2018 Volume 7 Issue 2 Pages 245-250
Is Toyota, a global leader in hybrid electric vehicles (HEVs), falling behind its competitors with battery electric vehicles (BEVs)? This study addresses this question through a real options reasoning (ROR) approach. ROR is heuristics of decision-makers to recognize and exploit options in investments in real assets under uncertainty. Using the ROR as a lens, I distinguish three option values in Toyota’s hybrid system. First, at a vehicle level, it has an option to switch driving modes between an internal combustion engine and electric motors depending on driving conditions. Second, it has an option to expand portfolios of HEV models by equipping the Toyota Hybrid System II (THS-II) with existing models. Third, the carmaker has compound options to develop plug-in HEVs, BEVs, or fuel cell vehicles (FCVs) by adding or withdrawing relevant components to/from THS-II. I also argue potential risks that could lower the option values of Toyota’s hybrid system. The design rules of Toyota New Global Architecture may restrain conversion from HEVs to BEVs or FCVs. Cognitive as well as behavioral aspects of uncertainties about the alternative powertrains may lead to option traps, that is, under-utilization or over-commitment of particular options, which in turn lower the value of the options.
