Shares are expensive. Production is uncertain. Growth is uninspiring. And a strong yen threatens to squeeze margins. (How’s that for a quick and dirty investment analysis?)
That being said, another profit opportunity is brewing as the world’s largest automaker contends in the aftermath of the earthquake and tsunami.
Let me explain.
It’s All About Supply and Demand, Stupid!
Toyota’s production halt in Japan threatens to impact supplies of all its models. The most vulnerable one, though, promises to be the company’s energy efficient darling, the Prius.
I say that because even before the Japanese earthquake hit, Prius supplies were dwindling. In fact, at the end of February U.S. dealer inventories stood at 17,997. Based on the current sales rate that’s only about one month’s supply.
And at the same time, demand for Priuses was accelerating because of warmer weather and the 13.4% jump in gasoline prices in the last month. In case you didn’t know, warmer weather brings out more car shoppers. And Prius sales historically rise with gasoline prices.
While it’s true the plant where Priuses are made wasn’t damaged, production still screeched to a halt until further notice. And with each passing day of inactivity, the supply problem worsens.
On the demand side, let’s just say the weather isn’t going to get any cooler anytime soon. And the price of gasoline isn’t expected to plummet either. Heck, it just topped $4 per gallon in Hawaii.
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Add it all up, and as Pete DeLongchamps, vice president of manufacturer relations for Group 1 Automotive Inc., the second-largest Toyota franchise owner in the U.S. says, “Prius stock is a little bit short.” And the prospect of Prius supply getting a lot short is strong.
The last time such economics kicked in, back in 2004, you’ll recall savvy investors made a mint by selling Priuses on eBay (Nasdaq: EBAY).
Back then, used Priuses routinely sold on the internet auction site for more than the list price of new models. And brand new models fetched the highest premiums.
In fact, one Daytona Toyota dealer put a Prius on E-bay with a buy-it-now price of $36,459, or roughly $10,000 over the list price. Do the math. That’s about a 40% profit potential.
I promise you if the supply of Priuses keeps dwindling in the aftermath of the Japanese quakes – and gasoline prices keep trending higher – such markups are going to return. If they do, capitalize on the situation because there’s no chance of booking comparable profits trading Toyota’s stock at these levels.
Ahead of the tape,