Toyota Targets Developing Countries En Route To $90

Toyota Motors (NYSE:TM) is investing heavily in developing countries. With a greater focus on developing cars suited to the needs of the customers in emerging economies, Toyota hopes to generate 50% of its total vehicle sales from emerging economies by 2015, up from 45% in 2011. The stock is up almost 20% this year as the automaker recovers from its lows of 2011 caused by the tragic tsunami.

In Brazil, the automaker hopes to double the sales in the next two years with the help of a new manufacturing plant that will kick off production of its compact car Etios in September. Etios was one of the cars that was designed specifically for the emerging economies such as Brazil and India. This is the automaker’s third plant in the country with the fourth one due to begin production from 2015. Brazil is the fourth largest auto market in the world and success in this country would imply a significant upside for the automaker. Currently, Toyota’s market share in Brazil stands at a mere 3% compared to market leader Volkswagen’s 20%, so there is plenty of potential in terms of making market share gains. ^[1]

Besides Brazil, Toyota is also investing significantly in Asian countries such as China, Thailand and India. In China, the automaker announced last month its plans to build a new plant which will see the total production in the country surpassing 1 million units. In India, the automaker is in the process of developing cars to bridge the gap between its existing models in the country. For instance, it is introducing subcompact cars or multi-utility vehicles (MUV) to target the price range between the lower priced Etios and the more expensive Corolla Altis or Innova. The gap is currently dominated by Honda City, Hyundai Verna and Volkswagen Vento in the country.

The automaker is also considering building a diesel plant in the country as an increasing number of people prefer to buy diesel variants as diesel is significantly cheaper than gasoline. However, diesel cars pollute far more than the traditional gasoline cars and so the government is considering imposing high tax on diesel cars to deter people from buying them. Thus, the company is  still undecided on its plans for building a new diesel plant in the country. ^[2]

Given Toyota’s success in developing markets, its global footprint and the growth characteristics of these markets, we believe this is a good focus for the company going forward.

We currently have a $90 price estimate for Toyota’s stock, which is about 10% higher than the current market price.

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1. Toyota seeks to unseat VW in LatAm, scheduled to launch new Brazil factory, August 27, 2012, chinapost.com.tw [↩]
2. Toyota still undecided on a diesel engine plant for India, August 24, 2012, timesofindia.com [↩]