Photo/Illutration The bZ4X, Toyota Motor Corp.’s electric vehicle (Provided by Toyota Motor Corp.)

As Toyota Motor Corp. powers up its electric vehicle strategy, it is relying on a time-tested business model fitting for the age of streaming services: subscriptions.

The company announced on April 12 that its first-ever mass-produced electric vehicle, the bZ4X, will become available in Japan in early May.

But individuals will have to sign up with a subscription service called KINTO to drive the new model.

The service is run by Kinto Corp., a car “subscription” service company Toyota established in 2019. Kinto is effectively leasing because “subscribers” lease vehicles for fixed periods.

One of the reasons Toyota has turned to this system is to make it financially affordable for people to drive its new electric SUV, as drivers still face a heavy cost barrier to buying electric vehicles.

Electric vehicle batteries, the heart of these cars, are costly because they use expensive minor metals. The bZ4X’s price starts from 6 million yen ($47,800), even pricier than the company’s large gasoline-powered SUV Land Cruiser, which is 5.1 million yen at minimum.

For auto manufacturers, the cost of the battery is an even more difficult issue in producing mass-market electric vehicles, which need to be affordable.

In coming up with the subscription fee, companies such as Kinto first calculate what the market price of the car will be at the end of the subscription period. Then it subtracts this number from the car’s current price and adds in various other costs.

That figure is then divided by the number of months the driver will lease the car for. This will be the monthly fixed price the driver will pay. This way, drivers can know beforehand how much they will pay to drive the leased cars, unlike when they purchase vehicles.

The subscription system is also designed to alleviate fears that purchasers of electric vehicles have about depreciation.

Electric vehicles’ batteries degrade over time after repeated charging, shortening the maximum distance the car can travel on a fully charged battery. This means that when owners of electric vehicles want to sell them, they may be disappointed with what they can get for it.

Since consumers spend a large amount of money to purchase electric vehicles, if they must ultimately sell the cars at significantly lower prices, purchasing electric vehicles becomes even more financially demanding. The subscription system removes this issue because drivers can just return the cars at the end of the subscription period.

Shinya Kotera, president of Kinto, touted the benefits of introducing the bZ4X on a subscription basis at the news conference on April 12 where Toyota announced its launch. Kotera said it means the companies--not their customers--would ultimately bear the risk that the trade-in value of used electric vehicles could be small or that the batteries could degrade or stop working.

The other benefit of the subscription system is that Toyota can easily collect the minor metals contained in the electric car batteries, such as lithium, cobalt and nickel, when the cars are returned at the end of the subscription period. The company intends to recycle these metals to save money on manufacturing batteries.

The subscription service could unlock demand for any cars, not just electric ones, especially among younger or older people, officials suggested.

More than 40 percent of Kinto’s user base is made up of people in their 20s or 30s, as of the end of last year. Many of its customers have never owned cars.

“We are trying to stimulate hidden demand,” a company official said.

The research firm Fuji Keizai estimates that the size of the car subscription market will reach 40 billion yen by 2030.

DeNA SOMPO Carlife, another subscription company that leases vehicles of various manufacturers, hopes for an increase in demand for its services among older people.

The company believes that although senior citizens tend to drive older vehicles, they would cause fewer accidents if they instead drove newer cars equipped with better safety features--something made possible, and easier, through its subscription service.

In October 2021, the company introduced a new option that could be added to a customer’s contract that allows them to return their drivers’ license and terminate their lease without paying a penalty, on the condition that more than two years have passed since the start date of their contracts.

This option could make it more enticing for older drivers to use the company’s car subscription service.

But for some people, their identity is attached to their car and it might even serve as a status symbol. That makes it hard to predict the popularity of this option.

A 45-year-old company director living in Tokyo started leasing the C40, a new electric vehicle by the Swedish auto manufacturer Volvo Car Corp., on a fixed-price subscription system.

“The 110,000-yen monthly subscription fee includes everything, such as taxes and insurance, so there aren’t any unexpected costs,” he explained.

While not owing the car he drives feels a little strange to him, he said it is possible that car subscription services will become more popular when younger people who are relatively indifferent to owning things grow older and become a major part of society.

(This article was written by Kohei Kondo and Naoyuki Fukuda.)