Toyota's ambitious startup venture faces setbacks.

Toyota established a software company to create new technology, but struggled to integrate it with existing habits and capabilities.

Toyota is the world's best-selling car company. They once harbored ambitions to create their own technology startup in 2021. They chose a renowned American technology expert to lead the startup and hoped to create software for their car models that would become the standard for the entire industry.

This ambition was so great that one of Toyota's projects at the time was to build an entirely new city at the foot of Mount Fuji to test self-driving cars, robots, and generating electricity from hydrogen gas. Toyota's then-CEO, Akio Toyoda, stated that this new company would help Toyota navigate "the most transformative period ever," as cars shifted to electric, internet-connected, self-driving, and software-dependent vehicles.

Toyota said the software company is called Woven Planet, a reference to its origins as the automaker's textile factory in the 1920s. He bought a 5% stake in the new startup to demonstrate his commitment.

But currently, Woven Planet's ambitions remain unfulfilled. While the company maintains its vision, the launch of the software for cars has been delayed. The new city is also yet to open. After three years of delays and the software being deemed too ambitious to launch on time, the American tech expert chose to leave.

In the Wall Street Journal, many former and current Toyota executives revealed the initial missteps they made. They argued that this serves as a lesson for traditional companies. These businesses know they need new technology, but struggle to figure out how to integrate it with old habits and capabilities.

Toyota CEO Koji Sato speaks about Arene at this week's Tokyo Motor Show. Photo: WSJ

Toyota is one of the pillars of the Japanese economy , creating jobs for millions of people, both directly and indirectly. For over 50 years, they have set the standard for global automakers, with rules emphasizing efficiency, waste reduction, and continuous improvement.

However, the company's culture is built on strict production timelines and tight budget controls. Most of the company's top leadership—including CEO Koji Sato—are people who spent their youth at Toyota building their careers and avoiding mistakes. The company uniform isn't unique, like a pullover or a black turtleneck, but rather the factory worker's shirt that Sato often wears at internal meetings.

Toyota isn't the only automaker facing software challenges. This week, General Motors had to halt its self-driving car operations due to safety concerns from regulators.

Volkswagen – the world's second-largest automaker – also spent billions of dollars and hired numerous engineers for a software project. However, this project is facing difficulties, causing delays in the launch of many models, which partly led to CEO Herbert Diess's departure.

Compared to newer competitors, VW and Toyota have fallen behind in this area. Tesla, BYD, and many other companies use software to control vehicle features. This means everything from battery life to self-driving features can be improved through software updates, much like apps on a phone.

In an internal meeting in 2020, Toyoda urged employees to dream big. He said it was difficult to encourage creativity at Toyota because the company was so large, and decisions were often made based on precedent.

"In today's volatile environment, not everything can be done according to conventional logic," he said. Standing before his new company, he asserted, "I believe we can do great things. I believe we can change the world."

Since its founding in January 2021, Woven Planet has offered high salaries to attract top software engineers overseas and acquired a number of startups, including the self-driving division of American ride-hailing company Lyft.

Woven opened an office in the style of Silicon Valley. Employees were allowed to use scooters. Regulations were also more relaxed. They rented an office in a high-rise building in central Tokyo, nearly 300 km from their headquarters – a place known for saving on air conditioning and reducing elevator use to cut costs.

Inside Woven Planet's Tokyo office. Photo: Toyota

To run Woven Planet, Toyoda chose James Kuffner, an automation expert who had worked with the company since 2016. Prior to that, he worked for Google's self-driving car division. Kuffner, 52 years old, manages over 2,000 Woven Planet employees and is also responsible for training Toyoda's son, Daisuke (35 years old). Kuffner was paid nearly $9 million in the year ending March 2023, about $2 million more than his boss, Toyoda.

One of Woven's ambitious projects is Woven City, a multi-billion dollar city located at the foot of Mount Fuji, powered by electricity generated from hydrogen gas. Thousands of people will live there, and it will also be a testing ground for self-driving cars and smart homes equipped with robots.

Another project involves creating industry-leading software for Toyota's cars. The company has named this software Arene – an operating system for vehicles that is expected to allow drivers to download updates via the internet, similar to Tesla. Vehicles running Arene will connect to a cloud. This system collects and shares data from millions of vehicles, smart homes, and city infrastructure.

