Toyota Industries
Corporate History & Strategy

Background: Inventor Sakichi Toyoda's loom development and failures in commercialization

Sakichi Toyoda devoted his life to inventing looms throughout the Meiji era. Beginning with a patent for a wooden hand loom in 1890, he developed Japan's first power loom in 1896 and invented an iron automatic loom (Type T) in 1903, consistently working on domesticating loom production. The 'Non-Stop Shuttle Change Toyoda Automatic Loom (Type G),' completed in 1924, was a groundbreaking invention equipped with a mechanism for automatically replenishing weft thread during operation, dramatically improving factory productivity.

However, in contrast to his achievements as an inventor, his path as a business manager was not smooth. Sakichi established several companies, but all took the form of joint ventures with external capital. A textile factory opened in Taito-ku, Tokyo in 1892 closed within a year; a loom manufacturing company co-founded with Mitsui & Co. in 1899 led to his resignation due to recession; and Toyoda Shiki Shokki (now Howa Machinery), established in 1907, similarly saw him step down taking responsibility for poor performance. While multiple companies handling his invented looms were born, Sakichi himself repeatedly failed to maintain management control.

Decision: Establishing Toyoda Boshoku with independent capital and achieving practical use of the automatic loom

After failures with joint venture formats, Sakichi established 'Toyoda Boshoku,' a textile factory with independent capital, in 1918. By investing his own funds and holding management control, he chose a capital structure that would prevent him from being ousted from management. The purpose of establishing Toyoda Boshoku was to secure a test factory for loom mass production. He needed to operate automatic looms in an actual mass production factory for testing, and chose the path of personally engaging in textile management.

Based on the track record at this test factory, Toyoda Automatic Loom Works, Ltd. was established in November 1926 as a subsidiary of Toyoda Boshoku, specializing in loom manufacturing. The factory was newly built in Kariya Town, Aichi Prefecture, where Toyoda Boshoku had established its base. Kariya Town Mayor Ichizo Ono had promoted factory attraction from a local employment perspective, and this relationship later became the starting point of the connection between the Toyota Group and the Nishi-Mikawa region.

Result: Mass production of the Type G loom and worldwide recognition

Toyota Industries commenced mass production of the Type G loom and expanded sales immediately after establishment. The Type G loom's technological level was high even by global standards, leading to a patent license grant to Platt Brothers of England, the heartland of the textile industry. The fact that a British company with a textile machinery tradition dating back to the Industrial Revolution adopted a patent from a Japanese inventor's loom demonstrated the Type G loom's technological superiority.

The establishment of Toyota Industries was the destination Sakichi Toyoda reached after repeated failures with joint venture formats, through the path of independent capital management and self-owned test factories. The process of requiring over 30 years to commercialize his inventions demonstrates that technological superiority alone does not make a business viable, and that the design of capital policy and management control determines a company's survival.

Background: Kiichiro Toyoda's vision for mass-producing domestic passenger cars

Kiichiro Toyoda, successor to Sakichi Toyoda, took notice of passenger cars that were becoming increasingly prevalent in Japan around 1930. The automobile market at the time was centered on imports, and no domestic mass-market passenger car manufacturer existed. Kiichiro set the goal of mass-producing passenger cars, but research and investigation into automobiles was conducted in utmost secrecy, ensuring that 'intentions would not leak externally until the time was ripe.' Mass production and precision technologies necessary for the automobile business — even those considered excessive for loom manufacturing — were secretly introduced, with development continuing as personal research in a corner of the factory.

What accelerated the research was financial backing. In 1929, the proceeds from granting the Type G loom patent license to Platt Brothers of England came into Kiichiro's hands, and with research funds becoming abundant, development progressed rapidly. Furthermore, President Risaburo Toyoda took full responsibility for fundraising, investing much of the profits earned by Toyoda Boshoku and Toyota Industries into the automobile venture. The structure of automobile development funded by loom business profits was established during this period.

Decision: Establishment of the automobile division and company separation in 1937

In September 1933, an automobile division was established within Toyota Industries, and in 1935, the A1 prototype passenger car and G1 truck were completed. However, with the progression of the wartime regime, the Automobile Manufacturing Industry Law was enacted, placing automobile manufacturing under a permit system. If the automobile business continued as a division of Toyota Industries, there was risk of being swept up in industry reorganization with no guarantee of independent survival, and in August 1937, the automobile division was separated as 'Toyota Motor Co., Ltd.'

