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Toyota's China Problem: Is TM Stock a Buy, Hold or Sell?
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Key Takeaways
Toyota's August global sales fell 7.5%, with China sales down 22.8% amid weak demand.
TM's hybrid sales rose 6.7% in first-quarter fiscal 2027, supporting its electrified lineup.
TM expects revenue to rise to 54T yen in FY'27, but operating income to fall 9.7% to 3.4T yen.
Japan’s leading automaker Toyota’s (TM - Free Report) latest monthly figures show that the company is facing pressure in the world’s biggest vehicle market— China.
Toyota's global sales (including Lexus) declined 7.5% year over year to 832,618 vehicles in August, the seventh straight monthly decline. China was the main reason. Sales in China dropped 22.8% to 118,449 units as demand for petrol and hybrid cars stayed weak, with higher fuel prices due to the Middle East conflict adding to the strain. Overseas sales as a whole fell 8.9%, the seventh consecutive monthly drop.
Production followed the same direction. Global output declined 5.9% to 700,860 vehicles, partly because some countries had fewer working days. At home, output slipped 1.7% to 204,487 units after July's 7.1-magnitude Kumamoto earthquake and a run of typhoons that disrupted factories. With that, Toyota's production in Japan snapped three months of year-over-year gains. In China, production fell 11.3%.
Toyota’s close peers Honda (HMC - Free Report) and Nissan (NSANY - Free Report) reported much steeper production declines in August in China. While Honda’s output tanked 71.7% to 14,130 units, Nissan’s production slumped 73.3% in the country.
Japan and Europe Gain, US and Middle East Lag
In Japan, Toyota’s sales rose 9.1% to 105,067 units, the fifth straight monthly increase, driven by new models such as the RAV4, the bZ4X and the Land Cruiser FJ. Sales in Europe grew 2.6% to 78,527 vehicles last month, while the United States dipped 4.4% to 215,556 units.
The Middle East suffered the most, with sales down 37.5%. Yet exports from Japan to the region rose 31% to 24,411 vehicles, the second monthly gain in a row, which hints that the worst of the disruption may be passing.
Meanwhile, electrified vehicles held up well, with worldwide sales up 5.3% to about 3.09 million units, reinforcing the demand for Toyota's hybrid-heavy lineup.
So where does this leave TM stock? China is clearly a problem, but that's only part of the story. Let's see how Toyota's strengths stack up against its weak spots.
What's Working in Toyota's Favor
Hybrids are the core of Toyota's strategy, and they are working. Hybrid sales rose 6.7% in the first quarter of fiscal 2027 to 1.24 million units. Electrified vehicles now make up more than half of Toyota and Lexus sales. The company expects hybrid sales to rise to 5.09 million units in fiscal 2027 from 4.62 million in fiscal 2026 and plans further capacity expansion toward 2030.
Toyota also earns money beyond selling cars. Its financial services arm’s operating income grew 24% to ¥275.7 billion in the last reported quarter, giving the group a steadier stream of profit that does not depend on factory output.
Shareholders are being rewarded too. Toyota has authorized buybacks of up to ¥1 trillion, plans to cancel 200 million treasury shares and has lifted its dividend outlook to ¥100 per share. The stock yields about 3%. It also looks inexpensive, trading at roughly 8.53 times forward earnings, below the industry’s 9.54 and the stock’s own 5-year average of 9.06.
Image Source: Zacks Investment Research
Reasons for Caution
The biggest concern is profit. Toyota expects revenues to rise to ¥54 trillion this fiscal year from ¥50.68 trillion, but operating income to fall 9.7% to ¥3.4 trillion. Higher labor costs, depreciation and research spending are eating into margins. China adds to the strain, since Toyota is spending more on promotions to defend its share in a sluggish market.
The balance sheet is another watch point. Long-term debt rose to ¥26.08 trillion as of June 30, 2026. The company's forecast also leaves out the impact of the Kumamoto earthquake, and the Middle East remains unpredictable.
Toyota has a Growth and Momentum Score of D each, which suggests the market is not yet convinced a recovery is close.
Zacks Consensus Estimate for Toyota
The Zacks Consensus Estimate for TM’s fiscal 2027 and 2028 revenues implies a year-over-year increase of 0.8% and a year-over-year decline of 2.4%, respectively. The consensus mark for the company’s fiscal 2027 and 2028 EPS calls for a year-over-year uptick of 3.8% and 15%, respectively.
See how the consensus estimates for EPS have been revised over the past 90 days.
Image Source: Zacks Investment Research
Our Take
Toyota's China problem is real but strong hybrid demand, steady financing income, generous buybacks and a low valuation give it a solid cushion. Still, shrinking profit guidance, rising debt and weak momentum leave little reason to rush in. With earnings expected to recover only gradually, TM looks like a stock to hold, not chase. Existing investors can stay put, while new buyers should wait for a better entry point or clearer signs of stabilization.
