Increasing oil prices, coupled with the beneficial exchange rate for exporting goods from Japan, could lead to higher sales and lower costs for Toyota (NYSE:TM), Nissan (NASDAQOTH:NSANY), and Honda (NYSE:HMC).
The Prius stands to gain from higher gas prices
As U.S. auto buyers increasingly care more about the mileage of the vehicles they buy, the Prius stands to gain. Toyota controlled 60% of the hybrid market in 2013, led by its sales of the Prius. According to a recent news release from the automaker, "cumulative global sales of its hybrid vehicles topped the 6 million unit mark as of December 31, 2013." While all hybrid manufacturers should benefit from increased gas prices, Toyota will experience the greatest uptick in sales by a significant margin.
Turning over a new leaf in the electric vehicle market
In the electric vehicle market the tables are turned. The Toyota Prius Plug-in Hybrid, or Prius PHV, ranked fourth in U.S. annual sales in 2013 with sales of just 12,000 vehicles. The top three electric vehicles by sales in 2013 were the Chevy Volt with 23,000 sold, the Nissan leaf with 22,600, and the Tesla Model S with 17,650. Thus far in 2014, however, the Nissan Leaf has led the way, with the Prius PHV in second place.
Increasing pain at the pump
The turmoil in Iraq has caused wide-reaching effects across the globe, including an upward swing in oil prices as supplies from the nation's oil fields are cut off and fears set in that even more of Iraq's oil production could be in danger. The country was seventh in the world for oil production last year.
The threat of oil prices increasing significantly is relatively minor because most of Iraq's oil production is in the south, currently safe from takeover. Safety is by no means guaranteed, however, and overall market fears have displayed this with Brent crude oil now staying above $113. Phil Flynn, an analyst at the Price Futures Group in Chicago, said oil prices will most likely not decrease in the near term.
A weak yen gives strength to exporters
The Japanese yen this year has stayed fairly steady in its weakened position versus the U.S. dollar, trading most recently at a rate of 102 yen per dollar. This is a 9% increase from 94 yen per dollar a year ago. This situation benefits exporters in Japan, especially Big Three automakers Honda, Nissan, and Toyota. When a currency weakens, other currencies can now purchase more goods denominated in the weakened currency.
Another benefit to theseJapanese automakers is the recovery from the natural disasters that plagued Asia in 2011 and which shut down some parts manufacturers and led to weeks of slow or nonexistent manufacturing for the Big Three. According to an article this year from Bloomberg, "Toyota, Honda and Nissan kept expanding North American vehicle and component plants as insulation against currency swings that can make imports unprofitable, and to avoid over-reliance on parts sourced overseas."
Even with expansion in North America, Toyota retains almost 50% of its manufacturing in Japan. The yen's continued weakness has been a huge profit driver for Toyota. The company's $3.4 billion profit in for the year ending March 31, 2012, tripled to $10.2 billion for the 12-month period to March 2013, which nearly doubled to $17.9 billion through the end of March 2014. Forbes reported that this dramatic increase in profit was "helped by a weak yen."
Honda also saw a boost in profit due in large part to the weakened yen: its fiscal fourth-quarter profit doubled from a year ago.
Toyota hybrids are starting to cost less
The main reason given for not buying hybrids is price. The base model Prius costs $24,000 while the base model Corolla comes in at $18,000. The argument is that even with the hybrid's superior fuel economy the difference in original price will rarely, if ever, be made back from the decreased amount of gas used. While the increase in the price of gas might be relatively small, this added cost may lure a large amount of marginal buyers into the mix.
With the continued weakness of the yen, each of the Japanese manufacturers makes more profit off of vehicles exported. Toyota and Nissan also stand to gain more from a different direction, as each company retains a dominant share of the hybrid or electric-vehicle market, with the profits from each sale augmented by the weakened yen.
If the yen continues to languish, especially as gas prices rise, the Big Three of Japan will be revving their engines.