How Much Could Lexus’ SUV Strength Add To Our Toyota Valuation
Toyota Motors ‘s (NYSE:TM) luxury car brand overtook German luxury car maker BMW as the second highest selling luxury car brand in the U.S. auto market in 2016. As we explained, the Japanese auto maker achieved this feat by raising sales of its SUVs by 6.5%, even as passenger car sales for the brand declined by 18.2%. New sales of SUVs have grown by 7% so far this year and passenger car sales have declined by 8.4%.
We expect this trend to continue in the medium term. The table below shows how much our valuation for Toyota could be impacted if Lexus establishes its dominance in the luxury SUV segment. We assume that the brand will grow its overall sales by 4% and this will lead to expansion of gross margin by close to 100 basis points. As you can see from the table below, this could lead to a close to 11.9% increase in our valuation for the company.
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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 Toyota Motor
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