Toyota trimming Denso stake may raise some US$1.9 billion for EV shift
TOYOTA Motor and its affiliated suppliers will cut their shareholdings in electric parts maker Denso, freeing up money that can be used to fund their shift to electric vehicles.
The world’s biggest carmaker plans to lower its stake in Denso to 20 per cent from 24 per cent, it said in a statement on Wednesday (Nov 29). That could generate about US$1.9 billion, based on Denso’s latest stock price. Denso said it will buy back as much as 200 billion yen (S$1.8 billion) worth of its own shares.
Japanese companies have been under pressure to reduce or eliminate their cross shareholdings. Toyota and its suppliers own a combined 33.6 per cent of Denso, according to data compiled by Bloomberg. Toyota said in July it was selling some of its stake in telecommunications company KDDI for 250 billion yen.
“Toyota also intends to carefully review its capital ties with other group companies on an individual basis,” the company said in the statement. The proceeds will go toward electrification and diversification, Toyota said.
Toyota Industries’ stake will fall to around 5 per cent from 8.8 per cent, while parts maker Aisin is considering offloading its entire holding of 1.6 per cent. Combined, the share sales would amount to 677.5 billion yen based on current prices, including over-allotment sales.
Toyota owns stock in Aisin and Toyota Industries as well. Denso and Toyota Industries also own shares in Toyota. Masahiro Yamamoto, chief officer of the accounting group, said Toyota is looking at reducing stakes it holds in other affiliates to around 20 per cent for each.
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Denso has a long history with Toyota, after being split off from the carmaker in 1949 as a separate entity. The supplier makes everything from pumps and air conditioners, to spark plugs and navigation systems for Toyota and other carmakers. Sales to Toyota made up half of Denso’s ¥6.4 trillion in revenue for the fiscal year that ended in March.
“It’s a positive move,” said Seiji Sugiura, analyst at Tokai Tokyo Research. “Denso’s buyback amount was more than the market’s expectation.”
Cash from the stake sales will be used to fund Toyota’s shift to electric vehicles. Toyota is leading Japanese carmakers’ shift away from producing gas guzzlers toward a variety of technologies aimed at reducing emissions, including battery EVs, hybrids and hydrogen. The success of Tesla and rapid growth of the EV industry in China has fuelled criticism that Japan was falling behind, to the frustration of Toyota chairman Akio Toyoda.
Chief executive officer Koji Sato has pledged to roll out 10 new battery-powered EVs and sell 1.5 million annually by 2026. The company this month raised its operating profit forecast 50 per cent after posting record quarterly earnings, helped by a weaker yen and robust demand.
Toyota said earlier this month it is investing another US$8 billion in a plant in North Carolina that will make batteries for fully electric and plug-in hybrid models.
Analysts expect the stake sales could trigger other cuts in shareholdings by Toyota.
“The trend of selling policy shareholdings and dissolving cross-shareholdings is likely to spread not only to Toyota and Denso, but also to other companies within the Toyota group,” said Bloomberg Intelligence analyst Tatsuo Yoshida.
Shares in Denso rose less than 1 per cent on Wednesday, after declining 4.9 per cent a day earlier after Reuters first reported on the potential stake sale. Toyota shares rose 1.7 per cent, leaving them up 55 per cent this year. BLOOMBERG
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