Note: Toyota's Q3 FY'23 ended on December 31, 2022
Toyota Motor Corporation is the world's largest automaker by sales and is headquartered in Japan. Toyota is engaged in developing, manufacturing, distributing, and selling a wide range of automotive products, mainly passenger cars, SUVs, and trucks. Toyota's sales are concentrated in Japan and North America, but Asia and South America have seen rapid sales growth in the recent past. Toyota sells its vehicles under mainly three brands: Toyota, Lexus, and Scion. It also has a majority stake in Daihatsu and Hino Motors and minority shareholdings in Fuji Heavy Industries, Isuzu Motors, Yamaha Motors, and Mitsubishi Aircraft Corporation. The company also runs a Housing, IT, and other services business in Japan.
In 2020, Toyota's North America auto sales amounted to 2.7 million. In comparison, there were around 2.3x as many vehicle sales (6.2 million) internationally, including in Japan. We estimate that Toyota will be able to grow its international market share in the coming years.
Even though Toyota sells more vehicles than any other auto company, it still posts higher operating margins than most of its competitors. The Japanese automaker is an expert in the production process of vehicles and consistently designs and manufactures vehicles more efficiently than its competitors.
Toyota is one of the largest companies to push hybrid vehicles in the market and the first to commercially mass-produce and sell such vehicles, an example being the Toyota Prius. Toyota has said it plans to make a hybrid-electric system available on every vehicle it sells worldwide sometime soon. Toyota is speeding up the development of vehicles that run only on electricity.
Toyota's profits are recorded in Japanese yen, but its sales are denominated in euros, dollars, pounds, Chinese yuan, and many other currencies. This is because 40-50% of Toyota's production still happens in Japan, and most vehicles are exported. Fluctuations in the exchange rate between these currencies and the yen can lead to fluctuations in Toyota's profits; these fluctuations can be substantial. Toyota hedges its exchange rate risk by arranging currency swaps and purchasing futures, but these operations are costly and threaten to cut the bottom line.
Major Japanese firms have long practiced extensive cross-shareholding. This process serves to both smooth domestic business relations while at the same time preventing a widespread foreign acquisition of Japanese businesses.
This has several potential pitfalls for common shareholders: 1) A company can experience significant write-downs due to stock declines of other companies it owns, even when business is otherwise healthy. 2) Accumulating such ownership stakes means that capital is diverted from other, often more profitable tasks, such as reinvestment in the automaking business or dividends to shareholders. 3) Cross-shareholding makes it more difficult for shareholders to hold management accountable, as the managers at other significant firms who own the firm can frequently interfere with their counterparts.