Toyota Motor Corporation
) is the world's largest automaker by sales and is
headquartered in Japan. We believe that the damage in Japan from
the earthquake and tsunami will negatively impact
Toyota's lease and loans portfolio
, which contributes 27% to Toyota's stock value. Toyota sells its
vehicles under mainly three brands: Toyota, Lexus and Scion, and
competes globally with automakers like BMW (GR:BMW),
), Daimler (ETR:DAI), Audi (
), Ford (
), Honda (
) and others.
We have a price estimate of $80.30 for Toyota stock, roughly
inline with the current market price.
Toyota's Operations Affected by Quake
In the recently reported March sales results, auto production in
Japan sank 62% to 129,000 vehicles, which is the lowest figure in
decades. Global production dropped around 29% as a result and
Toyota predicts that its 2011 global production would register
around 7.7 million vs. 8.4 million last year, though many analysts
think this number will be revised lower over time. With this,
Toyota would cede the title of largest auto producer to GM which is
posting huge growth numbers in China and a recovery in U.S. auto
sales. Other winners include Korean automakers such as Hyundai and
Kia that should gain ground on Japanese auto makers.
Loan and Lease Business Affected
We believe that Toyota can incur significant losses on its
vehicle leases and loans portfolio in Japan as many people in the
tsunami-affected areas have suffered immense losses. Further,
because many dealerships have been damaged and many people have
lost their cars, we expect that such dealers and end-users to
increasingly default on their outstanding loans. We further believe
that the tough economic scenario in Japan can cause a drop in total
outstanding leases and loans in the short term.
In a negative scenario, we could see interest & lease rates
earned on vehicle loans & leases could decrease by 1 percentage
point each year for the next two years as more people and dealers
default on their outstanding leases and loans. We expect it to
recover to its current levels and continue to grow in subsequent
Further, total outstanding leases and loans could drop by as
much as 3% over the next two years before recovering by 4% as
Japanese economy and infrastructure recover. Thereafter, we expect
it to continue growing at our previously estimated growth rates
over the remaining forecast horizon.
The scenarios mentioned above, taken together, imply Toyota's
stock price of $74.70, almost 7% downside from our current $80.30
price estimate. You can test this scenario, and others, by dragging
the trend line in the interactive chart above.
See our full analysis and $80.30 price estimate for