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Toyota Gains From Product Development Plans, Hurt by Recalls

Zacks Equity Research

On Aug 6, we issued an updated research report on Toyota Motor Corporation TM.

The Japan-based company’s product portfolio comprises a vast range of models that include passenger cars, minivans, trucks as well as related parts and accessories.

Toyota is making advancements toward self-driving. The company is collaborating with entities to develop autonomous car technology. Recently, it engaged in a joint venture with Subaru Corporation to develop battery-electric sports utility vehicle (SUV). By 2030, the company aims to sell 5.5 million electrified vehicles. Further by 2025, every model is expected to have a committed electrified model or an electrified option. Additionally, Toyota plans to introduce 10 new electrified vehicles and open a new battery-testing facility in China by the end of 2020.

Changing product mix is driving sales in Europe and Asia. Introduction of trucks and SUVs in the product line is expected to strengthen sales across all regions in the upcoming quarters.

Moreover, Toyota is working on the development of a gas-electric hybrid. The company plans to popularize fuel cell vehicles (FCVs) by opting for mass production and reducing manufacturing expenses.

However, frequent vehicle recalls pose a major threat for the company.  In July 2019, Toyota announced the recall of certain models of its Prius c vehicles to address a specific manufacturing issue. Frequent recalls affected the company’s reputation as well as resulted in significant expenses and lower vehicle resale value.

Additionally, high raw material costs along with increased labor and R&D costs are adding to the company’s expenses. Apart from these, lowered vehicles across the globe, including North America, are impacting Toyota’s revenues. These factors are likely to hamper the company’s performance in this fiscal year.

In the past six months, Toyota has outperformed the industry it belongs to. Shares of the company have moved up 8.3% against the industry’s decline of 0.3%.

Zacks Rank & Stocks to Consider

Currently, Toyota has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the auto space are Fox Factory Holding Corp FOXF, CarMax, Inc KMX and Gentex Corporation GNTX, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fox Factory has an expected long-term growth rate of 16.7%. In the past year, shares of the company have rallied 17%.

CarMax has an expected long-term growth rate of 12.6%. In the past year, shares of the company have moved up 13.6%.

Gentex has an expected long-term growth rate of 5%. In the past year, shares of the company have returned 13.9%.

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