Toyota Motors (TM) is scheduled to announce its Q3 earnings on February 5. The Japanese automaker has rebounded strongly in 2012 to reclaim the title of the world’s largest automaker from General Motors (GM). Sales as well as income were abnormally low in 2011 due to production and supply chain disruptions caused by the tragic earthquake.
North America continues to be the bright spot for Toyota with sales topping 2.2 million units in the U.S. in 2012. The automaker’s Corolla, Camry and Prius continue to be extremely popular with American buyers. In the Los Angeles auto show that took place in November 2012, Toyota showcased a refreshed RAV4 and plans to boost its sales by as much as 20% to 200,000 units in 2013.
On the other hand, Toyota’s dominance in the hybrid (or the alternative fuel segment) could fade as rival automakers introduce new and improved hybrids and electrics. Ford’s hybrid C-Max, launched in 2012, has received good reviews and continues to sell well. GM also unveiled a new Spark EV at the Los Angeles auto show with the lowest priced model costing less than $25,000. Tesla has also ramped up the production of Model S and already has a backlog of orders. Prius accounts for more than 10% of Toyota’s American sales. 
Improvement in China Likely
China could be the achilles’ heel for Toyota this quarter although the situation is likely to improve in the fourth quarter (i.e. Jan-March). Japanese automakers have been struggling in China due to tensions between the two countries over claims on the disputed islands. Other non-Japanese auto companies such as Hyundai, Volkswagen and BMW have benefited in turn. Japanese automakers have started offering huge discounts in order to win back the hearts of Chinese customers. Moreover, with the Chinese new year coming up on February 10, automakers see this as a good opportunity to reinvigorate sales. In fact, Toyota’s sales are up 23.5% in January although they were down 15% in December. 
Toyota is in the process of developing eight new compact models aimed specifically at China, Brazil, Indonesia, India and other emerging markets. By 2015, the automaker hopes to achieve half of its sales from emerging markets, up from 45% currently.
Shares of the world’s largest automaker have jumped nearly 30% as the Japanese companies are expected to benefit from the recent Yen devaluation. Japan’s newly-elected Prime Minister, Shinzo Abe, has vowed to make the Japanese companies more competitive by devaluing the currency. One US dollar currently yields about 92 Yen, compared to about 78-80 in the October-December period.
Moreover, posting sales growth overseas has become all the more important since Toyota expects its Japanese sales to fall as much as 20% in 2013.  Japanese automobile market was artificially boosted in 2012 with the help of government incentives. Japanese buyers rushed to purchase new vehicles before the subsidies ended in September, and now with its expiry the market is expected to decline in 2013. Japanese sales account for about 30% of Toyota’s total sales.
We currently have a $91 price estimate for Toyota’s stock, which is about 5% lower than the current market price.
- U.S. auto sales, wsj.com
- UPDATE 1-Toyota’s China sales rise for first time since June, February 1, 2013, reuters.com
- Toyota sees Japan sales dropping 20 percent in 2013: media, December 6, 2012, reuters.com
Disclosure: No positions