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Toyota to Gain From Cost-Cut Initiatives Despite Recall Woe

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Toyota to Gain From Cost-Cut Initiatives Despite Recall Woe

Toyota's (TM) plan to shift production by 2020 is likely to help it cut costs by 20%. However, frequent vehicle recalls are elevating its expenses.

On Oct 3, we issued an updated research report on Toyota Motor Corporation TM.

This automaker, headquartered in Japan, is improving its product development process by increasing competitiveness at its production sites. With the shifting of its production facility and using common components, it expects to reduce vehicle development costs by 20%.

Similarly, the company is looking for options to reduce manufacturing expenses of fuel cell vehicles (FCVs) and opt for mass production. By 2020, Toyota plans to sell 30,000 FCVs a year. It has also been collaborating with various companies to expand the fuel cell technology.

Toyota Motor Corporation Price and Consensus


Toyota Motor Corporation Price and Consensus | Toyota Motor Corporation Quote

Additionally, the company set goals regarding the development of self-driving and electrified vehicles. Apart from investing in self-driving vehicles, Toyota is teaming up with companies to develop software for self-driving vehicles. It plans to start testing its autonomous vehicles by 2020.

Moreover, the company aims to offer electrified option for every Toyota or Lexus model. By 2020, Toyota plans to open a battery-testing facility in China to strengthen its local R&D and production bases in the largest auto market. The company aims to sell 5.5 million electrified vehicles by 2020 globally.

However, frequent vehicle recalls in large numbers are creating headwinds for the company. This not only adds to expenses but also hurts the company’s reputation. In 2018, Toyota announced about a few recalls. The most recent recall was in September, in which it recalled more than one million vehicles globally. The affected vehicle models include — Prius and C-HR compact crossover cars.

Further, declining sales in North America and rising costs due to steel, and aluminum tariffs are likely to hurt Toyota’s profit financials. For fiscal 2019, the company reduced its estimates for operating income and net revenues. At present, it expects net revenues of ¥29 trillion ($273.6 billion) and operating income of ¥2.3 trillion ($21.7 billion).

Price Performance

In the past three months, Toyota’s stock has lost 5%, underperforming 2.4% decrease recorded by the industry it belongs to.



Zacks Rank & Key Picks

Toyota currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are AutoZone, Inc. AZO, Navistar International Corporation NAV and Advance Auto Parts, Inc. AAP. AutoZone and Navistar presently carry a Zacks Rank #2 (Buy) while Advance Auto Parts sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AutoZone has an expected long-term growth rate of 12.2%. Over the past three months, shares of the company have gained 13%.

Navistar has an expected long-term growth rate of 5%. Shares of the company have increased 7.9% over the past six months.

Advance Auto Parts has an expected long-term growth rate of 12.3%. Shares of the company have increased 23.4% over the past three months.

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Toyota Motor Corporation (TM) : Free Stock Analysis Report
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