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Consumer confidence in battery health and low-cost used car loans could do more for EV adoption than the Electric Car Grant.
5 February 2026
As the Japanese auto industry gears up for AGM season, new research shows that many of its automakers carry climate-related financial risks comparable with traditional oil and gas producers.
The research, from financial think tank Carbon Tracker, finds that major automakers are systematically understating the emissions linked to their vehicles.
Across a sample of 17 of the world’s largest OEMs, representing 80% of passenger vehicle sales, Carbon Tracker found an average discrepancy of 33% between reported and real-world emissions from vehicle use.
This ‘carbon gap’ stems from widespread use of unrealistic lifetime mileage assumptions, optimistic plug-in hybrid vehicle (PHEV) usage estimates and the exclusion of upstream fuel-production emissions.
Using a standardised methodology designed to reflect real-world vehicle usage, Carbon Tracker found that several automakers exhibit carbon intensity levels higher than major oil and gas companies when measured on the basis of emissions as a proportion of enterprise value (tCO₂e/EVIC).
‘Automakers are the gatekeepers of future oil consumption. Passenger vehicles are the largest source (27%) of global oil demand and every ICE or hybrid vehicle sold today locks in 10-20 years of additional consumption.
‘Automakers’ flawed emissions reporting masks the reality that a dollar invested in legacy automotive firms is in many cases just as carbon intensive as a dollar invested in oil and gas.’BEN SCOTT
Head of Energy Demand at Carbon Tracker and co-author of the report
The analysis identifies a widening divide between automakers pursuing rapid electrification and those remaining heavily reliant on internal combustion engines and hybrids.
Renault and Stellantis emerged as relative leaders on emissions transparency, with reported Scope 3 emissions closely aligned with Carbon Tracker’s estimates.
Toyota, whose AGM falls on 17 June, is the world’s largest automotive manufacturer by volume, with more than 10 million annual vehicle sales and a hybrid-heavy strategy, selling approximately 27 hybrids for every battery electric vehicle in 2024.
This stands in contrast to transition leaders like BYD (1:1 ratio) or BMW (1:2 ratio), making it the largest absolute emitter in the automotive sector, with annual emissions equivalent to those of the entire German economy.
‘Toyota’s hybrid emissions are an outlier in the sector, exceeding the total emissions of entire manufacturing groups such as BMW. Its hybrid-heavy resource allocation indicates a commitment to technology that faces obsolescence. As major markets move toward outright bans on internal combustion components, Toyota’s hybrid-heavy portfolio risks becoming a fleet of stranded assets.’
MICHAEL WELLS CFA
Analyst at Carbon Tracker and co-author of the report
Ken Maeda, founder of Undertones Consulting, added: ‘Toyota’s heavy reliance on hybrids has delivered short-term sales success but carries significant long-term financial and market risks for both Toyota and the wider Japanese automotive industry. By locking in long-term oil consumption, this strategy heightens stranded asset risks at a time when global peers are accelerating electrification.’
Mazda and Mitsubishi display the highest emissions intensities, of 10.2 and 9.9 tCO₂e/EVIC, respectively, compared with 4.0 for Shell, the highest intensity oil and gas firm featured in the report.
General Motors exhibits the sector’s largest absolute emissions gap, driven by a high-intensity product mix heavily weighted toward trucks and SUVs in the North American market, combined with the most significant disclosure deficit in the peer group.
Subaru showed the largest relative reporting gap, with emissions potentially understated by more than 200% due to reporting assumptions that fail to reflect the high-mileage reality of its predominantly US-based fleet.
The financial risks of delaying the EV transition are being compounded by global energy shocks. The ongoing crisis in the Strait of Hormuz underscores the extreme vulnerability of the legacy automotive business model. Automakers persisting with ICE and hybrid technology are effectively locking consumers into highly volatile, inflated fuel costs for decades to come.
This exposure is particularly acute for the Japanese automotive sector. Japan is overwhelmingly dependent on foreign energy, importing more than 90% of its oil, largely from the Middle East through vulnerable chokepoints like Hormuz. By continuing to build vehicles that rely entirely on liquid fossil fuels, domestic giants like Toyota expose both their global consumer base and their home economy to structural macroeconomic instability.
‘The crisis in the Strait of Hormuz is a stark reminder that the real-world cost of driving a legacy vehicle isn’t static. When an OEM sells a hybrid or an ICE vehicle today, they aren’t just selling hardware – they are anchoring a consumer to the oil tap for the next fifteen years. In an era of acute geopolitical supply shocks, failing to decouple transport from crude oil is no longer just an environmental misstep; it is active destruction of consumer value and an unhedged risk for investors.’
BEN SCOTT
Head of Energy Demand at Carbon Tracker and co-author of the report
Carbon Tracker argues that automakers’ reporting gaps create hidden exposure to tightening emissions regulation, carbon pricing mechanisms, stranded asset risk and valuation distortion for investors.
Giuseppe (Joseph) Jacobelli, Managing Partner at Bourne Impact Capital Ltd and Founder of actE, said, ‘As for many other industries, carmakers failing to transition from carbon-intensive legacy assets to bankable ones face significant financial liabilities. Institutional portfolios must navigate this ‘bumpy flight’ by prioritising the economic inevitability of the green shift to prevent systemic capital erosion and asset stranding.’
Carbon Tracker said that investors should move beyond headline emissions disclosures and scrutinise the assumptions underpinning automaker climate reporting, particularly ahead of key shareholder votes and transition-related engagements, such as Toyota’s AGM on 17 June.
In particular it urges investors to focus on BEV Sales Share as the core transition KPI and incorporate carbon intensity (tCO₂e/EVIC) into corporate valuation models to avoid mispricing high-emission business models.
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