Here’s Why Toyota Motors Is Making A Strategic Investment In Ride Hailing Company Grab

Declining passenger car sales in the U.S. have impacted Toyota Motors (NYSE:TM) significantly. According to the company’s guidance, it expects a nearly 18% decline in operating income in 2017-2018 making it one of Toyota’s worst fiscal years in nearly 2 decades. The company is taking measures to avoid two consecutive years of earnings decline. It is shifting its R&D (research and development) resources to areas such as autonomous vehicle technology and new energy vehicles to adapt to the changing landscape of the automotive industry. Toyota has traditionally dominated the passenger car market in the U.S. with Camry and Corolla. But this market segment has now declined for three years in a row now and this has affected the company’s profitability in this segment. Although Toyota has made headway in the SUV segment with RAV4, Highlander, and 4Runner, these gains aren’t enough to offset the decline in the passenger car segment. Further, customers are now moving away from car ownership and preferring ride sharing options. Several surveys involving millennials have shown that the younger generation prefers not to own a vehicle and use ride hailing/sharing instead.  This trend has prompted automotive manufacturers to partner with ride hailing companies to adapt towards the changing automotive landscape. Toyota Motors made a strategic investment in global ride sharing company Uber last year and reports suggest that the company is investing in Grab’s next round of funding.

Grab is Uber’s competitor and South East Asia’s leading ride hailing operator. Toyota’s trading arm Toyota Tsusho Corp is likely to invest in Grab and the company will work together with its ride hailing partner to explore new ways of offering mobility services to its customers in the region. Under this partnership, Toyota Motors will record and analyze driving patterns in 100 Grab cars in Singapore to offer recommendations on connected devices services it can offer to Grab drivers. This appears to be part of Toyota’s goal to shift its R&D expenditure towards newer technology including the field of artificial intelligence. Honda Motors, which is also suffering due to the declining U.S. passenger car market, already has a stake in Grab.

As automotive manufacturers transition into the new landscape, we believe these strategic investments can help them understand the future requirements better and direct their efforts towards developing new products/vehicles suited for the new era. Toyota’s strategic stake in Grab will help the company understand the South East Asian ride hailing market better and allow the company to develop the Toyota Mobility Services Platform (TMSP) according to the requirements of the users, based on the data collected through this partnership.

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