Toyota testing scandals overshadow top sales ranking

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Toyota Motor has topped the world’s carmaker rankings. It sold the most passenger cars in the world last year, keeping its position ahead of Volkswagen. But investors should not dismiss Toyota’s looming reputational problems. Those include brand damage from a series of testing scandals and the fact it has fallen behind rivals in the electric car race. 

Sales in North America and Europe were especially strong. They pushed global group sales, including subsidiaries Daihatsu Motor and Hino Motors, up 7 per cent to a record 11.2mn cars last year, the company said on Tuesday. Output grew 9 per cent to 11.5mn. 

But of that total just a tiny fraction, about 104,000 cars, were battery electric cars. While Toyota has promised to turbocharge sales of its fully electric cars in the coming years, the pace of growth here has been slow. A seeming lack of sense of urgency is understandable, given its strength in the hybrids market. 

But that has already given Chinese rivals a big head start in the fast-growing export market for EVs. These producers have taken advantage of government-mandated EV sales regulations around the world and the expansion of demand for these battery vehicles.

Global EV sales rose nearly a third last year. Meanwhile, Chinese rivals including BYD have started exporting hybrid models as well, cutting into Toyota’s market share.

The bigger concern for Toyota is reputational damage. On Monday, the carmaker halted some production lines and suspended shipments of 10 models. This followed an internal investigation which revealed that supplier Toyota Industries Corp had been manipulating test results to gain certification for its cars. Engine parts of the affected cars were found to have irregularities during certification tests.

That comes with unfortunate timing. Another Toyota group scandal is still fresh in investors’ minds. Last month, its wholly owned subsidiary Daihatsu was found to have distorted collision safety test results, which date back as far as 1989. In 2022 another subsidiary, Hino Motors, said it had systematically falsified emissions data, dating back as far as 2003.

Toyota shares have risen 56 per cent in the past year, reflecting strong sales and the boost its overseas earnings receive from a steadily weakening yen. The automaker estimates that each one yen depreciation against the US dollar boosts operating income by about ¥45bn.

At 10 times forward earnings, the stock trades at more than twice the valuation of rival Volkswagen, another group which has had reputational issues. To maintain that premium, Toyota will at least need to rehabilitate its battered reputation.