We recently compiled a list of the 11 Best EV Stocks To Buy For The Long Term. In this article, we are going to take a look at where Toyota Motor Corporation (NYSE:TM) stands against the other EV stocks to buy for the long term.
The Challenges of EV Adoption and the Promise of Solid-State Batteries
On August 30, Mark Fields, former Ford CEO and President joined CNBC’s ‘Squawk Box’ to discuss the challenges facing electric vehicle (EV) adoption. Fields pointed out that early enthusiasm for EVs was driven by automakers and government regulations, but mass adoption is proving more difficult. Consumers are hesitant due to several factors including the high cost of EVs, the lack of visible and convenient charging infrastructure, and the slow charging times compared to gas refueling.
Fields suggested that automakers need to offer more affordable EVs and expand hybrid offerings while working towards breakthroughs in battery technology, especially solid-state batteries. These batteries could eventually reduce charging times to match the convenience of filling up at a gas station.
Fields commended his former company’s strategy as it involves focusing on hybrid models to ease consumers into EV technology without the range anxiety that comes with current models. He noted that automakers are also facing financial challenges in the EV space, as shown by his former company’s recent writedowns.
He emphasized that while automakers are working on delivering low-cost EVs, the real game-changer will be the development of solid-state batteries, which could significantly improve charging times and consumer convenience.
Exploring Three Scenarios for the Future of EVs
Despite the challenges, the EV industry seems inevitable and is poised to grow over the next few decades. We discussed the International Energy Agency’s (IEA) EV outlook in our article about the best EV stocks according to short sellers. Here is an excerpt from it:
“The IEA’s Global EV Outlook 2024 examined the potential paths to electrifying road transport by 2035. The report presents three scenarios: the Stated Policies Scenario (STEPS), the Announced Pledges Scenario (APS), and the Net Zero Emissions by 2050 Scenario (NZE). The STEPS considers current policies and market trends, the APS assumes that all government pledges will be fully implemented on time, and the NZE outlines a pathway to achieve net zero CO2 emissions by 2050.
The projections show that the global EV fleet could grow significantly by 2035. Under the STEPS, the number of EVs is expected to increase from less than 45 million in 2023 to 525 million by 2035. In the APS, this number could reach 585 million, while the NZE Scenario projects a more ambitious growth to 790 million EVs by 2035.
The report also discussed the growth of electric light-duty vehicles (LDVs), buses, and two/three-wheelers (2/3Ws). LDVs, which include passenger cars and light commercial vehicles, are expected to remain the largest segment of the EV market. Electric buses and 2/3Ws are also projected to see significant growth, especially in regions like China and India, where policy support is strong. However, achieving full electrification of these segments will require continued policy support and technological advancements.”
Moreover, governments worldwide are pushing for increased EV production due to environmental concerns, with the U.S. making significant moves in this direction. On July 11, the Department of Energy (DOE) announced $1.7 billion in grants to support the conversion of 11 auto manufacturing plants in eight states to produce electric vehicles and their components. This is part of President Biden’s “Investing in America” initiative, which is aimed at protecting union jobs and giving a boost to EV manufacturing.
The program is funded by the Inflation Reduction Act and will preserve over 15,000 union jobs and create nearly 3,000 new ones, which will support the production of EV components like batteries and electric motorcycle parts.
Our Methodology
For this article, we used screeners and ETFs to identify 22 EV manufacturers with a market cap of above $50 million and narrowed our list to 11 stocks with the highest average analyst price target upside, as of September 11. We took analyst comments mostly from The Fly and TipRanks. We also added the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Workers assembling a car in a modern manufacturing plant, emphasizing the company’s sense of progress.
Toyota Motor Corporation (NYSE:TM)
Average Analyst Price Target Upside as of September 11: 40.96%
Number of Hedge Fund Holders: 14
Toyota Motor Corporation (NYSE:TM) has been making substantial progress in expanding its EV lineup, aiming to become a major player in the EV market. The company has significantly increased its production target for electric vehicles and plans to manufacture just over 400,000 EVs by 2025, up from the initial goal of 190,000 for 2024.
According to Nikkei, the company projects a global output of 1 million EVs by 2026, which shows its strong commitment to electrification. The ambitious plan includes a major shift in the company’s approach to electrification. The automaker has set a goal to offer an electrified version of every Toyota and Lexus model worldwide by 2025.
The stock has a consensus Buy rating among 20 analysts, and its average price target of $246.24 has an upside of 40.96% from current levels, as of September 11. It ranks 5th on our list of the best EV stocks to buy for the long term.
Currently, Toyota’s (NYSE:TM) sole fully electric model available in the U.S. is the bZ4X SUV. However, the company is preparing to expand its EV offerings with several exciting new models. In 2023, it introduced the next-generation BEV concept cars, including the LF-ZC and LF-ZL, under its luxury Lexus brand.
Scheduled for release in 2026, these models represent the company’s push into the high-end EV market. Additionally, it plans to launch an electric version of the Hilux pickup in Thailand and an electric Lexus ES sedan in Japan by 2025, which broadens its EV portfolio across various regions and vehicle types.
Supporting this expansion is the company’s decision to allocate more than half of its research and development resources to electrification and advanced battery technologies. It has outlined plans to enhance its EV manufacturing processes by employing new modular designs and innovative production technologies aimed at reducing costs and improving efficiency.
To accommodate its growing EV production, the company is making significant investments in its manufacturing infrastructure. Production for new EV models will take place at two of its main plants in Japan and a Lexus factory in Kyushu. Additionally, the company plans to introduce its first U.S.-assembled battery electric vehicle, a three-row SUV, with production set to start in Kentucky in 2025.
Toyota (NYSE:TM) plans on investing over $70 billion into its electrification efforts by 2030, which is a testament to its commitment to becoming a leading force in the electric vehicle market. With a comprehensive approach that includes expanding its model lineup, advancing battery technology, and enhancing manufacturing capabilities, the company is well-positioned to achieve its ambitious goals and strengthen its competitive edge.
In Q2, 14 hedge funds had investments in Toyota (NYSE:TM), with positions worth $1.42 billion. Fisher Asset Management is the most prominent shareholder in the company as of Q2 and has a position worth $1.35 billion.
Overall TM ranks 5th on our list of the best EV stocks to buy for the long term. While we acknowledge the potential of TM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.