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Toyota Motor Corporation, a Japanese multinational automobile manufacturer, has been the world’s largest-selling automaker for the last three years, with 10.5 million vehicles sold in 2022. The company is also Japan’s largest automaker, selling more than 1.29 million vehicles in the country in 2022, more than double the number sold by Suzuki, which came in second.
In 2013, Toyota Motor manufactured 10.1 million new automobiles, which was a production output never achieved by any other automaker previously.
Headquartered in the city of Toyota in Aichi, Japan, the company creates, produces, and markets passenger cars, buses, minivans, trucks, specialty vehicles, recreational vehicles, and sport utility vehicles. In addition, Toyota Motor is involved in industries like real estate, finance, telecommunications, and information technology. It also provides financial services like retail leasing and financing, insurance, and wholesale finance.
The company’s roots can be traced back nearly 100 years to the Japanese weaving industry. It was founded in 1933 as a division of Toyoda Automatic Loom Works, Ltd, the company that invented the world’s first automatic loom. Subsequently, Toyota Motor Co., Ltd. was established in 1937. It was renamed Toyota Motor Company in 1982.
Currently, Toyota Motor’s vehicles are sold under a range of brands, including Toyota, Lexus, Daihatsu, and Hino. The corporation has a presence in the Middle East, the Americas, Europe, Africa, and Asia-Pacific.
Business model of Toyota Motor
Toyota Motor’s mission statement is “to attract and retain consumers by providing high-value goods and services as well as the most gratifying ownership experience”.
Cars produced by the company are often regarded as more solid, efficient, and reliable because of Toyota Motor’s extensive spending on research and development, design, manufacturing, and aftersales. For example, 80% of the cars manufactured by Toyota in the last 2 decades are still on the road. Further, the car Toyota Corolla, on average, is sold every 27 seconds globally.
In 2018, Toyota Motor was among the top 20 businesses globally that spent the most on research and development (R&D). Toyota’s R&D expenses surpassed 1 tn yen (~$7.62 bn) in 2019 and kept rising in 2020. The fiscal year 2021 saw a year-on-year decline due to the effects of the Covid-19 pandemic. But, in 2022, R&D investments increased again to 1.1 tn yen (~$8.38 bn).
The company bases its production and supply chain strategies on the well-known Toyota Production System (TPS) It does so by bringing together elements such as design, production engineering, procurement, and component supply to enhance efficiency, continual development, and waste reduction to provide high-quality goods at reasonable costs. with a focus on local manufacturing capacities.
Toyota’s cost structure is lean-oriented. comprising of inexpensive operational costs. The company focuses on producing standardised, multifunctional automobile components to attain improved quality products at reduced costs. Then, it feeds cost improvements back into the product to increase its value. An example is Toyota’s cost-effective strategy called CCC21 (Construction of Cost Competitiveness for the 21st century), launched in 2000. Aimed at reducing operational expenses, the strategy has been a core part of its business model.
Also, the company’s business philosophy is not centred around a single car. In addition to the production, sale, and distribution of automobiles, it also offers support services, including lending, leasing, and insurance.
Financial Performance of Toyota Motor
Toyota Motor’s net profit for the quarter ended Dec. 31 declined 8.1% year on year to 727.94 bn yen (~$5.53 bn). During the same period, the company’s revenue climbed 25% from a year earlier to 9.75 tn yen (~$74.22 bn). The operating profit margin fell marginally to 9.8% in the third quarter, down from 10.1% the previous year.
For the third quarter of FY23, the automobile segment’s net revenues climbed 25.4% year over year to 8.87 tn yen (~$62.81 bn). Operational profit increased by 37.5% year over year to 818.8 bn yen (~$5.79 bn).
Net revenues for the financial services segment reached 741.7 bn yen (~$5.25 bn), up 26% from the same period last year. The segment’s operating income was 125 bn yen (~$0.88 bn), or nearly 34% less than it was in the third quarter of FY 22.
Other businesses’ net revenues totalled 312.2 bn yen (~$2.21 bn) in the reported quarter, rising 16.9% from the comparable year ago period. The unit generated an operating profit of 18.4 bn yen (~$0.13 bn), marking a noticeable improvement from a loss of 0.1 bn yen (~$762,095) incurred a year ago.
Electric Vehicles (EVs), predominantly hybrid vehicles, accounted for 27.7% of Toyota and Lexus vehicle sales in the third quarter, up from 27.8% the previous year. Toyota sold over 12,000 battery electric vehicles, up from approximately 5,000 in the previous year.
“Toyota delivered a strong set of results in the quarter despite the changing business environment, especially given the company lagging in the global shift to EVs,” noted Baptista Research, an independent financial research firm that publishes on Smartkarma.
Stock movement of Toyota Motor
Toyota Motor stocks are traded on the London Stock Exchange, the Nagoya Stock Exchange, the New York Stock Exchange, and the Tokyo Stock Exchange, where it is part of the Nikkei 225 and TOPIX Core30 indices.
Primarily listed on the Tokyo Stock Exchange, Toyota Motor has a market capitalization of 24.14 tn yen (~$185.55 bn). The company’s stock has fallen by 16.94% in the past year as of March 24, 2023. It has a PE ratio of 10.04 and a forward PE ratio of 8.44.
The company has a price-to-book ratio of 0.88. Since April 2021, the stock has risen by 3.5%, hitting an all-time high on January 1, 2022.
What’s next for Toyota Motor?
Looking towards the future, Toyota is investing in autonomous driving technologies. The company has established the Toyota Research Institute (TRI) and the Toyota Research Institute-Advanced Development (TRI-AD) to focus on research and development in artificial intelligence and self-driving technology. Toyota aims to develop advanced driver-assistance systems (ADAS) and fully autonomous vehicles that will cater to various use cases, including passenger cars, commercial vehicles, and mobility services.
Toyota’s chief of advanced R&D and engineering claims that the internal combustion engine will be obsolete as the primary type of vehicle power by 2050, with hybrid systems powering just around 10% of new vehicles.
In the realm of electric vehicles, Toyota has been slower to adopt a comprehensive EV strategy compared to some of its competitors. However, the company has recently accelerated its efforts, announcing plans to invest $13.5 bn in battery technology and the development of electrified vehicles through 2030.
“The company’s focus on hybrid vehicles and its avoidance of shifting to EVs is hurting its market share immensely in many key markets,” said Baptista research on Smartkarma
Toyota Motor aims to achieve carbon neutrality across its entire product lineup by 2050, and the company is targeting sales of 5.5 million electrified vehicles annually by 2030, with at least 2 million of these being fully electric or fuel cell vehicles.
Toyota is also a leader in fuel cell technology, with the Mirai, its flagship hydrogen fuel cell vehicle, serving as a testament to the company’s commitment to alternative fuel solutions. The company is working on expanding the hydrogen refuelling infrastructure, which is critical for the widespread adoption of fuel cell vehicles.
“We want to ensure that hydrogen remains a viable option. We need a production and transport supply chain. Unless we see evolution there, we cannot expect a volume increase in the use of energy’s use,” Koji Sato, the incoming CEO of Toyota Motor, told a US-based media outlet.
“We are making full-fledged efforts on everything. It is important to remain flexible in order to tailor products and energies to different carbon neutral needs in different markets,” he added.
