With EV Plans Taking Shape, What’s Next For Toyota Stock?

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Toyota Motor

Toyota Motor Corp (NYSE:TM) stock has seen a big rally recently, rising by about 15% over the last month. The stock also remains up by about 19% year-to-date in 2023. Now the broader Japanese stock market indices have been among the best-performing in the world driven by corporate governance overhauls and an increasing focus on shareholder returns. Easing commodity prices and supply chain-related issues are also helping automotive stocks in general. More specifically, Toyota, which is viewed as a laggard of sorts in electric vehicles, provided a more detailed roadmap of how it intends to compete in the fast-growing EV market. The company is focusing on two key areas – namely manufacturing and battery technology.  While Toyota is developing a dedicated EV platform to help cut costs, it is looking to deploy a highly automated manufacturing process at a new EV unit called BEV Factory, established last month. Toyota is known for its manufacturing efficiency and processes with internal combustion engine-based cars, and the company’s specific plans for EVs could be seen as positive by investors. Toyota is looking to produce 1.7 million vehicles from its BEV factory by 2030. Toyota also appears to be making good progress on the battery front. The company is developing its next-generation lithium-ion batteries which should be ready by 2026,  while also looking to commercialize solid-state batteries by 2027 or 2028. Solid-state batteries help make EVs safer by avoiding the use of flammable liquids, while considerably increasing range and reducing charging time. Durability has been a huge challenge for these batteries, but Toyota indicated that it has made technological breakthroughs on this front.

So is Toyota stock a buy at current levels of about $164 per share? Although Toyota’s EV plans look compelling, it remains to be seen how well the company will fare. Toyota’s current EV sales are minimal standing at just 38,000 units last year. Tesla already has a massive lead in the EV market and is on track to sell about 1.8 million vehicles this year, already putting it ahead of Toyota’s 2030 plan. Other major automakers such as Volkswagen have also been investing at scale in their EV roadmaps and in battery capacity. Competition in the EV market is only expected to mount further, given the relatively low barriers to entry. Being the world’s largest automaker, which is largely exposed to traditional engine vehicles Toyota has the most to lose if it doesn’t execute well on its EV plans. We value Toyota stock at about $162 per share, roughly in line with the current market price. See our analysis of Toyota Valuation for more details on what’s driving our valuation for Toyota. Also, see our analysis of Toytota Revenue for more details on Toyota’s key revenue streams.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

Returns Jun 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 TM Return 21% 20% 40%
 S&P 500 Return 5% 14% 96%
 Trefis Multi-Strategy Portfolio 7% 17% 267%
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[1] Month-to-date and year-to-date as of 6/16/2023
[2] Cumulative total returns since the end of 2016

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