Electric vehicle (EV) prices and charging infrastructure challenges have dimmed consumer interest in EVs, nudging them towards hybrids. Hybrid sales have skyrocketed over the past five years, with a record 1.2 million EVs and a 65% surge in hybrid sales in 2023, outpacing pure electric vehicle purchases. Hybrids, including plug-ins, now account for 10% of all new car sales in the U.S., surpassing pure EVs with a 7.6% market share.

As the Biden administration sharpens its auto emissions standards, manufacturers of hybrid and plug-in hybrid vehicles are poised for significant gains.

With a projected robust 13.8% CAGR growth in the U.S. hybrid EV market through 2032, the competition heats up between two automotive behemoths, Ford Motor Company (F) and Toyota Motor Corporation (TM), in a bid to claim a larger stake in the expanding hybrid EV market.

Let’s delve into the profiles of these two stocks to unravel which one emerges as a more compelling investment option.

Inspection of Ford Motor Stock

Ford Motor Company (F), established in 1903 and headquartered in Michigan, specializes in producing and servicing a diverse portfolio of vehicles, including trucks, commercial vehicles, SUVs, and luxury cars under the Lincoln brand worldwide. Currently valued at a market cap of $51.89 billion.

Over the past 52 weeks, Ford’s stock price increased by 14.5%, trailing behind the S&P 500 Index’s 30.5% growth. Notably, Ford’s stock has been a laggard over the long-term, declining by nearly 15% over the past decade.

While Ford halted dividend payments in 2020 due to the pandemic, it reinstated a quarterly dividend in October 2021 at 10 cents per share. The company has steadily increased its dividends, with a regular quarterly dividend of 15 cents per share announced during the Q4 2023 earnings call, and an additional special dividend of 18 cents per share.

Ford’s annual dividend of $0.60 per share offers a 4.6% yield, with a payout ratio of 61.4% indicating strong dividend coverage from adjusted earnings.

Trading at 6.85x forward adjusted earnings and 0.29x sales, Ford’s current valuation depicts a substantial discount compared to industry peers and its own five-year averages.

Ford Exceeds Q4 Earnings Projections

In 2023, Ford recorded sales of 72,608 EVs, incurring an EBIT loss of $4.7 billion in its “Model e” segment, equating to a staggering $64,731 loss per EV sold. However, Ford witnessed a significant uptick in total hybrid sales in Q4, with sales totaling 37,229 vehicles – a robust 55% increase.

In early February, Ford reported a net loss of $526 million for Q4, primarily attributed to special charges related to employee pension programs and reorganization of overseas operations. The extended UAW strike also contributed to higher labor costs, impacting the company’s fourth-quarter profits.

Despite these setbacks, Ford surpassed consensus expectations with adjusted Q4 earnings of $0.29 per share and revenue of $43.21 billion, outperforming Wall Street estimates. During the conference call following the Q4 release, CEO Jim Farley highlighted a 20% increase in global hybrid sales in the previous year, with an anticipation of a 40% surge in hybrid sales for the current year.

The current analyst sentiment towards Ford’s stock leans towards a “Hold,” down from a “Moderate Buy” consensus three months back. Out of the 18 analysts covering Ford, five rate it as a “Strong Buy,” two as “Moderate Buy,” eight as “Hold,” and three as “Strong Sell.”

The average analyst price target for Ford stands at $13.70, indicating a potential 3.2% upside over the next year. With a Street-high price target of $21 – raised from $19 by Bank of America analysts post Ford’s Q4 earnings release – the stock could witness a substantial rally of up to 58.18% from its current levels.

Analyzing Toyota Stock’s Potential

With a market cap of $341.6 billion, Toyota Motor Corporation (TM) – established in 1933 in Japan – is renowned for its production, assembly, and sale of a wide array of vehicles, including passenger cars, minivans, commercial vehicles, and associated parts and accessories globally. Toyota is a dominant force in the hybrid vehicle market.

Toyota: Fueling Success with Hybrid Dominance

The Rise of Hybrid Dominance

Toyota, a pioneer in hybrid cars since the late 1990s, has been making impressive strides in the market. Exhibiting a substantial 40% market share in the U.S., Toyota has solidified its position as a leader in the industry. Over the past 52 weeks, Toyota shares have surged by an impressive 82.5%, outperforming the SPX by a significant margin. Looking back over the last decade, the stock has shown remarkable growth, with returns nearing 123%.

Steady Returns and Dividend Payouts

Consistency is key, and Toyota has proven its reliability by paying dividends to shareholders for the past 37 years. With an annualized dividend of $4.00 per share, investors can enjoy a steady yield of 1.58%. This track record of financial stability and shareholder value has been a cornerstone of Toyota’s success.

Hybrid Innovation Driving Growth

In early February, Toyota reported stellar fiscal Q3 sales of $79.50 billion, marking a 23% increase year-over-year. Net income saw a substantial 86.5% annual growth, reaching $9 billion. Notably, Q3 hybrid car sales surged by 47% annually to 951,000 units, comprising 32% of global retail sales, while total vehicle sales saw a 9% rise. Toyota’s hybrid dominance has been a key driver behind its impressive growth trajectory.

Toyota vs. Ford: A Hybrid Showdown

Comparing Toyota with other automakers like Ford, it is evident that Toyota’s focus on hybrid offerings has positioned it for long-term success. While Ford may have an edge in the EV market, Toyota’s reputation for innovation and solid financial standing sets it apart. With a history of better and more reliable dividend payments, Toyota emerges as the frontrunner in the hybrid EV market. Investors eyeing long-term growth potential would do well to consider the merits of investing in Toyota.

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.