Goldman Sachs tells clients to buy this major automaker on its 'strong' EV potential

Published Sun, Aug 13 20237:35 PM EDT

Toyota has big plans when it comes to electric vehicles — and investors are underappreciating its potential in the market, according to Goldman Sachs. The Japanese automaker plans to significantly ramp up EV sales , targeting 1.5 million cars by 2026 and 3.5 million by 2030 — a major increase from sales of just over 20,000 units sold in 2022. In comparison, market leader Tesla sold 1.3 million vehicles in the same year. "Toyota aims to sell 1.5 mn EVs in 2026, but we think investors have yet to fully price in this target, which would be a sharp increase from the current level," said Goldman Sachs analysts led by Kota Yuzawa in a note to clients on August 10. "We are Buy-rated on the stock, as we see Toyota as one of the few automakers globally capable of constructing a vertically integrated model for electric vehicles, including batteries and vehicle energy efficiency technology," the analysts added. The Wall Street bank suggests that Toyota's plans would raise its share of the global EV market to 8.6% in 2026 and 10.5% in 2030 from negligible levels today. "We think this strategy is grounded on Toyota's robust finances and ability to exercise control over its supply chain thanks to vertical integration," the Goldman analysts said. Stock price upside While the analysts acknowledged Toyota's long history and success in hybrid vehicles, they added that the carmaker has lagged behind rivals in pure battery EVs. They said strong EV products are "the missing piece" for Toyota, and could be the catalyst for a re-rating of its share price. Goldman Sachs expects shares of Toyota Motor to rise by 15% to 2,800 Yen ($19.4) in the next 12 months. However, the bank's price target does not take into account the car maker's earnings from its new EV sales targets. Toyota shares are also traded in the U.S. 7203.T-JP YTD line Goldman believes Toyota's strategy to lower costs for EVs will be its key advantage. The investment bank's analysts pointed to Toyota's success in cutting hybrid-EVs costs to one-sixth over 25 years, allowing for fatter margins versus internal combustion models. To hit its sales targets, Toyota plans to repurpose its existing factories making internal-combustion engine vehicles to support fully-electric cars, in addition to building new factories to make EVs. "This will not only allow it to utilize existing assets but also shorten the lead time from development to the start of production and the time to market," the Goldman analysts said. "Most notable" for Toyota is its strong commitment to "bipolar" battery structure, they added. Although the technology has existed for over two decades, Toyota would be the first automaker to use the process to mass-produce lithium-ion batteries, according to the analysts. — CNBC's Michael Bloom contributed to this report.