Toyota Got It Right

Toyota got it right. The future may be mostly electric, but the present is increasingly hybrid and Toyota is the hybrid brand for much of the world. This means Toyota is making money. A ton of money. So much money.

Years of work went into this moment, and Toyota was perfectly positioned to take advantage of the weird post-pandemic world we’re all trying to survive. But that’s not going to work forever. If you want things to stay the same (in this case, if you want to keep printing money) you’ve got to be willing to change. What’s Toyota’s next act going to be?

Wholesale used car prices are down a bunch as automakers have new cars to sell, which is nice. New cars! What a time to be alive.

This is weirdly kinda bad for some automakers as they experienced a period where they could charge silly money for cars coming off lease. BMW is one of those automakers and its financials were a little meh because of it.

And, finally, they’re all doing better than Rivian, who is losing $38k per car.

Toyota Made 5 Trillion Yen Last Year

Toyota, like many Japanese companies, is on a financial calendar that ends in the first quarter of the year. This means that Toyota’s fiscal year is over and the company can report how much it made. It made a lot. Specifically, the company made 5.35 trillion yen in profit, which is $34.5 billion.

According to NHK, that’s the most any public Japanese company has ever made in a year. The company’s fourth-quarter (January-March) performance saw Toyota’s operating profits up 78%, which certainly helped.

Why did this happen?

The obvious thing is that this is the “Year of the Hybrid” and Toyota is the hybrid company, with the most accessible and varied range of products. Sales are way up and a lot of those sales are hybrids. The slightly less obvious thing is that the yen is down a lot to the dollar, which is good for a massive producer and exporter like Toyota.

Toyota’s CEO Koji Sato got into this in his prepared remarks:

In the previous fiscal year, our diverse product lineup enabled us to provide our customers with many cars. We believe that this achievement is the result of years of determined product-centered management and the building up of our business foundation.

From the stylish new Prius to the attractive new Camry and Tacoma, all of Toyota’s cars are appealing at some level. They’re rightly priced and rightly sized for the market. That, plus some favorable currency, is all Toyota needed to make all that money.

Were a few corners cut? Maybe. To make an omelet you gotta break a few Daihatsu engineers, amirite?

[Ed Note: It’s also worth noting that Toyota is making all this money while cleaning up its tailpipe emissions more than any other manufacturer. From the EPA’s 2023 Automotive Trends Report:

Between model years 2017 and 2022, Toyota achieved the largest reduction in CO2 emissions, at 32 g/mi. Toyota decreased emissions across all vehicle types and decreased overall emissions even as their truck SUV share increased from 27% to 38%.”

Toyota took a lot of flak from pro-EV journalists for its slow, measured wading into the EV waters, but it’s clear the company got it right. -DT]

Toyota Thinks It’s Going To Make Less Money This Year

The best time to make changes in your business is not when things are going poorly, but when things are going well. With that in mind, Toyota doesn’t want to rest on its yen and instead wants to be ready for the future.

Many journalists were critical of Toyota’s slow pivot towards electric cars, which looked short-sighted as recently as last year. While Toyota is behind the curve for this generation of electric cars, it might be ready for the next round.

Of course, in Toyota’s view that’s electric cars, plug-ins, and hydrogen:

This fiscal year’s key themes in working toward that future are the “materialization of multipathway solutions” and the “creation of a foundation for software-defined vehicles, done in the Toyota way” that will realize diverse mobility values for our customers.
Over the past year, we have been advancing toward embracing battery EVs, which were our missing piece

[…]

Regarding hydrogen, we have accelerated the creation of foundations for commercialization in various regions.

In addition to developing and implementing hydrogen mobility in the commercial domain, we are also providing fuel cell systems for various applications, such as trains, ships, and generators, and pursuing initiatives in producing and storing hydrogen.

Hybrids, hydrogen fuel cell vehicles, software-defined vehicles, all of it. Oh, and e-fuels:

Furthermore, we will continue to work with determination on the future of the internal combustion engine. Even in a future in which energy centers on electricity and hydrogen, we plan to continue actively advancing next-generation engines, with an eye toward using e-fuel and other liquid fuels.

