Patents: Toyota’s Nest Egg

It has recently come to light that Toyota (TM - Snapshot Report) is building up a number of patents protecting its fuel-saving technologies that would ultimately help it in evading competition. This would also double up as a revenue-making channel for the company by licensing the patents to other automakers.

Ford (F - Analyst Report) and Nissan (NSANY - Analyst Report) have already sought licensing from the company to manufacture their hybrids, Escape and Altima, respectively.

A recent study of intellectual property for hybrid vehicles has revealed that Toyota has more than 2,000 patents. About half of these are occupied by the company’s best-selling hybrid, Prius. Toyota plans to incorporate its hybrid system in all of its vehicles by 2020.

Nevertheless, however hard Toyota tries to evade competition, its rivals have already sought out alternatives that could deal a blow to the company. Honda (HMC - Analyst Report) built a hybrid vehicle, Insight – akin to Prius – which the company stated will not conflict with Toyota’s patents.

Prius 2010 clocks 51 miles per gallon (mpg) in the city and 48 mpg on the highway, while Insight logs 40 mpg city and 43 mpg highway. Nissan, on the other hand, is concentrating on developing an electric car debuting in 2010.

U.S. automakers are focusing on plug-in hybrids to meet the fuel economy standard of 35 mpg for vehicles by 2016. For example, Ford is building its battery-powered commercial van for introduction in 2010 and General Motors (GMGMQ) is gunning its Volt for 2012.

Moreover, President Obama announced its goal to have 1 million plug-in hybrids on the roads by 2015. He has already asked Congress to increase spending for Environmental Protection Agency (EPA) by 34% to take care of the implementation process.

The U.S. automakers are now strengthening ties with electric utilities in order to supply electric powered vehicles to the U.S. consumers. However, utility companies are required to upgrade their infrastructure including power grid development to cater to the new technologies demanded by plug-ins.

We continue to recommend F, TM, HMC, and NSANY as Holds.