Toyota, held through Toyota Motor Corp and Toyota Industries, is the largest holding in the portfolio at 3.1%. Having once been regarded as all-conquering leviathan with more cash on hand than many banks, it is now treated as a corporate cripple.
Even within the company, it is acknowledged that their former focus on size
Reporting lines have been streamlined, management layers removed and the new CEO takes personal interest in product design/development.
Design philosophy has shifted to emphasise a more exciting driving experience, while maintaining the traditional high design standards and reliability upon which the group was built.
In production, a modularity concept similar to that pioneered by VW is being implemented with commonality of inherent designs. Local sourcing has been extended, and two thirds of the company’s nine million car capacity is located outside of Japan. One third of output is in emerging markets.
Evidence of a more open culture can be found in cooperation agreements such as those with BMW where Toyota is sharing its lithium-ion battery technology, while BMW will supply compact diesel engines. This co-operation with BMW is now extending into hybrid drive systems and fuel cell technology.
The benefit of all these changes is still to be revealed. Following recent refreshes of the Prius
Of course, there are negatives which include an increasingly crowded field of car brands led by the Korean champion, Hyundai; the still-large production base in Japan and the on-going animosity between China and Japan. This is significant given the fact that China is likely to account for around 20% of the global car market for some time to come. There is also the negative tag of being unfriendly to shareholders, with the company sitting on cash and investments that amount to about $90 billion and compared with a market capitalisation of $125 billion.
This incidentally shows how cheap the company really is. If one segregates the commitments of the auto finance business as a stand-alone activity, pre-tax earnings from auto manufacturing should total around US$11 billion, which on a netted-off capitalisation (market value less net cash and investments) of US$41 billion, gives a buy-out yield of 26%. On other look-through business valuation measures, it is just as enticing.
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