Multiple considerations lay behind the separation. There was the need to isolate the financial risk of equipment investment for military truck mass production factory construction from the parent company, and the Toyoda family's intention to position automobile manufacturing as a national enterprise, avoiding monopolization of its profits by the family. The automobile business that began as an internal project of a loom manufacturer became an independent company in just four years.

Background: End of the Korean War boom and slumping textile machinery demand

Toyota Industries, which had resumed loom and spinning machine production after the war, recorded strong performance during the Korean War special procurement boom of 1950. Capital investment in the textile industry was active, and demand for textile machinery was strong. However, the textile industry was susceptible to business cycle fluctuations, and when the Korean War boom ended, demand for looms and spinning machines declined again. In June 1954, a 20% cut in performance-based pay was implemented, and in July 1957, a company-wide 'recession response' was declared, including termination of temporary workers' contracts — the impact of the textile recession was severe.

Taizo Ishida, who concurrently served as president of both Toyota Industries and Toyota Motor, had perceived as early as the first half of the 1950s that textile machinery demand would stagnate over the long term. The particular concern was that approximately 1,600 employees engaged in spinning and loom production could become surplus. Creating businesses independent of textile machinery became an imperative, and solutions other than workforce reduction were sought.

Decision: Entry into subcontract production for Toyota Motor

The path President Taizo Ishida chose was entry into OEM production of automobile parts and vehicle assembly for Toyota Motor. At the time, automobile demand was increasing, but Toyota Motor alone could not handle the production increase. By having Toyota Industries produce automobile-related products as a subcontractor, the plan was to redirect surplus textile machinery personnel to automobiles, maintaining employment while also reducing textile machinery costs.

In December 1952, production of S-type engines for Toyota Motor was initiated, and in August of the following year, 1953, the Obu factory of Meiki Seisakusho was acquired to establish the 'Kyowa factory.' In October 1953, vehicle assembly was also entered, and in September 1955, a 'Vehicle Division' was formally established. The transformation from a textile machinery manufacturer to an automobile parts and vehicle assembly manufacturer commenced in earnest with the establishment of the Kyowa factory.

Result: Shrinking textile machinery and expanding automobile business

Parallel to the expansion of the automobile business, the textile machinery production system moved toward contraction. In 1958, the decision was made to close the Sakou factory, which had been the production base for looms and spinning machines, consolidating textile machinery manufacturing at the Kariya headquarters factory. The era when textile machinery was Toyota Industries' core business ended just a few years after the establishment of the Kyowa factory.

The key point of President Taizo Ishida's judgment was absorbing surplus personnel through business transformation rather than workforce reduction. The choice of responding to the structural problem of declining textile machinery demand through subcontract production for the readily available customer of Toyota Motor was only possible because of the inter-company relationships within the Toyota Group. The establishment of the Kyowa factory was the starting point for Toyota Industries' transformation from a loom manufacturer to an automobile-related manufacturer.

Background: Long-term textile machinery slump and the concept of repurposing the S-type engine

Around 1956, Toyota Industries accelerated its search for a core business beyond textile machinery. Since the end of the Korean War boom, demand for looms and spinning machines had been in prolonged decline, and OEM production for automobiles alone was insufficient to absorb surplus personnel. New proprietary product businesses to replace textile machinery were needed.

The axis for new business planning was the repurposing of the 'S-type engine' produced for Toyota Motor. Two businesses emerged as candidates: 'forklifts,' repurposing the S-type engine for industrial vehicles, and 'cultivators (tractors),' repurposing it for agricultural vehicles. Both could leverage existing engine manufacturing technology and casting technology, making them domains where the production base of a textile machinery manufacturer could be readily transferred.

Decision: Simultaneous entry into forklifts and agricultural machinery

In March 1956, forklift production commenced. The catalyst for entry was that using forklifts at Toyota Motor's factories improved productivity. Prototypes were actually used at Toyota Motor factories, with product development reflecting on-site needs. For sales channels, since the company lacked a sales network for industrial vehicles, it adopted a policy of entrusting sales to Toyota Motor Sales' nationwide network.

In October 1957, cultivator sales commenced, entering agricultural machinery as well. However, in the agricultural machinery market, established companies including Yanmar, Kubota, Iseki Agricultural Machinery, and Komatsu had already secured sales channels throughout farming communities nationwide. As a late entrant, Toyota Industries struggled to build distribution. While forklifts could leverage Toyota Motor Sales' existing network, agricultural machinery required independently building sales channels into farming communities — the presence or absence of these channels determined the contrasting fates of the two businesses.

