Toyota’s share price [7203.T] is ambling along right now, but there are reasons for optimism. Despite a slow start, the automobile manufacturer is now investing heavily in electric vehicles and batteries. It has also one eye on future technologies, such as autonomous driving.
Conversely, it is suffering from comparisons with the likes of Tesla [TSLA] after its rivals’ $1T valuation, although these comparisons might not be as well-grounded as they first appear. There are also concerns over how much Toyota is spending on making the transition to electric vehicles. Then there’s the semiconductor crisis hitting production numbers. Although Toyota’s share price seems to have withstood this last point.
Yet, Toyota’s strong fundamentals and grounded share price could make it a good value option for those who might baulk at the price - and risk - of Tesla’s share price. A key piece of the puzzle will be this week’s third quarter earnings.
Toyota reports third quarter earnings
What’s happening with Toyota’s share price?
Toyota’s share price is trading flat on the month (through 29 October), despite some headwinds including a fall in September production. Over the three months the stock is up 2.3% and while there has been some volatility, much of it induced by the semiconductor shortage - Toyota’s share price isn’t too far off the year high it hit at the end of September.
When is Toyota reporting Q3 earnings?
What to expect in Toyota’s Q3 earnings?
Investors will already have a sense of what’s in store for Toyota’s upcoming earnings. Last week the company released a statement saying that global production had fallen by a third year-on-year. In September, Toyota produced 512,765 vehicles, down from 841,915 in the same period last year. Global sales were also down 16% in the month, which Bloomberg points out is Toyota’s first year-on-year drop in 13 months.
Toyota cited the semiconductor shortage as the reason for the decline, however the drop does come in line with the company’s previous guidance that it would be reducing September production by around 40%.
However, there are signs that things are improving. Earlier in October, Toyota said that it plans to produce around 850,000 to 900,000 units in November, which would be a year-on-year increase. Toyota is also sticking to its target of 9m vehicles sold in the full year despite production cuts.
Toyota’s share price responded positively to the news and as long as the company can maintain its guidance, then the stock could see a post-earnings boost.
Should investors back Toyota or Tesla?
Toyota plans to spend $14bn on electric batteries by 2030 as part of its transition to electric vehicles. Along the way it hopes to cut the cost of battery production by 50% and build a flexible supply network as demand increases.
By 2025 it will launch 15 models globally, with the hope of shifting 8m electrified vehicles by the end of the decade. Most of these will be hybrid but 2m will be fully electric vehicles.
Toyota’s rivals are also spending big on the shift to electric vehicles (EVs). GM [GM] is forking out $35bn and Volkswagen [VOW3] a staggering $80bn. Arguably Toyota has lagged behind some of its competitors and its first EV won’t be available in the US or Europe until next year.
For investors debating whether to back the headline grabbing Tesla or one of the traditional automobile manufacturers who are transitioning to EVs, there’s a couple of points to take into account.
Tesla might now be worth more than the combined market capitalization of both Toyota and Volkswagen, but it's also worth bearing in mind that Tesla’s share price is arguably overvalued. The stock trades at a toppy 126.58 forward price to earnings ratio, while Toyota on the other hand has a more reasonable 10.79 forward price to earnings ratio.
And while Piper Sandler recently hiked its price target on Tesla to $1,300 - a Street high - JPMorgan Chase & Co.’s Ryan Brinkman has a $250 price target on Tesla which would see a near total collapse in the stock given it closed Friday at $1,114.
JPMorgan's Ryan Brinkman's Tesla share price target, which would be a 77.5% collapse
Also backing Toyota are Credit Suisse. Analysts at the Swiss-based bank have named Toyota as one of the automobile manufactures it expects to benefit from the next generation of mobility - such as robo-taxis and autonomous vehicles.
Analysts at the Swiss bank expect car companies to shift to a recurring revenue model, for example car sharing, which it predicts will be a market worth 29 trillion Japanese yen ($253 billion) in 2030.
Credit Suisse highlighted Toyota shifting its business model from an auto company to one focused on mobility. The analysts also pointed out Toyota improving its supply chain relationships and investment in technologies such as autonomous delivery vehicles.
Among the analysts tracking the stock on Yahoo Finance, Toyota’s share price has a ¥2,247.30 average price target - hitting this would see a 12% upside on Friday’s close of ¥2006.5.