HONG KONG, Aug 2 (Reuters Breakingviews) - Koji Sato enjoyed a smooth ride in his first quarter behind the wheel at Toyota Motor (7203.T). Net income for the three months to the end of June raced ahead some 75%, revving the operating margin to over 10%. That helped shares in the $230 billion Japanese vehicle manufacturer up to an all-time high. But to keep the world’s biggest-selling carmaker in the lead, Sato must speed electrification and outpace competition.
Several factors fueled Toyota’s zippy performance. A 15% jump in the average price per vehicle sold helped revenue increase by nearly a quarter. Improving supplies of semiconductors, a key component, greased production. A weaker yen also flattered Toyota’s vast overseas business, for which sales rallied in every region with the exception of Asia, where ferocious competition on Chinese roads took its toll.
Toyota now trades just shy of 10 times estimated earnings for the next 12 months, per Refinitiv. That’s almost double the average multiple sported by peers including Ford Motor (F.N), General Motors (GM.N), Stellantis (STLAM.MI) and Nissan Motor (7201.T). On the latest numbers alone, that’s justified: few of those rivals can match Toyota’s operating margin, which rose 380 basis points during the quarter year-on-year. But Toyota faces big challenges that will require some nifty manoeuvres from its CEO.
Toyota is playing catchup in electric vehicles. Although new-energy powertrains represented more than a third of sales in the reporting period, most were hybrids, which combine a traditional engine with a battery. Pure electric cars made up just 29,000 of the 2.3 million motors sold since Sato stepped up. Another item on his list is to tackle China, where local companies are grabbing market share, preying in particular on legacy names that have been slower to produce battery-powered vehicles. Those same Chinese brands are encroaching on emerging markets like Thailand, where Toyota has traditionally sold well.
Encouragingly Sato has signalled a renewed focus on electrification and fresh efforts to tailor their products for China. The company is also planning to sell $1.8 billion-worth of shares in telecoms company KDDI (9433.T), with the proceeds being injected into its EV business. Executives told investors on Tuesday that they’re eager to review other investments, too, including cross-holdings in the Toyota group and other assets. The stakes are high. Any missteps, and the carmaker could fall further behind in new technology and the fastest-growing segment of the industry.
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
Follow @KatrinaHamlin on Twitter
CONTEXT NEWS
Toyota Motor on Aug. 1 reported a 75% increase in net profit to 1.3 trillion yen ($9.1 billion) in the three months to the end of June compared with the same period last year. Total sales rose by 24% to 10.5 trillion yen in the same period.
The company’s share price rose about 3% by early afternoon local time on Aug. 2.
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August 02, 2023 at 08:33AM
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Breakingviews - Toyota tops up tank to fuel a hard drive - Reuters
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