toyota-business-model

The Toyota Business Model In A Nutshell

  • Toyota is a Japanese automobile manufacturer founded in 1937 by Kiichiro Toyoda. Toyoda started the company with funding from the sale of his father’s automatic loom technology.
  • Toyota makes almost 90% of its revenue through the sale of passenger and commercial vehicles. The company also makes money through its Toyota Financial Services arm, funding automotive loans and credit cards while also leasing vehicles. 
  • Toyota earns a small percentage of its total revenue through investments in other car manufacturers and industries such as biotechnology, aerospace, and robotics.

Toyota origin story

Toyota is a Japanese automobile manufacturer founded in 1937 by Kiichiro Toyoda.

The Toyota story begins almost twenty years before the company was incorporated. In 1918, Kiichiro’s father Sakichi invented the world’s first automatic loom. The loom, which reduced manufacturing defects and increased yields, was later sold to British company Platt Brothers for £100,000.

Sakichi then gave the proceeds to his son to develop automotive technology at Toyota, with the first passenger car dubbed the Model AA created in 1936. During the late 1940s, Toyota was able to benefit from Japan’s alliance with the United States. This would give rise to The Toyota Way management philosophy and Toyota Production System lean manufacturing process, with the latter also inspired by Sakichi’s original loom technology.

Toyota was also quick to profit from the emerging Japanese middle class in the 1960s with the release of the Corolla mid-size passenger sedan. The company experienced a period of rapid growth during this time, exporting large numbers of vehicles to foreign markets where they quickly gained a reputation for reliability, affordability, and fuel efficiency. 

In 1986, Toyota partnered with General Motors to develop a new manufacturing facility in California. Luxury subsidiary Lexus was launched in 1989, with the company’s first hybrid vehicle, the Toyota Prius, launched in 1997. 

Today, Toyota produces vehicles under five different brands: Toyota, Daihatsu, Hino, Lexus, and Ranz. The company also has significant stakes in Mazda, Subaru, Suzuki, Isuzu, and Yamaha, among others. 

Though figures vary from year to year, the Camry, RAV4, and Corolla are often among the top five best-selling car models in the world. More broadly speaking, Toyota sold 9.386 million passenger vehicles during 2020.

Toyota revenue generation

Toyota generates the bulk of its revenue through the sale of automotive vehicles, with a smaller percentage coming from its financial services division.

Let’s take a look at these streams in more detail.

Vehicle sales

Approximately 88% of Toyota’s revenue comes from automotive sales.

Automotive sales encompass passenger vehicles, minivans, and commercial vehicles such as trucks, buses, and forklifts. Vehicle sales are segmented into distinct business units based on brand and geographic region. Luxury brand Lexus is considered one of the most profitable.

Toyota also manufactures and sells automotive parts, components, and accessories to other car manufacturers. 

Financial services division

Toyota Financial Services is a subsidiary that finances automotive loans, credit cards, and other services such as vehicle leasing.

Revenue from this subsidiary was 7.9% for the 2021 financial year. 

Other services

The remainder of Toyota’s revenue, approximately 4%, comes from other services. 

This includes investments the company has made in the housing, telecommunications, biotechnology, aerospace, and robotics industries. It also includes the aforementioned stakes Toyota has taken in competing automotive companies.

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