Driving the Mainstream Market to Purchase Hybrid Electric Vehicles - Case Study Example

? Electric hybrid vehicles and Table of Contents Executive Summary 3 Introduction: Sales of Toyota Vehicles 4 Toyota Sales and Revenue 4 Classification of Electric Hybrid Vehicles 7 Importance of Electric Hybrid Vehicles to Toyota Inc 8 Sales of Toyota Prius 10 Conclusion 11 References 12 Appendix 13 Executive Summary The automobile manufacturing industry is one of the most profitable and highly competitive industries in the global business. Toyota Inc., Ford and General Motors have for a long time positioned themselves as the market leaders. The competition has been soaring and this has necessitated the companies to be more innovative in their production so that they can keep their market niche they have cut out for themselves. Toyota has come out ahead in this competition by pioneering the production of hybrid and electric vehicles that apart from being cheaper to operate they also earn the goodwill of customers and environment conservationists. This project has however really impacted negatively on their financial statement and the company is currently contemplating other cheaper, yet more profitable, vehicle production. However, there are dissenting opinions on their discontinuation with regards to their profitability as research indicates that hybrid and electric vehicles contribute significantly to the profits of the company especially in the sales made outside the country. There is thus a need to do a comprehensive cost-benefit analysis that will clear inform the decision of whether to continue their production and just how their profitability is significant in the financial books of Toyota. Electric Hybrid Vehicles Introduction Toyota Motor Incorporation is the largest automobile manufacturers as of 2013 according to the Global Watch report. The company was started in 1937 and has been a global leader since then setting the trend for other automobile manufacturers. Its latest trend setting effort has been to revolutionize the way automobiles are powered from gasoline-powered to electrically-powered (Husain, 2003). It started this venture in 1997 introducing vehicles first as hybrids and then purely electricity dependent. There has been conflicting views on whether there is a market for hybrid and electric vehicles with some arguing that there is no sufficient market to sustain their production while some analysts view that their production should not be discontinued since in the last half decade their production has accounted to an average of 15% of the company’s total profit (Pistoia, 2010). Toyota’s president Akio Toyoda was the last authoritative figure calling for the scraping of hybrid and electric car production since, in his opinion, there is no enough market with long term benefits. Sales and Revenue This is a summary of the company’s net incomes, return on investments, net income per share and dividend per share from 2008 through 2013. 2008 2009 2010 2011 2012 2013 Net Income(Billions Yen) 67 40 27 47 66 67 ROE (%) 11.6 7.2 4.9 8.0 10.7 9.6 Net Income per Share 192.4 114.7 78.0 134.8 189.3 192.5 Dividend per Share 30.0 26.0 16.0 28.0 42.0 42.0 This summary was derived from the consolidated financial books of Toyota Inc. and as is clear from the summary, since 2008 when the company actively started selling the hybrid vehicle the profits is increasing except in 2010 when the company experienced a hitch in production and lost a significant market share. The net income per share and the dividend per share rates are healthy and increasing too. Below is an illustration of Toyota’s dominance in the automobile industry. Fig. 2 As is evident the dominance is growing from 2011’s 9.03% of the market share to 9.6% in 2013. This too can be attributed to its innovation strength starting with hybrid and electric vehicles (The Washington Post, 2013). All the major competitors, that is Ford, Volkswagen, Chevrolet and Hyundai, who are yet to embrace this technology fully have witnessed a shrink in their respective market size as the pie chart depict. The point of view here is that the hybrid and electric vehicles have contributed positively towards the remarkable profits of the company. Whether there is sufficient market or not is not of utmost importance. The fact of the matter is that Toyota Company has continually made profits selling hybrid and electric vehicles in the last five years (Wimmer and Muni, 2012). To many people this is an incentive enough to continue its production since clearly the benefits outweigh the costs. Among the unseen or indirect benefits are that this continued use of hybrid and electric vehicles has saved the world more the 300 gallons of gasoline and has positively impacted on environment conservation as ozone layer erosion has decreased. There have been increases in the cost of gasoline in the last two decades. For this reason, companies have improvised and produced hybrid electric vehicles which take in less fuel as compared to the conventional vehicles. A hybrid electric vehicle often referred to as HEV refers to a type of vehicle which uses the combination of conventional internal combustion engine as well as the electric propulsion system. According to motor companies, the presence of this double electric power train is often intended to achieve a better fuel economy as compared to the conventional vehicle. It is imperative to note that the modern HEV often make use of fuel efficiency techniques such as regenerative brakes which consequently coverts all the car’s kinetic energy to electrical energy which is then used to charge the battery (Plunkett, 2010). This is more efficient as compared to the ones that are used in conventional vehicles where the kinetic energy is converted to heat energy with the brakes. Classification of Electric hybrid vehicles It is important to understand that all the hybrid electric vehicles are often classified