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Toyota Triumphed Over Its Peers in FY2019- Can It Also Win the Electrification Challenge ?

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Toyota Motor Corporation (NYSE: TM) The Japanese auto giant has succeeded in achieving positive revenue growth while other auto makers struggle and the car market is maturing. Its shares have dropped but drastically less than of its peers, some of which flopped as much as 20%, with Toyota keeping the drop at only 5%. But the company has managed to maintain a healthy position due to an efficient cost savings strategy and marketing efforts.

Since he was named President in 2009, Akio Toyoda, the grandson of Toyota’s founder, has often used the word “passion” when addressing the public. And it is with passion that he stated that he will transform Toyota into a mobility company as the future of Fuel Cell (FCEVs) and Battery Electric Vehicles (BEVs) is on the horizon. A complete redesign is in store for Toyota as it seems that the life of its business model is coming to an end with the chapter of Hybrid Electric Vehicles (HEVs).

Toyota Motors reported a record revenue of 30.2 trillion yen ($275 billion) for FY2019, which is an increase from FY2018 which was 29.4 trillion yen. Toyota Motors has seen revenue fluctuate over the past quarters but has managed to maintain a positive growth in each of the four quarters. Its revenue consists of two sources: automotive revenue which accounts for 93% of total revenues and financial services revenue that make the remaining 7% of total revenues. The latter is the revenue from the financial services provided for purchasing or leasing vehicles of the company.

Total expenses have moved mostly in line with revenue except for the third quarter of 2019 due to $4.5 billion loss on equity securities. Cost of products has remained steady making 77% of total revenue, increasing slightly to 78.4% of total revenue in the fourth quarter of 2019 which ended in March 2019. But while sales are slightly up, net income went down. Like Honda Motor Co. (NYSE: HMC), Toyota has focused on decreasing costs, stating that it will go further in this direction and not just by working with suppliers on new cost-effective strategies but also by cutting costs when it comes to office pencils. Toyota has been pursuing this strategy successfully as cost reductions have resulted in an increased operating income in Japan, North America, Europe and Asia. Yet, its executives are still not pleased as they have set even better targets.

As for forecasts, considering that the auto industry is slowing down, Toyota’s forecasts show a slight decrease in net revenues at 30 trillion yen, but the company expects an increase in its operating income as well as net income due to beneficial impacts of its strategy, with net income forecasted to be 2.2 trillion yen for the FY2020, as compared to 1.9 trillion yen in FT2019. The company’s efforts will include working closely with suppliers on cost reductions (“Genchi Genbutsu”), redefining “monozukuri” which is the manufacturing process from planning to design and production, and finding ways to enhance their cost competitiveness to realise affordable sales prices for customers. Although costs are expected to increase, it is important to note that Toyota has successfully managed to keep them at around 80% of total sales for the greater part of the last decade.

Over that past decade, we’ve seen Toyota adopt an increasingly bold design and expand its network of friends. In its newest chapter, it has come together with BMW as the 2020 Toyota Supra is making its return after a painfully long absence. The new Supra, named an icon a half-century in the making, shares the same basic platform as the new BMW Z4, but the two cars don’t have anything else in common. The president Toyoda addressed it as an old friend that holds a special place in his heart.

Supra is evaluated as ‘a thoroughly capable all-round coupe, but not a purebred Toyota’. Interestingly, rather than building it from scratch, the world’s largest car company has shipped large chunks of a reputable German roadster and build it in Austria. Verdicts go as far as saying that Toyota builds a better BMW. The Supra declined in sales every year throughout the 1990s and ballooned in price as it struggled to meet emissions standards until it retired in North America in 1998. Coming 40 years after the debut of the original Supra, the new sports car is pretty much everything its fans were hoping for as journalists uniformly left its presentation impressed.

But this doesn’t change the fact that Toyota’s challenges are at their full strength in North America where its sales are dropping. Interestingly, the company has estimated it will sell 45,000 fewer autos in North America due to this decreased demand, but Morgan Stanley analysts find this estimate overly conservative. According to its annual report, vehicle sales that account for 78% of its revenue are distributed as follows:  30.3% of its automobiles are sold in North America, 24% in Japan, 9.6% in Europe, 16.6% in Asia and 19.5% in the rest of the world. As for FY2019 results, vehicle sales in North America have dropped and resulted in a 4% profit drop in the last quarter of January to March. But Toyota’s profits were also damaged by the U.S. Tax Reform that banished the tax break which improved the results of the previous year, FY2018.

Management has been able to contain costs and expenses but they are aware that automotive industry has truly entered a once-in-a-century period of profound transformation for which an entirely new model is a necessity, not to thrive, but to survive.

“Bringing the joy and freedom of movement to all people” is Toyota’s vision for the future that benefits society as a whole. This means that Toyota will provide all kinds of services related to transportation to people around the world. It has already started by launching new services: “Monet”, self- driving joint venture with SoftBank, and  “Kinto”, a car-subscription company.

