Toyota Motor (NYSE: TM) stock raced 3% higher through 9:50 a.m. ET Tuesday after Nikkei Asia reported on a strengthening alliance between the Japanese automotive titan and Germany's BMW(OTC: BAMXF)(OTC: BMWYY).
According to the report, BMW is hoping to produce a mass-market hydrogen fuel cell automobile in a few years -- and wants Toyota to help.
Toyota and BMW: Better together?
Toyota and BMW will officially announce their expanded partnership early next month at a BMW media roundtable, says Nikkei Asia. The companies are already partnering on fuel cells, but progress has been slow. Toyota, the senior partner in this fuel cell partnership, has managed to sell fewer than 25,000 Toyota Mirai hydrogen fuel cell cars in 10 years of trying. BMW's BMW iX5 Hydrogen car, meanwhile, is still experimental.
Under the new partnership, Toyota's role will mainly involve advancing BMW's efforts by supplying key components such as hydrogen tanks and fuel cell systems. BMW will tailor its own EV technology to accept electricity from the fuel cells to run the vehicle.
What are the advantages to the companies? BMW won't need to invest in the development of parts it can buy from Toyota. Meanwhile, Toyota will be able to gain scale of production in the parts it manufactures for BMW, which will help to amortize its development costs across a larger production base.
Is Toyota stock a buy?
So it's a win for both companies, though a lot rides on how much larger the production base grows for Toyota with additional sales of BMW fuel cell cars. And any advantages may take years to materialize.
All that being said, Toyota doesn't need a huge amount of growth from its BMW work to make Toyota stock a winner. The stock is valued at just 7.2 times trailing earnings, and it pays investors a respectable 2.9% dividend yield, so even an annual profits growth rate of 4% to 5% should be enough to justify buying the stock...and analysts polled by S&P Global Market Intelligence predict a rate of 15% or more.
Sounds good to me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft. The Motley Fool has a disclosure policy.
