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Global sales decreased by 144,169 vehicles to 8.97 million, with strong sales in North America and
gains in Europe, offsetting decreases in Japan and other regions.
Consolidated net revenues rose to 27.23 trillion yen (*$248.0 billion), up 6.0 percent
Operating income increased to 2.7505 trillion yen ($25.1 billion), up 20.0 percent and net income
jumped to 2.1733 trillion yen ($19.8 billion), a 19.2 percent increase
(*all currency translations above are approximate and based on an average 109.8-yen-to-dollar exchange rate)
significance in the American market and steadily increases its share in the European market owing to high labor
costs in the U.S., high expenditure on healthcare in the U.S., strong trade unions in the U.S. (high pension
commitments) and strong economic growth in lower combustion cars. Currently, Ford has four hybrid models,
Ford Focus Hybrid being a direct threat to so far the most popular Prius (hybrid line of Toyota). Ford strongly
suffered from a crisis on a real estate market as sales in the U.S. were strongly associated with the property
market. Ford then changed strategy with less emphasis on creating demand and more emphasis on quality and
safety.
news for TM stock is that Toyota has plenty of credibility in creating low-emission vehicles. Its Toyota Prius
was the first successful mass-market hybrid car, and it even plans on releasing a hydrogen car, the Toyota
Mirai, in 2015.While the Mirai wont be an instant game-changer for TM stock, it poses a very real threat to
Wall Street darling Tesla Motors Inc (NASDAQ:TSLA) and its efforts to steer consumers away from gasguzzling traditional cars. The comparison of F and TM stocks are attached herewith:
Toyota:
Both stocks appear to be discounting margins worse than their past performance justifies.From this perspective,
Ford now appears to be a better stock. The company's current margin performance could justify a price close to
$40. However, that is not the end of the story. How a company redeploys capital and invests in its business is a
critical variable in both corporate performance as well as stock performance. Generating cash from sales is one
thing, but making the critical investments so the company is in a position to continue it, is another. Practically,
here is where the conversation moves from a company's income statement to its balance sheet. We are interested
in sustained free cash flow. The only way a company can sustain anything is by making the necessary
investments which accumulate on its balance sheet. Toyota has operated with a much higher capital intensity
(and much closer to the industry) with 7% of revenues versus Ford's 4%. It does not seem feasible that Ford
maintains its current market share and production levels given this relatively low level of capital expenditures.
In a nutshell, for Ford's stock to move higher, its capital intensity has to remain below the competition. In a
competitive, and capital intensive business, this seems pretty unlikely.
On the other hand, Toyota appears to be largely ignored. The current stock price is discounting below average
margins, and average to high capital intensity. One interpretation of this analysis would be to say the market
anticipates most of the companies' EBITDA margins to be in the 11% range, except for Toyota's. This is despite
the company having a track record of doing much better (in contrast to F). As a result, it seems reasonable that
Toyota keeps pace with expectations for the overall industry, and doing so leads to a higher stock price. In fact,
looking at the above table, it is possible the stock doubles from its current value without much change in its
margin performance or historical growth trends. Current market price can be justified with COGS around the
five-year average of 80%, despite the fact that Toyota is working closer to 77% level. Additionally, there is no
doubt management can operate at these levels because they have done it before.
Conclusion
In conclusion, the expectations appear to be the lowest for Toyota, giving the stock the most upside. Said
another way, because the expectations are already low, the stock probably has the least downside risk and a lot
of upside optionality.
