Autos

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

What is Akio Toyoda's vision of the future?

The president of the world's biggest carmaker turns 65 in 2021, at around the time when a lot of the trends bearing down on Toyota Motor Corp. -- in particular, autonomous driving and electric vehicles -- are likely to be crystallizing. Yet it's hard to see what sort of company he plans to hand over when he retires, or ascends the staircase to the chairman's office.

The company's first-quarter results Friday illustrate the problem. Weak demand in the two biggest markets, the U.S. and China, has taken the wind out of the auto industry, and Toyota doesn't appear to be immune. Were it not for foreign-exchange gains and contributions from a small army of affiliates, net income would have fallen, instead of a headline 11 percent rebound. Shifts in currencies and income from financial services likewise account for 240 billion yen ($2.2 billion) of the 250 billion yen improvement in the company's full-year forecast.

Upside Down
Thanks to earnings from affiliates, Toyota's operating income has slipped below its net income
Source: Bloomberg

More to the point, the expected announcement of a tie-up with Mazda Motor Corp. later Friday adds to the sense that the company is adrift and unsure of its direction.

As Gadfly's Shelly Banjo wrote, the deal makes great sense for Mazda, which is far smaller and lacks the U.S. factories and spectacular research and development budget that Toyoda can deploy to smooth his passage through the age of Trump and Tesla Inc. Beyond a $1.6 billion joint investment in a U.S. manufacturing plant -- a strictly defensive move against the occupant of the Oval Office, given the sales weakness in that market -- it's hard to see what's in it for Toyota.

Just when the world's car consumers only want SUVs, Toyota is investing in a manufacturer known for nippy sedans whose 4WDs barely make it into the U.S. top 20. At a time when battery costs are plummeting so fast that electric vehicles may be more cost-competitive than petroleum-burning ones as soon as next year in Europe, Toyota is still pushing a hydrogen fuel-cell technology that increasingly looks like a dead end. 

Toyota's investment in Mazda certainly gives it an option on one vision of the future of automobiles -- something to do with fun, muscular internal-combustion-engine cars that are sold mostly in rich countries. Then again, its 16.9 percent stake in Subaru Corp. speaks to a different future, where the same rich-country consumers settle for sensible, Patagonia-catalog four-wheel-drives instead.

Fingers in the Pie
Together, Toyota's stakes in rival automobile and supply chain companies are worth more than the market cap of Hyundai
Source: Bloomberg
Note: Valuation of Mazda stake based on current market cap and planned 5.1 percent Toyota investment.

Or there's the game plan evoked by its alliance with Suzuki Motor Corp., which is about a new frontier in India and other emerging markets. And that's not even getting into Toyoda's intentions for his company's majority stake in truckmaker Hino Motors Ltd. and its 6 percent of Isuzu Motors Ltd.

Perhaps when you're as big as Toyota you can throw a lot of ideas at the wall and see what sticks. But size isn't the advantage it's often cracked up to be in the auto industry, and there are other big players out there articulating a clearer vision.

Volkswagen AG is promising to sell 1 million electric cars a year by 2025. General Motors Co. Chief Executive Officer Mary Barra has pledged to spurn market share where it doesn't generate sufficient returns, and has made hard decisions like pulling out of Russia, Europe and India to put her money where her mouth is. Hyundai-Kia has carved out top-three positions in China and India, the emerging world's two biggest car markets, while Renault-Nissan is using its integration of Mitsubishi Motors Corp. to get new customers in Southeast Asia and electrify its lineup of SUVs.

Unless they're Elon Musk, it's not really the job of auto executives to thrill pundits with their visions of tomorrow.

But it's not just about outsiders: An idea of where Toyota is going would also help its 350,000-odd employees understand what they're supposed to be working toward.

Keeping the Faith
Toyota's EV/Ebitda ratio is around the highest level in five years
Source: Bloomberg
Note: Based on current EV to blended forward 12 month forecast Ebitda.

Investors' faith is more or less undimmed. As measured by blended forward 12-month EV/Ebitda, Toyota's valuation is about as rich as it's been in five years. Such high hopes leave scant room for disappointment, though.

Shareholders trying to find a route to revived profits must hope that Toyoda's GPS is just rebooting, not bust.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net