Toyota’s Uber Investment Is a Win-Win

Toyota Motor Corp (NYSE: TM) announced a $500 million investment with Uber to develop self-driving vehicle technology. Toyota and Uber expect to begin real-world testing of driverless Toyota Sienna minivans starting in 2021, but analysts say it will be an uphill battle for TM stock investors in the meantime.

Uber and Toyota are playing catch-up in driverless technology, lagging behind market leaders such as Alphabet (GOOGGOOGL) subsidiary Waymo. Uber’s AV program suffered a major blow in March when the company halted its testing of AVs on public roads following a fatal accident involving an Uber and a pedestrian in Arizona.

The cash infusion is much-needed for Uber. Uber reportedly lost $4.5 billion in 2017 and has been dumping between $1 million and $2 million per week into its AV development.

For Toyota, the new investment has helped Toyota secure a critical long-term partner as the auto industry potentially transitions away from personal vehicle ownership and toward an AV ride-sharing future.

“This agreement and investment marks an important milestone in our transformation to a mobility company as we help provide a path for safe and secure expansion of mobility services like ride-sharing,” says Toyota executive vice president Shigeki Tomoyama.

Toyota first launched a ride-hailing partnership with Uber in 2016, and Uber was one of the initial partners included in Toyota’s e-Palette mobility solutions concept announcement at the CES 2018 event.

Bank of America analyst Kei Nihonyanagi says the latest Toyota-Uber investment is a win-win for both companies.

“Our impression is that the latest broadening of the partnership is a rational move on the part of both companies from the perspective of their management resources,” Nihonyanagi says.

However, in the near term, Nihonyanagi says TM stock will likely have limited upside in a challenging North American auto market. Nihonyanagi says there were no signs of improving North American margins in Toyota’s most recent quarter, and the international trade war has created uncertainty for Toyota and other global automakers.

“Although we expect earnings momentum to remain relatively lackluster within our sector coverage, we also see…

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