Ford & Toyota Hybrid Collaboration Could Win Market Share as Emission Standards Tighten

by Trefis Team
-8.78%
Downside
16.43
Market
14.98
Trefis
F
Ford
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Ford (NYSE:F) and Toyota (NYSE:TM) recently announced their partnership to share and jointly develop hybrid vehicle technology to be able to meet stringent future emission requirements in the U.S. [1] While both have independent hybrid programs, we believe that this collaboration will not only help them reduce their R&D costs but also spur their vehicle sales providing further upside to shares. Ford and Toyota compete with other global automakers like GM (NYSE:GM), Daimler AG (NYSE:DAI), Honda (NYSE:HMC), Hyundai (SEO:005380) and Nissan (PINK:NSANY).

We currently have a Trefis price estimate of $14.15 for Ford’s stock and of $82.60 for Toyota’s stock, which are around 34% and 18% above their current market price respectively.

Fuel Efficiency Standards Will Tighten in Coming Years

U.S. fuel-efficiency standards will soon become more stringent with the eventual aim to achieve fuel economy of 54.5 miles per gallon for cars and light-duty trucks by model year 2025. [2] In the near-term, fuel efficiency requirements will be raised to 35.5 mpg for model years 2012-2016 vehicles.

Many analysts are expecting a global economic slowdown after the recent equity market sell off due to concerns over U.S. growth and the European sovereign debt crisis. Moreover many major Asian economies are battling rising inflation through tighter monetary policy which can constrain growth.

This economic slowdown could push the automotive industry into another downturn with sales plummeting and cost per vehicle increasing due to high fixed costs and lower production to match demand. In such an economic scenario, automotive manufacturers will have to rationalize their costs again and this collaboration will help both Ford and Toyota to reduce their R&D expenditure without losing their competitive edge in technology.

Winning Market Share Longer Term

Through this collaboration Ford and Toyota aim to co-develop hybrid systems which will provide greater fuel efficiency without compromising on performance. They also aim to jointly develop in-car telematics and Internet based services, which will improving the driving experience and will further help drive sales. This collaboration will also help these companies introduce new products with advanced technologies faster than if they continued to work separately, thus helping improve their market share in the mid to long-term.

Toyota will still have to work towards repairing its brand image and eliminating customers’ safety concerns but will also benefit from this collaboration in the mid to long term.

You can drag the trend lines in the modifiable charts above to see the impact of these trends on Ford’s and Toyota’s stock value.

See our complete analysis for Ford and Toyota.

Notes:
  1. Ford, Toyota to Collaborate on Developing New Hybrid System for Light Trucks, SUVs []
  2. President Obama announces historic 54.5 MPG fuel efficiency standard []
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