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Toyota (TM) to Create New Company for Self-Driving Cars

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Toyota Motor Corporation (TM - Free Report) would invest approximately $3 billion to develop software for self-driving vehicles, per Wall Street Journal. Additionally, it will set up a new Tokyo-based company for the same purpose, along with DENSO Corporation (DNZOY - Free Report) and Aisin Seiki Co., Ltd.

The new venture, Toyota Research Institute-Advanced Development will garner an investment of ¥300 billion ($2.8 billion) from its owners. Toyota will hold 90% stake in the company while Denso and Aisin Seiki will hold 5% each. Further, the new research institute will start its operation with an employee count of 300 and it aims to raise the count to roughly 1,000 in future. The new company will have English as its official language, thus, widening the pool of job applicants.

Earlier in October 2017, Toyota announced its plan to start testing autonomous vehicles sometime around 2020. Moreover, it also stated that it will use artificial intelligence (AI) technology to interact with drivers in order to enhance the experience.

Toyota Motor Corp Ltd Ord Price and Consensus

In early 2017, the company unveiled its concept model and committed $1 billion through its California-based Toyota Research Institute to develop advanced automated driving and AI technology. Also, in sync with the investment, Toyota made technology partnerships with Microsoft Corporation and Uber Technologies.

Per management, Japan’s Toyota Research Institute-Advanced Development will try to connect researchers of Toyota Research Institute in California with the engineers of Japan’s vehicle designers.

Apart from Toyota, a number of other automakers are also separating their self-driving divisions to pull engineers for developing their technologies, who otherwise won’t be interested to work for an auto manufacturer.

Price Performance

In the last three months, shares of Toyota have outperformed the industry it belongs to. During the period, the company’s stock has gained 6.2% in comparison with the industry’s increase of 5.7%.

Zacks Rank & Key Picks

Toyota carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are General Motors Company (GM - Free Report) and LKQ Corporation ((LKQ - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

General Motors has an expected long-term growth rate of 8.4%. Over the last 30 days, the company’s stock has seen the Zacks Consensus Estimate for annual earnings being revised 2.1% upward.

LKQ Corp has an expected long-term growth rate of 16%. In the last six months, shares of the company have gained 11.9%.

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