Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Crazy StocksLong Ideas

Toyota’s Revenue Struggles

Being the world’s largest automaker is not necessarily that good for revenue. Toyota (NYSE: TMC) has achieved that goal while struggling to retain its revenues.

The Japanese auto giant reclaimed its crown as the world’s largest automaker from Volkswagen (OTC: VLKAF) in 2016; even as its revenues continued to sink. For the record Toyota sold 10,285,546 cars in 2015; while VW sold 10,137,400, Forbes reported. General Motors (NYSE: GM) sold 9,924,880 million vehicles to claim the number three position.


Now for the interesting part; Toyota’s TTM revenues actually fell by $11.45 billion over the past year, according to Toyota reported a TTM revenue of $248.06 billion in March 2015 and $236.61 billion in March 2016.

That was far better than Volkswagen, which saw its revenues plummet because of the diesel scandal in 2015. VW started 2015 with TTM revenues of $268.69 billion that fell to $236.79 billion a year later. That made for a revenue drop off of $31.9 billion.

With numbers like that one has to wonder about the state of the global auto business. Particularly since Ford (NYSE: F) saw its revenues grow by $11.28 billion; between first quarter 2015 and first quarter 2016. Ford reported revenues of $142.1 billion in March 2015 and $153.38 billion in March 2016.

Yet General Motors saw its revenues fall by $320 million in the same time frame. GM reported TTM revenues of $154.23 billion of March 2015, and $153.91 billion a year later.

The Auto Business does not Make Sense

Maintaining revenue looks tough in the auto business. With numbers like that one has to wonder why companies like Uber, Alphabet (NASDAQ: GOOGL) and Apple (NASDAQ: AAPL) are so anxious to enter the automobile business.


It looks as if Ford’s business model could be better than some of its larger competitors. Naturally we will have to ask the all-important question: “does Toyota make money” here.

The answer to that question is definitely yes. Toyota reported a net income of $19.2 billion on March 31, 2016. That was down slightly from $19.92 billion in March 2015. Toyota also reported making $37.15 billion in cash from operations at the end of first quarter 2016. That was an increase of $3.59 billion over $33.56 billion a year early.

Automakers are generating a lot of Cash

Toyota also had a lot of float in the form of $39.55 billion in cash and short-term investments on March 31, 2016. That number was down significantly from $43.6 billion a year earlier.

This cash is probably why outfits like Apple, Uber and Alphabet are so interested in cars. Even when revenues decrease automakers generate a lot of float. Ford reported $67.71 billion in the bank on March 31, 2016 and Volkswagen, had $50.2 billion in cash and short term investments on December 31, 2015. General Motors reported cash and short-term investments of $21.43 billion at the end of first quarter, 2016.


Naturally, investors will be wondering if this makes Toyota, a good investment. I would say not because Ford and GM are both reporting similar financial numbers and they are much cheaper. Toyota was trading at $103.37 a share on May 31, 2016; while Ford was trading at $13.48 a share and General Motors was fetching $31.28. Volkswagen was also highly overpriced at $155.95 a share on the same day.

If there is a true value in automobile stocks right now; it is Ford because of its low price, and high cash flow. Ford is a very cheap company that has a lot of float. It is also one of the few major automakers reporting significant revenue growth right now.

Investors would be well advised to stay away from Toyota; until it can get over its revenue struggles. My take is that Toyota could be setting up for a major fall in share price, because it cannot retain its revenue growth; despite the company’s size.