TOYOTA MOTOR CO. ADRs $83 - New York symbol TM

TOYOTA MOTOR CO. ADRs $83 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.6 billion; Market cap: $132.8 billion; Price-to-sales ratio: 0.6; WSSF Rating: Above Average) recently overtook General Motors as the world’s largest carmaker. That was partly due to its success with gasoline-electric hybrid cars. Toyota started selling its Prius mid-sized hybrid car in 1997, and now dominates this market. Besides the Prius, the company has launched hybrid versions of its larger cars and trucks. Hybrids account for less than 10% of Toyota’s sales, but they generate much higher profit margins than its gasoline-powered cars. The company owns patents on over 2,000 hybrid-engine parts. That makes it difficult for other carmakers to develop their own hybrids. As a result, many have licensed the technology from Toyota. This generates royalty income for the company. For example, Japanese carmaker Subaru (16% owned by Toyota), uses Toyota’s hybrid technology, and the company may be close to a deal with Mazda, as well. However, Nissan plans to end its deal with Toyota and develop its own systems. Lower gasoline prices could hurt hybrid demand. However, Toyota recently updated the Prius, and the new model has been a strong seller in Japan. In response, the company plans to increase production to 50,000 vehicles a month from around 43,000. Despite the Prius’s success, the recession continues to hurt new-car demand, particularly in North America; Toyota will probably lose $1.31 per ADR in the fiscal year ending March 31, 2010. Toyota is a hold.

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