So perhaps the greatest blockage that Toyota has is its past success. But maybe it’s not so crazy to honour its core strengths that the company has no intention of leaving behind-after all, it brought them this far. Most importantly, Toyota has built a solid trust in its leadership, as investors are currently not showing any signs of pressure to see some future growth drivers.

Toyota has shown that it can survive earthquakes, the great economic crisis, the following recession, so it’s no wonder that many believe that it can handle whatever is thrown at it. Its executives have shown that they even use such periods to unify and to achieve ever-better car-making. Toyota even made an ‘intentional break’ after such crisis periods to fortify the company’s inner strengths that are wrapped in its Toyota Production System (TPS) and Toyota New Global Architecture (TNGA). Certainly, the electronic components and the African market are critical parts of its ‘mobility’ future. But Toyota has shown that it is open to all those who share the same aspirations as it entered into a venture with Panasonic to expand its energy-car capacity. If it comes to worse, it has plenty of cash and it can even sell stock in the other auto companies it owns. So it does seem that Toyota has it all figured out. But we need to wait and see what redesign Toyota has in store while creating a bridge towards an all-electric and automated future. After all, the future is promised to no one.

 

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Earnings

Toyota’s News: Redesigned Corolla, New Investments and Partnerships

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Toyota Stock Market News

Toyota Motor Corporation (NYSE: TM) is managing something other automakers only dream of. The company is honouring its values while achieving sustainable growth for over a decade. The dependable Japanese giant continues to deliver on its promises as it prepares for an electric future.

A new sturdy yet sporty Corolla

On September 17th, the company announced a completely redesigned Corolla that now goes beyond just being a practical buying decision. The newly evolved Corolla has a sporty design, offering pleasurable driving and advanced safety equipment. Being built on Toyota New Global Architecture (TNGA), Corolla is ready to evolve to meet customers’ needs, according to Yasushi Ueda, chief engineer in charge of development.

Since its debut in 1966, this car is nothing less than adored by consumers all over the world and now, it will have its first hybrid version available to U.S. customers.

Hybrid strategy is actually paying off

Just like Honda Motor Co. (NYSE:HMC) with its 2020 CR-V Hybrid, Toyota is using its hybrid technology to position itself for future growth and transition to an all-electric future, despite the fact these energy saving vehicles do not qualify for government subsidies. But, this strategy is paying off as hybrid demand skyrocketed and the company proudly revealed in February that Lexus reached its 10 millionth vehicle sales milestone since its launch, with its 2018 sales performance achieving several ‘best-ever records’. And it is thanks to these figures that the Chinese government is also starting to see the potential of such vehicles so things can only get even better for Toyota. As the saying goes, persistence is the key to success and these two companies have been quite brave in sticking to HEVs.

New Investment – $391 Million Goes to Texas’ San Antonio Plant

This will be Toyota’s first expansion in nine years at the plant that produces its Tundra and Tacoma pickup trucks. It is the part of the company’s strategy to invest $13 billion in its U.S. operations over the period of five years, ending in 2021.

Future Investment – $243.29 million to Produce New Vehicle in Sao Paulo

Toyota is also about to get an even stronger presence in Brazil as it will hire 300 new employees at the Sorocaba Plant to start the production of a new vehicle.

Partnership

And let’s not forget the ground-breaking partnership of Japan’s leading automakers that was revealed in August as Toyota and Suzuki Motor Co. (OTC: SZKMF) announced they will collaborate on developing autonomous car technology. This deal is cementing the bond that the two automakers kicked-off in 2016. They might seem like an odd couple as Suzuki is a everything but a big player, yet its strong presence in India is only one of the things that will greatly benefit Toyota. Although Suzuki admitted defeat on the world’s biggest playgrounds, China and the U.S., it cracked the code for emerging markets. And this is exactly where future global sales growth is expected to come from.

Inventing a car that will run forever?

According to Bloomberg, Toyota aims to go far further than electric by teaming up with Sharp Corporation (OTC:SHCAY) and Japanese governmental organization NEDO that encourages the development of innovative technologies. Considering that Toyota is a company that has even used the economic crisis and recession to only come out stronger, it’s not unlikely that it is set to out do the impossible by mixing the most efficient batteries with solar panels. The company’s strong financial performance and track record show that if anyone can do it, it’s Toyota Motor Co.

 

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Nike Exceeds Wall Street Expectations With Q1 Earnings for FY2020

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Direct-to-consumer sales and digital momentum strategies did the trick for Nike

When Nike (NYSE:NKE) released its better-than-expected first quarter of the fiscal 2020 results late Tuesday. Naturally shares jumped more than 5% to reach $91.80. The reported revenue increased 7.2% year comparing to last year, achieving $10.7 billion, greater than the expected $10.44 billion. Net income soared more than 28%, making adjusted earnings per share $0.86, also smashing expectations of $0.70 per share.

