Despite a decline in sales, the world’s biggest car manufacturer hopes to retain its top spot by issuing a new investment instrument in order to fund long-term R&D.
Toyota has held the mantle of the world’s largest carmaker for three successive years. At first glance the Japanese auto manufacturer had a disappointing year: global sales fell by more than 10 percent. Even still, the company managed to boost operating income by almost 20 percent.
According to Toyota’s President Akio Toyoda, “[o]perating income improved by $3.83 billion to $23 billion due to positive factors such as favorable foreign exchange rates and cost reduction efforts that more than offset negative factors such as decreased vehicle sales and increased expenses including the investments to enhance our future competitiveness.”
Creating a strong and ‘safe’ investor base
Apart from North America and Europe, Toyota’s car sales decreased in all its other markets, particularly its home market in Japan.
But Toyota has come up with a new plan to enhance its competitiveness. It plans on investing in future car technology, funded by a new financial instrument: the Model AA class shares.
Named after its first passenger car, the Model AA class shares would be issued with voting rights and transfer restrictions. With these shares, Toyota is aiming to target medium and long term investors who are willing to lock up their investments for at least 5 years. Related: Is This The Top For Oil Prices For Now?
Toyota says it needs to raise capital in order to invest in R&D that will support the auto industry’s future. The move is targeted towards those individual Japanese investors who are looking for low risk stocks. Almost 40 percent of Japan’s population is 55 years of age or older, a demographic that tends to look for stocks with low risk and stable returns. With interest payments as high as 2.5 percent after the fifth year, Model AA shares would be ideal for those who want to invest long-term in Toyota.
Investing in innovation and green technology
Relatedly, Toyota and Mazda have decided to collaborate in the near future by setting up a joint committee for combating rising greenhouse gases, strict global environmental norms, escalating R&D costs and safety requirements.
The two car manufacturers are reportedly in talks to expand their already existing technology partnership in Fuel Cell Vehicles (FCVs). Toyota would provide the fuel cell and plug in hybrid technology to Mazda while Mazda would reciprocate with its fuel efficient diesel and gasoline engine technology through its Skyactiv series. Related: India Could Be The Next Solar Investment Hotspot
What do these moves mean for Toyota?
With a possible new collaboration with Mazda, it is clear that Toyota is hoping to further boost its sales in Japan, North America and Europe, the company’s biggest markets. Those markets – Japan and the US in particular – are also the fastest growing market for electric vehicles. Currently, Toyota’s Mirai is the world’s only mass produced hydrogen fuel cell vehicle. If Toyota succeeds in developing a better alternative to its own Mirai by collaborating with Mazda, we can expect a lot of changes in already flourishing green car market.
2014 Sales Chart for EVs Source: Insideevs.com Related: A Spanner In The Works Of The Solar Revolution
On the other hand, Toyota’s rolling out of Model AA shares signifies it’s well laid out strategy of creating a solid and safe domestic investor base. As Takashi Hiroki of Monex Securities in Tokyo noted, “[a]s long as you're a listed company, you can't select your shareholders. But Toyota's new class of shares is a new approach to choose their investors. Toyota is expressing who they want to be purchased by.”
Toyota hopes to secure stable financing and use the proceeds to invest in its green car future, two moves the company thinks will allow it to retain its supremacy over the global automobile industry.
By Gaurav Agnihotri of Oilprice.com
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