Developers outside of Toyota can also use this software to write applications for cars. Arene will be an open operating system for other car manufacturers, similar to Android for mobile devices.

However, this ambition is too great and difficult to meet the fixed launch deadline. The task is made even more challenging by Toyota's desire for the software to work across so many devices, both electric and hybrid gasoline-electric vehicles.

Even Toyota and Woven Planet employees found this vision too confusing. Six months ago, at an all-staff meeting at Woven, the most frequently asked question to the leaders was, "What is Arene?"

Kuffner paused for a few seconds, then answered Arene's question about his dream: it was to protect people through automated safety features, rather than just controlling the car's driving functions.

Leaders at Woven Planet and Toyota also debated this question. The development of the platform took longer than Toyota initially estimated. At one point, the target for launching the complete version was pushed back to 2025, or even 2027.

The Wall Street Journal, citing sources close to the matter, reported that at a product development meeting last year, Toyoda was angered to hear Woven Planet leaders say that many of the software updates Toyota wanted to release by 2025 had not been completed on time.

Last year, Woven Planet began shifting its focus to developing software that could launch soon. This meant creating software specifically for Toyota vehicles. Experienced automotive leaders were also brought into the company. For its initial launch, Arene was positioned to focus on the in-car experience, with features allowing drivers to customize many things, such as sports car-like sound and simulated manual transmission.

John Absmeier is currently Woven's Chief Technology Officer. He was brought in last year, thanks to his experience in both the automotive and technology industries. He says Arene's vision remains the same. "What has changed over the past year is that it won't be a big bang anymore, but rather a step-by-step approach."

These changes were further emphasized in January, when Toyoda decided to hand over the company to Sato. In his new role as CEO of Toyota, Sato's task is to accelerate the slow transition to electric vehicles in the country.

A few days after taking office, Sato pledged to launch 10 new electric vehicle models by 2026. He wants the Arene to be released gradually in line with the launch schedule of these models.

Therefore, Sato urged Woven to shift its focus to software that could be released soon. Woven Planet was then renamed Woven by Toyota to align with the Toyota brand. Long-time Toyota executives, such as former Chief Financial Officer Kenta Kon and CEO Koji Kobayashi, joined the software company. Toyoda also transferred his shares to Toyota, making Woven by Toyota a fully wholly owned subsidiary of the Japanese automaker.

This month, Kuffner resigned, making way for Hajime Kumbube from Denso, a leading supplier to Toyota. The Japanese automaker says Arene will appear in some models starting in 2025. The full version will be released in 2026. Initially, the software will only work on Toyota vehicles.

"Toyota has learned its lesson from failure. They now have a clear definition of what they need to do, what their priorities are, and a specific product plan for 2026," Takaki Nakanishi, an automotive industry analyst in Japan, told the Wall Street Journal.

"The question now is simply whether Toyota can find a long-term successful model. Kuffner's era is over. What started as a Silicon Valley-style startup now has a Japanese CEO and is entirely a Japanese company," Nakanishi commented.

At Woven by Toyota, some employees said they struggled to adapt to the new culture. Software development isn't something you can order and deliver on time like making brakes or exhaust pipes. However, others said that with Toyota's involvement, they felt more confident in their ability to launch products on schedule.

Absmeier said he believes the division still maintains its entrepreneurial culture, even though it currently "has to conform to Toyota's mold." Toyota, like the automotive industry as a whole, "sometimes struggles when trying to change," he observed. However, Absmeier believes the company already has the foundation and roadmap for the software division; now it just needs to be implemented.

Under the supervision of Daisuke Toyoda, construction of the first phase of Woven City is expected to be completed next year. Woven is also looking for potential residents.

Woven's new CEO, Kumbbe, also worked with Kuffner on software projects. He stated that he would not abandon his predecessor's vision, but would instead turn it into reality.

At his farewell party last month, Kuffner appeared exhausted. In his speech, he choked up as he thanked everyone for their experience there. Kuffner said he would greatly miss his former colleagues, and even how much hair he had lost because of his role.

Ha Thu (according to WSJ)

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