SWOT analysis of Toyota

| December 10, 2016

This is Toyota Motor Corporation SWOT. For more information on how to do a SWOT analysis please refer to our article.

Company Background

Key Facts
Name Toyota Motor Corporation
Founded August 28, 1937
Logo
Industries served Automotive, Housing, Financial Services, Other
Geographic areas served Worldwide (over 170 countries)
Headquarters Toyota, Aichi, Japan
Current CEO Akio Toyoda
Revenue (Japanese Yen) ¥28.403 trillion (2016) 4.3% increase over ¥27.235 trillion (2015)
Profit (Japanese Yen) ¥2.313 trillion (2016) 6.4% increase over ¥2.173 trillion (2015)
Employees 348,877 (2016)
Main Competitors Bayerische Motoren Werke AG, Chrysler Group LLC, Daimler AG, Ford Motor Co., General Motors Company, Honda Motor Company, Nissan Motor, Tata Motors, Ltd., Volkswagen AG and many other automotive companies.

Toyota Motor Corporation (further Toyota) is the world’s leading automaker (often tied with Volkswagen for 1st-2nd place) based in Toyota City, Japan. In 2012, the company was the first automotive company to produce over 10 million vehicles in a single year.[1]

The company operates 4 different brands: Daihatsu, Hino, Lexus and Toyota. Toyota’s brand is the world’s 5th most valuable brand in the world and the most valuable automotive brand, worth US $53.5 billion.[3]

The main Toyota’s markets are Japan, United States and China, where the company sells over 50% of its vehicles. The company produces the best-selling hybrid vehicle Prius.[2]

You can find more information about the business in Toyota's official website or Wikipedia’s article.

SWOT

Toyota SWOT analysis
Strengths Weaknesses
  1. Strong focus on research and development (R&D)
  2. The most valuable automotive brand in the world
  3. Toyota Production System
  4. Competence in hybrid vehicle production
Weaknesses
  1. Lack of competence in autonomous vehicles
  2. Negative publicity due to large vehicle recalls
  3. Weak presence in China
  4. Poor brand portfolio
Opportunities Threats
  1. Fuel prices are expected to rise in the near future
  2. Demand for autonomous vehicles
  3. Timing and frequency of new model releases
Threats
  1. Rising Japanese yen exchange rate
  2. The automotive industry is subject to various governmental regulations
  3. Increasing competition in the worldwide automotive market
  4. Toyota may be adversely affected by natural disasters

Strengths

1. Strong focus on research and development (R&D)

Toyota is famous for its innovative culture. The company’s focus on being ahead of its competition by introducing some of the most innovative vehicles in the market has proven to be a successful choice. The company operates 17 research facilities in 8 different countries. The whole company’s research division focuses on 3 different areas:

  • Basic research;
  • Forward-looking and leading-edge technology development;
  • Product development.

Focus on innovation has resulted in one of the highest automotive R&D spending. Toyota’s R&D expenditures were approximately ¥1,055.6 billion (US$9.37 billion) in fiscal 2016, ¥1,004.5 billion in fiscal 2015 and ¥910.5 billion in fiscal 2014

Figure 1. Toyota’s and its competitors R&D spending (US$ billions)
Company R&D spending
Toyota Motor Corporation 9.37
Volskwagen Group 14
General Motors 7.5

Source: Toyota’s annual report[2] and Ford SWOT analysis[5]

Only Volkswagen is spending more on R&D than Toyota. Huge, efficient R&D spending has allowed Toyota to introduce the best-selling hybrid vehicles.

2. The most valuable automotive brand in the world

According to Interbrand [3] and Forbes[4], Toyota’s brand is the world’s 5th and 6th most valuable brand worth, US$53.6 billion and US$42.1 billion, accordingly. In both lists, it is the No 1. automotive brand in terms of value.

Figure 2. Automotive brand ranking by Interbrand (2016)
Ranking (Automotive) Brand Brand Value (in US$ billions) Overall ranking in 2016
1 Toyota 53.6 5
2 Mercedes-Benz 43.5 9
3 BMW 41.5 11
4 Honda 22.1 21
5 Ford 13 31
6 Hyundai 12.5 35
7 Audi 11.8 38
8 Volkswagen 11.4 40
9 Nissan 11.1 43
10 Porsche 9.5 50

Source: Interbrand[3]

Brand value is closely related to brand recognition, which means that Toyota is the world’s most recognizable brand in the world.

3. Toyota Production System

Toyota Production system or TPS is a manufacturing system developed by Toyota. The system’s philosophy is to ‘eliminate all waste from manufacturing process’. The system was based on Just-in Time concept. TPS has become very successful in allowing the company to increase production efficiency, decrease manufacturing time and simplify its processes. All of which resulted in lower costs and better quality vehicles.

