Toyota Revives 'Electrified' Land Cruiser To Reduce Carbon Emissions, Strengthen Brand

Toyota Motor (NYSE:TM) took the wraps off the latest version of Land Cruiser, an adventure themed vehicle designed to satisfy consumer appetite for competitive models such as Stellantis N.V.’s (STLA) Jeep nameplate and others from Ford's (F) Bronco lineup, as well as similar rugged vehicles from a number of other manufacturers.

Toyota is at pains to emphasize that the new model will be powered by a gas-electric hybrid engine, making it Toyota’s 25th model equipped with “electrification” technology – “more than any other automaker,” asserted David Christ, executive vice president, at the debut.

The automaker lately is engaged in a public messaging campaign in the U.S. to persuade consumers, environmental advocates and investors that its strategy of offering battery-electric vehicle (BEV) models at a more moderate rate than competitors such as General Motors Co. (GM) and Ford makes sense from an ecological as well as a business standpoint. GM and Ford have committed to all-electric futures.

And signs suggest, if the company’s stock price is any indication, that its messaging is yielding positive results.

Land Cruiser traces its history to the 1950s, when Toyota renamed its military-style off-roader with a nod to the renowned British Land Rover. Since then, a number of different versions have sold worldwide.

According to Toyota’s latest analysis, increasing reliance on gas-electric hybrids will reduce carbon emissions more than by a rapid switch to battery electrics. Hybrids are a tried-and-true technology for reducing fuel consumption. Which is why Toyota refers to hybrid systems, which partially rely on batteries for power, as “electrified.”

Consumer wariness

By contrast, many American consumers remain wary of BEVs due to their price as well as to limited charging infrastructure and anxiety over battery range.

In an earnings call with analysts this week, Ford CEO Jim Farley noted that gas-electric hybrids remained popular with customers of Ford models and the automaker will continue to offer them.

As a global manufacturer, Toyota also sells in a number of markets where it may be years, if not decades, before BEVs become commonplace. Thus, the automaker so far offers only one BEV model in the U.S. (plus a Lexus luxury version). Recently it has announced a multi billion-dollar program to accelerate development and rollout of new BEV models, including – within three years – manufacture of a solid-state battery that the company says may increase range to as much as 900 miles.

Land Cruiser, once a niche vehicle that sold relatively few units in the U.S., has been reimagined and redesigned using an existing truck architecture found on Toyota’s Sequoia large SUV. (Outside the U.S., Toyota will continue to sell a separate model called Land Cruiser that's mechanically distinct from the new U.S. version. The new U.S. Land Cruiser is a cousin of Toyota’s Lexus GX large luxury SUV, introduced in June.)

Tight inventory

Toyota sales have been constrained in the U.S. for much of the year by tight inventory, especially RAV4 and Highlander. For the first seven months of the year sales in North America are up 0.6%; in July they're up 8.1%. Nearly 30% of the automaker’s sales for July were electrified, either hybrid, plug-in hybrid, fuel cell or battery.

As Autoblog noted in its review of the new models specifications:

No matter what trim you pick, the Land Cruiser comes well equipped. They all get the Hybrid Vehicle News, Photos and Buying Information - Autoblog turbocharged 2.4-liter four-cylinder that will also be shared with top-spec Toyota Tacoma pickups. It makes 326 horsepower and 465 pound-feet of torque. They all get an eight-speed automatic transmission and full-time four-wheel drive with a two-speed transfer case. They also feature a locking rear differential, hill descent control, Crawl Control and 6,000 pounds of towing. Inside, they have a heated steering wheel, 2.4-kW power inverter a wireless phone and the latest Toyota infotainment is built in with wireless Apple CarPlay and Android Auto. Standard safety features also include automatic emergency braking with pedestrian detection, blind-spot monitoring, rear cross-traffic alert, adaptive cruise control, lane-keep assist and automatic high-beam headlights.

The new Land Cruiser is expected to arrive at dealerships in early 2024. It will be built at the automaker’s Tahara and Hino factories in Japan. Starting price is expected to be in the mid-$50,000 range. Fuel efficiency specifics will be announced close to start of sales.

Family matters

Could Land Cruiser become a brand like Jeep or Bronco, spawning variants that could boost Toyota sales, especially among young buyers? Time will tell, though Toyota executives have said nothing to suggest that such a strategy is afoot.

In mid-June, on the heels of announcements pertaining to a more robust electrification strategy, Toyota shares notched their best weekly performance since 2009. TM – Toyota’s ADR that trades in Western markets – rose to a peak above $200 in early 2022 and fell with the rest of the broader market through the first three quarters of the same year. Starting in May of this year, shares have risen nearly 30% in price against recovering worldwide sales and a growing acceptance that the automaker’s incremental electrification strategy makes sense in light of slower-than-expected demand for BEVs in the U.S.

Although TM carries a dividend yield of 2.92% by some measures and 2.5% by other measures – depending on the time frame during which it was paid – Seeking Alpha’s methodology counsels caution to investors aiming to rely on the payment for income. TM, whose dividend policy hasn’t shown consistency or growth, earns an “F” based on its analysis, meaning that the likelihood of a dividend cut or omission is high.

The F or failing rating isn’t meaningful, in my opinion, because Toyota remains financially strong and isn’t likely to omit dividend payment for any prolonged period.

Seeking Alpha’s Quant methodology rates the TM shares a “strong buy,” based on high ratings for growth, profitability, momentum as well as a strong record of the company’s management revising financial guidance upward rather than downward.

Even if Land Cruiser doesn’t evolve into a family of models like Jeep or Bronco, the introduction of a more affordable off-roader will offer defensive character to Toyota’s model lineup. The U.S. arm of the Japanese automaker has grown into its most important and profitable operation – which is why I continue to rate TM shares a buy.