industry’s paradigm rapidly shifts from the “pinnacle of mechanical engineering” to “consumer electronics on wheels,” Toyota Motor Corp. is charting a contrarian course by doubling down on the advancement of internal combustion engines. By exploiting the “chasm” delaying mass EV adoption with a hybrid-centric strategy, Toyota has secured substantial investment resources and, for now, locked in tangible profits. Yet if the market’s trajectory ultimately settles into full-scale consumer-electronics convergence, critics warn that Toyota’s prized high-performance engine technologies could follow the fate of Betamax—technically superior, but displaced in the standards war.

“The Engine Is the Soul of Technology”: Toyota’s Profit-Driven Countercurrent in R&D

According to a January 7 report by Nikkei Asia, Toyota is significantly ramping up investment in internal combustion and hybrid technologies, balancing China’s rapid electrification push with surging hybrid demand in the U.S. market. This stance stems from the firm conviction of Chairman Akio Toyoda. He has argued that if cars rely solely on AI and battery performance, they risk devolving into industrial commodities, stressing that the disappearance of engines—the “soul” of automakers—would constitute a technological loss. Even as electrification progresses, Toyoda has projected that battery electric vehicles will account for no more than about 30% of the market, leaving the remaining 70% to hybrids and hydrogen-powered vehicles, where engines remain indispensable.

This contrarian posture rests on disciplined pragmatism and confidence. While rivals poured capital into EV transitions and struggled with profitability, Toyota focused on its core strength—hybrids—and reaped substantial returns. In the first quarter of fiscal 2025 (April–June 2024), amid the EV chasm, Toyota and Lexus hybrid sales surged 23.8% year over year to 998,000 units. Operating profit rose 17.7% to approximately $9 billion. Profits from hybrids and high-efficiency engines are being recycled into future electrification R&D, creating what executives describe as a virtuous cycle of “buying the future with engines.”

This strategy has crystallized into a region-specific multi-pathway approach. In the U.S., Toyota has moved to consolidate hybrid dominance based on concrete demand, committing up to $10 billion in additional investment through 2030. The company plans to expand production capacity for next-generation hybrid engines and transaxles at five U.S. plants, reducing parts dependency, and has converted its bestselling RAV4 sold in the U.S. entirely to a locally produced standard hybrid lineup.

In China, where price competition is intense, Toyota has opted for deep localization. The bZ3X, co-developed with Guangzhou Automobile Group, uses cost-effective lithium iron phosphate batteries, lowering the starting price to roughly $15,000. The model attracted more than 10,000 orders shortly after launch. One Toyota executive reportedly said that if headquarters hesitated, he would personally push through China investments to defend market share.

Underpinning this flexible market strategy is massive technological investment. Toyota has budgeted approximately $9.1 billion for R&D in fiscal 2025, exceeding peers such as BYD (about $8.4 billion) and Tesla (around $4.8 billion). Working with Subaru and Mazda, Toyota is developing next-generation 1.5-liter and 2.0-liter engines that are 10–20% smaller and lighter while supporting carbon-neutral fuels such as synthetic fuels, biodiesel, and hydrogen.

Toyota has also continued to pursue peak internal combustion performance. Its flagship sports car, the GR GT, slated for release in 2027, will feature a newly developed 4.0-liter V8 engine. Takashi Uehara, head of powertrain development, said the engine is designed to exceed 650 horsepower with maximized high-rev performance. The GR GT3 variant will incorporate a self-charging hybrid system that recharges while driving, preserving racing efficiency while delivering immediate throttle response and a refined exhaust note.

Cars as Smartphones on Wheels: The Consumer-Electronics Turn of the Auto Market

Whether Toyota’s strategy will ultimately prevail remains uncertain. Industry realities are racing in the opposite direction—toward full consumer-electronics convergence. A symbolic moment came when GM Korea unveiled the Chevrolet Bolt EV not at an auto show, but at Korea Electronics Show in 2016. Even a legacy internal combustion powerhouse was signaling that cars were no longer mere machines but advanced electronic devices.

From a technical perspective, EVs resemble smartphones on wheels. Rather than complex mechanical assemblies with more than 20,000 moving parts, they are essentially high-capacity batteries topped with processors and software. Features such as vehicle-to-load functionality—seen in Hyundai’s Ioniq 5 and Kia’s EV6, which can supply up to 3.6 kilowatts of external power—underscore this shift. Cars have become oversized power banks, capable of running coffee machines, microwaves, and outdoor cinemas at campsites.

Consumer behavior has gone further, encroaching on the realm of energy storage systems. Some users exploit energy arbitrage by charging EVs overnight at low electricity rates and powering home appliances during expensive daytime hours via V2L, avoiding tiered pricing. As Kia’s EV6 manual formalizes the experience of “drawing 220 volts from the car,” EVs have become devices to be used, not just driven.

Technological Superiority Does Not Guarantee Victory: The Betamax Lesson

Toyota’s engine-centric strategy remains viable today because EVs have yet to fully overcome key bottlenecks. According to a June survey by the American Automobile Association, consumers cited battery repair costs (62%), vehicle prices (59%), and long-distance driving limitations (57%) as primary deterrents to EV adoption. Charging anxiety and cold-weather efficiency losses persist. Tests by U.S. software startup Recurrent showed average driving range falling by about 30% at minus 6.7 degrees Celsius.

As long as these frictions endure, Toyota’s hybrid solutions remain a rational choice. Yet history cautions that technical excellence alone does not ensure market victory. Observers draw parallels to Sony’s Betamax in the 1980s. Despite superior picture quality, Betamax lost the standards war to VHS, which offered longer recording times and open licensing, benefiting from network effects. Betamax became a symbol of Japan’s “Galapagos syndrome”—technological isolation despite excellence.

In the automotive arena, charging reliability and cost predictability may ultimately outweigh engine performance. Signs of change are emerging. The Verge reports that the spread of heat pump technology has improved cold-weather EV efficiency by 8–10%. J.D. Power data show failed charging experiences in the U.S. falling from 20% in 2024 to 14% in 2025. In China, a Shell survey found 69% of respondents viewed public charging as cost-effective, far exceeding Europe’s 17%. Norway’s experience—where pure EV penetration reached 88.9% in 2024 and 95.9% in 2025—demonstrates that once infrastructure and trust are established, even harsh winters cease to be barriers.

If declining battery costs and expanding infrastructure push EVs past a tipping point, the landscape could shift abruptly. Once EVs become more convenient and economical than internal combustion vehicles, Toyota’s $9 billion investment in high-efficiency engines and complex hybrid systems risks becoming over-engineered excess—an expensive solution consumers no longer need. As with Betamax, technical superiority may not translate into standard-setting power, leaving Toyota’s engine-centric strategy vulnerable in the face of full-scale EV adoption.