How Japan Tsunami Could Affect Toyota Stock Outlook

Toyota Motor Corporation (NYSE:TM) is the world’s largest automaker by sales and is headquartered in Japan. Toyota has been majorly affected by the devastating Japan earthquake and tsunami in March, and continues to face significant risks to its global operations. Here we take a look at the possible effects of this natural disaster on Toyota’s stock value. Toyota sells its vehicles under three main brands (Toyota, Lexus and Scion) and competes globally with automakers like BMW (GR:BMW), GM (NYSE:GM), Daimler (ETR:DAI), Audi (NSU:GR), Ford (NYSE:F), Honda (NYSE:HMC) and others.

We have a price estimate of $80.29 for Toyota stock, roughly 5% ahead of market price.

Toyota Facing Significant Risks Arising From Natural Catastrophe

Toyota hasn’t been immune to the after-effects of the natural disaster that hit Japan in March. Toyota and its affiliates have three factories in the Tohoku region, a center for auto making in Japan, that suffered greatly because of the tsunami. According to Japan’s Cabinet Office figures, the Tohoku region accounts for about 8% of the country’s gross domestic product. Following the massive earthquake and ensuing tsunami last month, Toyota subsidiary plants that produce parts and vehicles had to stop production. The plants affected included:

• Toyota Motor Hokkaido Plant
• Toyota Motor Tohoku Plant
• Central Motor Corporation Miyagi Plant, which also produces the Yaris model.
• Kanto Auto Works Iwate Plant, which also produces the Scion xB and Scion xD.

Toyota re-started production at two plants that make three hybrid models on Monday April 4, but almost two thirds of its suppliers from northeastern Japan are still not functioning. Toyota hopes to start producing more models for the Japanese market by mid-April, depending upon the recovery of parts and materials supplies.

Disruption in Supply Chain and Damages to Port

Toyota produces more than 50% of its vehicles in Japan. In fiscal year 2009, ended March 31 2010, Toyota produced more than 60% of its vehicles in Japan, as Japan accounted for a little over 25% of its global vehicle sales.

Almost two thirds of Toyota’s suppliers from northeastern Japan have not yet recovered from the disaster, and this will put pressure on Toyota’s manufacturing capacity. The damage to Japanese sea ports could hurt, in the short-term, Toyota’s vehicle exports as well as the supply of Japanese automotive parts to Toyota’s other international automobile manufacturing facilities.

The short-term effects of this natural disaster could potentially knock 20% off of our present growth estimates for Toyota’s international vehicle market share through 2013. Also, Toyota’s vehicle market share in North America could potentially decline by about 0.5% this year, and growth projections could slow down to 80% of our current projection over 2012-13.

Scion Sales in North America Could Suffer Due to Damaged Facilities

Damage to Kanto Auto Works Iwate Plant, which also produces the Scion xB and Scion xD, could hurt the sales of Scion vehicles in the short term.

Given the situation, unit sales of Scion vehicles could deviate from our forecasted base case path. The disaster could spur a potential 4% decrease in unit sales this year, after which we might see a 5% recovery next year followed by sales continuing on our base case projected growth track.

Potential 6% Downside to our $80.29 Price Estimate for Toyota Stock

Given the scenarios presented above, the effects of the earthquake and tsunami that hit Japan in March could present 6% downside to our base case price estimate of $80.29 for Toyota stock, pushing our number to $75.40.

The effects could bump Toyota from its position atop the bestsellers list, in terms of vehicles sold globally, and give the crown to GM, which marginally fell behind Toyota in 2010. You can examine a variety of scenarios for Toyota’s outlook by dragging the trend lines in the interactive charts above.

See our full analysis and $80.29 price estimate for Toyota stock