As the Toyota stock price stumbles, is it safe to buy the dip?

Toyota (NYSE: TM) stock price has pulled back sharply in the past few months as concerns about interest rates surged. The shares plunged from the year-to-date high of $195.45 to a low of $171.40. Still, the stock has jumped by more than 30% from the lowest point this year.

Toyota, the biggest automaker in the world, has been a controversial company in the past few years. While other firms like General Motors, Ford, Stellantis, and Volkswagen have pivoted to EVs, the company has been quite reluctant. 

Toyota has made huge investments in EVs. However, unlike other companies, it has also invested heavily in both Internal Combustion Engine (ICE) and hybrid vehicles. The management believes that ICE vehicles are here to stay.

Toyota has been proven right as evidenced by recent statements by companies like Ford and General Motors. The two firms have recently announced that they will downscale their EVs as demand wanes.

At the same time, Toyota has made a huge milestone recently. Its research arm has made a major breakthrough in developing solid-state batteries. The company hopes to mass manufacture these batteries by 2027.

Toyota’s batteries will have unique features. For example, they will have a 1,200 range, which is double the existing ones. Also, charging the batteries will take less than 15 minutes.

While companies like QuantumScape are also building these batteries, Toyota is in the best situation because of its scale. For one, manufacturing these batteries will be extremely costly.

Toyota has other catalysts as well. For example, it still has a huge market share in Japan and the United States. In the US, the company will be able to manufacture its vehicles at a lower cost than GM, Ford, and Stellantis, which have recently agreed to costly wage increase with UAW.

Meanwhile, the recent numbers show that Toyota’s business is doing well. In a statement, the company said that its monthly production surged by 3% in September to hit a record. It has already sold over 7.5 million vehicles in the first nine months of the year. The company hopes to sell over 10.4 million vehicles this year.

Toyota is also highly exposed to forex issues as the Japanese yen slumps. The USD/JPY pair now sits at 150, the highest level in decades. As a Japanese company that reports in yen, a weaker currency is beneficial since it makes most of its money abroad. 

In the most recent quarter, the company said that foreign exchange rates increased its operating income by JPY 1,280 billion. When making its forward guidance, Toyota assumed that the USD/JPY would be at 125.

Still, volatile forex movements have a mixed outlook for the company. For one, they lead to higher manufacturing costs because of higher import prices. Also, vehicle sales will likely slow as interest rates rises. In the US, the Fed has hiked rates to between 5.25% and 5.50%.

Toyota chart by TradingView

The daily chart shows that the Toyota share price has pulled back in the past few weeks. It has dropped below the 61.8% Fibonacci Retracement level. The stock has moved below the 50-day exponential moving average (EMA). It remains above the 100-day moving average.

Therefore, the outlook for the shares is bearish, with the next level to watch being the 50% retracement point at $166.64. In the long term, the shares will likely bounce back because of its strong fundamentals.

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