Investors in the U.S. have been increasingly excited about the prospects for the stock market. With recent moves, the S&P 500 has climbed more than 20% from its October 2022 low, leading some to proclaim that the bear market is over. Indeed, the S&P looked poised to keep climbing Wednesday morning, even as investors await the latest decision on interest rates from the Federal Reserve.
Yet what's happening in the U.S. pales in comparison to recent moves in the Japanese stock market. The Nikkei 225 hit highs not seen since 1990, after a bear market that arguably lasted for decades. And interestingly, one key driver of recent gains has been an electric vehicle (EV) stock that has until now been a relative laggard in the industry: Toyota Motor (TM 0.60%). With new technological advances, however, Toyota might just have made a giant leap forward in its EV efforts -- and shareholders are happy with its prospects.
Toyota hits the, er, "gas" pedal
Shares of Toyota soared 6% on Tuesday, and they were up again in the premarket session on Wednesday morning, rising 5% further. The move came after announcements on new EV technology raised hope that the Japanese automaker wouldn't get left behind in the electrification transition.
Toyota outlined some vital advances in its EV strategy in the lead-up to its annual shareholder meeting earlier this week. With respect to battery technology, Toyota said that it has managed to overcome some long-standing challenges that have held back the replacement of standard lithium-ion batteries with solid-state EV batteries. Solid-state technology should allow vehicles to store more energy with less weight, and experts project significantly shorter times to charge solid-state batteries than their lithium-ion analogues. It could be 2027 or 2028 before vehicles using these solid-state batteries become available, but that was soon enough for many investors.
Before then, batteries using lithium, iron, and phosphate could extend range by 20% while cutting costs 40%. Those batteries might be available in vehicles by 2026.
On the production side, Toyota said it would mimic Tesla by using a single die-casting machine in its manufacturing process. The move would cut the need for complex welds, and it could also open the door to more automated assembly lines to address labor shortages and reduce costs further. Toyota's also working on more aerodynamically efficient vehicles and improving its supply chain.
Lifting the Japanese stock market
Toyota has the highest market capitalization in the Nikkei 225, but because the index is price-weighted, the automaker's relatively low share price reduces its influence on the Nikkei. Nevertheless, favorable trends across the Japanese stock market led to a quick recovery in 2020 from the initial disruptions of the COVID-19 pandemic. Markets have taken off in 2023, as Japanese companies have responded to a changing world.
One reason for Toyota's further advance on Wednesday was that the automaker's board of directors successfully defeated a challenge to its governance practices. Some activist investors have complained about Toyota's slow pace in the EV transition, arguing that the automaker allowed rivals to get the upper hand. Yet shareholders voted to accept the current board, including chair Akio Toyoda.
As more Japanese companies come to terms with investors' demands for better shareholder returns, some see the capacity for record highs for the Nikkei in short order. It would take another 15% to 20% advance to get there. But after more than three decades of waiting, it's possible that Japan is finally ascendant once again.