Figure 3. Toyota Production System

Toyota Production system

Source: Lean Enterprise Institute[6]

Due to the TPS, Toyota’s profit margin of 8.1% is the highest when compared to its largest competitors Volkswagen’s profit margin of 0% or General Motors’ profit margin of 6.4%.

4. Competence in hybrid vehicle production

Toyota is heavily invested in its hybrid vehicle (HV) lineup and is betting its long-term future on HVs and electric HVs.

The company has introduced its first hybrid vehicle Toyota Prius in 1997. Prius became the first mass-produced hybrid vehicle and the most successful to date. As of May 2016, the company has sold over 5.7 million Prius models and in total 9 million other hybrid vehicles, more than any other automotive company in the world.[7]

Currently, Toyota offers over 30 usual hybrid vehicles and plug-in hybrid vehicles under its four brands. Toyota’s HV technology is probably the best-in-class. It is proven by a 2016 Prius Eco model, which is the most fuel efficient car that doesn’t have a plug-in capability.

Toyota’s competence in hybrid vehicles is a long-term competitive advantage that its competitors will find very hard to replicate.

Weaknesses

1. Lack of competence in autonomous vehicles

Toyota has long been reluctant to invest in autonomous vehicle technology. The company has been engaged in R&D aimed at contributing to the complete elimination of traffic casualties, but the company had no plans to introduce completely autonomous vehicles in the near-future.

The company’s first attempt to developing such technology was in 2015, through the Team Mobility concept, which aims to facilitate the connection between the car and its surroundings and between the car and the driver to assure safe and efficient driving.

The company’s lack of technology and experience in building autonomous vehicles puts it at disadvantage against such competitors as Tesla, Ford and General Motors.

2. Negative publicity due to large vehicle recalls

Vehicle recalls more or less affect every automaker. Toyota is no exception. Nonetheless, Toyota’s recall rates are very high and this draws more negative publicity than usual. In 2016 alone, the company has issued the following recalls:

  • 5.8 million various models recalled due to faulty airbag inflators;
  • 750,000 Sienna models are recalled in North America;
  • The company issued US$3.4 billion compensation for customers over corrosion issues, which affected over a million pickup trucks in North America;
  • 337,000 vehicles recalled over recurring suspension problems;
  • 340,000 gas-electric hybrid Prius cars recalled around the world over faulty brakes;
  • Nearly three million RAV4 sport utility vehicles recalled over seatbelt issues.

Larger and frequent recalls negatively affect the company’s brand reputation and result in disappointed customers as well as fewer sales.

3. Weak presence in China

China is the largest automotive market in the world with over 25 million vehicles sold. It is also the largest vehicle market for the two main Toyota’s competitors, Volkswagen and General Motors. China is the key market for any auto manufacturer, which tries to become the world’s leading automaker.

Toyota has sold only 1.12 million vehicles in China, compared to General Motors 3.73 and Volkswagen’s 3.5 million units. Toyota has captured only 4.5% market share in China.

The company’s weak market share in China will significantly hinder its ability to grow sales in the future.

4. Poor brand portfolio

Toyota sells its vehicles under 4 different brands: Hino, Daihatsu, Lexus and Toyota. Only Lexus and Toyota brands have considerable brand recognition. The company’s brand portfolio is much slimmer when compared to Volkswagen’s 12 different brands and General Motors’ 10 brands.

With only a few brands, Toyota cannot target many different consumer segments and satisfy their various needs as well as Volkswagen or General Motors with their many brands.

The company’s main brand also suffers significantly because of the negative publicity or consumer backlash focused to a single brand.

Opportunities

1. Fuel prices are expected to rise in the near future

Fuel prices have been low for the last few years and are expected to rise in the near future due to the changes in the supply. Low fuel prices have increased the demand for large vehicles such as pickup trucks and SUVs. Many companies, including Toyota, General Motors, Ford and Chrysler have benefited from the low fuel prices, because of their strong SUVs and pickup trucks offerings.

Nonetheless, Toyota heavily invested in its hybrid vehicles lineup, for which the demand will grow significantly if the fuel prices will rise. Toyota, could further strengthen its hybrid vehicle, hybrid electric vehicle and electric vehicle lineups to benefit from the rising fuel prices in the future.

2. Demand for autonomous vehicles

Currently, nearly 33 companies are working on autonomous vehicles.[8] Few of them, including Google, Ford and Tesla, are testing their autonomous vehicles on the roads and none of them are selling these cars to the general public. It is hard to estimate the exact demand or the market value (it is expected to be worth US$45 billion by 2025) for the autonomous vehicles, but according to the efforts of all the major automakers, it seems that autonomous vehicles is the next ‘big thing’ for the industry.

