Will Hybrids Drive The Future For Toyota Motors?

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Toyota Motors (NYSE:TM)  believes that gasoline and diesel-engine cars will become extinct by 2050 and hybrids will account for most its global vehicle sales. [1]. The company recorded the highest hybrid vehicle sales in South Korea in October 2015, with 6,743 units of hybrid cars being sold between January and October 2015 compared to 5,864 units in the same period in the 2014, thus registering a more than 20% increase. [2]. Worldwide sales of Toyota hybrid vehicles crossed the 8 million mark in July 2015. [3]. The company had introduced Prius the world’s first mass produced hybrid vehicle in 1997 and introduced two new versions of this model in 2003 and 2009 respectively. Focus on green cars appears to be part of Toyota’s long term strategy and given the tough emission standards and anti pollution measures in most countries, hybrid cars could be key for future revenue growth.

See our complete analysis for Toyota Motors here

 Tough Emission Regulations Could Increase Focus On Green Cars

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In wake of the Volkswagen emissions scandal, the auto industry is grappling with meeting tough emissions regulations.  Toyota feels that, in an era of growing pollution concerns, hybrid vehicles could be the answer. The company has started focusing on fuel-cell cars that run on hydrogen and emit only water vapor from the tailpipe. These cars can be charged in minutes and have a longer driving range than electric cars and hence are more suited for long distance travel, according to Toyota. The company plans to sell at least 30,000 fuel-cell vehicles a year world-wide by 2020. Toyota had tied up with Ford in 2011 to develop hybrid pickups.  However, after this partnership was discontinued in 2013, Toyota is now working solo on building this model and plans to launch it by the end of this decade. [4] Pickups comprise the most profitable segment in the auto industry and use of hybrid drive-train in this segment could help the company meet tough emission standards. In view of low oil prices, consumers seem to be sticking to traditional fuel cars.  However, fuel economy and growing concerns around pollution could lead to a transition towards hybrid cars in future. Toyota plans to cut carbon dioxide emissions from new vehicles by more than 22% compared to its 2010 global average. [1] The company expects to increase Japanese hybrid sales to 50% by 2016, given new government regulations leading to higher road taxes on gasoline powered cars.  [5]

Adaption of hybrid models globally will be a long drawn process, given the infrastructure required for charging these cars. Toyota is definitely pushing its hybrid models in regions where adaption is high primarily due to tough regulations. It is also working on incorporating the hybrid system in most of its models, including developing hybrid pickups. While currently only 14% of Toyota’s sales comprise of hybrid vehicles, [6] we believe increased focus on green technology is part of its longer term strategy, which will evolve over the years.

 

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Notes:
  1. Toyota Maps Out Decline of  Conventionally Fueled Cars, Wall Street Journal, October 2015 [] []
  2. Hyundai Motor, Toyota Record Highest Hybrid Car Sales In History, Business Korea, November 30, 2015 []
  3. Worldwide Sales of Toyota Hybrids Top 8 Million Units, Toyota-global.com []
  4. Acrimony lingers as Ford, Toyota, go solo in race for hybrid pickups, autonews.com, November 30, 2015 []
  5. Toyota to increase Japanese hybrid sales by 50% in 2016, leftlanenews.com,  March 2015 []
  6. Will the All New 2016 Prius Jump-Start Toyota’s Hybrid Sales, The Motley Fool []