Japanese legacy automaker Toyota Motor Corp. reportedly sold $1.5 billion of US Environmental, Social, and Governance (ESG) Bonds to finance its electrification efforts, marking its first tap into the socially conscious debt in two years.
It is also worth noting that Toyota is just one of the many latest companies selling ESG-related bonds in Thursday’s US investment-grade market. Another is Deutsche Bank AG, which sold $1.25 billion through its NY business unit. Consequently, Syndicate desks expect new debt to price $5 billion to $10 billion, indicating a very slow week in the primary market.
Bloomberg’s source, which the publication named “a person with knowledge of the matter,” claims that Toyota divided the $1.5 billion of sustainability bonds into three parts.
The source further asserted that the 10-year security currently accounts for the biggest share of the sale. Apparently, it now offers 1.08 percentage points more than Treasuries following the initial negotiations of approximately 1.35 percentage points.
The person, who asked to be unnamed due to the confidentiality of the matter, also revealed that book orders had reached more than $6 billion as of 11 am in New York time.
Bloomberg’s compiled data indicated that this significant transaction signifies Toyota’s first use of an ESG-related bond in the US since 2021.
Purpose
Toyota refers to the debt proceeds as “woven planet bonds,” expecting it to aid the company in funding its electric vehicle-related projects. As per the SEC filing, the automaker aims to develop and produce BEVs and launch solar and wind projects.
This move aligns with Toyota CEO Koji Sato’s April announcement of a new electrification strategy, with plans to sell 1.5 million BEVs annually and launch ten new EVs by 2026.
However, the legacy automaker is still significantly behind EV giants like Tesla regarding production ramp-up.
That said, Thursday’s debt deal will demonstrate US investors’ confidence in the world’s second-largest automaker.
As per the unnamed source, JPMorgan Chase & Co., Bank of America Corp. Citigroup Inc., and Morgan Stanley currently head the bond sale.
Analyst outlook
Toyota has not yet confirmed the report or its specifics.
However, an industry analyst suggests that Toyota’s strategy of selling its ESG bonds is now common in the market, particularly due to the automakers’ intensified electrification efforts.
“You’ll see a lot of ESG-labeled debt from the sector. Most of the capital spending from the sector is going towards funding the transition to hybrid and electric vehicles.”
Joel Levington, a Bloomberg Intelligence Credit Analyst
Analyst Levington predicts the automaker’s operating margins will increase with its recent electrification initiatives. In contrast, he expects its rivals to struggle from growing pressure brought on by the following:
- the impending launch of multiple new EV models
- Chinese automakers’ growing market presence
- Tesla’s aggressive pricing strategy
“Toyota hasn’t burnt a lot of cash in a rush to outdo its peers in an EV push, which is a win for bondholders.”
Joel Levington, a Bloomberg Intelligence Credit Analyst
See Also:
- The Tesla Way: Toyota turns to US EV-maker for manufacturing expertise
- The reasons why Toyota refuses to abandon the Prius and hybrid cars
- Toyota’s brand loyalty slips amidst growing influence of Tesla
- Tesla clears inventory and dominates the Australian market against Toyota as EV enthusiasm grows
- UK advertising watchdog takes action against Toyota and Hyundai for misleading EV ads
Toyota’s decision to leverage its US ESG bond demonstrates its growing commitment to catch up in the highly competitive electric vehicle market. The Japanese legacy automaker, often regarded as an industry “laggard,” has now realized the significance of fully electric vehicles for both the environment and its profit.
