What is Toyota?
Toyota Motor Corp. is a global automotive powerhouse with more than 380,000 employees and 71 manufacturing companies worldwide managed within 6 global headquarters: Toyota Motor North America (TMNA), Toyota Motor Europe NV/SA (TME), Toyota Daihatsu Engineering and Manufacturing Co., Ltd. (TDEM), Toyota Motor (China) Investment Co., Ltd. (TMCI), Toyota Motor Corporation (TMC) and lastly Toyota Motor Asia Pacific Pte Ltd. (TMAP-MS).
Guided by the commitment to providing clean and safe products, Toyota’s principles extend to enhancing the quality of life worldwide through advanced technologies and exceptional products and services. Such a goal aligns with the corporate mission of the company itself: “Happiness for All”, as Toyota not only aims at continuously improving its business, it also strives to develop mobility solutions to enrich the lives of individuals. What sets Toyota apart is its adherence to timeless values encapsulated in the so-called “Toyota Way”: challenge, continuous improvement (“Kaizen”), respect and teamwork. The company indeed is able to adapt swiftly to the evolving landscape of the automotive industry by reimagining its processes with innovation, efficiency and quality in mind.
Essentially, Toyota’s unwavering dedication to continuous improvement, global presence, sustainable practices, respect of workers and customer-centric approach collectively position it as an undisputed leader, setting the bar for excellence in the automotive industry, becoming one of the world’s premier automotive giants.
What does Toyota’s industry look like?
The automotive industry, one of the leading ones in the global market, is undergoing a profound transformation after a period of relative stability over the past decade. The catalysts for this evolution are the technological and environmental innovations, which are rapidly changing the global vehicle fleet, primarily fueled by the increasing adoption of Electric Vehicles (EVs). The set of new regulatory requirements is also contributing to the shif,t as it propels major other players like Tesla, Alphabet, Ford, GM and Volvo into the forefront of the EV market.
Beyond electrification, the emergence of Autonomous Vehicles (AVs) is another factor which is significantly redefining the auto industry: by 2040 the amount of AVs expected to be on the roads is 33 million. Since the integration of artificial intelligence and advanced sensor technologies is paving the way for this new era of mobility, established automakers are joined by technology giants in a race to shape the future of the sector.
Simultaneously, as 5G and the Internet of Things (IoT) advance, the concept of connected cars is gaining prominence too: this type of vehicle is characterized by the ability to communicate with other software systems and collect data from its surroundings. The widespread adoption of 5G technologies is anticipated to bolster the growth of connected vehicles, with tech giants eyeing this market and driving advancements to support seamless connectivity.
In the quest for sustainable energy solutions, hydrogen is emerging as a compelling contender: Fuel Cell Electric Vehicles (FCEVs), operating on hydrogen-fed fuel cells, could be a valid alternative to traditional internal combustion engines and battery-powered EVs for the future.
In this dynamic landscape, the automotive industry reasonably stands at the precipice of unprecedented change, navigating a future shaped by electrification, autonomy, connectivity, online commerce and innovative energy sources. All of these forces make adaptation and innovation the two essential imperatives for survival and success in the car industry.
Toyota’s SWOT analysis:
SWOT analysis provides insight into a company’s strengths, weaknesses, opportunities, and threats in its industry. SWOT analysis is important for understanding how the company positions itself within its internal and external environment. We can differentiate strengths and weaknesses as internal factors, and opportunities and threats as external factors.
Toyota’s Strengths:
- Strong brand reputation and recognition: Building strong brand recognition is challenging and it is formed over time. Toyota, present in the automobile industry since 1933, holds the title of the world’s most valuable car brand, with a brand value of $75.5 billion. Most investors value brand recognition and reputation due to the presence of loyal customers and the opportunity to attract new ones. Consider a real-life example: It is known that when buying a car, customers tend to consider the brand they are already using or the one they hear about from others. Since the name Toyota is known worldwide, it’s highly beneficial for a company operating for almost 100 years.
- Innovation: Besides being one of the most valuable brands, Toyota is known for its technological innovations, thanks to its commitment to research and development. Toyota Hybrid System, fuel cell vehicles, and advanced safety features are some of Toyota’s significant innovations. Commitment to research and development gives Toyota a competitive advantage in meeting evolving customer needs.
- Powerful worldwide presence: Toyota’s vehicles are sold in 170 countries, and the company has manufacturing facilities and distribution networks in multiple regions. This helps the company take advantage of economies of scale, targeting local customer needs and minimizing risks from currency fluctuations.
- Financial Health: Consistent revenue growth, high-profit margins, and a healthy balance sheet make Toyota financially attractive to investors. This financial strength gives Toyota the freedom to invest in new projects, innovate, and withstand economic downturns.
Toyota’s Weaknesses:
- Recalls: Toyota faced recalls due to quality control issues. The company has a higher recall rate compared to its peers. Recently, they recalled about 3.9 million vehicles due to fuel pump defects that can lead to stalling. These recalls ended up costing the company financially, decreasing its reputation, and deteriorating customer trust. Even though Toyota increased investments in improving quality control, it remains a critical driver of Toyota’s future position.
- Slower adaptation in the Electric Vehicle industry: Despite innovation and Research and Development efforts, Toyota adapted slower to EVs compared to its competitors. It may be a disadvantage for the company to meet the growing demand for EVs and keep up with the new, increasing regulations about emissions.
