Both companies manufacture large numbers of eco-friendly vehicles, but which one stands up best against the thorough Triodos investment criteria? Caithlin Marugg, investment analyst at Triodos IM tells us why Toyota is part of the Triodos investment universe and why Tesla is not.
With seven million deaths worldwide every year attributed to air pollution and transport accounting for 20% of global CO2 emissions, the need for modes of transport with low or no CO2 emissions is paramount if we want to achieve climate stability and healthier societies. Electricvehicles – along with a big shift towards public transport, cycling and walking – can lower emissions, but not all manufacturers are considered sufficiently sustainable for investment by Triodos IM, the globally active impact investor arm of Triodos Bank. It might surprise you to learn that Toyota has the leading edge and that Tesla has a way to go to catch up.
Toyota gets the green light
With the early introduction of the Prius model in 1997, Toyota was way ahead of its competition. It currently offers 36 electrified vehicle models in 90 countries around the world, and within the next five years, it wants to launch 40 new or updated vehicles. According to the European Environmental Agency, the new vehicle CO2 emissions of Toyota are the lowest in Europe.
“Toyota not only has a strong track record and reputation for reliability, safety and low cost of ownership, it is a global leader in electrified engine technology and battery development. Its manufacturing platforms can be readily transformed to produce other types of electrified vehicles, and it has the scale to develop, invest in and roll out new types of vehicles and technologies,” says Marugg.
Toyota is currently in the portfolio of the Triodos Global Equities Impact Fund that aims to support large multinational companies to move towards more sustainable products and services. Triodos IM positively screen for companies that contribute to the United Nations Sustainable Development Goals and meet one of seven transition themes. Toyota contributes to our investable sustainable transition theme of Sustainable Mobility and Infrastructure.
So why not Tesla?
It’s not all bad news for Tesla. It has sold around 1 million vehicles to date, including its sleek Model 3, the best-selling plug-in model in the world. The company’s mission and products are fully in line with Triodos IM’s vision, growth prospects are excellent, and it has helped bring electric vehicles to mainstream markets. As a smaller company it can also be more disruptive in the way it operates.
However, there were several areas of concern that translated into a decision to not invest in Tesla: “The major concerns with Tesla relate to governance issues,” says Marugg. “In 2018 its CEO, Elon Musk, received stock options worth $2.3 billion, creating a massive liability risk and limiting smaller shareholder power. By comparison, Toyota’s CEO Akio Toyoda earns around $1.8 million. There were also allegations from the US Securities Exchange Commission that Musk shared non-public information via social media, which influenced the company’s stock price.”
Raising more red flags, Triodos IM research has considered reports that Tesla intimidated and threatened employees to prevent unionisation in the US. The company is also accused of having poor working conditions in its car factories and forcing its employees to work long hours, leading to health and safety issues. Furthermore, the company failed to prevent child labour in its supply chain for cobalt sourcing in Congo. At the time of the analysis, Tesla had difficulties ramping up production. Attempts were made to engage with Tesla on several issues, but dialogue was strenuous as it mainly highlighted the positive impact of its products.
“It is not only important for a company to have a sustainable product, but to also have sustainable production processes, working conditions and supply chains,” says Marugg.
In 2018, Elon Musk received stock options worth $2.3 billion, creating a massive liability risk and limiting smaller shareholder power. By comparison, Toyota’s CEO Akio Toyoda earns around $1.8 million.
Marugg says that Toyota is far better positioned than Tesla to meet the Triodos IM transition-themed investment strategy requirements. Amongst other things, key strengths relate to its:
- positive, open and responsive engagement
- challenging zero emission targets for new vehicles, lifecycle and plant
- production adaptability
- product differentiation strategy
- embedded continuous improvement
- vehicle end-of-life goals that incorporate circular economy principles.
Toyota also has extensive research on core electrification technologies and notably deliberately skipped the current generation of ion-lithium batteries and has put all of its efforts into next generation solid state batteries, which have better performance and require substantially less rare earth metals and chemicals.
“Triodos does not only look for pure play sustainability companies that are innovative in a niche but also looks for companies that are transitioning to a more sustainable future. There is significant value in companies that have scale and that can adapt their existing systems,” says Marugg.
Toyota’s management strategy is underpinned by innovation, evolution, and teamwork. It is famous for its 'kaizen' cost control and efficiency improvement philosophy. This approach has kept Toyota in their leading position for a long time and “is a strong point of difference between Tesla and the way the two companies work,” says Marugg.
