Three Things That Matter Most For Toyota Motors

Toyota Motors (NYSE:TM) commands a 40% market share in Japan and retaining this share amid intense competition, especially from Honda Motors, will be key for its valuation in future. The luxury car market in the U.S. is expected to grow by 10% in 2015 and Japan’s demographic profile will fuel demand for luxury vehicles in the region. As the luxury car market expands, Toyota’s Lexus could fuel revenue growth. With continued focus on fuel efficient and environmentally friendly cars, we believe that demand for hybrid vehicles will grow and innovation in this space will be another key driver for Toyota’s revenues in future.

See our complete analysis for Toyota Motors here

Retaining Its Market Share In Japan

Japan is the most important market for Toyota Motors and we estimate nearly 25% of its valuation to come from this region. Toyota’s market share in Japan fell from more than 44% in 2012 to slightly above 40% in 2014, primarily due to intense competition from Honda. We expect the company to retain its market share at around 40% over our forecast period given its established dealer network and innovative models. In the 2015 Tokyo Motor Show, Toyota premiered three radically new concepts cars that demonstrate its innovation —  its entry-level compact sports car, a futuristic fuel cell commuter car and a retro cruiser with open mechanicals. While competition is intense in the Japan auto market, Toyota’s focus on fuel efficient cars allows it to benefit from the Japanese Government’s tax exemptions for eco cars. We believe the focus on green cars and the launch of attractive models in Japan will  be key for the company to retain its market share in the region.

Hybrid Vehicles

In the month of September 2015, Toyota registered a more than 12% growth in sales of its hybrid model Prius. ^[1]. The company is launching a new version of this model in 2016 with significant improvements in driving dynamics, styling and luxury features. While sales of hybrid models are currently slow given the low oil prices, we believe these could be a key growth driver in future. The global market for Hybrid Electric Vehicles (HEV) is expected to grow at a moderate pace over the next few years, reaching nearly 4 million vehicles by 2023. Toyota already has a significant presence in this space and improvements in the Prius model can enable it to capture a higher market share thus propelling future growth.

Lexus Strategy

We estimate the Lexus division to constitute about 10% of our valuation for Toyota Motors. While this brand is sold globally, it is the most successful brand of luxury vehicles in Japan.  In the month of September 2015, this brand registered a growth of 16% from September 2014 on a volume basis. ^[1]. Luxury vehicles contribute only 10% to the overall car market in terms of units sold but they bring in 20% of revenues and nearly half the profits.  Most companies have pursued a strategy of producing a cheaper entry level luxury car to gain customers.  However, Toyota did not introduce a luxury car below the $30,000 mark. Lexus seems to be attracting customers without any reduction in price. Focus on adapting this model to changing customer needs will be key for the company’s growth in future as the luxury car market continues to grow in Japan and in the U.S.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research

1. ToyotaNews [↩] [↩]