Toyota Motor Corp. (TM) continues to expand its production capacity to increase efficiency, meet local demand and simultaneously powering it to emerge as the world's financially strongest automaker. Its strong presence in North America has been further consolidated by gaining market share from leading U.S. automakers.
Moreover, the company also has a strong cash flow and a strong balance sheet. However, a sluggish US economy, rising costs, pricing pressures and huge capital expenditures prompt us to rate the stock a Hold with a six-month target price of $86.00.
Demand for Toyota's vehicles remains strong and sales were higher in its key markets in 2008. The firm dominates the hybrid market with its Toyota and Lexus offerings as well as the Prius hybrids. It is concentrating on upgrading the performance of its hybrid systems and plans to manufacture these vehicles in Thailand and Australia. The Australian government would provide a subsidy of $35 million for the operation.
By 2009, Toyota forecasts total sales of 2.4 million vehicles in Japan. The company's fifth engine plant in Japan is likely to start with an annual production capacity of approximately 200,000 units in 2010. TM plans to sell 1.45 million vehicles in 2009 in Europe, an increase of 11.5% from the 2008 forecast. The company plans to sell Camry sedans, compact RAV 4SUV and Prius in South Korea from 2009.
With Chinese automaker FAW Group, Toyota plans to set up a new production center. Toyota also plans to construct a second plant in India. The Texas plant will expand the production line and strengthen the self-reliance of overseas operations.
Toyota is raising prices of its domestically sold vehicles by 1-3% due to higher raw material prices. The company has also initiated value innovation activities, leading to cost efficiency. Toyota plans to generate annual cost reduction of $2.9 billion.
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