Tesla (NASDAQ:TSLA) is still not the world’s most valuable carmaker. Toyota Motor (NYSE:TM) is, for now. Its resistance to the EV revolution makes TM stock a problem in the long term.
With a market cap of $1.28 trillion, on what should be sales of $270 billion in 2021, Toyota dwarfs every competitor.
Toyota was the trailblazer in hybrids, selling over 20 million in the first 20 years after introducing its Prius. In the interest of full disclosure, I’ve bought nothing but Toyotas for almost 30 years.
Toyota also makes electric cars, with the Prius Prime now selling better than the original hybrid, although only in China. It is putting $9 billion into battery plants and plans to launch an electric SUV next year.
But ask CEO Akio Toyoda about a full transition to electrics and watch his face redden. It would cost millions of jobs, he says. The enemy is not internal combustion, but carbon dioxide.
He’s right. But it doesn’t matter.
The Electric Secret and TM Stock
At their heart electric cars are simple machines. There are few mechanical components that can break. There’s no transmission, and the motor is just like a generator, only in reverse.
They’re an older technology than gas engines. Grand Central Terminal in N.Y. is underground because of electric motors, which don’t emit pollution as steam locomotives did.
Many electric car designs are simple.
REE Automotive (NASDAQ:REE) offers one that’s basically a sled for holding batteries, with all the mechanical parts in the wheel wells. Many different cars can thus be made off the same platform. The differences are the size of the motor and the style of the body.
What’s holding up the electric revolution are parts shortages and the scaling of battery production. Electric cars are expensive only because they contain a lot of computers to manage maintenance and let it drive itself. As mass-production scales, they should become cheaper in contrast to gas-powered cars.
Toyoda says the industry could lose 5.5 million jobs in the transition to electrics. These aren’t just manufacturing jobs, but jobs in dealerships and independent garages. He would rather continue to make hybrids and hydrogen fuel cells powered by natural gas.
As a result, Toyota leads in electric car patents, while making relatively few electric cars.
The IBM Precedent
Toyota stock is up over 50% in the last year (that’s in line with the S&P 500), but Tesla is up 423%. A host of electric start-ups are following Tesla to the Moon, from Nio (NYSE:NIO) in China to Rivian and Lucid Group (NASDAQ:LCID) in the U.S.
Toyota is in a similar position to International Business Machines (NYSE:IBM) at the dawn of the PC era.
In 1981 IBM was even more dominant in computing than Toyota is in cars. Today Apple (NASDAQ:AAPL), the Tesla of its day, is worth nearly 20 times more.
Microsoft (NASDAQ:MSFT), which came to prominence by selling IBM a PC operating system, could now take it out for the equivalent of seat cushion money.
IBM survived into 2021 by becoming a value stock. It cut back slowly and handed money to shareholders. It now has more workers in India than the U.S. and its CEO is Indian. But it sports a dividend yielding 4.77%.
This could be Toyota’s future. TM stock already pays a hefty dividend, yielding 2.2%. Morningstar recommends it as “a powerful automaker with excellent liquidity.”
The Bottom Line
Environmentalists have lost patience with Toyota. Some are calling for a boycott. The company has been lobbying against electric car incentives, even as the U.S. trails Europe and China in the transition.
The electric vehicle revolution will change society as nothing has since the gas-powered car. Toyota is standing in the way. You don’t want to own IBM when you could have bought Microsoft. It is the same with TM stock.
On the date of publication, Dana Blankenhorn held long positions in MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.