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Toyota (TM) to Invest $1.33 Billion in Kentucky Plant

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Toyota Motor Corporation (TM - Free Report) has announced its decision to invest $1.33 billion, the highest investment by any automaker, in Kentucky. The investment will enable Toyota Motor Manufacturing, Kentucky, Inc. (“TMMK”) to become the first plant in North America to commence vehicles manufacturing using Toyota New Global Architecture (“TNGA”).

TNGA, a new strategy for vehicle production, will help shorten the development cycle for new vehicles as well as vehicle improvements. Moreover, the Camry models from 2018 will become the first vehicle produced in the U.S. by the company to contain all the new vehicle development and production technology.

Toyota has plans to invest about $10 billion in the U.S. over the next five years – including this investment, which comes after the $530 million investment the company announced in 2013 to support the Lexus production at the plant.

Toyota has been planning this investment for years prior to the production of its remodeled 2018 Camry. The investment will be utilized to update equipment and retooling, to streamline manufacturing, as well as to build a new paint shop.

Toyota Kentucky is the company’s largest plant, employing roughly 8,200 workers, 700 of whom were recently added to support the production of the Camry 2018. While the investment will not add further jobs at the plant, it will help sustain the existing workforce. Moreover, the company, directly or indirectly, supports roughly 30,000 jobs across the state. In 2016, over 500,000 vehicles, around 25% of the total Toyota vehicles manufactured in North America, were produced at this facility.

Post this decision, officials have added $43.5 million tax incentives to Toyota, making the company eligible for up to $190 million incentives across various projects.

Price Performance

Toyota has underperformed the Zacks classified Auto Manufacturers-Foreign sub-industry in the last three months with respect to price performance.  A weak guidance for fiscal 2017 and frequent product recalls are the main reasons behind the underperformance. The stock lost around 11.6%, while the industry declined 8.7%.

Zacks Rank & Key Picks

Toyota currently carries a Zacks Rank #4 (Sell).

Better-ranked companies in the auto space include American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) , Allison Transmission Holdings, Inc. (ALSN - Free Report) and Lear Corporation (LEA - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Axle has an expected long-term growth rate of around 8.1% and sports a Zacks Rank #1.

Allison Transmission, also a Zacks Rank #1 stock, has an expected long-term growth rate of 11%.

Lear has an expected long-term growth rate of around 8.9% and carries a Zacks Rank #2 (Buy).

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