Toyota shares surge on reported plans to achieve 20% ROE by around 2030

Investing.com -- Toyota (NYSE:TM ) shares rose 4.6% on Wednesday and 6% on Thursday following reports that the automaker is targeting a 20% return on equity (ROE) by around 2030.

The December 25 report from Nikkei quoted a Toyota executive discussing the need to achieve stable 20% ROE to maintain global competitiveness. While the timing of achievement was not mentioned, the article suggests the firm is aiming to achieve this level by around  2030.

While no official statement has been issued, Toyota highlighted during its second-quarter earnings briefing that expanding value chain earnings, such as post-sale software services, would be crucial to hitting this benchmark.

In a note reacting to the article, Morgan Stanley (NYSE:MS ) analysts mentioned the importance of "rebuilding the business model," moving away from a sole reliance on new vehicle sales to include revenue streams like software updates and auxiliary services.

Additionally, capital efficiency improvements, such as reducing cross-shareholdings and boosting share buybacks, are said to likely to play a significant role.

Meanwhile, Bank of America analysts emphasized the potential for Toyota to benefit from growth in its financial and parts divisions, comparing the strategy to General Electric (NYSE:GE )'s success in its finance and maintenance businesses.

The analysts also highlighted Toyota's shift toward a mobility-focused business model, leveraging software and services to enhance profitability.

"We will be watching whether the Woven City disclosure expected at January's CES 2025 represents a contribution to ROE targets," said BofA.

They add that the company's June 2025 annual general meeting may also bring further governance enhancements to bolster shareholder confidence.

Source: Investing.com