There’s a risk that by doing everything you’re doing nothing and, at the same time, you’re spending a lot of money.

From Reuters:

Toyota expects operating income to total 4.3 trillion yen in the year to March 2025, a 20% decline, as it invests in “human capital” – including providing support for labour costs at suppliers and dealers – as well as in its multi-pathway strategy.

“We’ll make investments in order to firmly protect the supply chain,” Toyota CEO Koji Sato told a press conference after the earnings release.

The silver lining for Toyota is that it has a lot of money to spend. When I was critical of GM for leaning into dividends instead of investment this is what I was talking about.

Wholesale Used Car Prices Down 14% Year-Over-Year

I like to look at this graphic from Cox Automotive/Manheim every month or so to see how close we’re getting back to any reality we used to know.

The impact of the pandemic and the resulting shortage of cars is pretty clear here as the Manheim Used Value Vehicle Index shows a sharp rise in 2020 and a slow retreat from the highs of 2022.

While this isn’t exactly a price, the index looks at average prices around a range of certain cars and adjusts by mileage/class, et cetera. This is as good as you can get to understanding the actual value of used cars at any moment.

Is it universal? It’s universal. From Cox Automotive:

The major market segments all experienced seasonally adjusted prices that were down year over year in April. Compared to April 2023, luxury was the only segment that lost less than the industry, down just 12.9%, and SUVs were down a little more than the market, falling by 14.6% year over year. The worst-performing segment was compact cars, down 17.6% against last year, followed by midsize cars, off by 16.8%, with pickups down 15.2%. Compared to last month, the pickup segment fell by just 1.3%, less than the market’s decline of 2.3% for the month. Compact cars fell the most against March, declining by 3.9%, luxury was down 3.2%, SUVs decreased by 3.1%, and midsize cars were down 3.0%.

This is good news if you’re a consumer, but BMW saw its revenue dip as it can’t just charge consumers basically the same price for an off-lease X5.

Rivian Lost A Lot Of Money

Whereas Lucid has Saudi Arabia to backstop its losses, Rivian has Daddy Amazon, but that money seems somehow less reliable.

Per Investor’s Business Daily:

Rivian announced a loss of $1.24 per share in the first quarter, down from a $1.25 loss a year ago, while revenue increased more than 80% to $1.204 billion. Analysts predicted a loss of $1.15 per share in Q1 with sales totaling $1.17 billion.

Meanwhile, Rivian ended Q1 with $7.858 billion in cash, cash equivalents, and short-term investments. Rivian ended Q4 with around $9 billion in cash.

Rivian also lost $38,784 per vehicle delivered in Q1. The EV startup said Tuesday it “expects significant improvement in the material and conversion cost of its vehicles and remains confident in its path to achieving modest gross profit in the fourth quarter of this year

That’s a long climb, but you gotta start somewhere. Rivian didn’t talk about a potential tie-up with Apple, whatever that might be.

What I’m Listening To While Doing TMD

If the top of this post means anything to you then you were probably hoping to see a Cash Money song today. I’m from Houston so I’m neutral when it comes to Cash Money or No Limit and merely enjoy both, though if I had to choose… Master P has a solid gold tank and I’ve always wanted to drive it, which I suppose makes me a No Limit Soldier for life.

But let’s go Cash Money today. Here’s Baby’s excellent “What Happened To That Boy” featuring Clipse.

This album has a classic Pen & Pixel cover, which is to say it has a cover made by a graduate of The Parson School who somehow, with his brother, ended up creating the most over-the-top and brilliant rap album covers of all time. Here’s an entire article on the Birdman album cover, which was the last one Pen & Pixel made.

The Big Question

Is Toyota right to go all-in on everything, or should the company maybe chill it on hydrogen?

Top image credit: Toyota; aleciccotelli/stock.adobe.com