- High production costs: Toyota faces challenges due to high labor costs in Japan. These heightened costs may pose challenges for Toyota in terms of price competitiveness compared to companies with lower production expenses. Finding a balance between keeping production quality high and lowering costs remains a challenge for Toyota.
- High dependency on suppliers: Toyota relies heavily on suppliers to deliver parts on time to manufacturing. While this method lowers inventory costs, it also increases dependence on supplier performance. Any interruption or delay in the supply chain, caused by natural disasters, labor disputes, or quality control issues, has the potential to disrupt Toyota’s production, resulting in possible delays in product delivery and revenue loss. Toyota was one of the automotive companies most affected by COVID.
- Presence in International markets: Although it has advantages, Toyota’s position is open to risks and uncertainty in global markets. Factors such as currency exchange rate fluctuations, trade limitations, or political unrest in a particular region can notably impact Toyota’s revenue and profitability.
Toyota’s opportunities:
- Expansion in developing economies: Toyota can take advantage of developing economies such as India, Brazil, and Southeast Asia. These economies offer significant growth potential due to increasing disposable income, leading to an increase in demand for vehicles. Toyota can concentrate on broadening its market presence in these regions by introducing vehicle models that are both affordable and tailored to local preferences.
- Mergers and Partnerships: Toyota can make strategic mergers and partnerships with other companies that help Toyota expand its capabilities, access new customers, drive growth, and enhance its competitive positioning. Toyota can benefit from its scale while making such mergers and partnerships.
- Sustainability in Manufacturing: Consumers and governments are becoming more conscious of the environmental impact of production processes. Toyota can benefit from this change in attitude by investing more in eco-friendly production methods, further reducing its carbon footprint.
- Increase in demand for car-sharing and ride-hailing markets: It is evident that as time goes by, the proportion of the population using services such as Uber, Bolt, Blabla, etc. is increasing. Toyota can benefit from this emerging industry by expanding and developing its services and creating new revenue streams.
- Move towards electric and autonomous vehicles: Toyota still has room for growth in these new, expanding industries. They can use their advantage in successful Research and Development for those growing sectors to meet customer needs and demands.
Threats:
- Increasing competition in the automobile industry: The number of competitors for Toyota is increasing day by day. New entrants in the electric vehicles sector, such as Tesla and Chinese Automakers, pose risks for Toyota to keep its market share. Increasing competition also leads to a decrease in the pricing power of the company, potentially damaging profitability. Toyota has to keep up with innovation and meet changing consumer needs to maintain its position.
- Cyberattacks threats: New cars are becoming more digitized and rely more on software. This situation increases the number of cyberattacks happening. Toyota has to invest in cybersecurity to increase customer confidence and prevent further possible risks.
- Possible decreases in aggregate demand caused by economic downturns: During times of restrictive monetary policy, buying a new vehicle is one of the purchases consumers tend to delay. This might affect Toyota’s and the overall industry’s profitability more than other industries.
- Changing Regulations: Toyota is operating in a challenging regulatory environment. Changes in emission standards, trade policies, and safety regulations can have a significant impact on Toyota’s costs, operations, and market access. Non-compliance with those regulations may lead to fines, legal issues, and reputational damage.
Comparative analysis:
In this analysis section, we will compare Toyota and its peers from the same industry. This type of perspective will help us evaluate Toyota’s performance compared to its peers by using some ratios and metrics. The companies chosen for comparison are Mercedes-Benz Group, Stellantis, Ford, Honda, Volkswagen, and Hyundai.
- Price to Earnings Ratios:
- Toyota: 9.62
- Mercedes-Benz: 4.62
- Stellantis: 3.41
- Ford: 7.85
- Honda: 8.01
- Volkswagen: 4.26
- Hyundai: 4.56
- Enterprise Value to Sales Ratio:
- Toyota: 1.47
- Mercedes-Benz: 1.06
- Stellantis: 0.22
- Ford: 0.93
- Honda: 0.68
- Volkswagen: 0.84
- Hyundai: 0.94
- Revenue Growth (Year Over Year):
- Toyota: 23.27%
- Mercedes-Benz: 6.73%
- Stellantis: 15.26%
- Ford: 14.82%
- Honda: 17.78%
- Volkswagen: 16.87%
- Hyundai: 18.16%
- Gross Profit Margin:
- Toyota: 19.14%
- Mercedes-Benz: 21.87%
- Stellantis: 20.33%
- Ford: 10.41%
- Honda: 20.83%
- Volkswagen: 17.57%
- Hyundai: 20.60%
- Net Income Margin:
- Toyota: 9.34%
- Mercedes-Benz: 9.82%
- Stellantis: 10.40%
- Ford: 3.54%
- Honda: 5.04%
- Volkswagen: 4.66%
- Hyundai: 7.17%
Why did we buy TM?
In the final part of this analysis, we will summarize the key points regarding our position on Toyota. First of all, Toyota has announced its road map on new battery technologies, which will increase the road range, be fully charged in 10-20 minutes, and lower costs. The new battery electric vehicle factory is expected to start production in 2026. If these projections come to realization, Toyota’s future generation of vehicles is expected to outperform traditional gasoline-powered cars and other electric vehicles significantly. Toyota owns more patents than all of its competitors on its solid-state battery technology. Considering Toyota’s apparent leadership in this technology, there is potential for a substantial increase in sales and brand development in the upcoming years, leading to a substantial increase in Electric Vehicles market share. Moreover, I believe that increasing consumer optimism on economic conditions and possible rate cuts will also affect vehicle demand positively in 2024.
Authors: Ilaria Savignoni & Kaan Pinar