Shares of Toyota Motor (TM -0.82%) were gaining this week after the automaker reported strong third-quarter results, showing that its strategy of investing in hybrid vehicles instead of electric vehicles (EVs) is paying off.

The news came as investor sentiment in the auto sector continued to shift from EVs toward legacy automakers. As a result, Toyota finished the week up 10.8%, according to data from S&P Global Market Intelligence.

Production at an auto factory.

Image source: Getty Images.

Toyota is figuring it out

The world’s biggest automaker by vehicles sold posted strong revenue growth in the third quarter, up 23.4% to 12 trillion yen. Operating income jumped 76% to 1.68 trillion yen, showing off strong margin expansion. Operating margin improved from 10% to 14%, outpacing peers like GM, Ford, and Tesla. Earnings per share nearly doubled from 53.4 yen to 100.62 yen.

Results were strong across the board as it delivered sales growth in all geographies, with North America being a particular standout. Revenue in North America jumped 38% to 4.96 trillion yen, and operating income in the region flipped from a loss of 17.9 billion yen in the quarter a year ago to a profit of 227.4 billion yen. Japan, the source of nearly half of its revenue and most of its operating profit, also showed off strong growth and margin expansion.

Toyota shares reached a record high on Wednesday as the report helped convince investors that the company had made the right strategic decision of prioritizing hybrids over battery electric vehicles. Recent comments from Ford and other automakers have echoed that sentiment. Toyota was also able to pass along higher prices, which helped drive the expansion in operating margin.

After the earnings report, Toyota announced a $1.3 billion investment at its flagship Kentucky plant to support future electrification efforts, including a three-row battery electric SUV for the U.S. market, showing it’s still investing in EVs.

Can Toyota stock keep climbing?

Toyota raised its guidance for the year, calling for unit sales of 11.2 million and revenue of 43.5 trillion yen, up from an earlier forecast of 43 trillion yen. It also expects operating income to be 4.9 trillion yen, equal to $32.8 billion.

Its efforts in Kentucky show the company still plans to compete in EVs, but it’s taken a deliberately slower pace than some of its competitors. If the market continues to shift toward hybrids and EV demand keeps cooling off, expect Toyota stock to keep moving higher.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.

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