Toyota (NYSE: TM) Hybrid Car Investing

Will Toyota (NYSE: TM) Kill the Electric Car?

By
Wednesday, October 2nd, 2013

modern energy report


“The reason why Toyota doesn't introduce any major all-electric product is because we do not believe there is a market to accept it.”


These are the words Toyota Chairman Takeshi Uchiyamada spoke on Monday to reporters.

If you're a regular reader of these pages, you know I'm a long-time and loyal fan of electric cars.

I was one of the first analysts to cover Tesla (NADAQ: TSLA) — before it even went public and became the biggest stock story of the year. And I was one of the first to provide mountains of coverage on the Chevy Volt, the Nissan LEAF, and pretty much every other electric car that's come and gone or come and stayed over the past eight years.

But I must admit, Chairman Uchiyamada isn't far off the mark.

The truth is for one to believe there is not a market to accept electric cars is not absurd...

Sure, we know there is a market for electric cars. The growth numbers alone over the past three years prove a market exists; but this market is still quite small when compared to the market for conventional internal combustion vehicles.

So for a company like Toyota (NYSE: TM), limiting its exposure to electric vehicles may be a pretty sound strategy.

After all, when it comes to fuel-efficient vehicles, Toyota still remains a major player with its hybrid superstar, the Prius. Boasting 50 mpg, this vehicle's fuel economy credibility is nothing to shrug off. Hell, I actually made it from Baltimore to Cleveland on less than a full tank this past summer in my 2009 Prius.

So over the years, as I've watched Toyota “phone in” any interest in electric vehicles, I've pretty much written it off as a very successful automaker simply waiting for the previous laggards (GM, Ford, Nissan) to do the heavy lifting in electric car development, just as Toyota did back in the 1990s with conventional hybrid development.

And quite frankly, this may not be a bad move.

I Can Drive 55...

Today, Toyota boasts more than 70% of all hybrids on U.S. roads. And while you're unlikely to see much in the way of new electric vehicles coming off the lines, over the next few years, you're definitely going to see new and updated hybrids hitting Toyota showrooms.

According to company reps, Toyota plans to introduce 15 new or redesigned hybrid vehicles globally between now and the end of 2015, with new hybrid powertrains that'll deliver significantly improved fuel economy — and at a lower cost.

Of course, while the company has plenty of hybrids to offer fuel-conscious consumers, the Prius will remain the crown jewel of Toyota's hybrid fleet.

The 2015 model is expected to push the envelope again with new electric motors and improvements in the powertrain. Although management has yet to release the official fuel economy numbers, most auto analysts and hybrid experts believe it's likely to come in at 55 mpg.

Analysts also note that the vehicle will offer more room and better handling as well.

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While other car makers are certainly offering their own impressive hybrid fleets — Ford (NYSE: F), in particular — I believe Toyota will continue to wear the hybrid crown for years to come.

And for the company to focus on that, instead of electric vehicles, well, it's a pretty smart strategy.

Much like Toyota execs, I too believe hybrids still represent the next logical step in the evolution of personal transportation.

Don't forget, we've really only been using these things for about 15 years. Particularly over the last five years, we've witnesses some pretty rapid changes in technology that have enabled automakers to produce higher quality, more fuel-efficient hybrids.

This is a trend that is unlikely to subside any time soon.

While I'm not typically one to invest in automakers (although I benefited handsomely from my early calls on Tesla), I do believe that Toyota's hybrid advantage will continue to bolster its success over the next few years.

That being said, I'm not rushing out to buy shares of Toyota today. The truth is auto sales across the board have been struggling a bit lately. And from where I'm sitting, Toyota looks a bit top heavy right now.

The stock's actually up more than 32% since the start of the year. I wouldn't mind picking some up on a dip for a trade, but for long-term, sustainable growth, I'd rather pick up something with a solid and steady payout.

To a new way of life and a new generation of wealth...

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Jeff Siegel

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Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.


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