Peer comparison
Industry Peers
Industry Peers
Ford Motor Co
Ford Motor
CoCorp (USD,JPY)
Toyota
Motor
Market
Cap
Mil
Market
Cap Mil
54,132
54,132
212,770
Toyota Motor
Motor Corp
Corp (USD,JPY)
(USD,JPY)
Toyota
Toyota Motor
Corp (USD,JPY)
Daimler
AG (USD,EUR)
212,770
211,351
211,351
87,156
Net
Income Mil
Net P/S P/B
Income Mil P/S P/B
4,770 0.4
2
4,770
0.4
2,304,614 0.8
1.52
2,304,614
0.8
1.5
2,304,614 0.8
1.5
2,304,614
0.8
1.5
7,713 0.5
1.6
5-Yr
Dividen
Rev
Med Interest
5-Yr
OMed
per. Coverag
Dividend CAGR
Rev
Interest
P/E
Yield%
% Margin%
e D/E
d CAGR
O per. Coverag
P/E
Yield%
% Margin%
e D/E
11.4
4.4
1.7
4.4
6.4 4.1
11.4
4.4
1.7
4.4
6.4 0.6
4.1
10.4
2.9
7.5
127.5
10.4
2.9
7.5
127.5
0.6
10.3
2.9
7.5
127.5 0.6
10.3
2.9
7.5
127.5
10.3
3.3
7.8
12.5 0.6
1
Daimler AG
AG
Daimler
Daimler
AG
Volkswagen
(USD,EUR)
(USD,EUR)
(USD,EUR)
AG
(USD,EUR)
87,156
87,135
87,135
71,716
7,713
7,713
7,713
6,165
0.5
0.5
0.5
0.3
1.6
1.6
1.6
0.7
10.3
10.3
10.3
10.9
3.3
3.2
3.2
3.6
7.8
7.8
7.8
6.1
12.5
12.5
12.5
11
0.81
Volkswagen
Volkswagen
Volkswagen
Volkswagen
AG
AG
AG
AG
(USD,EUR)
(USD,EUR)
(USD,EUR)
(USD,EUR)
71,716
71,502
71,502
67,920
6,165
6,165
6,165
6,165
0.3
0.3
0.3
0.3
0.7
0.7
0.7
0.7
10.9
10.9
10.9
10.4
3.6
3.6
3.6
3.8
6.1
6.1
6.1
6.1
0.8
0.8
0.8
0.8
VolkswagenMotoren
AG (USD,EUR)
Bayerische
Werke AG (USD,EUR)
Bayerische
Motoren
Werke AG
AG (USD,EUR)
(USD,EUR)
Bayerische Motoren Werke
Bayerische Motoren
Werke AG (USD,EUR)
Volkswagen
AG (USD,EUR)
67,920
67,454
67,454
67,443
6,165
6,107
6,107
6,107
0.3
0.7
0.7
0.7
0.7
1.5
1.5
1.5
10.4
11
11
10.9
3.8
3.2
3.2
3.2
9.1
9.1
9.1
6.1
10.4
10.4
10.4
20.4
20.4
20.4
0.8
1.2
1.2
1.2
67,443
67,078
67,078
57,150
6,107
6,165
6,165
548,089
0.7
0.3
0.3
0.5
1.5
0.7
0.7
1
10.9
10.2
10.2
12.7
3.2
3.9
3.9
2.3
9.1
10.4
6.1
6.1
5.3
20.4
45.3
1.2
0.8
0.8
0.6
57,150
56,591
56,591
53,765
548,089
548,089
548,089
5,408
0.5
0.5
0.5
0.4
11
1.61
12.7
12.6
12.6
12.7
2.3
2.3
2.3
3.8
3.1
5.3
5.3
5.3
3.3
45.3
45.3
45.3
11.5
0.6
0.6
0.6
1.2
53,765
51,902
51,902
42,773
5,408
6,107
6,107
546,157
0.4
0.5
0.5
0.4
1.6
1.2
1.2
1.1
12.7
8.4
8.4
9.5
3.8
4.2
4.2
3
3.1
9.1
9.1
7.6
3.3
10.4
10.4
5.1
11.5
20.4
20.4
24.6
1.2
1.2
1.2
0.8
42,773
42,564
42,564
38,539
546,157
546,157
546,157
7,346,807
0.4
0.4
0.4
0.4
1.1
1.1
1.1
0.8
9.5
9.5
9.5
4.5
33
2.73
7.6
7.6
7.6
-1
5.1
5.1
5.1
9.5
24.6
24.6
24.6
34.1
0.8
0.8
0.8
0.7
38,539
32,680
32,680
32,026
7,346,807
4,465
4,465
345,334
0.4
0.5
0.5
1.2
0.8
1.5
1.5
3.3
4.5
6.7
6.7
11.4
2.7
0.6
0.6
2.2
-1
12.5
12.5
9.5
10.1
10.1
9.9
34.1
21.9
21.9
136.1
0.7
0
0.10
32,026
31,215
31,215
29,715
345,334
345,334
345,334
2,537
1.2
1.2
1.2
0.6
3.3
3.2
3.2
1
11.4
11.1
11.1
10
2.2
2.2
2.2
2.1
9.9
9.9
9.9
1.6
136.1
136.1
136.1
5.3
0.1
0.1
0.1
0.2
Renault
SA (USD,EUR)
Tesla
Motors
Inc (USD)
Tesla Motors
Inc (USD)
Renault
SA (USD,EUR)
29,715
28,419
28,419
28,129
2,537
-675
-675
2,537
0.6
7.3
7.3
0.6
21.61
21.6
1
10
9.5
2.1
2.2
1.6
-95.4
-95.4
1.6
5.3
-1.8
-1.8
5.3
0.2
1.5
1.5
0.2
Renault SA
(USD,EUR)
Hyundai
Motor
Co (USD,KRW)
Hyundai
Motor
Co (USD,KRW)
Fiat Chrysler Automobiles
NV (USD,EUR)
28,129
24,551
24,551
23,091
2,537
7,346,807
7,346,807
500
0.6
0.2
0.2
0.2
0.51
0.5
1.5
9.5
2.9
2.9
35.9
2.2
2
2
-14
-1
15
1.6
9.5
9.5
1.8
5.3
34.1
34.1
0.2
0.7
0.7
2.2
23,091
26,932
26,932
500
646,823
646,823
0.2
0.5
0.5
1.5
1.6
1.6
35.9
13.4
13.4
2.6
2.6
15
8.5
8.5
1.8
-382.6
