Toyota group companies plan to cut their stake in components maker Denso by year-end, with Toyota Motor (7203.T) and two affiliates selling about 10% of the auto supplier, sources familiar with the matter said. Based on current market prices, the sale would be worth about $4.7 billion.
The sale would be one of the largest in Japan by an automaker and a key source of capital for parts makers who need to invest in research and development and revamp production to ramp up total electric vehicle production. Toyota’s planned move follows a similar one last year by another top Japanese automaker, Honda Motor Co Ltd (7267.T), to reduce its shareholding in another key Toyota supplier, Aisin Seiki Co Ltd 7259.T, by about 10%.
Toyota’s plan to sell its stake in Denso marks the latest step by the world’s top-selling automaker to cash in on stakes in its group companies as it shifts from selling traditional gasoline-powered cars to fully electric vehicles. It will also spend billions of dollars converting its manufacturing facilities to electric drive trains.
Denso, a maker of air-conditioning systems to navigation units, has expanded its business recently by forging partnerships and investing in chip plants to secure enough semiconductors to meet demand as the industry shifts toward electric cars and ‘connected’ technologies.
But the world’s top-selling automaker will likely need to continue cutting costs and boosting sales to remain profitable amid an expected drop in car sales as consumers shift away from sedans, which account for most of its overall sales. That could lead to more consolidation among automakers and suppliers, particularly in the U.S., where rivals including Ford Motor Co (F.N.) and General Motors Co (GM.N) are making similar moves to boost profitability.
Toyota is already leveraging its connections to the auto parts industry as it shifts to E.V.s. Last year, it partnered with two suppliers, Aisin Seiki and Denso, to form an autonomous driving research center called the Toyota Research Institute – Advanced Development, or TRI-AD, in Tokyo. TRI-AD will work to develop electronic components needed for Toyota’s future self-driving cars.