At its opening price of $141.93 per share on Jan. 22, Toyota (NYSE:TM) is still worth about $200 billion.
That’s two times the size of Tesla (NASDAQ:TSLA). More precisely, it’s four times the size of General Motors (NYSE:GM).
Over fiscal 2019 Toyota had gross sales of about $275 billion (almost twice those of GM) and delivered almost $17.4 billion in profits (again twice those of GM).
The problem is that investors have concluded it’s just a bigger, better GM. Toyota may have four times the market capitalization of the U.S. auto giant, but its price-to-earnings ratio is below 9, despite a dividend that yields 2.5%. The numbers would be worse except, I suspect, Japanese investors and institutions remain loyal to it.
But do Americans owe Toyota any loyalty?
It’s All Hot Air
While GM and Ford (NYSE:F) have come around on battery-powered electric cars, following Tesla’s lead, Toyota seems to still be devoted to what so far has remained hot air, hydrogen fuel cells.
This is ironic because Toyota began the decade as the leader in “greener” cars with its Prius hybrid. Sales are now rolling over but its production targets on electrics remain below those of rivals.
Instead Toyota is investing in an air taxi company, Joby Aviation. It is building a “city of the future” in the shadow of Mt. Fuji to test autonomous cars (powered by hydrogen).
Why? Asian cities are denser than American cities. Cars can’t scale to them, as anyone who has fought New York traffic will tell you. Other transportation solutions are needed. You can argue that Toyota’s recognition of this fact puts it ahead of even Tesla.
But the economic thesis behind the dream is as unproven as Tesla cars were five years ago.
Toyota’s Daily Life
Meanwhile, Toyota is having a tough time at its day job.
It’s having to recall 3.4 million vehicles because their air bags may not deploy. It’s moving production of its Tacoma pickup truck to Mexico. This will infuriate many Americans, despite the fact that no U.S. jobs are being lost. It’s doubling investment in Indiana and shifting its San Antonio plant to hybrids.
It’s just a bad look.
A Value Stock?
The changing presence of Toyota has made it a much better value stock. Its P/E ratio is half that of the average manufacturer, or the average S&P 500 stock. So is its price-to-cash flow ratio, which is down to 5.6.
InvestorPlace analyst Matt McCall wrote in June that Toyota’s slow walk into the electric future will pay off. He believes its battery technology will prove superior to what rivals are mass producing now.
The company plans a “major reveal” of its next-generation battery technology during this year’s Olympics in Japan. If investors buy the demonstration, buying Toyota today will look very smart. Even if traders don’t buy the demo, you’re still getting a dividend yield that handily beats a 30-year Treasury bond, one that is historically backed by earnings.
The Bottom Line on Toyota Stock
Transportation remains a risky business. Vehicle makers are trying to manage two major transitions at once, the electric transition and the self-driving one.
The fact that these things are now not just speculation, but conventional wisdom, has made Tesla the darling of the current market. It sells for four times revenue while traditional car makers sell at a fraction of their sales.
Toyota may be the most conservative investment you can make in this space. You will be paid to wait for the future to become clearer. The stock will remain cheap until it does.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.