based on the way the control is supplied to the drive train. For this reason, there are around three types of hybrid electric vehicles. Parallel hybrids are the most widespread forms of hybrids. In this type of hybrid vehicle, the electric motor and the ICE are both linked to the mechanical conduction and consequently, they can in the same time transmit power that is then used to keep the wheel moving (Collie, 1979). The inner combustion locomotive of these cars is also used as a generator when it comes to the supplemental recharging. The other types of electric hybrid cars include the series hybrids, these types of motor vehicles are often driven by the drive train with the help of a smaller ICE which acts as a generator to control the electric motor and as a result power up and revitalize the batteries. It is also of prime importance to note that the large battery pack is often found in the series hybrids as compared to the parallel hybrids (Saperstein & Nelson, 2003). For this main reason, the series hybrids are often more expensive than the parallel hybrids. Toyota Motor Company has been able to make the Toyota Highlander Hybrid into this category. When it comes to the extensive city driving, the series hybrid is often the car to go for (Plunkett, 2010). This is because when the batteries are near to the ground, the combustion engine then generates power and makes an optimum setting at almost all times. The power split hybrid is the last type of electric hybrid car and has all the benefits of the series and parallel characteristics. Therefore, they are more efficient and for this reason, the power split hybrid is known to be more expensive than the other entire split hybrid. The Lexus luxury car falls into this category and it tends to be efficient in lower speeds as well as high speeds. All the hybrids discussed use the technology of regenerative braking in a bid to recharge the batteries (Pistoia, 2010). Importance of Electric hybrid vehicles to Toyota Toyota Motor Company needed to push up its profits, and for this reason, it has relied on the ever expanding industry of gasoline-electric hybrids in a bid to increase its profitability. The importance of hybrid models cannot be ignored as they contribute around 20% of the total Toyota European sales (Lenno, 2006). The hybrid vehicles therefore, play a very crucial role when it comes to the sustainability of profit as well as creating a clear profitability growth path. It is important to note that currently Toyota is the largest companies that have helped pushed hybrid electric vehicles into the market. In past years, the company has been able to commercially produce mass electric hybrid vehicles especially with the introduction of the Toyota Prius in the year 1997. After realizing the profitability that came with this division, the company then eventually began to provide this option in other models such as the Toyota Camry as well as the Lexus division. Toyota has been successful when it comes to the marketing and sale of these hybrid electric vehicles. The company has around 22 Lexus and Toyota brands being hybrid models. The company sells these vehicles to around 80 countries in the world and with the increased profits coming from this sector, the company plans to introduce 15 more new models with hybrid structures by the end of the year 2015 (Husain, 2003). Currently, the Prius lift back is the top selling electric hybrid car in the world. The vehicle has cumulative sales of around 3.5 million units since from when it was introduce in the year 1997 to the month of June in the year 2013. These figures are set to grow with the ever increasing fuel prices in the world, and Toyota Motor company has been able to establish a strategic market position which ensures that it has a large share of the market when this happens. The U.S is the globes’ largest amalgam market and Toyota Motor Company has been able to capture this market with a 70% stake in the American Hybrid market (Ayers, 2003). The Prius has particularly done well in the United States being able to surpass the milestone that is one million vehicles by the year 2011 (Pistoia, 2010). The company has been able to sell over 5 million electric hybrid units by the year 2013, and this number is expected to go up by the end of the year 2013. Toyota Motor Company experienced a surge in its profits in the year 2012, and the biggest contributor was the electric hybrid vehicles. The company was able to sell around 1,030,000 electric hybrid cars in by September of 2012. This cumulatively represented around 14% of the total Toyota Motor Company in terms of global sales in the first 10 months of that year. When compared to other companies such as Ford and Honda Motor Company it can be seen that indeed Toyota is doing extremely well in this section. This is because in that same time frame, Ford was able to sell well above 50,000 units and this according to the company was the best hybrid sales the company has ever had (Plunkett, 2010). Hybrid cars in the year 2013 are expected to account for at least a quarter of all the cars that Toyota Motor Company will sell in the European Union. This is after a momentum has been created in the European regarding green vehicles and it is in this that the European Head has been able to reach what has been described as the tipping point in the continent. As of 2013, September had been able to sell over 5.5 million Toyota hybrids and Lexus (Wimmer, 2013). Sales of the Toyota Prius The Toyota Prius is sold in over 80 countries as well as regions. By the year 2008, the company had been able to surpass the cumulative sales of one million mark and the 3 million milestone was surpassed in June of the year 2013. It is important to note that over the 3 million Toyota Prius that have been sold universal, over 1.4 million have been retailed and sold in America. In the year 2011 and 2012 the United States accounted for about half of all