Toyota global production: Holding up well in October

by SR on November 30, 2012

Toyota overseas global production for the month of October 1999-2012 (thousand units)

Production in October

Toyota’s global auto production in October 2012 came to 695.1 thousand units, which was down 0.3% compared to October 2011 and rose 1.3% compared to September 2012. Global production from January to October 2012 has now reached 7.465 million units, which is 32.5% higher than the same period in 2011. That’s not surprising, given the disruption to auto supply chains caused by the North Japan earthquake in March 2011. The rate of growth in Japan production (+36.9% year-to-date) is higher than that of overseas production (+29.7% year-to-date) but it is North America (+47.2% year-to-date) that has really shone. As seen in the chart below, 2012 production – the red line – is well ahead of even 2008 production, which is shown by the green line.

Toyota production in North America, cumulative year-to-date (million units)

The impact of China troubles

Toyota’s China production is reported as part of the ‘rest-of-world’ (ROW) category, which is just overseas production minus North American production, and is only up 22.7% year-to-date. For the month of October 2012, ROW production expanded by 9.9% year-on-year but fell by 2% month-on-month. What was the impact of the anti-Japanese demonstrations in China during October? Yesterday Bloomberg reported that Toyota’s production in China in October 2012 “tumbled 61 percent” to 30,591 units, which suggests that a normal range of output for Toyota in that country would be 50,000 units per month.

So let’s say that in October 2012, Toyota’s production in China should have been about 20,000 units higher than the 30,591 units actually manufactured. If we add 20,000 units back to the 274,908 units of production in the ROW category we get 294,908 units. That would have pushed up the year-on-year growth figure for ROW in October 2012 from 9.9% to 17.9% and the month-on-month decline of 2% would have been a month-on-month increase of 5.1% for the ROW production category.

Toyota monthly global production compared to previous highest level of global production

The impact on global production would have been slight, however. Instead of a 0.3% year-on-year decline in global production for October 2012, global production would have risen by 2.5% YoY to 715,083 units. Global production would also have risen by 4.2% month-on-month instead of rising 1.3% month-on-month. Instead of being 80.3% (see chart above) of the highest ever monthly global output of 865,820 recorded in March 2012, October 2012 output would have been 82.5% of that peak level. Not a big deal.

The key takeaway is that Toyota’s global production, excluding the Chinese issue, was actually in line with seasonal norms, as shown in the chart below, but nothing special. The median month-on-month change in global production at Toyota from 2000 to 2011 was +3% and, adjusting for the China problem, it would have been +4.2% – seasonally unremarkable. In absolute terms, global output of 715,083 units (i.e. corrected for lower production in China) would have been the second-highest figure for the month of October, behind the 821,003 units posted in October 2007.

Toyota change in global production for month of October 2000-2012 (%)

Early 2013

The global production data is useful for confirmatory purposes but is still essentially backward looking. It’s tricky to get a view on the months ahead without having an explicit forecast for each company and even forecasts are of limited value because, well, those events just keep coming. (I am not advocating not making your own forecasts by the way; it’s a useful discipline.) In Japan, as we have discussed before, we can refer to the naiji, Toyota’s three-month rolling production forecast that is disseminated to several thousand Toyota suppliers to help them plan their own production schedules.

On 30 November 2012, the Chubu Keizai daily newspaper – which is based in Aichi and has close connections to the Toyota group – reported that Toyota’s daily production in February 2013 is slated to hit 14,000 units a day compared to 12,000 per day in December 2012. Given that over the past 5 years the median decline of production in Japan in January relative to December is -2.4% and the median increase in February compared to January is +12%, an increase of 10% in daily output levels is exactly what we would expect in a ‘normal’ year. In that sense, the latest naiji could be interpreted as Toyota telling its parts suppliers that it expects business as usual for the start of the year in Japan.

Toyota production in Japan by year and month (thousand units)

New Toyota models hold promise for 2013

But, I hear you say, we can’t simply ignore the problems Toyota faces in China. No, I agree we shouldn’t ignore the problems, but I would argue that there has been no real change in the situation in China. It has been a difficult territory for Japanese auto OEMs (especially Toyota and Honda, less so for Nissan) for many years and it will remain so in the future. This is not the first time there have been anti-Japanese ‘rent-a-mob’ riots in China over the Senkaku Islands and it will not be the last. In a kind of inverted piece of hyperbolic discounting, the media (and many other observers) are overweighting the long-term impact of these activities.

Meanwhile, life for Toyota continues and with a rather positive bias. In 2013 Toyota plans to roll out in North America new versions of a number of important models, such as the RAV4 crossover, the Tundra truck, the Avalon sedan, the Highlander SUV and the compact Corolla, the latter being of course an important car. This should allow Toyota to keep the momentum that it has shown in 2013 in the United States. The company’s market share has improved steadily since early 2011, as shown below. Perhaps Toyota and Honda can take some share form Hyundai Motor and its sister KIA Motors after the recent revelations that the two OEMs falsified fuel economy data in an effort going back years. I had always wondered how the Hyundai Sonata managed to achieve MPG figures several points higher than the Toyota Camry – and now we know.

United States light vehicle market, share by manufacturer (%)

Stocks and shares

I would say we’ll have another excellent year for Toyota in 2013 in North America – see comments above – with a flat to slightly worse year in Europe, a better year in China and a flat to to slightly down year in Japan. Overall, solid growth. However, as always you should keep in mind that Japan is a thematic market and that it is ideas that drive performance. If China’s auto market looks likely to recover in 2013, you should be reducing your position in Toyota in favour of bulking up in Nissan. In theory such an approach carries the risk of fall-out from the dire Europe auto market putting pressure on Nissan’s share price, because of Nissan’s association with Renault.

In reality, I expect any sustained evidence of a rebound in China’s car market to generate so much short-term excitement that investors will effectively ignore the European issue as it pertains to Nissan and buy the stock regardless as a China play. (Who, me, cynical?!) The other thing to note is that while we have been pushing core Toyota group supplier Denso this year (and it has performed well as per chart below) it is unlikely that Denso will continue to outperform if attention switches away from Toyota and towards Nissan. The core Nissan parts supplier is of course Calsonic Kansei. Another issue of which to be aware is that Toyota should outperform its parts suppliers during periods of a weakening yen against the US dollar because Toyota’s P&L is far more sensitive to currency fluctations.

Share price performance of Toyota and related stocks year-to-date (% change)

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