TOYOTA STOCK IS TROUNCING TESLA. HYBRIDS AREN’T THE ONLY REASON.

Toyota stock is trouncing Tesla in 2024, and while a popular explanation is the consumer shift to hybrid vehicles, investors shouldn’t forget about the Yen.

The Japanese currency has weakened significantly against the dollar and euro. Today, one dollar buys 153 yen. A year ago it bought 135. In Europe, one euro buys 165 yen, while a year ago it bought 149.

A weakening yen is good for the Japanese auto maker, which makes a lot of cars in Japan—paying its workers in yen—and sells them overseas where customers pay in dollars and euros.

In 2023, Toyota exported some two million vehicles from Japan, about 20% of its total sales.

The currency weakness creates two benefits for the Japanese giant. There is the direct translation benefit of dollars being worth more yen. There is also the benefit of a relatively lower cost structure, which can be used to expand profit margins or market share—or both.

Toyota estimates foreign currency valuation changes will boost its fiscal year 2024 operating profit by about $3.5 billion. That is roughly 11% of the total 2024 operating profit projected. It is also 25% of the improvement projected between fiscal year 2023 and 2024.

Pricing gains and currency benefits together account for more than 100% of the projected improvement in fiscal year 2024 operating income. Toyota isn’t alone. The numbers for Honda Motor look similar.

The stock market illustrates the currency dynamic, too. Through midday trading Friday, Toyota’s Japanese-listed shares were up about 38% year to date, outperforming Tesla stock by about 66 percentage points.

Toyota’s U.S. American depositary receipts were up about 26% so far this year. In U.S. dollars, the outperformance shrinks to about 54 percentage points.

Of course, Toyota shares are still outperforming in both scenarios. Things are good and hybrid sales are a part of that.

In the U.S., sales of battery electric vehicles, or BEVs, grew just 7% year over year in the first quarter of 2024, according to data provider WardsAuto. That is down from 43% year-over-year growth in the fourth quarter of 2023. Sales of hybrids—both traditional hybrids and plug-in hybrid vehicles—grew about 65% year over year.

That is good news for Toyota, which sells a lot of hybrid vehicles. In the first quarter, it sold almost one million globally, accounting for almost 40% of total sales. More than 90% of Toyota’s hybrid sales are the kind that don’t plug in at all—such as a traditional Prius. Traditional hybrids are the least expensive electrified vehicles on U.S. roads.

The positives add up to better profit, which is ultimately what drives any stock. Wall Street expects Toyota’s operating profit to hit $34.4 billion in 2024, up from $30 billion earned in 2023 and $20.9 billion earned in 2022.

Margins are expected to come in at almost 12% in calendar year 2024, up from about 10.5% in 2023, according to FactSet. Tesla’s 2024 operating profit margins are expected to be about 8.5%, down from 9.2% in 2023.

Toyota is a strong manufacturer of quality cars having a good year. Just don’t forget the impact of currency.

Write to Al Root at [email protected]

2024-05-03T16:50:19Z dg43tfdfdgfd