Interview by Kap Maceda Aguila
A HIGHLY regarded industry veteran with extensive experience in local, regional, and global headquarter responsibilities, Vince S. Socco was significantly involved in the start-up of business operations of Toyota in the Philippines, as well as its Asia-Pacific headquarters in Singapore. All told, Mr. Socco has had some four decades of involvement with the brand and its Lexus luxury marque.
Today, he concurrently holds roles as chairman of GT Capital Auto and Mobility Holdings, Inc.; a board director of Toyota Motor Philippines Corp.; and vice-chairman of Lexus Manila, Inc. Mr. Socco also has very strong opinions about electrification — partly shaped by the active participation of Toyota and Lexus in that space. It’s no secret that Toyota Motor Philippines has the honor of being the first mover in the hybrid realm as it first brought in the Prius more than a decade ago. Lexus has also been quietly rolling out — and successfully selling — hybrid versions of its vehicles for a long time now.
Here are excerpts from our interview with Mr. Socco.
VELOCITY: Do you think more Filipinos are ready for electrified vehicles of various kinds (from hybrids to full electrics)? Why or why not?
VINCE S. SOCCO: Yes, Filipinos are ready for electrified vehicles if readiness means openness to new technology. Being a young population — the youngest in Southeast Asia — we have a natural ability to adapt to innovations and emerging trends, especially tech-related ones. Also, affinity to sustainability and environmental concerns is higher with the youth.
Having said that, perhaps Filipinos may not be as ready for electrified vehicles in terms of the acquisition price. Generally, the purchase price for electrified vehicles is higher than their equivalent internal combustion engine (ICE) models. Full battery electric vehicles (BEVs) can cost 20% to 30% more — in some cases even close to 50% more. In a country where the purchase of vehicles is largely financed, the priority of buyers is what they can afford to pay on a monthly basis. Therefore, the sticker price has a material bearing on the capacity to pay and, consequently, a preference for the ICE over electrified counterparts occurs.
It will be noticed that the conversation around electrified vehicles is shifting to “total cost of ownership” (TCO). This underscores the fact that acquisition price is a high barrier to ownership. Customers will need to take an expanded view of owning electrified vehicles in order for the segment to make sense, at least for the moment. That is, of course, discounting advocacy for the environment as a primary driver of choice.
Additionally, Filipino motorists may still need to enhance their understanding of electrified vehicle technology — advantages, disadvantages, use/operation (including range issues and charging), maintenance, etc. Some people, for example, still think that hybrid electric vehicles (HEVs) need to be plugged in to recharge when, in fact, they are self-charging electric vehicles.
Does the country have adequate support policies and legislation to make electrified vehicles viable products to sell for more auto companies?
The cost of producing electrified vehicles is significantly higher than ICE-powered ones. In the 2010s, when the demand for electrified vehicles was rising steeply, news was rife that the cost of battery production — the most costly component of EVs — would drop. It was reported that by early 2020s, costs of EV and ICE production would reach parity.
Unfortunately, this has not happened. In a recent interview, the chief technology officer of a major luxury car maker was reported to have said that, “Coming to (a battery price of) US$50 per kilowatt, which would lead to comparable cost basis to an ICE engine… is far out there.” Mercedes-Benz CTO Markus Schäfer told Road & Track that a so-called “price parity” just isn’t possible with any current commercially available battery technology.
As such, the most readily available recourse to reduce the barrier to acquisition is through government subsidies. This was key to the rise in popularity in China. The question here is the sustainability of subsidies and the rationale for them. The reason for government to incentivize electrified vehicles is to reduce carbon emissions; this is the return that the government aims to realize. However, if the gains from reduction in tailpipe emissions is only passed down as higher emissions in the power-generation sector, the subsidies may not be justifiable.
Is there an alternative path?
An alternative to subsidies or incentives is penalties. In the USA, Europe, and even China, strict Corporate Average Fuel Economy (CAFE) or carbon emission standards are used to encourage auto makers to go down the road of electrified vehicles. But, again, this presumes the availability of clean or renewable energy sources to fuel vehicles.
The Philippines has already provided tax breaks for electrified vehicles under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, where HEV and BEV vehicles are subject to reduced or no excise taxes, respectively. This is a good step forward. The recent Electric Vehicle Industry Development Act (EVIDA) that lapsed into law is also another positive step toward creating an overall framework to promote the introduction and use of electrified vehicles. The implementing rules and regulations are being eagerly awaited.
What the Philippines may need to address more strongly is the creation of a blueprint for increasing the production and availability of renewable energy. This could be coupled with clear and enforceable emission standards that will lead to the realization of expressed goals under the UN Climate Change Conference (COP 26).
Has the COVID-19 pandemic accelerated or hindered the prospects for electrified mobility?
I think COVID-19 may not have materially impacted the need or preference for electrified vehicles. If anything, the pandemic led to an almost complete halt in mobility that, to a large extent, literally drove the economy to a full stop. In that respect, COVID exposed the essentiality of mobility to economic activity. It is not so much a “luxury” product as it is a driver of growth. A rough estimate of the percent of motor vehicles priced above P3 million — if we use this as a yardstick for luxury — is less than 5% of the total market.
What COVID may have also exposed is the vulnerability of our power grid. With the population sheltering in place, demand for electricity increased in homes and, despite the shutdown of factories and businesses, resulted in power failures. This underscores the need to thoroughly study the impact of the shift to electrified vehicles versus our ability to build a reliable supply of power to the country — homes and businesses.
In general, how are the automotive industry and consumer behavior being shaped by factors like the pandemic and the spike of fuel prices?
Consumers are value-driven. They vote with their wallet in terms of getting what they want or need, how they get it, and where they get it. COVID has seen the acceleration toward a digital and no-contact economy. It also achieved what Republic Act 11165 or the Telecommuting Law of 2019 failed to gain traction on — promoting work from home to address traffic congestion and economic downtime. There was a clear surge in the focus on well-being as well. These behavioral changes seem to be outlasting the worst of COVID and are finding their way to the new normal.
In terms of the impact to the auto industry, the focus on social distancing during the pandemic led to a rise in purchases of small and compact-sized cars as an alternative to public transport — a trend that continues. Likewise, there was a surge in financing purchases due to the deterioration of incomes from unemployment and underemployment. The return of banks to consumer lending is a critical part of the recovery of the industry. Automakers also learned about and innovated their sales and marketing efforts due to mobility restrictions (e.g. online launches, virtual showrooms, digital marketing, etc).
Fuel price hikes to historic levels — mainly resulting from disruptions wrought by the Ukraine conflict — have also impacted consumers. Clearly, there is more prudence exercised in the use of private vehicles to manage fuel costs. Trip planning is probably more practiced. Resorting to virtual meetings and engagements may also be happening in a more seamless way. But, as history will bear, motorists have a short memory with regard to fuel price increases. The behavioral changes are more temporary than lasting — a function of short-term economics rather than structural lifestyle changes.
In regard to the electrification of mobility, this is a three-legged journey that involves the government in terms of realizing sustainability goals and establishing the infrastructure; the auto industry, in terms of creating the products and services; and the consumer, in terms of choosing electrified vehicles due to their value proposition and ease of use. One or two without any of the other will result in a belabored realization of electrification. Consumer preference and behavior will rise as a direct function of having the enablers in place — education, incentives, infrastructure and, frankly, the joy of owning and driving an electrified vehicle.