Following Tough Results, Toyota Faces Challenges in Recovery
Toyota’s (NYSE:TM) quarterly earnings for the period March-June’2011 (FY2012 Q1) were battered by sharp declines in vehicles sales in the aftermath of the tragic Japan earthquake and tsunami (March 2011). Toyota’s vehicle sales declined across all geographical markets with North America sales declining 48% yoy due to the company’s vehicle production shortages and Japan sales declining 42% due to a drop in demand and shortage of inventory. Moreover, Toyota’s marketing costs increased by around $3.5 billion causing a vacuum in its quarterly operating income. Now Toyota is also facing the challenges of the global economic slowdown that could impact its recovery in the medium term.The Japanese auto maker mainly competes with BMW (GR:BMW), GM (NYSE:GM), Daimler (ETR:DAI), Audi (NSU:GR), Ford (NYSE:F), Honda (NYSE:HMC) and others in auto markets globally.
Our $84 price estimate for Toyota stock is about 20% above current market price.
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Asia Ex-Japan the Least Affected
March 2011 earthquake in Northeast Japan adversely affected many of Toyota’s auto part suppliers from Tohoku region in Northeast Japan. This disrupted the global automotive supply chain, which led to declining Toyota vehicle production capacity. This also led to a decline in Toyota’s inventory which hurt sales.
While Toyota vehicle sales declined across all geographical regions, vehicle sales in Asia excluding Japan declined the least because of support from sales in many relatively fast growing emerging Asian economies.
Macro Picture is Troubling for Auto Makers
The global economic environment is deteriorating and while there are growing economic growth concerns in North America, Europe is teetering on the brink of a full blown sovereign debt crisis as Greece is likely to default and markets have now focused on Italy and Spain as potentially troubled economies as well.
Contrastingly, many Asian economies are facing inflation concerns leading to tighter monetary policy through increasing interest rates which can hurt vehicle sales. The global economic slowdown will further hurt many export-dependent Asian economies in the short to medium-term.
These factors will weigh on auto sales in the coming year or so though long-term we are more optimistic that vehicle sales will accelerate.
You can drag the trend lines in the modifiable charts above to see the impact of these trends on Toyota’s stock value.