Toyota and Honda benefit from financial gains from increasing sales of hybrids by Quiver Quantitative

Quiver Quantitative – As the transition to electric vehicles (EV) lags behind expectations, hybrids are proving to be a financial boon for automakers like Toyota (TM) and Honda (HMC). Toyota, which launched the world’s first hybrid gasoline-electric car in 1997, has seen its hybrid sales increase, contributing significantly to its financial performance. The company recently reported annual operating profit of ¥5 trillion ($32 billion) with a margin of 11.9%, the highest for any Japanese company. Hybrid sales rose 32% to 3.59 million units, accounting for a third of Toyota’s total sales. This shift to hybrid vehicles provides the company with crucial cash flow that can be reinvested in the gradual transition to fully electric vehicles.

Toyota’s hybrids have become as profitable as, and in some cases even more profitable, than their gasoline-powered counterparts. Masahiro Yamamoto, an operating officer at Toyota’s accounting group, noted that production costs for hybrids are now just one-sixth of what they were when the Prius was first introduced. Toyota expects hybrid vehicle sales to reach 4.48 million units this fiscal year, closer to the 5 million unit target than planned. Similarly, Honda has improved the profitability of its hybrids, with CEO Toshihiro Mibe indicating that the company is targeting hybrid sales of around 1 million units this financial year, up from 800,000 in the previous period.

Market Overview: -Hybrid vehicles are experiencing a surge in popularity, driven by concerns about electric vehicle (EV) charging infrastructure and slower-than-expected EV adoption. -This trend translates into significant gains for established hybrid leaders such as Toyota (TM) and Honda (HMC), providing resources for their EV transitions.

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Key points: -Toyota reported record annual operating profit, with hybrid sales rising 32% and accounting for a third of car sales. -The profitability of Toyota’s hybrids now matches or exceeds that of gasoline models, generating significant cash flow. -Honda is also witnessing improved margins in its hybrids and aims to double annual sales to 2 million units.

Looking ahead: -The success of hybrids creates a financial cushion for Toyota and Honda as they invest heavily in the development and production of electric vehicles. -This trend could redefine the electrified vehicle market landscape, with a potential resurgence of hybrid vehicles alongside electric vehicles. -Other automakers, including Ford (F) and Hyundai (HYUN), are also taking advantage of the hybrid option.

Other car manufacturers are also responding to the hybrid trend. Nissan plans to introduce models with its ‘e-Power’ hybrid technology to the US market by fiscal 2026. Ford is doubling production of hybrid versions of its F-150 pickup and lowering prices to match gasoline models. Hyundai is preparing its EV factory in Georgia to also produce hybrids. Even smaller Japanese automakers like Mazda (MZDAY) are joining the hybrid wave, with president Masahiro Moro announcing plans to develop hybrids using SkyActive engines for better performance in models like the CX-5.

The growing interest in hybrids reflects a significant shift in consumer preferences and market dynamics. Because hybrids provide a practical middle ground between traditional gasoline vehicles and fully electric cars, they provide a timely solution for both automakers and consumers. This shift not only creates immediate profitability for manufacturers, but also helps lay the foundation for a smoother transition to an electric future. The widespread adoption and success of hybrid vehicles underscore their critical role in the evolving automotive landscape.

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This article was originally published on Quiver Quantitative