Toyota’s stock has experienced a notable surge, with investors eager to capitalize on the company’s ambitious plans to enhance profitability. As of Thursday afternoon, shares listed on the New York Stock Exchange jumped 9%, reaching an intraday high of $197.44. In Tokyo, the company’s shares saw a 6% increase, resulting in an 11% gain over two days—the biggest two-day rally since August.
This sharp rise follows a report, which stated that Toyota aims to double its return on equity (ROE) target to 20%, up from the market consensus of 11% for the fiscal year ending in March. The report cited an unnamed company executive, fueling optimism among investors.
Despite this surge, Toyota’s stock has gained just over 8% year-to-date, underperforming the broader market. The S&P 500 index has rallied 26% over the same period. However, Toyota’s recent gains have helped reverse some of the losses the company experienced earlier in the year. In March, Toyota’s stock had rocketed as much as 40% on a year-to-date basis, before experiencing a significant pullback due to limited demand growth compared to competitors like Honda, Nissan, and Mazda.
In November, Toyota’s global sales plateaued as demand slowed, and the company temporarily halted production at two of its facilities. Additionally, the company faces risks from potential tariffs, with exposure to Canada and Mexico at 19% and 8%, respectively. These risks were highlighted by Citi analysts in a note last month, noting that President-elect Donald Trump had suggested tariffs as high as 25% on goods from both countries. While it remains unclear whether these proposals will become policy, the uncertainty has added to the pressure on Toyota’s stock.
Meanwhile, other automakers are also experiencing significant stock gains, driven in part by news of a potential merger between Honda and Nissan. If finalized, the merger would create the world’s third-largest automaker by volume, positioning the companies to better compete with Toyota. The combined light vehicle volume of Honda and Nissan would be 7.4 million units, compared to Toyota’s 10.3 million. This merger would also represent the largest in Japan’s automotive history and could signal the beginning of more consolidation in the auto industry, analysts suggest.
“The auto industry dynamics are pushing companies to partner up, and those that fail to do so may find themselves smaller, with higher capital expenditures and R&D costs per unit,” said Morgan Stanley analysts in a recent note. With competition intensifying, the pressure is mounting on Toyota and its rivals to adapt and innovate in an increasingly challenging market.
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