Stock price considerations
Looking at stock prices, Toyota again came out on top: “Right now we are seeing that Tesla’s stock price is going through the roof, but we really believe that what we pay for shares should be balanced against company earnings. In Toyota’s case it’s fair, but in Tesla’s case, we think that the stock is significantly overvalued. Tesla is treated like a tech company, but it is mainly an automotive company and it has some fierce competition. This is not reflected in the price,” says Marugg.
Future outlook
The trends continue towards low-emission vehicles, intelligent cars, autonomous driving, and car sharing. Technologies are also heavily under development, and hydrogen vehicles are expected to become even more attractive due to their zero emissions, long-term storage capacity, and pricing improvements.
Twenty years ago, electric vehicles were really a niche market, but now they are becoming more and more mainstream. There’s a big push from European governments too. In Europe, between 2019-2021 car manufacturers are required to reduce the average emissions of their new fleet by around 29%.
“There are so many changes in technologies, exciting changes in hydrogen and battery driven cars, and plug-ins, not to mention automated driverless vehicles and connected vehicles. These are very important trends for the coming decades, and it’s going to be really interesting to see how it evolves,” says Marugg.
Making a difference
Triodos Impact Investment Funds focus on driving positive environmental and societal change around the world and work hard to deliver competitive financial returns. You can invest in the funds directly or via the tax-efficient Triodos Stocks & Shares ISA.
Please note that with investment in ethical funds and companies, as with all investments, past performance is not a guide for future returns and you may not get back the amount that your originally invested.
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I understand and accept the comparison of the different ethics, governance and production processes in the two companies, but surely they can’t be directly compared in terms of CO2 emissions? Unless I am much mistaken Tesla produce only zero emissions vehicles (ie battery EVs) whereas Toyota don’t produce any (ie only hybrids reliant on burning fossil fuels). I hope this is going to change but meanwhile, I suggest you join those who are now questioning hybrids.
I agree completely. I have owned four petrol Toyotas in the past and now have a hybrid. All incredibly reliable. But my hybrid (Auris, basically a mk.2 Prius with a more practical body) is just a petrol car with reduced fuel consumption closer to a diesel, nowhere near what is claimed. It doesn't help that the fuel consumption displayed is typically optimistic by about 10%. When are Toyota's electric vehicles going to appear? Current EVs are far too heavy to be really efficient (nearly half a tonne of batteries in the longer-range models) so will Toyota overcome that problem? The super-expensive Toyota Mirai and other makes of hydrogen cars have missed the boat, at least in Europe.
You are not comparing like for like. Toyota has yet to deliver a full electric model, propping up the continued use of fossil fuels with hybrids. They may have built cars for 90 years, but not electric cars. Toyota may be a lower risk investment, but that investment is not currently saving the planet. That may change in the future but only if they are pressured to replace their fossil fuel powered models.
https://www.theguardian.com/environment/2021/mar/18/why-japans-carmaking-heavyweights-could-be-facing-an-electric-shock?CMP=Share_iOSApp_Other
While the governance of Tesla leaves much to be desired I am surprised that Triodos would have anything to do with Toyota, which continually hypes its “self-charging hybrids.” The extra emissions required to haul round a battery are not negligible. Moreover Tesla is placing a huge bet on rechargeable battery technology that doesn’t use cobalt. What is Toyota doing about this? They use cobalt too.
I think you're mistaken in key parts of your comparison. Toyota are strongly anti-pure electric cars. They're pursuing the far less efficient (and for a long time fossil-based) hydrogen route. And Tesla are moving quickly to non-cobalt battery chemistry. their governance may be questionable, but their carbon intensity is, and will remain, far less.
All batteries require recharging, and recharging sources differ. Pure electric is certainly a lot simpler, but it is only green if the power source is also green. It’s the same with hydrogen technology ... the hydrogen has to be made, and there are different ways of doing this, some greener than others.
Interesting and informative. I am a Toyota owner and learned a great deal from this article. I look forward to Toyota’s continuing progress on the road to very low carbon motoring.
Thank you for sharing Caithlin. A wonderful article. I have had a Toyota Gen 2 (2007), 3, 4 and now their Plug-in Prius. Their whole ethos, management and technology is amazing. I would never, ever purchase a Tesla due to Musk's elite behaviours and actions. I also believe he's another character behind the Covid-Cult.
