Why Toyota Is More Valuable Than GM, Ford & Honda Combined – Part 1

-12.26%
Downside
239
Market
209
Trefis
TM: Toyota Motor logo
TM
Toyota Motor

Toyota Motor (NYSE:TM) has a greater market capitalization than that of General Motors (NYSE:GM), Ford (NASDAQ:F) and Honda (NYSE:HMC) combined. While this might appear striking, this is true primarily because of Toyota’s cash rich position. On comparing the enterprise value (EV) of the automakers, one sees that Toyota’s EV stands at just over $100 billion, which is about $30 billion higher than its next biggest competitor. In this two part article series, we try to explain this fact by looking at the average transaction price per unit sold commanded by each company and the operating margins for each company. Both of these angles reveal a lot about the recent performance of these companies and the directions in which they’re heading.

Toy1This is still a remarkable gap as Toyota and GM sell almost the same number of units in a year. As evident from the table below, Toyota’s average transaction price is the highest among these four companies. The primary reason for the disparity in revenue per unit sold is the geographic mix of their respective sales.

Toy2

  • Toyota gets over 40% of its sales from North America and Japan, where it commands some of the highest transaction prices in the industry. North America is the most profitable market for most auto companies, including Toyota. In Japan, Toyota commands extremely high prices because of its dominant market position particularly because of its Hino and Daihatsu brands. This is unlikely to change in the near future, which would mean that these two divisions should continue to drive Toyota’s valuation. According to our estimates, Toyota Japan and Toyota North America are worth $40 billion and $25 billion, respectively.
  • In contrast, GM’s transaction prices in North America are bolstered by its leading position in the U.S. trucks market, but its high presence in China weighs down revenue per unit. This is set to continue in the future as most of the growth in the Chinese market is likely to come form tier 3 and tier 4 cities where the typical buyer profile is likely that of a first time buyer purchasing a compact car. We estimate that GM China and GM Trucks U.S. are worth $25 billion and $24 billion, respectively, to GM.
  • Ford has a similar position to GM in the United States, but has less of a presence in China and other emerging markets. As Ford’s presence in these markets increases, it might find it difficult to improve profitability. Ford’s largest auto divisions are Ford Trucks North America and Ford International, which contribute only about $3 billion each to Ford’s total valuation according to our estimates.
  • Honda’s biggest market is also North America, from where it gets close to half its sales. Honda North America is worth $22 billion according to our estimates. Please note that automotive revenue and per unit calculations for Honda do not include numbers from its motorcycles division.
Relevant Articles
  1. With EV Plans Taking Shape, What’s Next For Toyota Stock?
  2. Toyota Stock Looks Like A Buy Despite Tepid Guidance
  3. Why Toyota Stock Looks Like A Buy Despite Mixed Earnings
  4. With Delivery Issues Likely To Ease, Should You Buy Toyota Stock?
  5. Company Of The Day: Toyota
  6. Forecast Of The Day: Average Revenue Per Toyota Vehicle

Toy3If one stacks up the most valuable divisions of these four companies in order of their size by value, it is evident that Toyota has three of the five most valuable divisions. This result flows directly from its higher transaction prices and operational efficiency, which leads to significantly better margins. Another fact that jumps out from the table above is how Ford’s comparable transaction price and automotive revenue to Honda or Toyota do not translate to a high enterprise value, which is a result of its operating margin being the lowest among these companies. We elaborate on the impact of margins on valuations of these auto companies in the second part of this two-part article series.

Have more questions about auto companies? Click on the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Honda | Toyota | General Motors | Ford

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research