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Toyota's China Problem: Is TM Stock a Buy, Hold or Sell?
Key Takeaways
Japan’s leading automaker Toyota’s (TM - Free Report) latest monthly figures show that the company is facing pressure in the world’s biggest vehicle market— China.
Toyota's global sales (including Lexus) declined 7.5% year over year to 832,618 vehicles in August, the seventh straight monthly decline. China was the main reason. Sales in China dropped 22.8% to 118,449 units as demand for petrol and hybrid cars stayed weak, with higher fuel prices due to the Middle East conflict adding to the strain. Overseas sales as a whole fell 8.9%, the seventh consecutive monthly drop.
Production followed the same direction. Global output declined 5.9% to 700,860 vehicles, partly because some countries had fewer working days. At home, output slipped 1.7% to 204,487 units after July's 7.1-magnitude Kumamoto earthquake and a run of typhoons that disrupted factories. With that, Toyota's production in Japan snapped three months of year-over-year gains. In China, production fell 11.3%.
Toyota’s close peers Honda (HMC - Free Report) and Nissan (NSANY - Free Report) reported much steeper production declines in August in China. While Honda’s output tanked 71.7% to 14,130 units, Nissan’s production slumped 73.3% in the country.
Japan and Europe Gain, US and Middle East Lag
In Japan, Toyota’s sales rose 9.1% to 105,067 units, the fifth straight monthly increase, driven by new models such as the RAV4, the bZ4X and the Land Cruiser FJ. Sales in Europe grew 2.6% to 78,527 vehicles last month, while the United States dipped 4.4% to 215,556 units.
The Middle East suffered the most, with sales down 37.5%. Yet exports from Japan to the region rose 31% to 24,411 vehicles, the second monthly gain in a row, which hints that the worst of the disruption may be passing.
Meanwhile, electrified vehicles held up well, with worldwide sales up 5.3% to about 3.09 million units, reinforcing the demand for Toyota's hybrid-heavy lineup.
So where does this leave TM stock? China is clearly a problem, but that's only part of the story. Let's see how Toyota's strengths stack up against its weak spots.
What's Working in Toyota's Favor
Hybrids are the core of Toyota's strategy, and they are working. Hybrid sales rose 6.7% in the first quarter of fiscal 2027 to 1.24 million units. Electrified vehicles now make up more than half of Toyota and Lexus sales. The company expects hybrid sales to rise to 5.09 million units in fiscal 2027 from 4.62 million in fiscal 2026 and plans further capacity expansion toward 2030.
Toyota also earns money beyond selling cars. Its financial services arm’s operating income grew 24% to ¥275.7 billion in the last reported quarter, giving the group a steadier stream of profit that does not depend on factory output.
Shareholders are being rewarded too. Toyota has authorized buybacks of up to ¥1 trillion, plans to cancel 200 million treasury shares and has lifted its dividend outlook to ¥100 per share. The stock yields about 3%. It also looks inexpensive, trading at roughly 8.53 times forward earnings, below the industry’s 9.54 and the stock’s own 5-year average of 9.06.
Image Source: Zacks Investment Research
Reasons for Caution
The biggest concern is profit. Toyota expects revenues to rise to ¥54 trillion this fiscal year from ¥50.68 trillion, but operating income to fall 9.7% to ¥3.4 trillion. Higher labor costs, depreciation and research spending are eating into margins. China adds to the strain, since Toyota is spending more on promotions to defend its share in a sluggish market.
The balance sheet is another watch point. Long-term debt rose to ¥26.08 trillion as of June 30, 2026. The company's forecast also leaves out the impact of the Kumamoto earthquake, and the Middle East remains unpredictable.
Toyota has a Growth and Momentum Score of D each, which suggests the market is not yet convinced a recovery is close.
Zacks Consensus Estimate for Toyota
The Zacks Consensus Estimate for TM’s fiscal 2027 and 2028 revenues implies a year-over-year increase of 0.8% and a year-over-year decline of 2.4%, respectively. The consensus mark for the company’s fiscal 2027 and 2028 EPS calls for a year-over-year uptick of 3.8% and 15%, respectively.
See how the consensus estimates for EPS have been revised over the past 90 days.
Image Source: Zacks Investment Research
Our Take
Toyota's China problem is real but strong hybrid demand, steady financing income, generous buybacks and a low valuation give it a solid cushion. Still, shrinking profit guidance, rising debt and weak momentum leave little reason to rush in. With earnings expected to recover only gradually, TM looks like a stock to hold, not chase. Existing investors can stay put, while new buyers should wait for a better entry point or clearer signs of stabilization.
Toyota currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.