Toyota Motor (NYSE:TM) has experienced roller coaster price action thus far in 2024. Toyota stock soared from January to March, but since the spring, shares have fallen by around 20% from their 52-week high.
The reasons for this reversal are manifold. The Japan-based automaker has recently reported big sales declines in Asia and Latin America. A testing falsification scandal in Japan has also had a negative impact on TM’s price performance.
Yet while Toyota has for now exited the fast lane, all while Tesla (NASDAQ:TSLA) has reentered it, don’t assume that these trends will continue indefinitely. Pretty soon, these latest headwinds for what is the world’s largest automaker could enter the rearview mirror.
As Toyota makes further progress with its EV and hybrid vehicle plans, which differ from other automakers, shares could really be firing on all cylinders once again.
Toyota Stock: Making Sense of Recent Concerns
It’s understandable why the aforementioned issues have had a moderate impact on the price performance of Toyota shares lately. Sales weakness in Asia, particularly in China, suggest that Toyota’s more cautious vehicle electrification strategy was a severe misstep.
While not certain, declining sales in Latin America may be yet another sign that Chinese automakers are becoming a competitive threat to Toyota in not just Asia, but other regions of the world as well.
Chinese automakers have been increasingly targeting the Latin American auto market. The testing scandal may bode badly for Toyota in its home market, due to the resulting hit to its reputation.
However, it’s possible that the markets are overestimating how much these perceived problems really affect the Toyota stock bull case in the long run.
While Asian and Latin American sales have kept declining, last month European sales were up 7.3% year-over-year. In the United States, Toyota reported 15.7% YOY sales growth during the month.
When it comes to the testing scandal, the long-term impact may be minimal. At least, that’s the view of analysts at Citi, who last month argued the overall impact from this scandal is “likely to be modest.”
Still a Top Dark Horse EV Contender
Comparing the price performance of Tesla stock and Toyota stock since April, you may come to an erroneous conclusion about demand trends. You may think that, with TSLA shares rising, the EV maker has returned to growth. Conversely, with TM sputtering lower, you may be thinking that Toyota’s hybrid-focused EV approach is proving to be a dud.
However, much suggests that the latest Tesla rally has more to do with excitement over next month’s Robotaxi unveiling. TSLA may have rallied after reporting better-than-expected delivery numbers for the prior quarter, but during Q2 2024, deliveries declined for the second quarter in a row.
On the other hand, Toyota has continued to grab a larger share of the U.S. electrified vehicle market. Last quarter, Toyota’s hybrid, plug-in hybrid, EV and fuel-cell EV sales rose 63% year-over-year. What’s the potential take-away from this?
These latest numbers provide more proof that the unbeaten path Toyota is taking to capitalize on the auto industry’s “green pivot” still stands to prove successful. Instead of incumbent Toyota getting left in the dust by EV early-movers like Tesla, the early-movers may be at risk of losing ground to the latecomers.
Running on Empty for Now, but Not for Long
It may not just be stateside that Toyota beats expectations and proves the skeptics wrong. I wouldn’t totally write off Toyota’s prospects in other regions of the world. Masahiro Inoue, the new President of Toyota’s Daihatsu subsidiary, has big plans to capitalize on high demand for small, affordable vehicles in emerging markets.
This strategy could help counter market share and sales declines in Asia. It may also help to regain ground lost in other regions of the world, where Chinese exports of EVs and gas-powered vehicles have flourished.
TM stock is running on empty for now, but perhaps not for long. Shares trade for just 10.5 times forward earnings. TSLA has a forward multiple that’s nearly 10 times that amount. While Tesla may be at risk of a severe price correction, it may take just a small amount of improved results to drive a massive rerating for Toyota stock.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
