Ever-escalating sticker prices, rising interest rates, and supply shortages cast a pall over the auto industry in 2022, when new vehicle sales in the U.S. were the lowest since 2011. But there are indications that the supply chain woes that have plagued the industry for the past couple of years are easing, and dealer inventories are beginning to rise.

This might be why Toyota Motor (TM -1.35%) plans to build as many as 10.6 million vehicles worldwide in fiscal year 2023 (starting on April 1), an increase of 1.4 million units from fiscal year 2022. But the automaker's figure comes with a caveat: Final production totals for 2023 could be 10% lower if semiconductors or other essential parts are in short supply.

The announced production figures apply to the company's Toyota and Lexus brands, and not its Daihatsu minicar or Hino truck making subsidiaries.

But supply chains are improving, and Toyota plans for global production volume of about 700,000 units in January. The company aims to build 750,000 vehicles in February, a 1.2% increase from the 740,996 vehicles it produced in February 2022.

For context, U.S. light-vehicle sales totaled 13.4 million units last year, down from 14.9 million units in 2021, as microchip shortages created production shortfalls.

A case for optimism

Toyota's corporate culture is imbued with optimism. But more than simple corporate optimism is the fact that as the top automaker in the world, the company is a barometer for the rest of the industry and its suppliers.

That cautiously positive forecast reflects its belief that total U.S. sales of light-duty vehicles will rise to 15 million units in 2023, a belief also held by General Motors (GM -0.17%). Similarly, Volkswagen AG ((OTC: VWAGY) says that it anticipates supply constraints  to loosen as it remains optimistic about 2023.

Toyota's outlook is not merely wishful thinking, and investors in this segment have reasons to feel the same way. As an automotive leader, it sets the tone for the industry.

The worst of the industry's pandemic-induced supply chain issues seem to be easing, allowing Toyota and other automakers to increase production, although it's still lower than normal. This means that automakers don't have to spend a lot of money on costly incentives.

In fact, whereas incentives once cost automakers as much as 10% of their suggested retail prices, it's now about 2%, and not expected to reach 5% until 2024, according to Cox Automotive. This has allowed automakers to focus their production on pricier and high-profit vehicles, but not so much as to satisfy demand. This should lead to greater profitability, unless an EV price war breaks out.

That's a genuine possibility given that Tesla's (TSLA -1.92%) recent price cuts are triggering just such a battle in China, reducing profits even as volume increases. Whether price cuts can be compensated with greater volumes to drive profitability remains to be seen.

But EVs remain a fraction of industry sales, with full battery EVs accounting for 5.8% of all vehicles sold last year, up from 3.2% in 2021. With Toyota selling one EV model in the U.S., the bZ4X, and another to come for Lexus this year, such price competition shouldn't greatly impact Toyota's bottom line, as it sells 28 vehicle lines worldwide.

The sunny forecasts have led the automaker's stock to rise nearly 7% since the beginning of the year, with a price-to-earnings ratio of 10.4, richer than its mainstream colleagues, but not up to that of Tesla.

This should bode well for those who own Toyota stock. Even at these prices, it is near its 52-week low. For now, it seems that holding the stock would be the best bet. If the economy is stable and a recession is avoided, the stock could pop if earnings hold up; it's worth watching. But that's a statement with a lot of ifs, meaning standing pat for now could be the best policy.