Citi increases estimates on Toyota as demand remains strong

Citi Research reiterated a Buy rating on Japan’s Toyota Motor (NYSE:) and raised their 12-month price target on the automaker’s shares to JPY3,400 (From JPY3,100) as demand for Toyota and Lexus brand vehicles remains strong.

“While we adjust for the impact of irregularities at Daihatsu, demand for Toyota and Lexus brand vehicles is strong and we believe the boosts from an improved mix and price hikes will exceed market expectations.” Wrote analysts in a note.

Toyota’s hybrid electric vehicles (HEVs) made up 27% of their sales in the fiscal year ending in March 2023. However, this proportion has now increased to around 35%. Analysts predict that it will reach 40% in the fiscal year ending in March 2025 and 45% in the fiscal year ending in March 2026, attributing this growth to the automaker’s enhanced lineup, which includes the upcoming debut of the Camry HEV in 2024.

In non-battery electric vehicles (BEVs), Toyota’s global market share increased from just over 10% in FY3/18 to over 13% in FY3/23, with expectations to surpass 14% by FY3/26. Citi sees Toyota’s diverse strategy as advantageous amid market uncertainties.

Citi raised Toyota’s FY3/24 operating profit forecast to ¥4.5 trillion from ¥4.4 trillion. Despite a ¥400 billion setback from Daihatsu issues, Citi believes an enhanced product mix, price hikes, and yen depreciation will offset it. Q3 operating profit is projected at ¥1.26 trillion, considering a ¥240 billion impact from Daihatsu irregularities. Citi assumes a ¥140/$ exchange rate from Q4, with Toyota/Lexus production volume estimated at 10.20 million vehicles.

Shares of TM are down 0.11% in mid-day trading on Wednesday.