the Prius sold worldwide, the cumulative sales in the United States has increased to around 200,000 in the year 2010 and these numbers are intended to increase with ever rising oil prices that were caused by the Arab turmoil (Ammattikorkeakoulu & Sharma, 2012). The Toyota Prius became Japan’s bestselling car in the year 2009 and this was the first time since the vehicle debuted in the year 1997 to become a best seller in Japan. The sales tripled to around 210,000 and it was the year that it overtook the Honda Fit as the bestselling. Since then the Prius has been able to stay for about 18 months in a row at the top of the table, this is intended to continue, however, the Toyota Aqua is coming in strong and it is expected to overtake the Toyota Prius as the bestselling vehicle in Japan (Ammattikorkeakoulu & Sharma, 2012). The High selling gasoline prices that exist in the United States have contributed a lot to the profitability of the Toyota Company. This is because it has forced the consumers in the United States to look for alternative ways to fuel their cars and the electric hybrid vehicles have found prominence with this structure. During the month of March alone, around 30,000 units of the Toyota Prius were sold in the country and this is often cited as the one month with the highest record of Prius being sold. Further, it is also important to note that during the first three months of the year 2012, the Toyota Prius family sold over 60,859 units and this has been the best selling quarter that the Toyota company has ever had. Toyota has a 70% market share when it comes to the electric hybrid car in the United States (Ammattikorkeakoulu & Sharma, 2012). The Prius and Lexus family sales went up in the year 2013, and for example, in Japan a totality of 45,500 units were all sold in the month of March 2012 and this went on to be the highest number of sales ever for any known model since the year 1990. This represented around 10% of all the vehicles that were registered in Japan that year, excluding the Kei cars. Therefore, in terms of nameplate, the Prius has been able to maintain the third top selling in the globe in terms of global sales and this is after the Toyota Corolla and the Ford Focus. Conclusion In totality, it can be seen that indeed the Hybrid electric vehicles play a very crucial role when it comes to the profitability of the Toyota Motor Company. The hybrid electric vehicle represented around 15% of all the Toyota motor sales worldwide. This number cannot be ignored as this is a very large proportion of the income of the Toyota Motor company and therefore, it has to be preserved and expanded considerably (Wimmer & Muni, 2010). The company has been striving to ensure that it encourages the number of people buying these cars by putting up several incentives. For example, those that buy the Toyota Prius are often assured of the car’s fuel reliability and efficiency. Further, the Toyota Motor company has strengthened its profits by capitalizing on this electric hybrid sector and making at least a quarter of its global profits through this section. The company intends to increase its hold on this sector and maintain its market lead and therefore, propel its heights in terms of profits as well as the creation of a strategic growth plan. References Plunkett, J. W. (2010). Plunkett's automobile industry almanac 2011. Houston, Tex: Plunkett Research. Wimmer, E., & Muni, A. (2012). Motoring the future: VW and Toyota vying for pole position. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. Ammattikorkeakoulu, G., & Sharma, R., (2012). COMPARING AND ANALYZING FINANCIAL STATEMENTS TO MAKE AN INVESTMENT DECISION : Case Study of Automotive Industry. Vaasan ammattikorkeakoulu Printers. Collie, J., (1979). Electric and hybrid vehicles. Park Ridge, N.J: Noyes DataCorp. Husain, I. (2003). Electric and hybrid vehicles: Design fundamentals. Boca Raton, Fla: CRC Press. Pistoia, G. (2010). Electric and hybrid vehicles: Power sources, models, sustainability, infrastructure and the market. Amsterdam: Elsevier. Saperstein, J., & Nelson, J. (2003). Toyota: Driving the mainstream market to purchase hybrid electric vehicles. London, Ontario, Canada: Ivey Publishing. Lennon, Peter., (2006). Evaluation of 2004 Toyota Prius Hybrid Electric Drive System. Washington, D.C: United States. Dept. of Energy. Office of Energy Efficiency and Renewable Energy. Appendix Private Research Journal 30th October 2013 Today is the day I will be starting my research which should be concluded in five days time. The topic is of much interest and should not present much of an obstacle. On the first day only general research and note taking on Toyota will be conducted, and then I would delve deeper and deeper in the following four days. 31st October 2013 Having established some background on which to base my research, today I consulted the internet only and gathered all I can on the subject. Today was internet only day. I visited the Wall street journal (www.wsj.com), wikinvest (www.wikinvest.com) and Toyota’s global business website (www.toyota-global.com). These three sites provided information on the financial health of the company and an important insight into its global business. My focus was on collecting the information on profitability, share index and competition among the top competitors. 1st November 2013 Today I read Husain’s Electric and hybrid vehicles: Design fundamentals and Saperstein & Nelson’s Toyota: Driving the mainstream market to purchase hybrid electric vehicles. Only the sections that directly relate with profitability to and advantages of these cars were given attention. I established the nature of these cars since I did not have firsthand experience. 2nd November 2013 Today I consulted other academic journals to get a supporting material and context. 3rd November 2013 With all the necessary materials and information collated I undertook to write the report Read More