"Please explain what you mean by the Covid-Cult"
Really informative article thank you .
This is a very helpful article as I work out my car buying strategy for the future.
The article is informative but Toyota appear to be ignoring the push towards pure EVs. I can't understand why and for that reason alone I would not invest in them. There are other generic car manufacturers who fit the bill such as Nissan, Renault, VW.
Very enlightening and helpful.
I agree with other comments about Toyota creating far more pollution in terms of air quality impacts than Tesla does. I also think Triodos should be assessing the global carbon footprint of Toyota vs Tesla. That will indicate that Toyota's emissions dwarf those of Tesla. It's very hard to argue that a legacy automaker is a green business. Far easier with a new start-up EV automaker like Tesla, Rivian, Lucid, Arrival, Sono, Xpeng, etc.
I'm sorry, but I really think you've managed to not see the wood for the trees here. True, Toyota made a great and important start with the Prius. But it has now stalled big-time, yet to make a fully electric vehicle despite the technology being 100% available. With it's cynical and misleading 'self-charging hybrid' marketing it has set back large-scale BEV adoption years. Likewise, it's ridiculous attempt to go the hydrogen route (e.g. the Mirai), and thus shore up the fossil fuel industry. Meanwhile Tesla has revolutionised the EV space, almost single-handedly forcing the rest of the industry to follow along. Last but not least, by falling into the trap of focussing on the downsides of battery manufacturing (cobalt, etc.) you somehow manage to accommodate and/or ignore the colossally greater and far more devastating impacts of fossil fuel production and burning, which Toyota are still wilfully enabling. I have to say that as a Triodos investor, customer and supporter, I am stunned and disappointed.
Points to consider about Toyota: - In January they were fined by the EPA for failing to report and deal with emissions for 10 years - Akio Toyoda has admitted that hydrogen is effectively dead for cars - their solid-state batteries won't be ready for mass production until 2025, and even then, they will only produce 1 million cars - the same number that Tesla is expected to build this year... - most viable solid-state batteries in development use the same cathode material as current Li-ion cells and therefore use the same amount of rare-earth metals - they just omit the graphite/silicon anode. Furthermore, they won't start volume production until 2025, and won't compete on cost until at least 2030 - too little, too late in my opinion - the most sustainable current-generation Li-ion batteries are iron-based (LFP), something that Toyota won't even consider due to not being able to charge within 5 minutes
Just to be clear, because it seems this claim keeps being made by people with no scientific background: there are NO (zero) rare-earth elements used in automotive-grade Li-ion batteries. The typical NMC battery includes nickel, manganese and cobalt. The NCA battery contains aluminium instead of manganese. The LFP battery is iron-based. None of these are rare-earth elements. This report fails on so many levels (and seems based exclusively on Toyota’s press releases and Tesla clickbait articles) it’s not even funny. Please don’t call this analysis, it’s not that even remotely.
Good point - I haven't looked at a list of rare-earth elements since never! A quick look shows neodymium - not found in batteries but found in permanent-magnet motors of EVs! :-O
Very interesting. It’s helpful to be given a look at the car industry from the Triodos point of view ie environmental sustainability and fair play and good business practice. Personally I find Elon Musk quite scary. It’s quite a relief to hear that all is not what it seems in his world.
I do too, and though Musk the person is not quite the same as Tesla the business there is a connection.
This article makes me question if Triodos really is an ethical bank. I mean really Toyota over Tesla. What a joke.
Thank you to everyone who has commented, it's great to see so much discussion on this topic. For those that are disappointed, we'd like to note that the purpose of this article was to make clear that there are more aspects included in a sustainable analysis of a company than how sustainable it may appear at a first glance. This article is based on a conversation with our investment fund team in November last year and the information available at the time of writing. It is a subject around which we continue to monitor developments very closely.
A very informative article and subsequent conversation, bravo Triodos on many fronts. Unfortunately one of those fronts is *not* your response to comments. Your response makes no acknowledgement of many very valid points made, your implication that it might have been correct in November is very weak, none of the criticisms offered will have changed by events of the last four months. Your first level customer engagement is great, the second level could do with improvement. And this page is broken. Submitting and reply without an email address fails, ok, but then adding the email address doesn't work.
In fact why are you even investing in the stock market? I thought that is why I was paying my monthly fee, so that you wouldn't be involved in the corrupted stock market. Let me guess, your hedge fund is shorting Tesla. What a joke!!!
