The idea of alternative-fueled vehicles isn’t new. In the 1970s and 1980s, oil prices skyrocketed. Gas was prohibitively expensive, when it was available at all.
In response, engineers began development of electric vehicle and hybrid concepts, but the first to win mainstream popularity wasn’t introduced until 1997.
That year, Toyota launched the Toyota Prius Hybrid. It became wildly successful, with more than five million sold from 1997 to 2022.
From the start, celebrities were excited about the Prius, and they used their influence to spread the word. However, there were two drawbacks to the innovative hybrid design. First, the Prius wasn’t fully electric, and second, it didn’t appeal to the sensibilities of luxury car enthusiasts. That’s when Tesla stepped in with sleek all-electric models that offered luxury car aficionados every possible feature.
Even after Tesla arrived on the scene, the Prius remained popular with mid-range car buyers. Eventually, the Nissan LEAF and the Chevy Volt joined the mix, but Tesla stayed on top of the electric vehicle market. That success shows in Tesla’s stock price. Over the past five years, Tesla stock has gone up more than 1,200 percent.
Since the Prius, Toyota hasn’t added much to the electric vehicle marketplace, and many investors have long since given up on the possibility that Toyota could pose a threat to Tesla.
However, in early July 2023, Toyota shocked the world by announcing breakthrough technology that will disrupt the EV industry. Suddenly, Toyota appears to be a formidable competitor for Tesla at a time when Tesla is vulnerable. The big question for investors comes down to this: Toyota vs Tesla stock – which EV maker is best?
What Is Toyota’s New Electric Strategy?
The biggest challenge in designing electric cars is the battery. Fully electric vehicles can only travel so far on a single charge before they have to stop at a charging station.
Fortunately, charging stations are being added to gas stations, highway rest stops, parking structures, and office buildings at a rapid rate, which makes it easier to travel long distances.
Nonetheless, range is a key factor in buyers’ decision-making process, and the cars that offer better battery power get the most attention.
Tesla has done amazing work with advancing battery technology, and the range of its vehicles continues to grow with every new model. However, Tesla – like all other EV manufacturers – relies on liquid state battery technology.
Essentially, these are lithium-ion batteries that use liquid electrolytes to carry lithium ions from one electrode to the next. Tesla and other electric vehicle manufacturers continue to improve these batteries, but to date, Tesla has only achieved a maximum range of 570 kilometers/350 miles.
Engineers have always known that once perfected, solid state batteries would be a game changer for electric vehicles. They differ from liquid state batteries in that they use slim layers of solid electrolytes to move lithium ions between electrodes. Their required charging time is lower, and they have potential to expand EV range by 20 percent or more.
Unfortunately, success in building solid state batteries for use in electric vehicles has been elusive. Though several prototypes have been developed, none were suitable for mass production.
Now Toyota says it has overcome the obstacles associated with solid state batteries, and it plans to launch a line of solid-state battery powered electric vehicles as soon as 2027. These EVs may have a range as high as 1,000 kilometers/620 miles. Toyota stock went up five percent when this news was released. Meanwhile, Tesla stock went down. What happened?
Why Did Tesla Stock Go Down?
Tesla worked hard to turn things around after its stock dropped sharply in 2022. That effort paid off according to its second-quarter earnings call. Tesla’s revenue increased 47 percent year-over-year to a total of $24.9 billion, which exceeded analysts’ expectations.
Adjusted earnings per share went up 20 percent year-over-year to $0.91 per share, and record vehicle deliveries resulted in a 46 percent increase in revenue.
Despite those results, Tesla stock went down more than nine percent in the week following the earnings call. Investors weren’t happy about the fact that revenue growth outpaced earnings growth and operating margin by quite a bit – an indication that Tesla’s decision to lower prices has reduced its ability to turn a profit.
On top of that issue, remarks from leadership failed to assure shareholders that Tesla will, in fact, begin wide scale production of its cybertruck by the start of 2024. The lack of detail prompted investors to imagine worst-case scenarios. In the end, many opted to sell Tesla stock.
Tesla Stock vs Toyota: Which Is Best?
It’s too soon to tell how Toyota’s announcement will impact electric vehicle stocks long-term. A lot can go wrong between now and the time the first Toyota EVs get on the road. Among other possibilities, another EV manufacturer – perhaps Tesla – might develop similar technology and level the playing field.
With that said, in a side-by-side comparison, Toyota stock is more likely to deliver reliable gains over time as compared to Tesla. Yes, Tesla stock took off in 2020, and when it did, shareholders were handsomely rewarded. However, Tesla is usually categorized as a tech stock, and it carries the risks associated with growth companies.
In addition, Tesla is in the unusual position of being synonymous with its controversial CEO, Elon Musk. That was fine when Musk was generally perceived as a strong leader, albeit somewhat eccentric. His actions in recent years have alienated many consumers, and naysayers claims unpredictable changes in strategy have shareholders and employees on edge.
Investors considering Tesla stock must be able to navigate the roller coaster ups and downs while maintaining their faith that Tesla stock will ultimately go up.
Toyota, on the other hand, has a long history of reliable performance. It is well-established in the automotive industry, and it has a reputation for producing safe, affordable vehicles. True, Toyota stock only gained around 20 percent in the past five years, but those are respectable returns that are likely to continue over the coming years, whether or not the company is able to reach its EV objectives by 2027. That makes Toyota stock an appropriate buy for investors in need of stability.
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