Why Toyota Motor Rallied Today

Shares of Toyota Motor (NYSE: TM) rallied 4.8% on Wednesday as of 2:23 p.m. ET.

Toyota is the largest automaker in the world, so its stock hasn't escaped the slowdown in auto sales that came after the height of the pandemic. However, as today's results showed, it's navigating the difficult auto market far better than rivals.

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Toyota beats and announces EV investments

Unlike some of its electric vehicle (EV) and legacy auto rivals reporting this earnings season, Toyota's results were stronger than expected. Revenue for the third quarter of fiscal 2025, ended Dec. 31, 2024, was $80 billion and earnings per share was $1.07, well ahead of the $77 billion and $0.64 predicted by Wall Street analysts. While auto sales were down 4% in the quarter, this was relatively better than feared. Toyota also bumped up its profit outlook for the fiscal year ending in March to $31 billion, up from a prior outlook of $28 billion.

Relative to rivals, Toyota has been more deliberate in making the costly electric vehicle transition, instead focusing on hybrids. That appeared to pay off, as hybrid vehicles rose to 50% of sales, up from 40% last year.

Still, Toyota isn't shying away from electrification. Management also announced a new investment in battery production in North Carolina, which can supply both hybrids and battery-only electric vehicles. It's also developing an electric vehicle production plant in Shanghai, China, where it will produce Lexus-branded vehicles for the Chinese market. Of note, China has adopted all-electric vehicles to a much greater extent than the U.S. or Europe.

Toyota's pragmatism makes it a strong stock

Electric vehicle growth has slowed dramatically over the past two years, hurting companies like Tesla, which posted declines in revenue and profits last year, as well as legacy automakers aggressively attempting the transition.

However, Toyota's more deliberate approach, focusing on hybrids and only investing in electric vehicles where there is apparent demand, like China, seems to have been the better approach.

Still trading at a P/E ratio below 10, Toyota looks like a solid value stock.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.