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Toyota Tundra Diesel Near Development

We’ve heard a lot of rumors about Toyota offering a diesel engine in the new Tundra, but we’ve just read of official acknowledgment that a Diesel Tundra is near development.

“In terms of (diesel) introduction into the U.S., the Tundra is the best (vehicle) to do that…The question is when is the best time to do that? That is determined by the customer…It’s something we’re looking at, but we have to see if we can price a diesel and still make it affordable.”

Those are the words of Toyota Executive Vice President Kazuo Okamoto, and the following is clear:

1. The Tundra will have the first Toyota diesel to debut in the US market.

Toyota has been making noise about developing diesels with Hino for use in the European and Asian markets. Considering Hino’s commercial success with large diesels in Asia, it’s reasonable to assume that Hino also has the expertise to assist Toyota in producing a diesel engine for the US market that can compete with Isuzu’s Duramax, the Cummins, and the Powerstroke. Okamoto’s words confirm Toyota would like to bring out a diesel Tundra, and their previous statements about bringing diesels to the US mean they’d like to develop a diesel Tundra soon.

2. Toyota has “put a pencil” to the Diesel Tundra

Clearly, Okamoto’s words indicate that Toyota has determined integrating a diesel into the Tundra would result in an expensive truck. However, his words also indicate that the ultimate cost has as much to do with consumer demand as anything else. That means that Toyota has determined the sales volume the Tundra needs to achieve in order to make the diesel’s development costs affordable. In other words, Toyota knows how many Tundra’s they need to sell in order to bring the Tundra Diesel online. The magic sales number, whatever it is, has got to be less than 400k units. That’s the most Toyota can produce out of San Antonio and Indiana combined.

3. Cost-cutting and a Diesel engine are both needed to fill-out the Tundra’s line-up

The current Tundra is too expensive — $3k to $4k more than competing vehicles. In response, Toyota has offered $3k worth of incentives in order to help reach their sales goal of 200k units. But if Toyota reduces the cost of their trucks in 2008 (and they will be reducing content, we’ve shown that) then their overall profitability and sales volume will increase because they will be more competitive. The question is by how much? If Tundra sales grow by 25% in 2008, would that be enough to justify diesel development? We think so. The Tundra diesel will need 2 or 3 years to develop. If Toyota commits to developing the engine at the end of next year, that means the diesel debuts in 2010 or 2011. At that time, based on a 25% sales growth next year and 10% each year after, Toyota will be selling 300k to 325k Tundras. They can bring out a diesel and have the capacity to sell 75k units. For most automakers, 75k units is more than enough to recover all the development costs of a niche model.

Toyota needs a Diesel Tundra if they’re going to compete with Ford, GM, and Dodge. We all know how many more buyers they would attract if they offered a diesel option.

This is exciting news for anyone who’s interested in a diesel Tundra — they should be coming out in 3 or 4 years.

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