Toyota Motor, the world’s top-selling automaker, is expected to report strong annual earnings driven by the continued demand for hybrid vehicles. As the hype around battery electric vehicles cools, Toyota stands to benefit from its successful hybrid lineup. However, despite the positive forecast, the automaker still faces significant challenges in key markets.
In China, Toyota is caught in a fierce price war, resulting in increased pressure on its sales. Additionally, in the United States, consumers are grappling with higher borrowing costs, affecting Toyota’s performance in this critical market. Moreover, Chinese rivals expanding their production of low-priced vehicles have intensified competition globally, squeezing Toyota’s market share.
Furthermore, Toyota’s reputation for quality and safety has taken a hit due to a safety test scandal at its Daihatsu compact car unit. This issue has impacted sales in Japan and damaged the overall image of the Toyota Group. Reputation is crucial in the highly competitive automotive industry, and Toyota will need to address these challenges to maintain its standing.
Despite these hurdles, Toyota has managed to achieve record profits by capitalizing on the slower demand for battery-powered electric vehicles and focusing on hybrid vehicles. Hybrids offer higher profit margins compared to regular gasoline cars. Toyota has been a pioneer in hybrid technology since introducing the Prius over 25 years ago. In fact, hybrids accounted for more than one-third of the 10.3 million cars sold by Toyota last year, including the luxury brand Lexus.
Nevertheless, when it comes to electric vehicles, Toyota lags behind competitors like Tesla, as well as European and Chinese automakers. The company’s global sales of battery electric vehicles accounted for only 1% of its total sales in the previous year. This figure equates to approximately 116,500 vehicles, significantly below Toyota’s target of 202,000 vehicles.
The success of Toyota’s business in China is particularly tied to its electric vehicle strategy. Chinese consumers prefer cars with advanced software features, an area where Toyota has fallen behind. Koji Endo, the head of equities research at SBI Securities, suggests that Toyota may not be able to make a significant impact in China until it releases its next-generation electric vehicle models in the country. The automaker recently announced a partnership with Chinese tech giant Tencent and unveiled two battery electric vehicles specifically designed for the Chinese market at the Beijing auto show.
In terms of sales performance, Toyota experienced a 1.6% decline in China during the first quarter of the current calendar year. While this decline is better than that of its Japanese rivals Nissan and Honda, it pales in comparison to the overall 12.5% rise in passenger vehicle sales across the sector. In contrast, Toyota’s sales in the United States surged by 20% during the same period, with 565,000 vehicles sold.
Toyota’s strong financial performance is reflected in its stock market performance. In the past year, Toyota’s shares have risen by an impressive 96%, including dividends. In dollar terms, this increase amounts to 71%, outperforming Tesla’s 7.5% rise over the same period.
In conclusion, while Toyota is thriving in the hybrid vehicle market, it faces several challenges in critical markets and trails behind competitors in the electric vehicle segment. The company’s success hinges on its ability to address these challenges and catch up with industry trends. By partnering with tech giants like Tencent and investing in next-generation electric vehicle models, Toyota aims to regain its footing and maintain its position as a leader in the automotive industry.
