2023-10-05 17:47:38 ET
Summary
- Toyota's steady performance and profitability make it a more attractive investment option than General Motors or Ford.
- Toyota is targeting the luxury midsize crossover SUV segment with its new TX model, aiming to capture a small slice of market share.
- Toyota is making significant investments in battery production and EV manufacturing innovations to support its transition to electrified propulsion.
Toyota Motor Corp. ( TM ) isn't the top automaker in the U.S., in terms of units sold - that distinction still belongs to General Motors Co. (GM), with Toyota in second place. But there isn't an investor anywhere that's likely to prefer ownership of GM stock (or Ford Motor (F) shares, for that matter) over TM, the ADR (American Depositary Receipt) securities that track Toyota's common shares traded in Tokyo.
After being bailed out and reorganized by the U.S. Treasury following its 2009 bankruptcy, GM has given shareholders little to cheer about. TM, by contrast, keeps winning new customers in a steady, unspectacular style, its share price climbing inch by inch, paying cash dividends to boot. Since late in 2010, assuming reinvestment of dividends, GM's total return has averaged 1.17% annually, F's total return has averaged 1.27% and TM's 8.69%.
The divergence in performance is obvious and easy to understand: Since becoming a major automaking force in the U.S. in the 1990s, Toyota has consistently outperformed in terms of profitability.
Long Green
While deploying its superior profits to develop new models, technologies and manufacturing plants, the Japanese automaker also has exercised patience, pursuing market share in small increments. As consumer fashions change, so does its model lineup. The Camry sedan, for example, has been replaced by RAV4, a compact SUV, as the brand's top-selling model. If battery electrics are all the rage, Toyota will be there to furnish them.
At the same time, the automaker has wisely avoided over-investing in its Tundra full-size pickup truck, judging GM's and Ford's full-size pickups too popular to displace.
The latest sliver of market share in Toyota's gun sights is the luxury midsize crossover SUV segment, now dominated by Audi Q7, Infiniti QX60, BMW X5, and Acura MDX, with some larger SUVs from domestic brands such as the Lincoln Navigator, Cadillac Escalade and Jeep Grand Wagoneer also in the fray.
Share Action
The new TX sits on the same architecture as the less expensive Toyota's new Grand Highlander, though with more luxury appointments and engineering tweaks tailored for luxury customers. Though smaller than the biggest crossover SUVs from Cadillac, BMW and Range Rover, TX seats up to seven with a third row that Toyota says will accommodate passengers comfortably.
(It bears mentioning that TX will be built at Toyota's assembly plant in Princeton, Ind., and sold in the U.S. exclusively. At a moment when Ford and GM are racking up hundreds of millions in losses due to a strike by the United Auto Workers union, Toyota's competitive advantage on the human relations front stands out.)
Starting in price at $55,000, TX's price rises to the mid-$70s, depending on features and power train - an amount that reflects the vehicle's luxury status. Based on initial planning volume, Lexus executives hope to sell about 50,000 of the vehicle in its first year, equal to roughly a third of one percentage point of share of the current U.S. market - of which Toyota has about 14.7% share.
In other words, a small slice of market share - which, if attained, could add $3.3 billion of revenue and perhaps $250 million of gross profit at the rate Toyota has been earning.
Advanced Propulsion
This week, Toyota announced that it signed a supply agreement for lithium-ion battery modules for use in the Japanese automaker's electric vehicles assembled in the US. LG Energy Solution of South Korea plans to invest 4 trillion Korean won ($2.95 billion) in its Holland, Mich., facility to establish new production lines for battery cells and modules exclusively for Toyota with completion slated for 2025.
Toyota said in August 2022 that it planned to triple its investment to $3.8 billion in a new North Carolina battery plant it will operate with longtime partner Panasonic through the companies' Prime Planet Energy & Solutions (PPES) joint venture. The plant is slated to open in 2025.
Maintaining strong profit will be key for the transition to electrified propulsion and advanced manufacturing techniques that Toyota is undertaking across its product line and throughout global markets. Toyota has chosen, somewhat controversially, to incorporate battery-electric vehicles (BEV) into its lineup at a slower rate than GM or Ford, preferring to continue its reliance on gas-electric hybrid as well as gasoline-only models.
In the case of TX, the base powertrain will be a 2.4-liter turbocharged four-cylinder engine, generating 275 horsepower and capable of towing 5,000 pounds. Also, available is a 3.5-liter plug-in gas-electric hybrid ((PHEV)) that can travel 33 miles on pure electric power. Additionally, a high-performance 2.4-liter parallel hybrid system will be offered as part of an F Sport package.
Toyota's stylists have softened and toned down the so-called "spindle" fascia of TX into a more sophisticated look that is expected to skew slightly more to female buyers.
Lexus For Well-Heeled
The automaker has committed to transforming Lexus, its luxury division, into an all-BEV brand in the U.S. by 2030 and globally by 2035 - which explains the substantial investments in battery production in Michigan and North Carolina. The outlays have been supplemented by various federal and state financial incentives supporting BEVs.
The new plants, initially designed to produce lithium-ion batteries, may be modified to accommodate new chemistries and more advanced battery technologies such as solid state, which promises longer range, lighter weight and less cost.
Toyota solid state battery (Toyota)
Toyota also is unveiling a series of EV manufacturing innovations, which are intended to cut manufacturing costs, increased productivity, simplify assembly operations and speed production. In the works is the company's first dedicated BEV architecture. The idea, Toyota engineers explained to journalists at a briefing in Japan, is to make up for lost time.
Per Automotive News:
"We have been late in starting the progress, but we hope to leapfrog ahead of Tesla this way," said Akihisa Shirao, project general manager of Toyota's newly established BEV Factory, a business unit set up to spearhead the next-gen EV strategy.
Among the new manufacturing techniques, Toyota engineers will use virtual reality to design assembly lines rather than actually place machines on the factory floor and then move them physically to the correct position using a trial and error method. Toyota said the method will halve the time needed to retool an assembly line and reduce tooling costs by a quarter.
The automaker has embraced gigacasting - casting molten aluminum into a few large vehicle segments - replacing the current method of stamping hundreds of smaller steel parts and then welding them together. (Tesla (TSLA) was among the first automakers to reveal that it plans to incorporate gigacasting in order to reduce cost sufficiently to introduce a low-price BEV).
Transitioning to BEVs and eventually, perhaps, to hydrogen fuel cells will be massively expensive. Toyota's patient steps forward suggest it's well positioned to continue its pre-eminent and profitable position in the global automotive industry.
In recent weeks, shares have backed off from its 52-week high by about 13%, creating an entry point for investors wishing to add an automotive equity to their portfolios. I own the stock and considering adding to my holding.
For further details see:
Toyota's Lexus TX Another Small Step Toward Expansion Of U.S. Market Share