Toyota, Japan’s largest car manufacturer, has recently come under scrutiny for troubling reasons. Japan is renowned for its high standards and quality across goods and services, including its reliable automobiles. However, Japanese carmakers have recently faced criticism for falsifying test certification applications.
According to Statista, in 2023, two of the world’s top three largest auto brands were from Japan. Toyota led with a 10.7% market share, followed by Germany’s Volkswagen at 6%. Japan’s Honda Motor ranked third with a 4.6% share.
Yet, despite Toyota’s status as the world’s top automaker by market share, this latest safety scandal is not its first brush with investigations over false test data.
What Happened?
Toyota has long championed the Japanese philosophy of “Kaizen,” meaning continuous improvement. This principle is core to the company’s values. However, Toyota’s reputation has been tarnished after a sweeping investigation by Japan’s Ministry of Land, Infrastructure, Transport and Tourism revealed that five major Japanese carmakers, including Toyota, falsified data in their certification applications.
The ministry reported on June 3 that irregularities were found in applications from Toyota, Mazda, Honda, Suzuki Motor, and Yamaha Motor. These companies had submitted false test data, and in Toyota’s and Mazda’s cases, even falsified the vehicles used in crash tests. Following these revelations, stocks of all five automakers plummeted, with Toyota notably losing 2.45 trillion yen ($15.62 billion) in market value in just one week.
Toyota’s Response
In light of the scandal, Toyota chairman Akio Toyoda issued an apology to stakeholders and customers. The company halted shipments and sales of three models currently manufactured in Japan: the Corolla Fielder, Corolla Axio, and Yaris Cross. Toyoda admitted that seven of the company’s models were “tested using methods that differ from the standards defined by the national authorities.”
Other Scandals
These recent disclosures come on the heels of earlier scandals. A probe into Toyota’s subsidiary Daihatsu in December revealed safety issues with vehicles, including discrepancies in airbag control units used in tests versus those sold to the public. In April last year, Daihatsu admitted to rigging side-collision safety tests for 88,000 small cars, mostly sold as Toyotas. An independent investigation found certification irregularities dating back to 1989. Daihatsu apologized for “betraying the trust of our customers and other stakeholders and for causing great inconvenience and concern.” Some Daihatsu models resumed shipment in April this year after revised testing.
Additionally, in 2022, Hino—Toyota’s truck-making subsidiary—falsified emissions data on some engines going back to 2003, affecting over 640,000 vehicles.
What’s Next?
In light of these scandals, will investors steer away from Toyota and invest in other Japanese automakers instead? As of June 13, Toyota shares were at their lowest since February 6, dropping 8% since the scandal broke on June 3. However, a note by Citi on June 3 suggested the impact on share prices would be “minimal,” indicating that “there are no issues anywhere on the performance front and the improprieties do not look as if they will lead to recalls.”
Overall, market analysts maintain a positive outlook. FactSet data shows that, in June, 12 out of 19 analysts rated the stock as “buy” or “overweight,” with a mean target price of 3,888.56 yen, indicating a potential 24.3% gain from its June 13 closing price. The other seven analysts rated it as a “hold.”