Toyota has just started serious work on autonomous vehicles and has no date of when it expects to launch the first autonomous vehicle. The company should speed up the development of autonomous vehicle technology and acquire the required skills as soon as possible if it does not want to stay behind Google, Ford or Tesla in this area.

3. Timing and frequency of new model releases

The market share of the automotive companies is significantly impacted by the timing and frequency of new model releases. Historically, new models have tended to have major upgrades every 4 or 5 years with only minor modifications in between. However, due to the rising consumer expectations in relation to in-car technology and the competitive nature of the industry, there is an argument to release upgraded models more frequently. Toyota is well-positioned to be able to do this.

Threats

1. Rising Japanese yen exchange rate

More than 48% of Toyota’s revenue come from international markets, which means that the company has to convert foreign currencies to Japanese yen in order to calculate its revenues and send the profits back to Japan.

Currency rates are volatile and the company’s profits and revenue highly depend on the fluctuating exchange rates. The company cannot control the currency exchange rates, therefore it is at risk, if Japanese yen exchange rates would start to rise. In such case, the company’s profits would decrease significantly. The company itself identifies this as a key threat that will negatively affect the company over the next few years.[2]

2. The automotive industry is subject to various governmental regulations

Increasing government regulations is one of the key threats affecting Toyota. The company has emphasized this issue in its financial report:

“The worldwide automotive industry is subject to various laws and governmental regulations including those related to environmental matters such as emission levels, fuel economy, noise and pollution. Toyota has incurred, and expects to incur in the future, significant costs in complying with these regulations.

Furthermore, new legislation or changes in existing legislation may also subject Toyota to additional expenses in the future. If Toyota incurs significant costs related to meeting laws and governmental regulations, Toyota’s financial condition and results of operations may be adversely affected.”

3. Increasing competition in the worldwide automotive market

Despite the fact that the worldwide automotive market is already highly competitive, the competition is further increasing due to the excess of vehicle production, rapid technological changes, new entrants and saturation of the largest markets.

In China, one of the key company’s markets, new home based Chinese manufacturers are competing by offering lower prices, but similar quality build vehicles. The U.S. automotive market is also reaching its peak and is likely to decrease over the next few years.

New companies, such as Tesla with its electric cars will make it very hard for Toyota to compete in the electric cars segment. In addition, Google, which tries to build self-driving cars is also threatening the traditional automotive industry. The competition is further fueled by the fact that the global automotive production capacity far exceeds the demand. In 2015, there was an estimated global excess production capacity of 31 million units.[5]

4. Toyota may be adversely affected by natural disasters

Toyota and its suppliers have many manufacturing facilities in Japan, Thailand, China and Indonesia. These countries, are often affected by natural disasters, such as earthquakes, tsunamis and flooding. Every occurrence of such calamity may disrupt the manufacturing processes and result in supply shortages or an overall halt of the production.

In the past, Toyota’s operations have been significantly impacted by such disasters and resulted in huge losses. For as long as the company or its suppliers will continue to run their manufacturing in these or similarly affected countries, Toyota will be subject to further losses.

Sources

  1. Toyota (2016). Company Profile. Available at: http://www.toyota-global.com/company/profile/ Accessed December 10th, 2016
  2. Toyota (2016). Form 20-F. Available at: http://www.toyota-global.com/pages/contents/investors/ir_library/sec/pdf/20-F_201603_final.pdf Accessed December 10th, 2016
  3. Interbrand (2016). Best Global Brands 2016. Available at: http://interbrand.com/best-brands/best-global-brands/2016/ranking/ Accessed December 10th, 2016
  4. Forbes (2016). The World’s Most Valuable Brands. Available at: http://www.forbes.com/powerful-brands/list/ Accessed December 10th, 2016
  5. Jurevicius, O. (2016). Ford SWOT analysis 2016. Available at: https://www.strategicmanagementinsight.com/swot-analyses/ford-swot-analysis.html Accessed December 10th, 2016
  6. Lean Enterprise Institute (2016). Toyota Production System. Available at: http://www.lean.org/lexicon/toyota-production-system Accessed December 10th, 2016
  7. Toyota (2016). Worldwide Sales of Toyota Hybrids Surpass 9 Million Units. Available at: http://newsroom.toyota.co.jp/en/detail/12077091/ Accessed December 10th, 2016
  8. CB Insights (2016). 33 Corporations Working On Autonomous Vehicles. Available at: https://www.cbinsights.com/blog/autonomous-driverless-vehicles-corporations-list/ Accessed December 10th, 2016

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