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Investing.com -- On June 4, 2025, Moody’s Ratings revised the outlook for Toyota Motor (NYSE:TM) Corporation and its captive finance subsidiaries to stable from positive, while affirming their A1 long-term ratings. The only exception was Toyota Financial Services (South Africa) Ltd. (TFSSA), whose backed senior unsecured medium-term note program (domestic) rating was affirmed at (P)A3.
The A1 issuer rating of Toyota, the world’s largest automobile producer, reflects its stable credit profile and strong brand recognition. The company’s EBIT margin is known for its stability within the sector and is on average higher than other automotive peers. Toyota’s highly liquid balance sheet and its status as one of the most geographically diversified businesses among rated automakers also support its A1 issuer rating.
Despite the ongoing challenges in the automotive sector, Toyota’s stable credit profile in metrics such as automotive free cash flow, debt/EBITDA and margin were key factors in the affirmation of the A1 issuer rating, according to Dean Enjo, a Vice President and Senior Analyst at Moody’s Ratings.
The change in outlook to stable from positive is attributed to various macroeconomic risks and a potential reduction in Toyota’s liquidity due to its recent tender offer to delist Toyota Industries (OTC:TYIDF) Corporation (TICO) in the next 12 to 18 months.
Although Moody’s Ratings predicts Toyota’s margin will decrease over the next 12 to 18 months due to increased costs, it still expects Toyota to maintain its EBIT margin in the low teens during the same period. Toyota remains the most profitable automaker among automobile manufacturers that Moody’s Ratings rate.
However, the issuer rating is constrained by an uncertain macroeconomic landscape, including the current tariff situation in the US, which is Toyota’s largest market by volume and sales. If tariffs were to last indefinitely, it could put a significant strain on Toyota’s cash flow and credit metrics.
On June 3, 2025, TICO announced its delisting plans. It was revealed that a group of Toyota companies, including Toyota itself, led by Toyota Fudosan Co., Ltd., plans to participate in a tender offer to delist TICO. This move is expected to negatively impact Toyota’s credit profile in the next 12-18 months.
As of March 31, 2025, Toyota held liquid assets totaling JPY16.7 trillion, which includes marketable securities and other long-term liquid investment securities. Among these assets, JPY6.1 trillion in cash is held in its automotive business. Despite the anticipated cash outflows for its role in delisting TICO, Moody’s Ratings estimates that Toyota has enough liquid assets on its balance sheet to absorb these outflows without incurring further debt. However, this all-cash investment will reduce its liquidity in its automotive business.
The stable outlook incorporates the expectation that Toyota will maintain its financial discipline, its unit sales at historically high levels, and EBIT margin in the low teens. The outlook also considers that Toyota will primarily use cash on hand and not debt in its participation in the tender offer and delisting of TICO.
A potential upgrade in the rating could occur if Toyota’s sales and profit continue to grow strongly, and the company advances towards achieving its electrification targets while remaining profitable among intensifying competition. Conversely, a downgrade in the rating could occur if Toyota faces a large decline in demand or a sudden rise in costs, or if the company is subjected to tariffs in the US for a prolonged period without implementing successful mitigation strategies.
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