How Toyota Makes Money

Toyota Motor Corp. (TM) continued to thrive in FY 2023, generating about $256 billion in revenue and $17.2 billion in net income.

Using three primary operations: automotive, financial services, and other endeavors, Toyota manages to maintain a position as one of the world's leading auto manufacturers year after year.

Toyota's Financials

In the fiscal year of 2023, Toyota sold 8.8 million vehicles, 6.7 million (76%) of which were outside Japan. North America is Toyota's largest source market. From April 2022 to March 2023, Toyota sold 2.4 million vehicles in North America.

In the same year, Toyota reported revenues of ¥37 trillion, or about $256 billion. This marked a 15.4% increase from the previous year.

Toyota's market capitalization was $220.8 billion on July 1, 2023.

Toyota History

Headquartered in Japan, Toyota began in the 1920s as a loom manufacturer. After developing and selling the patent for an automated loom, founder Sakichi Toyoda entered the automobile business. The first Toyota vehicles were built in the early 1930s, while the Toyota Motor Company was established in 1937.

First focusing on compact cars, Toyota eventually expanded to produce pickups, SUVs, trucks, sports cars, and other vehicles. Along the way, the company developed into one of the largest automotive manufacturers in the world.

Toyota's Business Segments

Toyota generates most of its revenue from its automotive business, which can be further divided into separate subsegments based on brand and geographic focus. The company also earns revenue from its financial services branch and through a third, much smaller wing that focuses on various business endeavors.

Toyota's Automotive Business

Toyota's automotive business has multiple distinct business units, each seeking to reflect streamlined Japanese efficiency. Besides its Toyota brand, it owns Lexus, Daihatsu, and Hino.

Lexus is well-known in the U.S.—it achieved sales figures of more than 68,000 vehicles in the first quarter of 2023.

The Lexus brand originated in the early 1990s as a competitor to other mass-market Japanese automakers' new luxury brands, such as Honda's Acura and Nissan's Infiniti. A generation later, Lexus surpassed those brands to compete directly with the heavyweights of the luxury division, including BMW and Mercedes-Benz.

The corporation also has divisions relating to the sale of vehicles by geographic region. Toyota Motor North America, for instance, is a Texas-based holding company that engineers, produces, and sells certain Toyota vehicles throughout North America. Stateside, Toyota's RAV4, Highlander, and Camry were the fourth, seventh, and eighth best-selling vehicles in 2022.

Toyota's Financial Services Business

Unlike some other major carmakers, Toyota derives a relatively small portion of its revenue from its financial operations. While Toyota’s financial services division is a growing asset, the company is still a manufacturer first and a lender second. Automotive activities accounted for 91.8% of worldwide sales revenue in FY 2023, while financial services accounted for only 8.2%.

Toyota Financial Services is a subsidiary that focuses on automotive sales financing, credit cards, and other related services.

Toyota's Recent Developments

Most of Toyota's vehicle sales occur in Japan and North America, though a smaller portion of sales occurs in Europe and other parts of Asia.

Since its founding, Toyota has followed what it refers to as the "Guiding Principles of Toyota," a set of seven values and guidelines which inform all company decisions. In its Corporate Governance Report of 2023, the company stressed transitioning to a mobility company to support the emerging mobility society with products and services that align with society's movement toward CASE—connected, autonomous/automated, shared, and electric.

Among other goals, the company seeks to enhance its vehicles' "connected" capability and create new mobility services. The company is also focused on sustainability and the environment: Toyota has set a goal of achieving carbon neutrality by 2050.

Toyota's Key Challenges

Although Toyota is a dominant automotive company, it nonetheless faces various challenges. One of the biggest of these is competition, particularly from other well-established vehicle makers around the globe. Because Toyota now competes in all classes of vehicles, it faces threats to its sales from several rivals.

Adaptation Is Key

To remain successful, the company must also continue to adapt. Although Toyota enjoys tremendous name recognition and customer loyalty, changing tastes, new technologies, and an invigorated sense of environmental responsibility on the part of customers require that Toyota invest large amounts of money in developing new products and tools. If Toyota does not anticipate how the automotive industry will change and react accordingly, it may lose business.

The Bottom Line

Toyota is one of the largest motor vehicle companies in the world. Though it has other businesses, such as financial services, most revenues are from vehicle production and sales. Its largest markets are in Japan, North America, and Asia, where it is concentrating its efforts and sees growth opportunities.

To remain competitive amongst the many vehicle companies in the world, Toyota needs to remain competitive and move with market trends, including sustainability, carbon neutrality, connectivity, and convenience.