New research from financial think tank Carbon Tracker shows that several legacy automakers carry climate-related financial risks comparable to traditional oil and gas producers. The findings are particularly relevant for Japanese original equipment manufacturers (OEMs) ahead of the country’s annual general meeting (AGM) season, given their continued reliance on hybrid vehicles and their outsized role in global vehicle production.
The research found 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 identified an average discrepancy of 33% between reported and real-world emissions from vehicle use.
This “carbon gap” stems from the 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 as emissions relative to enterprise value (tCO₂e/EVIC).
Ben Scott, Head of Energy Demand at Carbon Tracker and co-author of the report, said:
“Automakers are the gatekeepers of future oil consumption. Passenger vehicles are the largest source of global oil demand, accounting for 27% of consumption, and every internal combustion engine (ICE) or hybrid vehicle sold today locks in 10 to 20 years of additional oil demand.
“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.”
Leaders and Laggards
The analysis identifies major differences in both transition strategies and emissions disclosure practices across the automotive sector, with some manufacturers aligning more closely with electrification trends and transparent reporting than others.
Renault and Stellantis emerged as relative leaders on emissions transparency, with reported Scope 3 emissions closely aligned with Carbon Tracker’s estimates. Meanwhile, companies such as BYD and BMW demonstrated substantially higher battery electric vehicle (BEV) sales shares than their hybrid-focused peers.
These issues are particularly relevant to Toyota, whose AGM falls on 17 June. As the world’s largest automotive manufacturer by volume, with more than 10 million annual vehicle sales, Toyota maintains a hybrid-heavy strategy, selling approximately 27 hybrids for every battery electric vehicle in 2024.
Michael Wells CFA, Analyst at Carbon Tracker and co-author of the report, said:
“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 towards outright bans on internal combustion components, Toyota’s hybrid-heavy portfolio risks becoming a fleet of stranded assets.”
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, at 10.2 and 9.9 tCO₂e/EVIC respectively, compared with 4.0 for Shell, the highest-intensity oil and gas company featured in the report.
General Motors exhibits the sector’s largest absolute emissions gap, driven by a high-intensity product mix heavily weighted towards trucks and SUVs in the North American market, combined with the most significant disclosure deficit among its peer group.
Subaru showed the largest relative reporting gap, with emissions potentially understated by more than 200% due to assumptions that fail to reflect the high-mileage reality of its predominantly US-based fleet.
Geopolitical Uncertainty and Consumer Lock-In
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 vulnerability of the legacy automotive business model. Automakers persisting with ICE and hybrid technologies are effectively locking consumers into volatile and potentially elevated 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, much of it from the Middle East through vulnerable chokepoints such as the Strait of Hormuz.
By continuing to build vehicles that rely entirely on liquid fossil fuels, domestic manufacturers such as Toyota expose both their global customer base and the Japanese economy to structural macroeconomic instability.
Scott added:
“The crisis in the Strait of Hormuz is a stark reminder that the real-world cost of driving a legacy vehicle is not static. When an OEM sells a hybrid or ICE vehicle today, it is not simply selling hardware; it is anchoring a consumer to the oil tap for the next 15 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.”
Investor Implications
Carbon Tracker argues that inconsistent and potentially understated emissions reporting creates material challenges for investors seeking to accurately assess transition risk and carbon exposure.
The report finds that differing assumptions around vehicle lifetime mileage, hybrid usage and fuel-cycle emissions can materially distort reported Scope 3 Category 11 emissions, reducing comparability across issuers and potentially leading to the mispricing of carbon-intensive business models.
Giuseppe (Joseph) Jacobelli, Managing Partner at Bourne Impact Capital Ltd and Founder of actE, said:
“As with many other industries, carmakers that fail to transition from carbon-intensive legacy assets to bankable, future-ready assets face significant financial liabilities. Institutional portfolios must navigate this ‘bumpy flight’ by prioritising the economic inevitability of the green transition to prevent systemic capital erosion and asset stranding.”
Carbon Tracker said 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.
The organisation urges investors to focus on battery electric vehicle (BEV) sales share as a core transition key performance indicator and to incorporate carbon intensity (tCO₂e/EVIC) into corporate valuation models to avoid mispricing high-emission business models.
The report argues that BEV sales share and emissions intensity should be treated as complementary indicators of transition readiness, rather than relying solely on reported emissions disclosures.