Hydrogen Under the Hood at Toyota

BY Sarfaraz A. Khan | 02/04/14 - 11:00 AM EST

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NEW YORK (TheStreet) -- The world's leading automaker Toyota (TM_) is expecting record annual profits due partly to sales and partly to weakness in the yen. Its fuel-efficient hybrid cars continue to grow their already massive sales. In the meantime, while some of the leading vehicle manufacturers have been trying to capitalize on the increasing demand for electric vehicles like those created by Tesla Motors (TSLA_), Toyota on the other hand has been increasing its focus on its hydrogen-powered cars.
On Tuesday, the company reported more than fivefold year-over-year increase in quarterly profits to $5.2 billion. For the full fiscal year, Toyota is targeting net income of $18.8 billion, which would show around 100% increase from net income of $9.5 billion in the previous fiscal year. This would come from sale of 9.98 million vehicles in 2013, more than any other automaker in the world.
Moreover, Toyota plans to retain the crown as the world's best-selling automaker by selling 10.32 million cars in 2014. Some of this increase in sales can be attributed to the popularity of its fuel-efficient hybrid vehicles. They have given a boost to sales in regions like Europe where competitors have struggled.

Despite the positive outlook, Toyota's shares dropped by more than 5% due to the strength of the yen and an expected drop in sales in North America by 30,000 units in the current fiscal year. As a result, Toyota's shares closed at $112.75 on Monday and are trading just 12.9 times their trailing earnings and just 0.85 times their trailing sales.
I believe that is cheap for a blue chip stock with industry-leading sales volume.
Back in 2003, President George W. Bush promised $1.2 billion for research and development for hydrogen-powered cars. Ten years later, due to a lack of infrastructure, the hydrogen cars are still a distant dream. Toyota, on the other hand, is optimistic. Some European nations and Japan have been developing the infrastructure for hydrogen cars. Toyota's executives believe that the U.S. will follow suit.
The infrastructure investment will start with California, Tesla's home ground. Some of the success of the electric vehicle maker is due to the support from the state and its residents. The state is now turning toward hydrogen-powered cars by spending $200 million to build around 100 hydrogen fueling stations by 2024.
Toyota is hoping for considerable improvement in the sale of its hydrogen vehicles in California in the coming years. Meanwhile, Toyota will also increase its lobbying efforts to push other states toward the development of infrastructure for hydrogen cars.
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