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Fundamental View
AS OF 13 Dec 2022We expect earning assets to increase gradually in F2H23 and into FY24 based primarily on higher vehicle unit volumes.
Credit quality has been stronger than historical norms the past year, which we attribute in part to low unemployment and elevated consumer savings. We expect net charge-offs and defaults to move towards normalization as sustained strong consumer spending reduces savings and unemployment rates face upward pressure by a weakening economic outlook.
For additional information on Toyota Motor Corporation see the Toyota company page.
Business Description
AS OF 13 Dec 2022- Toyota Motor Corp. (TMC) engages in the manufacture and sale of motor vehicles and parts. The Financial Services segment offers purchase or lease financing to Toyota vehicle dealers and customers. It also provides retail leasing through lease contracts purchased by dealers. The company was founded by Kiichiro Toyoda on August 28, 1937 and is headquartered in Toyota, Japan. In July 2000, the company established Toyota Financial Services Corporation (TFSC), a wholly owned subsidiary, to oversee the management of its finance companies worldwide.
- Toyota Financial Services Corporation (TFSC), a wholly owned subsidiary of TMC, oversees the management of Toyota's finance companies worldwide. Toyota Motor Credit Corporation (TMCC) is the company’s principal financial services subsidiary in the United States and is an indirect wholly owned subsidiary. Under terms of the credit support agreement between TFSC and TMCC, TFSC agrees to: (1) maintain 100% ownership of TMCC; (2) cause TMCC and its subsidiaries to have a tangible net worth of at least $100,000; (3) make sufficient funds available to TMCC so that it will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper. The terms of the credit support agreement between TMC and TFSC are very similar to the terms of the TFSC and TMCC credit support agreement.
Risk & Catalysts
AS OF 13 Dec 2022While lingering supply chain challenges were blamed for Toyota reducing its FY23 global auto production target from 9.7 mn units to 9.2 mn, the revised target still represents recovery from COVID-impacted levels the past two years and YoY growth that should help replenish dealer inventories and drive growth in earning assets.
Toyota’s electric vehicle (EV) initiatives are balanced between hybrids such as its redesigned Prius and fully electric vehicles, which we view as a more conservative posture towards electrification that could jeopardize EV market share capture over the near to intermediate term.
We expect earning assets to increase in 2023 as replenished dealer inventories lead to higher retail sales, while credit metrics are expected to move towards normalization from unusually strong levels in recent years.
Key Metrics
AS OF 13 Dec 2022| ¥ bn | FY19 | FY20 | FY21 | FY22 | 3Q22 |
|---|---|---|---|---|---|
| Total Company Earning Assets | 109,063 | 110,621 | 116,546 | 117,659 | 118,731 |
| Cash and Investments | 2,198 | 6,790 | 8,195 | 7,670 | 6,311 |
| Total Liquidity | 27,698 | 31,390 | 35,895 | 36,070 | 36,511 |
| Unsecured Debt | 80,521 | 83,172 | 85,513 | 82,288 | 78,926 |
| Secured Debt | 12,401 | 14,568 | 24,212 | 26,864 | 29,947 |
| Total Debt | 92,922 | 97,740 | 109,725 | 109,152 | 108,873 |
| Allowance % Retail Rece. | 0.56% | 0.85% | 1.60% | 1.63% | 1.72% |
| Allowance / Net Charge-offs | 1.09x | 1.58x | 4.50x | 6.68x | 5.50x |
| Net Charge-offs % Avg. Receivable | 0.52% | 0.55% | 0.39% | 0.26% | 0.32% |
| Delinquency Rate | 1.7% | 1.8% | 1.2% | 1.8% | 2.1% |
CreditSights View
AS OF 13 Dec 2022Our Underperform recommendation on Toyota Motor Co. (TMC) and Toyota Motor Credit Corporation (TMCC) notes is based on relative value as tight trading levels offer little opportunity for outperformance. Toyota is the highest-rated global automaker that benefits from being the largest global automotive manufacturer, balanced geographic diversification, strong liquidity, consistent free cash flow generation, and solid credit metrics. The company has been hampered by supply chain challenges the past fiscal year, causing management to lower its production targets and dampening wholesale volumes and revenue. We expect global wholesale volumes to increase in 2023 as supply chain challenges ease and production schedules improve.
Recommendation Reviewed: February 28, 2023
Recommendation Changed: January 13, 2023
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