DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of Toyota Motor Corporation (Toyota or the Company) at AA (low) and confirmed the Issuer Rating of Toyota Financial Services Corporation at AA (low). Additionally, DBRS Morningstar confirmed Toyota Credit Canada Inc.’s Issuer Rating and Medium Term Notes rating at AA (low) and its Commercial Paper rating at R-1 (middle). All trends remain Stable. The ratings incorporate Toyota’s very strong business risk assessment (BRA) as a leading global automobile manufacturer with highly efficient operations. The Company’s financial risk assessment (FRA) is also extremely solid, with abundant liquidity comprised largely of substantial holdings of long-term, highly rated government bonds.
Toyota’s profitability and cash flow generation have persisted at solid levels, with the Company outperforming many of its automotive peers that have reported weaker recent earnings given declining sales volumes amid higher costs and investment requirements. Toyota’s earnings, however, remain considerably affected by foreign exchange developments; the Company is more exposed to fluctuations in the Japanese yen relative to major domestic competitors as Japan represents more than 45% of its global production. Going forward, Toyota is targeting a more balanced geographic composition of earnings and plans to increasingly differentiate its regional product offerings in response to customers’ needs in each market. Examples of this include additional fully electric models in China, in addition to the development of infrastructure (which is to include, among others, local battery supplies) to support such models. In North America, the Company is seeking to expand its presence in the light-truck/utility segments, including more localized production, though Toyota will remain active in the car segments.
Regarding alternative powertrains, hybrids remain core, although Toyota has also placed additional focus on electric vehicles. By 2025, the Company is aiming to have 5.5 million units of Toyota and Lexus consist of electrified vehicles, the significant majority of which being hybrid models. While such activities, in addition to mobility-as-a-service and autonomous vehicle development, represent headwinds to future profitability, the Company is targeting to effectively offset these by ongoing cost reduction activities and participation in automotive alliances. Additionally, Toyota’s roll-out of its Toyota New Global Architecture is nearing completion, with associated investments to progressively decrease going forward. Through such efficiencies, the Company is targeting to maintain its consolidated operating margin at essentially constant levels for the foreseeable future.
The Stable trends incorporate DBRS Morningstar’s expectation that the Company will maintain its strong BRA and FRA profiles as global industry volumes (notwithstanding moderating sales in China and the United States) are estimated to remain at solid levels. While in the immediate term Toyota is exposed to adverse sales and production effects associated with the COVID-19 coronavirus, DBRS Morningstar currently expects that these will prove manageable and temporary in nature. As such, barring a material substantive event, DBRS Morningstar does not anticipate any change in the ratings over the near term.
All figures are in Japanese yen unless otherwise noted.
The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries (October 2019), DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 2020), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (March 2019), and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2019), which can be found on dbrs.com under Methodologies & Criteria.
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