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Toyota Announces 3rd Prius Recall to Address Inverter Failures

Zacks Equity Research

In an attempt to fix electronic defects, Toyota Motor Corporation TM has announced the third recall of its Prius hybrid models. The recall follows safety claims by Toyota’s California dealer.

According to Los Angeles Times, more than 20,000 Prius owners have reported electric power system failures since the last recall in 2014. The auto company intends to expand its electric power system recall to include Prius c models manufactured in 2018.

Reportedly, in 2014, the first recall covered 800,000 Prius Hybrids vehicles in the United States, from model years 2010-2014, for inverter transistors that would abruptly shut down cars while driving. Subsequently, a second recall was announced last October. Each recall involved software updates and detection of power failure.

The Toyota Prius hybrid system’s inverter uses high-power transistors to boost voltage from the Prius battery and convert electricity from direct current to alternative current and vice versa. The overheated inverter and burnt internal high power transistors led to a power loss in Prius cars. However, after the initial recall, Toyota responded to the issue by updating the inverter software, even though the inverter failure problem persisted. The company took an initiative to replace the damaged component under extended warranty coverage but failed to replace the inverters in all affected Prius vehicles.

The recall comes after one of the largest Toyota dealers in Southern California, Roger Hogan, raised safety concerns regarding inverter failures on vehicles that had received the software modification and filed a lawsuit against Toyota.

Toyota stated that it is committed to the safety and security of its customers and has acted promptly in addressing safety issues and in its business dealings with Roger Hogan.

Frequent recalls not only affect the company’s reputation, but also result in significant expenses and lower vehicle resale value. In April 2019, the company recalled approximately 43,000 units of 2015-2017 Toyota Yaris, which had probabilities of a wiring problem related to the airbag system. Earlier in January, the company recalled 1.7 million vehicles to fix the faulty Takata airbag inflators. The recall consisted vehicles of the model year 2010 through 2015. In November and October 2018, the company recalled one million combustion vehicles and 2.43 million gasoline hybrid vehicles, respectively.

Over the years, Toyota has paid several large fines related to safety defects in some of its vehicles as well as to settle lawsuits. In May 2017, it agreed to pay $553 million related to a Takata-recall settlement. Prior to this, in November 2016, the automaker agreed to settle a U.S. truck lawsuit by paying roughly $3.4 billion. The lawsuit filed by U.S. pickup truck and SUV owners claimed that the vehicles did not have enough rust protection. Thus, declining vehicle demand in North America and frequent vehicle recalls are concerns for Toyota.

Toyota Motor Corporation Price and Consensus

 

Toyota Motor Corporation Price and Consensus

Toyota Motor Corporation price-consensus-chart | Toyota Motor Corporation Quote

Zacks Rank & Stocks to Consider

Toyota currently carries a Zacks Rank #4 (Sell).
 
A few better-ranked stocks in the auto space are PACCAR Inc PCAR, CarMax, Inc KMX and AutoZone, Inc AZO, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PACCAR has an expected long-term growth rate of 8.4%. Shares of the company have gained 22% in six months’ time.

CarMax has a projected long-term growth rate of 12.6%. In the past six months, the stock has surged 33.8%.

AutoZone has an estimated long-term growth rate of 12.2%. Over the past six months, shares of the company have rallied 37.5%.

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