You might consider large automakers like Toyota (TM) to be to be too large to be innovative. With Tesla's (TSLA) Model S winning the Automobile of the Year Award, many investors are starting to look for investment opportunities in what is starting to become an inevitable reality for automakers -- EV is the future. I drew some harsh criticisms when I talked about Tesla as an investment opportunity. Since that article, EV supporters have changed my mind on several important issues, including that of range. That said, I still remain solid on the fact that Tesla is still a speculative play and not an investment play.
If you're an investor and you want to be part of a company that could see substantial growth with the EV revolution but don't have the stomach for a start up growth company like Tesla, then I think there is a much safer investment for the long term, and that is Toyota.
Toyota And EV
Toyota believes in the future of EV. It demonstrated this when it invested 50 million into Tesla. This is all pretty well known history.
What isn't as public is how forward thinking Toyota actually was when it invested in WiTricity. WiTricity, for those not familiar, is technology that allows for the transmission of electricity wirelessly using magnetic fields. The application of the idea in terms of EV is as simple as it is beautiful. You could charge your EV by simply pulling into your driveway or up to a charging station. Imagine being able to pull up to a charging station while it is snowing and never having to get out of your car. Toyota believes it will have a practical implementation within 10 years. If this is not forwarding thinking for an automaker, I don't know what is. For those more interested, here is a video demo of WiTricity, which includes a brief example of using it with EVs.
Toyota has also recently revealed that in addition to Google (GOOG), it is also working on a self driving car -- something else other major auto makers are not putting time into. It might sound a bit sci-fi, but your car might be able to drive to a charging station while you are sleeping.
WiTricity Vs. Induction
It is important to note the difference between WiTricity and induction charging, since induction charging has already been demonstrated on some EV vehicles. Induction requires that the two nodes for charging be relatively close, but they don't have to be touching. With WiTricity, the charging nodes could be several meters away from each other, if not farther.
Induction has been demonstrated by EVs, but it is completely unrealstic in real life scenarios. Having a circular pad on the ground that you must line up with another circular pad on the underbelly of your car would be downright frustrating, if not impossible. WiTricity does not have this issue because it has a far greater range for charging.
Toyota does have some challenges ahead. The biggest is that it has yet to release a long range EV. The official stance from Toyota on its EV lines is as follows:
Toyota has seen that many customers are not yet willing to compromise on range, and they don't like the time needed to re-charge the batteries. Moreover, the infrastructure for recharging has not become as widespread as originally anticipated.
So, even though Toyota is ready with the iQ EV, we believe a plug-in hybrid solution offers a better way than pure electric for most customer needs in the short- to medium-term, and that is where we will concentrate our commercial activities.
While I am sure many Pro-EV supporters will be quick to dismiss Toyota, the most important part of this is that Toyota believes EV will satisfy customer needs in the long term.
The between-the-lines reads that Toyota believes long-range EV vehicles will be present in the future, and this is further supported by its investment in WiTricity. This means Toyota will more than likely have long-range EVs on the market some time in the future, and its EVs will also have wireless charging capability.
The other challenge it could face in the future is, of course, from companies like Tesla, which are not burdened or restrained by the current franchising model. However, if you should keep your enemies closer, then Toyota is doing a pretty good job with Tesla. Toyota is completely prepared for a potentially massive EV revolution. While they might not be ready or willing to dump a massive amount of batteries into an EV to get the range yet, Toyota is hedging itself by continuing to produce both EVs and hybrids.
Toyota Value Now
If you're looking for a long-term investment, Toyota is a great option right now. Its price to book value is 1.062, and it is at parity. The stock has already started to appreciate in reaction to this. Of course, a solid price to book needs to be considered in the context of its other fundamentals.
Its revenue and book value have a very strong upward trend, and it doesn't seem like they are slowing down. What makes this a true value buy is the fact that its price to book has remained some what constant over the last 4 years. When you have a growing book value with a regular price to book, this means that the stock's price motion has somewhat of a strong coupling with its growth rate. Price to book consistency will create a low beta situation for the stock, which will give it a decent alpha over the long term.
Toyota is a forward-looking automaker. It is proactively bracing for the future, as demonstrated by its investments in Tesla and WiTricity. As EVs gain more popularity and the market grows, Toyota is going to emerge as one of the major EV players. Toyota is a good long-term play for the next 5-10 years if not longer. Within this time frame, we will see a discount in batteries of 30 to 50%, which will make EVs much more economical and create a much larger incentive for Toyota to create longer-range EVs. This, coupled with true wireless charging, will allow Toyota to become a market leader.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.