Toyota Popular in EU: Hybrid Helps?

Toyota Motor Corp. (TM - Analyst Report) expects its European sales to rise to 1 million vehicles by 2013–2014 with the addition of at least 10 hybrid models. The automaker, which already has an established market in the continent, currently offers six hybrid models in the region under its namesake and Lexus line-ups.

In 2010, Toyota sold 808,000 vehicles in Europe, Israel and Central Asia, exceeding its guidance of 800,000 units. Among them, 780,000 units were sold entirely in Europe. The U.K. was the largest market, followed by Russia, Italy and Germany.

Why Hybrids?

Hybrids are projected to become a popular option for car buyers in Europe. Leroy, head of Toyota's European operations, has revealed that the percentage of consumers in Europe interested in hybrid cars for their next car purchase has increased to 16% from 8%-9% in 2009.

Toyota’s hybrid line-ups, Auris (which accounts for 43% of Lexus sales in Europe) and Lexus Hybrid Drive, are already quite popular in the European markets, particularly the U.K. Further, the company pins its hope on Yaris subcompact model, which will be unveiled in the second half of 2012, and its teaser version, Yaris HSD concept, to be out in 2013.

Recently, Germany’s BMW and France’s PSA Peugeot Citroën got into a partnership for developing and manufacturing components for hybrid vehicles. The partnership, BMW Peugeot Citroën Electrification, will manufacture batteries, electric machinery, generators, chargers and systems management software for original equipment manufacturers (OEMs) producing hybrids.

The joint venture will start operating from the second quarter of this year, but it is expected to supply the components not before early 2014. Nevertheless, it will provide the necessary infrastructure to kindle Toyota’s effort to become the market leader in hybrids.

Revival of Earnings in Europe

Toyota’s European operations have been losing money in fiscal year 2011. In the first nine months of the year, net revenues in the region fell 12% to ¥1.45 trillion while the operating loss was ¥6.7 billion during the period.

However, the automaker anticipates European operations to contribute to the company’s earnings and generate free cash flow from the next fiscal year based on surging sales and hybrid offerings.

Hybrid vehicle sales grew 29% to 70,500 units in 2010, touching an all time high. It was driven by impressive sales of Auris at 15,237 units, outplaying its target by 9%.

Nissan to Overtake Toyota?

Toyota’s domestic rival, Nissan Motor Co. (NSANY - Analyst Report), is nurturing ideas to cast a shadow on the former in Europe. Nissan plans to add 400 dealerships in the continent to the already existing 600 over the next 3 years.

Nissan has launched as many as 10 models over the last 2 years in Europe. It also plans to introduce other models in the near term.

Japan’s third largest automaker is bubbling with optimism as its market share has gone up to 3.5% in the first 2 months of the year from 3.1% in 2009. The rise in market share was led by strong sales of  crossover Qashqai and mini crossover Juke.

Company Outlook

Toyota revised its estimates upward for fiscal 2011. The automaker anticipates vehicle sales in the range of 7.41 million–7.48 million units up from the prior estimate of 7.38 million–7.41 million units.

The company forecasted consolidated revenues of ¥19.2 trillion, operating income of ¥550 billion and net income of ¥490 billion. This compared to the prior guidance of ¥19.0 trillion in consolidated revenues, ¥380 billion in operating income and ¥350 billion in net income.

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