Hi Chris – if you’re referring to the monthly fee for the Triodos Current Account, we just want to clarify that Triodos Bank UK do not invest in Toyota. We lend to sustainable businesses and organisations in the UK. Toyota is included in the portfolio of the Triodos Global Equities Impact Fund, which individuals can choose to invest in, for example through a Stocks and Shares ISA. Triodos Investment Management is a wholly-owned subsidiary of Triodos Bank, and have been active in the sustainable investment sector for over 25 years.
I understand the governance and supply chain concerns re Tesla but at least in Sweden, where I live, Toyota has bet everything on non-plug-in hybrids, bringing the transition to more sustainable transportation several years back. Nine years after Model S they still haven't a fully electric car for sale - hardly aligned with themes 2, 3 and 6 of Triodos transition approach, if you ask me.
Thank you, for emailing me this article. Without it I would still believe that Triodos is a rare bank out there that doesn’t support fossil fuel industries. I do hope that the Triodos Investment Management can put their personal dislike for Elon Musk aside and once again compare these two companies in terms of what they have actually done to help solving the climate change.
As a customer I am disappointed in the decision to invest in Toyota. Although I appreciate your analysis into Telsa and your decision not to invest, I think investing in Toyota does not align with your ethical investment principles. You lead the article by mentioning the 7 million deaths caused a year by air pollution. You then go onto mention how Toyota's manufacturing platforms can readily produce further electrified vehicles and how they have the scale to do so. There is no excuse therefore for Toyota to be one of the only mass manufacturers to have not brought a zero emission capable battery electric vehicle to the EU market. Not only this, it has proactively sought to damage the reputation and sales of battery electric vehicles through its marketing campaigns. For me, no company that is ethical will seek to prolong the life of its investments into technology which kills people every year and which accelerates climate change, especially when this company is the global market leader and is directly attributable to a large portion of global emissions. There decision to 'hold' on zero emission battery technology (which unlike hydrogen is market ready) is an act of putting profit before the lives of people.
Excellent article. As your article states, and others have commented on Elon Musk has a poor record generally in ethics and environmental issues (e.g. SpaceX). Musk is a leading member of the PayPal Mafia, (see Wikipedia) using his Social Media contacts to artificially inflate the share price of Tesla. However Triodos should be looking at the Chinese manufacturers of EVs, who make the majority of the worlds EVs. BYD is the leading manufacturer and innovator of batteries and sells EVs at a quarter of the price of Tesla.
yeah sure, petrol car maker vs electric car maker and the petrol car wins?! This is woefully incorrect.
Informative
Simply click the button below to publish your comment on Comparing companies – Toyota and Tesla We have a Tesla 3, which is a new experience, to be compared with a symphony concert. So much is excitingly different and smooth to use. It is 100% electric drive and not a hybrid. By supporting Toyota, Triodos is now supporting dying technology with no evidence of a 100% electric car competitor to the Tesla 3. You have misjudged the technology. This comment will be published with the name: John Twidell
interesting but concerned about your citing" reports that Tesla intimidated and threatened employees to prevent unionisation in the US" without any apparent consideration of the position and role and effectiveness of unions in representing the interests of workers at Toyota
I am very surprised that Triodos has elected to work with Toyota - they have not yet introduced a single EV to the UK market, making them pretty well the worst manufacturer. Nissan began building the Leaf in Sunderland in 2013. And it's not as though Tesla is the only producer of electric vehicles. VW now produce some excellent models. But surely the correct attitude for Triodos to adopt is "A plague on all your houses!" It is not possible for any form of driving to be environmentally sustainable because of the huge demand of maintaining a road network designed for >1-tonne vehicles mostly carrying individuals about the place. Triodos should not be encouraging any form of car ownership, but working towards a society with widely-used public transport and almost universal use of the bicycle. I've owned exclusively electric cars since 2014 but I have used each as little as possible. I would happily get rid of my car if only public transport offered a reasonable alternative. I do make sure that I cycle as much as I can.
Looking to the future, we need to rein in excesses, and car sharing/pooling should be encouraged. But most people I speak to strongly dislike the idea of driverless vehicles (autonomous driving?) "Intelligent cars" with complex, tiny electronics mean there's more to go wrong, which can be dangerous - an unnecessary device caused my car's electrics and speedo to cut out - worrying. And consider the 2 Boeings that crashed. Electric vehicles should be cheaper, but I would never buy Chinese.
