DBRS Confirms Toyota Motor Corporation and Related Entities at AA (low), Stable Trends

DBRS Limited (DBRS) has today confirmed the long- and short-term ratings of Toyota Motor Corporation (Toyota or the Company) and its subsidiaries at AA (low) and R-1 (middle), respectively, with Stable trends (with the exception of the Commercial Paper rating of Toyota Financial Services Corporation that has been discontinued at the request of the Company). The ratings incorporate Toyota’s very strong business profile as a leading global automobile manufacturer with highly efficient operations. The Company’s financial profile is also inordinately strong, with abundant liquidity (significantly consisting of substantial holdings of long-term, highly rated government bonds).

Toyota’s earnings in F2016 (ended March 31, 2016) through H1 F2017 have been affected by foreign exchange developments (that were significantly positive in F2016 only to represent a sizable headwind in H1 F2017), absent which operating performance has remained largely on track. The Company remains more exposed to fluctuations in the Japanese yen relative to its major national peers as Japan represents slightly in excess of 45% of its global production (although such production considerably consists of high technology/value-added models). This notwithstanding, DBRS notes that Toyota is progressively revising its production footprint, with additional capacity slated for North America (in the United States and in Mexico) and Asia over the near to medium term.

DBRS notes that the Company’s financial performance remains bolstered by its ongoing cost reduction efforts, with such activities over an extended period averaging roughly JPY 300 billion (USD 2.9 billion) annually and expected to persist going forward. To this end, Toyota is continuing the roll-out of the Toyota New Global Architecture (TNGA) platform, the benefits of which include additional model derivatives as well as shorter model changeover periods. Recently launched models utilising the TNGA platform include the next generation Toyota Camry and the Lexus LC models, in addition to the previously launched fourth generation Toyota Prius, with TNGA-based vehicles to represent an increasing proportion of Toyota’s aggregate production going forward. Moreover, the Company’s product cadence remains favourable, with Toyota adopting less conservative styling, as most recently evidenced by the new Camry, while also offering increasing levels of passive and active safety technologies across its product line. Regarding its alternative powertrain strategy, the Company is pursuing a multi-pronged approach; while hybrids remain the core, with Toyota continuing to eye fuel cell vehicles as a potential ultimate solution, it has recently placed heightened focus on the development of electric vehicles over the medium term.

The Stable trend incorporates DBRS’s expectation that Toyota will maintain its very strong financial and business profiles, as global industry volumes (notwithstanding likely moderating growth in major markets such as the United States and China) are estimated to remain at solid levels. While DBRS recognizes that the Company’s dividends and share repurchases have increased considerably, these outlays remain well absorbed by Toyota’s strong cash flow generation and substantial liquidity.

Notes:
All figures are in Japanese yen unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodologies are Rating Companies in the Automotive Manufacturing Industry and Global Methodology for Rating Finance Companies, which can be found on dbrs.com under Methodologies.

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