Toyota and its subsidiary issuers are the highest quality Automotive sector issuers in the dollar market with A1/A+/A+ S/S/S ratings and outlooks by Moody’s, S&P, and Fitch, respectively. The company is the second-largest automotive issuer in the U.S. dollar market behind General Motors and accounts for 16% of automotive sector debt outstanding.

Toyota’s automotive credit metrics are strong with cash and cash equivalents roughly 1.7x its debt balance. We believe its credit rating is stable with potential upside by S&P over time as the rating agency had Toyota’s rating at AA- prior to the pandemic. However, management has not indicated it aspires to a higher rating, and we note it currently has access to the Tier 1 CP market, which provides it with short-term funding flexibility.

FY23 wholesales forecast reiterated at 8.8 mn units, up 7% YoY. Toyota trimmed its FY23 production target to 9.1 mn units from its previous target of 9.2 mn but maintained its projected wholesales at 8.8 mn units and its retail sales target at 10.4 mn units.

Wholesale shipments have shown steady improvement throughout FY23 and increased 9% sequentially and 16% YoY in F3Q23. Meeting its annual wholesale target requires 2.5 mn unit wholesales in F4Q23, or a 7% sequential increase, which seems achievable provided it increases production at a similar pace.

FY23 consolidated operating target unchanged but expected lower YoY. Management reiterated its FY23 consolidated revenue and operating income targets, with the revenue expected up 1% YoY and operating income down 6% YoY. Compared to last quarter, full year operating income is expected to benefit slightly less from currency and raw material cost moderation, but these negative variances are projected to be offset by lower marketing activities and slightly lower labor costs.