How Important Is the “Lexus” Brand For Toyota Motors’ Valuation?

by Trefis Team
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Recently Toyota Motors (NYSE:TM) unveiled a new flagship luxury crossover concept under the Lexus brand termed as the Lexus LF-1 Limitless. This concept, which is likely to define Toyota’s future Lexus vehicles, has been built to cater to a diverse range of customers with “limitless possibilities” around fuel options. With the U.S. passenger vehicle industry shifting toward crossovers and SUVs and the demand for clean energy vehicles likely to increase in the next few years, Toyota’s focus on luxury vehicles which meet these requirements is likely to drive revenues for the company in the future.

Our interactive model analyzes the impact of “Lexus” on Toyota’s valuation and you can modify the numbers to quantify your views on the impact on the company’s valuation.

According to our estimates, Lexus contributes around 13% to Toyota’s revenues and we expect this number to remain stable over the next few years. While Lexus saw a decline in revenue growth in 2016 (after a sharp increase in 2015), we expect revenues of this segment to grow steadily at around 5% annually over the next few years. You can modify this forecast to analyze the impact of a higher revenue growth of the Lexus segment on Toyota’s total revenues.

According to our estimates, Lexus contributes around 11% to Toyota’s total divisional valuation.

A faster growth in Lexus’ revenues can add to Toyota’s valuation and you can use our interactive model to create scenarios based on different revenue growth numbers.

Lexus is a key contributor to Toyota Motors’ revenues and profitability (since it is a luxury brand) and as the company invests in the future of this brand, making it attractive for a diverse set of customers, it can become a key growth driver for the company in the future.

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