Toyota group companies plan to sell stake in Denso worth $4.7 billion. As a result, Toyota Motors and its two affiliates plan to sell about 10 percent of component maker Denso by the end of the year, reducing Toyota's stake in Denso from 24.2 percent and Denso, which will remain the major shareholder.
What does this mean?
The sale of Denso shares would mark the latest move by the world's best-selling automaker to monetize stakes in group companies. Toyota plans to invest the funds raised in capacity to produce its ramp-up of all-electric vehicle production, a highly capital-intensive endeavour that requires funding for research and development as well as overhauls of production facilities.
Toyota Motor Corporation (Toyota) is in the automotive business. The company also has businesses in finance and other industries. The Company's segments include Automotive, Financial Services, and Other. Toyota sells its vehicles in approximately 190 countries and regions. Toyota's markets for its automobiles are Japan, North America, Europe, and Asia. The Company's Automotive segment includes the design, manufacture, assembly and sale of passenger vehicles, minivans and commercial vehicles such as trucks and related parts and accessories. The Company's Financial Services segment consists of providing financing to dealers and their customers for the purchase or lease of Toyota vehicles. The Other segment includes the design, manufacture and sale of housing, telecommunications and other businesses.
Toyota's EV status quo
Toyota sold fewer than 25,000 EVs worldwide last year, including its premium Lexus brand. The company was aiming to increase EV production to about 150,000 vehicles in 2023 and gradually increase it further to 190,000 vehicles next year. Additionally, Toyota wants to accelerate EV production, and aims to produce more than 600,000 vehicles in 2025. The company has previously said it plans to sell up to 1.5 million EVs a year by 2026, and wants to increase that figure to 3.5 million by 2030, about one-third of current global production volumes.
Unlocking resources for EVs
Japanese companies have traditionally acquired and held stakes in their affiliates or business partners, a practice known as cross-shareholding, which critics say hampers corporate governance. Toyota had already announced in July 2023 that it would sell a stake worth about 250 billion yen ($1.68 billion) in telecommunications company KDDI Corp. The reason for the sale was supposed to be an extensive plan to improve the range and reduce the cost of battery-electric vehicles. As for the latest Denso sale, the news caused the share price to fall even further, from 4 to 6.8%. Toyota's share price remained almost unchanged.*
The share price performance of Denso Corp. over the past 5 years. (Source: Tradingview).*
Toyota Motor Corporation's share price development over the past 5 years. (Source: Tradingview).*
Toyota has unveiled ambitious plans to sell up to 1.5 million EVs per year by 2026, and aims to increase that number to 3.5 million by 2030, about one-third of current global production.
Toyota's latest move, in the form of the sale of shares in affiliate Denso, signals a trend of generating funds to increase EV production capacity, exactly in line with the company's long-term plans.
Adam Austera, principal analyst at Ozios
* Past performance is no guarantee of future results