TM Stock Analysis: Why Toyota Is a Smart Play on the Hybrid-Vehicle Trend

Stocks to buy

Tesla (NASDAQ:TSLA) represents the fully electric vehicle market, but Toyota Motor (NYSE:TM) represents hybrid electric vehicles. As EV demand fails to live up to the hype, you may be eager to bet on the growth of the HEV industry. An easy way to get on board the hybrid revolution is by owning Toyota stock.

Not long ago, Toyota’s management expressed skepticism about the EV market. Irrespective of this, after you consider the company’s first-quarter vehicle-sales growth, you’ll probably be more inclined to take a share position in Toyota.

Toyota Calls the EV Transition Into Question

As I alluded to earlier, EV demand isn’t as robust as many people hoped it would be. Amid this backdrop, Jack Hollis, executive vice president of Toyota Motor North America, dared to go against the grain and call the EV transition into question.

“The EV itself is a very high transaction price,” he said at the time. “Not everybody can even have it in their home because they’re living in an apartment or we can go on and on. What if you’re in the cold states and how does cold affect the EV?”

A few years ago, it would have almost been blasphemous for a major automotive-company executive to say this. But again, some people are now starting to question whether the EV transition will happen as smoothly as expected.

Toyota isn’t completely against fully electric vehicles, of course. Yet, the company definitely prefers to focus on hybrid vehicle models, such as the Toyota Prius.

This could turn out to be a smart strategy. Barron’s JPMorgan analyst Akira Kishimoto predicts 22.6% hybrid growth this year, fueled especially by small SUVs, where Toyota’s RAV4 dominates.

An Amazing Year for Toyota Stock

Tesla stock was once the ultimate momentum stock, but that hasn’t been the case lately. While Tesla shares have lost significant value recently, Toyota stock has delivered substantial gains.

Apparently, the market approves of Koji Sato, who took over as Toyota’s CEO a year ago. Perhaps, the share-price rally is also an expression of the market’s approval of Toyota’s hybrid-vehicle focus.

With Sato at the helm, Toyota appears to be thriving. There was a rough patch in February because of adverse market conditions in China and Japan. Toyota sold 565,098 vehicles in 2024’s first quarter, up 20.3% on a volume basis versus March 2023.

Regarding HEV sales, Toyota reported that “Prius, Prius Prime, Camry HEV, Crown and RAV4 HEV all posted strong triple-digit gains in the first quarter.” So again, Toyota’s hybrid focus appears to be working out quite well.

Toyota Stock: Not Anti-EV, but Definitely Pro-Hybrid

Toyota Motor isn’t entirely opposed to fully electric vehicles. So, you don’t have to be anti-EV to invest in Toyota. However, you should be bullish about the HEV market if you plan to buy and hold Toyota shares.

If you’re skeptical, refer back to Toyota’s first-quarter vehicle-sales performance. Then, take a look at the powerful momentum of Toyota stock this year, especially when compared to Tesla stock. With all of that in mind, feel free to buy a few Toyota shares for a long-term portfolio position.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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