Incredibly bad news to the extent that I regret investing in your recent bond issue. Toyota have actively lobbied against EVs. Their CEO recently spoke out against EVs quoting a number of falsehoods, and their “self charging hybrid” ads are deliberately intended to mislead. They did not deliberately ‘skip’ the current battery tech, they have just fought the whole move to EVs, and now finding that it is happening anyway, choose to lie again about their position. And your ‘analysts’ invest in that? Toyota are so far behind on EVs that they have a good chance of failing completely in the next 10-15 years. My bond investment is at risk if this is the quality of your investment thinking.
Really?! Not what I was expecting, I have been following EVs for 5.5 years and driving them for 5. My aim is still to get a Tesla at some point but have invested in their stock for now. Toyota was indeed ahead of the game with soft hybrids but that is 20 year old tech and essentially means you are still combusting oil to get motion. They are also still banging on about Hydrogen Fuel Cell (an EV with tiny battery requiring Hydrogen). H may be the commonest element in the universe but well-to-wheel measurement of the energy required means they are a non-starter for light vehicles (even if the energy is "free" surplus renewable energy, eg overnight wind, if you still the same energy into EVs (most are stationary at night), you'd get 3 or 4 times as many miles. Don't be fooled by HFC, will never make ecumenic sense and doesn't make environmental sense either. More research required me thinks.
Very disappointing. Toyota is in no way ethical. 3 years ago I visited a Toyota showroom to consider a Prius - the salesperson argued the nuclear power was great, that EV’s were a waste of time and that Toyota considered EV’s to be useless. He said these ‘facts’ were supplied directly by Toyota HO and that Hybrid and petrol technology were the future until hydrogen power took over. Suffice to say I didn’t buy, but this definitely supports other comments made - Toyota have just launched an EV but are still peddling ‘self-charging’ hybrids? I’d love to know how they have managed to discover a source of endless energy requiring no energy input! Oh, you do have to burn petrol? But you said it was ‘self-charging’! Anyway, Elon Musk does live in his own dream bubble but at least Tesla has forced the market to move. Arguably without Tesla, Mercedes, BMW, Jaguar et al would still be telling us diesel is fine and Toyota/Lexus doing their best to tell us their self-charging petrol cars are somehow more environmentally friendly. Finally, as an EV owner (BMW i3 which I bought used) I am well aware that it’s going to be at least 120,000km before my ‘green’ car is any more green than my previous petrol car. I don’t plan on replacing it but why is an ethical enterprise investing in any business which still promotes fossil fuels?
I read the full article and have to agree from an automotive & governance point of view. Tesla is also very big and innovative in solar power batteries power plants so whilst I can understand the automotive and governance arguments, what is Triodos investing in on that front?
Transitioning to a fossil-fuel-free economy is a priority for Triodos Bank and Triodos Investment Management. A number of solar energy companies are included in the Triodos Impact Investment Funds, including Valoe and First Solar.
Informative. Contrasting the two companies is interesting and reveals values that Triodos considers important. Triodos decisions are also important for individuals since it can help make personal choices that align well with their own ethical stance: whether to buy a Tesla or a Toyota.
Worrying given the current reports stating Toyota is actively lobbying to delay the adoption of electric vehicles. According to this article in Ars Technica 2021-07-27 https://arstechnica.com/cars/2021/07/toyota-bet-wrong-on-evs-so-now-its-lobbying-to-slow-the-transition/ "Toyota has been lobbying governments to water-down emissions standards or oppose fossil-fuel vehicle phaseouts, according to a New York Times report. In the last four years, Toyota's political contributions to US politicians and PACs have more than doubled. Those contributions have gotten the company into hot water, too. By donating to congresspeople who oppose tighter emissions limits, the company funded lawmakers who objected to certifying the results of the 2020 presidential election. Though Toyota had promised to stop doing so in January, it was caught making donations to the controversial legislators as recently as last month." Tesla has done more than any other car manufacturer to decarbonise road transport. It is time to re-evaluate this investment decision. We don't have time to allow perfect be the enemy of good.
Why are you investing in any car companies when, apart from planes, they are the most polluting means of transport on the planet?
I don't know if you are aware that Toyota are the third worst lobbyist against effective climate action (https://www.theguardian.com/business/2021/nov/04/us-oil-giants-top-list-lobby-offenders-exxonmobile-chevron-toyota). Which in my books makes them profoundly unethical. So why are Triodos recommending and investing in them.
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