Nike managed to achieve a turnaround

The biggest contributor to total sales was Nike’s North American segment that increased 4% comparing to last year. But China sales also continue to grow and by double digit percentages: 22% to be exact, topping $1.68 billion. Overall, these are fantastic news for investors. Especially since the company’s rare earnings miss for the final quarter of the previous fiscal year. The company attributed this to increased marketing costs and a higher tax rate. But highly anticipated new product launches and solid results for continuing lines, along with efforts to draw new customers to the Nike SNKRS app, did their magic.

Digital momentum is key

Digital movement is transforming and amplifying everything Nike does and in Q1, Nike Digital grew 42% on a currency neutral basis. This growth is driven by enhanced digital services and the international expansion of its app ecosystem. Moreover, The Nike app and SNKRS app are now both live in over 20 countries, with more expansion coming throughout the year.

There are literally no weak spots for investors

Arguably, there are no weak spots for prudent investors to dig in as far as this quarter’s report is concerned. The company is literally firing on all cylinders. The company’s management attributes these results to “the depth and balance of the company’s complete offense, building on the strengths of its foundational business drivers and capitalizing on the untapped dimensions of its portfolio”. Management has also dismissed any concerns that US-China trade conflicts could harm its operations, disclosing no impact has been seen up to date.

Nike showed it can even handle the increased tariffs

Earlier this year Nike joined over 200 other footwear companies urging President Trump not to increase tariffs on footwear imported from China, calling the move “catastrophic for our consumers, our companies, and the American economy as a whole.” But while those tariffs are certainly catastrophic for small players, Nike seems more than capable of mitigating the consequences of this added expense.

Poor macroeconomic conditions are only masking Nike’s true power

The company made it clear that its figures would have been even stronger had it not been for macroeconomic challenges which are manifesting through tariffs and foreign-exchange rates. They implied that the weakening economic climate is essentially masking Nike’s true strength. And in addition to children, women are also a big opportunity for the company that Nike will continue exploiting. This is why Nike expects better-than-planned growth in its higher-margin NIKE Direct channels and international segments and consequently, its full-year gross margin. One thing is for sure: Nike has turned itself into so much more than a ‘sneaker-company’.

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Apple Will Be Making Its MacBook Pros in the US

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With a newly granted “federal product exclusion,” enabling it to import some Mac Pro parts without paying tariffs, Apple (NASDAQ: AAPL) will be able to save enough money to make US assembly worthwhile. The company announced on Monday that it will manufacture the new version of its Mac Pro desktop computer in Austin, Texas. It’s also a big political win for Apple, since President Trump has for years called on the company to make more products in the US. Tim Cook clearly made a compelling case during his meetings with President Trump. Apple described the decision to keep Mac Pro production in Austin as part of its “commitment to US economic growth.”

Macroeconomic climate is not favourable

The September figures around the world are simply awful. The uncertainty brought on by intensifying trade wars, the outlook for the car industry and Brexit are paralyzing investors, with September seeing some of the worst performance since the financial crisis in 2009, leading many to worry about whether yet another crisis is upon us. On a brighter note, Apple’s stock went up 0.2% after Bloomberg reported that ten of its 15 requests for an exemption from tariffs on imports from China had been approved.

New investments

Apple previously disclosed plans to spend $350 billion in the U.S. by 2023, a figure that includes new and existing investments. Its Apple TV+ is set to launch on November 1, with stars like Oprah Winfrey bringing her famed book club streaming show to the company’s subscription service. Among documentaries that will be released, there will even be a multi-series about mental health, featuring no other than Prince Harry himself. Apple’s subscription service will cost only $4.99 a month and will be available in 100 countries and regions at launch. Also, customers who buy a new Apple device will also get a free year of Apple TV+.

Competitors

Netflix (NASDAQ: NFLX) is still the leader when it comes to U.S. streaming, along with Amazon Prime (NASDAQ:AMZN), AT&T’s HBO (NYSE: T) and upcoming Disney+ (NYSE:DIS), it is certain that competition will be intense. Netflix’s stock has been dropping since July, which was the first time the number of subscribers fell. Moreover, Netflix’s stock price has now officially wiped out any gains it’s made over the year so far and both Disney and Apple have a shot at beating Netflix at its own game.

Apple is still facing impending import duties and innovation difficulties

Let’s not forget that the company still faces import duties scheduled for Dec. 15 that could affect nearly all of its major products including iPhones, iPads, MacBooks and Apple Watches. And more importantly, it is thought by many as facing an innovation problem so it heavily relies on customer loyalty that will continue driving its sales. We’ll just have to wait for November 1st launch of Apple TV+ to see the impact of Apple’s new streaming subscription service.

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