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On Friday, CLSA analyst Christopher Richter revised the rating for Toyota Motor (7203:JP) (NYSE: NYSE:TM) from ’Hold’ to ’Underperform’, accompanied by a decrease in the price target to JPY 2,500 from JPY 3,000. The downgrade comes in response to the announcement of a 25% tariff on all imported autos into the United States by President Trump. Toyota, currently valued at $234 billion and trading at a P/E ratio of 7.07, has maintained relatively stable performance with a low beta of 0.3.
Richter’s analysis suggests that the new tariffs will likely reduce vehicle demand in the U.S., which currently stands at a Seasonally Adjusted Annual Rate (SAAR) of 16.1 million units. He anticipates that vehicle prices could rise on average by 12.9% due to the tariffs. Although Toyota may be able to absorb some of the impact of the tariffs through higher industry pricing, the anticipated decrease in sales volumes is expected to have a negative effect on the company’s financials. The concern is particularly acute for Toyota since the company exports high-margin Lexus cars to the U.S. market. According to InvestingPro data, Toyota generated $297 billion in revenue over the last twelve months, with analysts already anticipating sales declines in the current year.
The revised price target reflects a significant reduction from the previous target, signaling a bearish outlook on the stock’s performance. The analyst’s statement underscores the expectation that while Toyota might mitigate some tariff effects, the overall lower volumes will have a detrimental impact, especially given the profitability of the Lexus line in the U.S. market. Gain deeper insights into Toyota’s financial health and access 7 additional exclusive ProTips with InvestingPro.
Toyota Motor’s stock performance in the coming days will likely be influenced by market reaction to these new tariffs and the subsequent downgrade by CLSA. Despite current challenges, the company maintains a solid financial health score of "GOOD" and has consistently paid dividends for 46 consecutive years, currently yielding 2.52%. Investors and market watchers will be closely monitoring the situation as it unfolds to gauge the full impact on Toyota’s sales and financial outlook in the U.S. market.
In other recent news, Toyota Motor has introduced its most affordable electric vehicle, the bZ3X subcompact SUV, in China. This launch is part of Toyota’s strategy to expand its presence in the affordable EV market, with the bZ3X priced at approximately $15,000. In another development, Toyota has redirected a $1.5 billion order to LG Energy Solution to support a battery factory in Michigan, following General Motors (NYSE:GM)’ withdrawal from the project. Additionally, Toyota announced a recall of over 106,000 Tacoma trucks in the United States due to potential brake fluid leaks, which could pose a safety risk. The recall affects certain 2024-2025 Tacoma four-wheel drive models, and dealers will replace the rear brake hoses at no cost to owners.
Toyota has also retained its position as the world’s top-selling automaker for the fifth consecutive year, despite a 3.7% decline in global group unit sales in 2024. The company sold 10.8 million vehicles last year, with a notable drop in sales in Japan due to governance issues. Meanwhile, IONNA, a joint venture involving Toyota, has moved to a full-scale national release, adding over 1,000 charging bays and planning further expansion. This initiative aims to enhance the charging infrastructure across the U.S. and promote technological innovation in the automotive industry.
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