Toyota, the biggest automaker in Japan, has gained attention lately, but not for the good reasons.

The country of the rising sun is renowned for its high standards, quality, and dependability when it comes to goods and services. But lately, there has been criticism of Japanese manufacturers for forging test certification applications.

According to Statista, two of the top three vehicle brands in the world in 2023 were Japanese. With a 10.7% market share, Toyota emerged victorious, trailed by Volkswagen of Germany with a 6% market share. With a 4.6% market share, Honda Motor of Japan was the third-biggest brand.

However, Toyota, the largest carmaker in the world by market share, has already been the subject of an investigation for erroneous test results.

Toyota has embraced the Japanese concept of “kaizen,” which translates to “continuous improvement,” and it is regarded as one of the company’s guiding principles.

However, the country’s Ministry of Land, Infrastructure, Transport, and Tourism conducted a thorough investigation into Japanese automakers, finding that five significant Japanese automakers, including Toyota, had submitted false certification applications. As a result, the company’s reputation has suffered.

The transport ministry said on June 3 that irregularities in certification applications from Toyota, Mazda, Honda, Suzuki Motor, and Yamaha Motor had been found.

All five corporations had provided bogus test results, or in the case of Mazda and Toyota, fabricated crash test cars.

In the week that followed the disclosures, the stocks of all five Japanese automakers fell precipitously, with Toyota suffering the largest loss in market value—2.45 trillion yen, or $15.62 billion—just last week.

Toyota chairman Akio Toyoda apologised to stakeholders and consumers following the scandals, and the corporation stopped selling and shipping the three Corolla models—the Fielder, Axio, and Yaris Cross—that are now built in Japan.

According to Toyoda, the corporation “tested using methods that differ from the standards defined by the national authorities” for seven of its models.

A second safety mishap at Toyota affiliate Daihatsu served as the impetus for the Transport Ministry’s investigation, even though the most recent information was just made public two weeks ago.

Following an examination that revealed safety concerns with certain of its models, including instances in which airbag control units used in testing differed from those sold to the general public, Daihatsu suspended the shipping of all of its cars in December.

Daihatsu revealed in April of last year that it had falsified side-impact safety tests for 88,000 small vehicles, the most of which were sold as Toyotas. The impartial third-party panel’s examination also showed that the inconsistencies in the certification dates back to 1989.

“Betraying the trust of our customers and other stakeholders and for causing great inconvenience and concern,” was how Daihatsu expressed its regret.

Following updated testing, Daihatsu started shipping some of its vehicles again in April of this year.

Over 640,000 cars were impacted in 2022 when Hino, Toyota’s truck division, admitted to falsifying emissions data on certain engines as early as 2003.

Will investors dump the stock in light of the current scandals and instead invest in other Japanese manufacturers that have not had troubles?

Toyota’s stock had dropped to its lowest level since February 6 as of June 13. Toyota’s stock has dropped 8% since the controversy first surfaced on June 3.

Nonetheless, a June 3 report from Citi stated that there will be “minimal” impact on industry share prices. “On the performance front, there are no issues anywhere, and the irregularities do not appear as if they will lead to recalls,” they continue.

Citi said that “in many cases even if the certification process was not followed exactly, tests that were effectively even more rigorous were subsequently conducted,” highlighting the fact that the certification procedure itself is partially to blame for the issues.

According to Citi analysts, Toyota’s monthly output is expected to reduce by about 11,000 units, resulting in a sales loss of almost 22 billion yen ($139.89 billion).

“However, as production is likely to resume in two to three months, we think the overall impact is likely to be modest,” they added.

Positive feeling has been shared by market analysts collectively.

The company has been rated as “buy” or “overweight” by 12 out of 19 analysts in June, according to FactSet data. The average target price for the stock is 3,888.56 yen, which is a 24.3% increase over its closing price on June 13. Seven people remained and placed “hold” calls.

(Adapted from CNBC.com)