How much upside is in Toyota’s share price after electric vehicle investment?

Toyota’s [7203.T] share price has accelerated almost 6% since 6 October (through 26 October), after what had been a sluggish start to October. Shifting the stock up a gear has been the Japanese automobile giant’s plans to spend heavily on US battery production by the end of the decade. For investors, this could be a chance to buy into one of the biggest automobile manufacturers on the planet.

But is it spending enough to compete in the electric vehicle market having made a slow start compared to its rivals? 

 

Toyota’s share price plays catch up in the race for electrification

Toyota has announced that its North American arm is planning to invest $3.4bn in US battery production through 2030. The investment includes plans for a US-based battery plant built in collaboration with its trading arm Toyota Tsusho [8015.T]. The plant will go live in 2025 with an outlay of $1.3bn for expansion until 2030. Initially, the focus will be on producing batteries for Toyota’s hybrid vehicles, with an eye on improving its local supply chain network.   

 

 

 

“This investment will help usher in more affordable electrified vehicles for U.S. consumers, significantly reduce carbon emissions, and importantly, create even more American jobs tied to the future of mobility,” said Ted Ogawa, chief executive officer of Toyota Motor North America, in a press release.

Toyota is behind its rivals when it comes to the transition to electric vehicles. The automobile manufacturer has no EVs on sale in North America or Europe, something it aims to fix with the launch of electric vehicles in the territories next year. In the UK drivers will be able to get behind the wheel of a Toyota bZ4X from mid-2022.

To address this it is planning to invest $13.5bn as it makes the transition to electric vehicles, although that figure is significantly less than some of its rivals - General Motors [GM] is spending $35bn, Ford [F] $30bn and Volkswagen [VOW3] a staggering $80bn with the goal of 70% of new car sales in Europe being electric. 

By 2025 it will launch 15 models globally, with the hope of shifting 8m electrified vehicles by the end of the decade, with most sales being hybrids.

 

“This investment will help usher in more affordable electrified vehicles for U.S. consumers, significantly reduce carbon emissions, and importantly, create even more American jobs tied to the future of mobility,” - Toyota Motor North America's CEO Ted Ogawa

 

 

In an environment where Tesla’s [TSLA] market value broke through the $1tn mark after receiving an order for 100,000 vehicles from Hertz, it’s a tough market. Elon Musk’s firm has spent $6bn in the past year on improving its production capabilities, with two new manufacturing plants that could double Tesla’s assembly capacity to 2m EV every year.

 

Toyota’s share price under pressure from lawsuit

Between 27 September and 6 October, Toyota’s share price had fallen almost 9%, going from ¥2,031 to ¥1,840.

Piling on the pressure have been legal wranglings back in Japan. Toyota and China’s Baosteel are being sued by supplier Nippon Steel for $175m. Japan-based Nippon-steel claims that the sale and use of Baosteel sheets violates patent claims in several technical areas. It is also trying to stop Toyota selling cars produced using the sheets.

Japanese manufacturers such as Nippon Steel specialise in creating steel that improves the performance of motors in hybrid and electric vehicles. Toyota had used Nippon Steels sheets for two decades in the manufacture of the Prius. But the deal with Baosteel suggests that Chinese manufacturers are catching up.

For a company the size of Toyota, the problem isn’t so much the amount of money involved. Instead, it's whether lawmakers move to prevent Toyota from using Boasteel as a supplier, which could hurt production. 

Any arising production challenges will obviously affect Toyota’s share price performance. Already US rivals GM and Ford have seen their respective share prices shift down a gear after warning of production cuts owing to the semiconductor crisis.

Still, analysts seem keen on the Japanese automobile giant. Toyota’s share price carries a ¥2,246.90 average price target on Yahoo Finance, suggesting a 13.5% upside on Tuesday’s close.