-382.6
113.9
113.9
2.2
1
1
Volkswagen
Honda
MotorAG
Co (USD,EUR)
Ltd (USD,JPY)
Honda
Motor
Co
Ltd (USD,JPY)
(USD,JPY)
Honda Motor Co Ltd
Honda Motor
CoCo
Ltd(USD)
(USD,JPY)
General
Motors
General Motors
Co (USD)
Bayerische
Motoren
Werke AG (USD,EUR)
Bayerische
Motoren
AG (USD,EUR)
Nissan
Motor
Co Ltd Werke
(USD,JPY)
Nissan Motor
Motor Co
Co Ltd
Ltd (USD,JPY)
(USD,JPY)
Nissan
Nissan Motor
CoCo
Ltd
(USD,JPY)
Hyundai
Motor
(USD,KRW)
Hyundai
Motor
Co
(USD,KRW)
Audi AG (USD,EUR)
AudiHeavy
AG (USD,EUR)
Fuji
Industries Ltd (USD,JPY)
Fuji Heavy
Heavy Industries
Industries Ltd
Ltd (USD,JPY)
(USD,JPY)
Fuji
Fuji
Heavy
Industries
Ltd
Renault SA (USD,EUR) (USD,JPY)
high debt to asset ratios are said to be "highly leveraged," and could be in danger if creditors start to demand
repayment of debt. Toyota has lower and more favorable ratio between the two companies.
Total Asset Turnover comparison between Toyota and Ford: Total asset turnover measures a firm's
effectiveness at using its assets in generating sales, the higher the number the better. Companies with low profit
margins typically tend to have high asset turnover, while those with high profit margins typically tend to have
low asset turnover. Toyota holds a slight edge over Ford in this category.
Analysis of Operation:
The world has witnessed a constant transformation as regards the automobile production/operations philosophy.
The Ford's mass production (produce to stock) philosophy received ample appreciation and was convicted to be
the right path by most other manufacturers (1914). This has been evidenced by the way the Big Three, (Ford
Motors, General Motors and Chrysler) flourished during early and mid-20th century. But the onset of Toyota
production system, which is based on the philosophy of "lean manufacturing", started sending tremors into the
well complacent American automobile industry's regime. The principle of Toyota Motor Company (TMC) to
eliminate wastes and subsequent TMC's success attracted other manufacturers who tried to copy, but in vain.
I chose to compare these two mainly because some automobile experts have been comparing their latest models
suggesting that they quite belong in the same class.As the chart above shows, as of 2008, U.S. sales of Ford
Fusion were nowhere near that of Toyotas (TM) Camry. Interestingly enough, Fords Fusion sales grew
impressively during the recession, while Camry sales dipped significantly. Sales of Toyotas Camry didnt
decline because something was inherently wrong with the model. It was just the trend in the automobile
industry at the time. This shows that Ford actually made a tweak during the recession that boosted its business.
That tweak was to improve the design of Fusion and make it more fuel efficient. In fact, Fusion 2010 was the
most fuel-efficient mid-size sedan in the world. Considering that high oil prices contributed to decline in auto
sales in 2008, it was obvious that consumers were ready to trade in gas-guzzlers for fuel efficiency. However,
while making the Fusion more fuel efficient, Ford ensured that it has since continued to improve both the design
and fuel efficiency of the Fusion. As a testament to this, the Fusion 2015 (non-hybrid) is more fuel efficient
than the Toyotas 2015 Camry (non-hybrid). This wasnt the case in 2008. The image below sums it all up.