Result: Forklift establishment and agricultural machinery withdrawal; business structure transformation

Forklifts commenced dedicated factory operations in 1960, securing the No. 1 domestic share in the 1960s. By 1977, domestic share reached 38%, and forklifts became established as Toyota Industries' core business. Meanwhile, agricultural machinery continued to underperform, and withdrawal was decided in 1969. The two businesses that started from the same S-type engine repurposing produced contrasting results on the single point of sales channel availability.

Throughout the 1960s, Toyota Industries' revenue composition changed dramatically. Subcontract production for Toyota Motor accounted for over 50% of total revenue, while forklifts grew as the pillar of proprietary products. Loom and spinning machine revenue continued to stagnate, with forklifts and automobile OEM compensating for the founding business's decline. The transformation from a founding-era textile machinery manufacturer to a company centered on industrial vehicles and automobile parts was substantively completed during this decade.

Background: Advancing motorization and Toyota Motor's production increase demand

From around 1966, motorization began in earnest in Japan, and Toyota Motor's mass-market passenger car production surged. Against the expanding demand for mass-market cars led by the Corolla, Toyota Motor alone could not handle the production increase. Toyota Industries, which had commenced OEM production of engines and vehicle assembly at the Kyowa factory in the 1950s, had already come to account for a substantial portion of revenue from subcontract production for Toyota Motor. To expand consigned production volume in response to Toyota Motor's production increases, the Kyowa factory alone had insufficient production capacity.

In May 1967, Toyota Industries established the 'Nagakusa factory,' an automobile assembly plant in Obu, Aichi Prefecture. Positioned as a contract production base for Toyota Motor following the Kyowa factory, passenger car assembly lines were installed. In 1978, manufacturing of the Toyota 'Starlet' commenced at the Nagakusa factory, and thereafter the factory increasingly took on the character of a dedicated plant for consigned production of specific vehicle models.

Decision: Entrenchment of the business structure as a subcontractor

With the establishment of the Nagakusa factory, throughout the 1970s Toyota Industries expanded revenue from automobile-related products for Toyota Motor. In revenue composition, contract production for Toyota accounted for nearly 50% of the total company, and Toyota Industries' character as 'Toyota Motor's subcontractor' deepened further. While possessing forklifts as a proprietary product pillar, the business structure of sustaining over half of revenue through dependence on Toyota Motor was entrenched by the Nagakusa factory's operations.

The transformation from textile machinery stagnation to automobile OEM production was initiated with the establishment of the Kyowa factory and became structurally fixed with the establishment of the Nagakusa factory. In the process of transforming in reality from 'loom manufacturer' to 'automobile assembly contractor' within the Toyota Group, the Nagakusa factory was a capital investment that not only expanded production capacity but made the relationship with Toyota Motor more irreversible.

In 1970, Toyota Industries established the Takahama factory (Takahama, Aichi Prefecture) for mass production of industrial vehicles (forklifts, etc.). By consolidating production at the Takahama factory, centering on assembly processes other than engines, the company aimed to improve production efficiency. As a result, Toyota Industries maintained the No. 1 domestic forklift market share (38% as of 1977).

In 1987, Toyota Industries requested management support from Toyota Motor and decided to commence consigned production of the Toyota passenger car 'Sprinter.' An investment of 5 billion yen was made at the Nagakusa factory to renovate one dormant line, and Sprinter consigned production commenced. From 1988, production of the 'Camry' also began, expanding contract production for Toyota.

Background: KION's entry into logistics solutions threatening forklift world leadership

Toyota Industries entered the logistics solutions business in 1986, primarily serving domestic customers with automated warehouses and logistics systems. However, for the 30 years since entry, operations remained domestic-focused with a very small global share. The turning point came when Germany's KION Group, the world's No. 2 forklift manufacturer, acquired Dematic — the world's No. 3 logistics solutions company — for $2.1 billion in 2016. If the largest forklift rival gained the capability to propose integrated forklift and logistics system solutions, a structure emerged that would threaten Toyota Industries' position as the world's No. 1 forklift manufacturer.

The rapid expansion of e-commerce was accelerating growth in the logistics solutions market. The North American e-commerce market was expected to grow approximately 1.5 times from 53 trillion yen in 2014 to 79 trillion yen in 2018, with major players led by Amazon competing to build automated warehouses. As the industry flow shifted from standalone forklift sales to system proposals, expanding the logistics solutions business globally became urgent for Toyota Industries.

Decision: Consecutive acquisitions of Bastian Solutions and Vanderlande to reach world No. 4

In February 2017, Toyota Industries announced the acquisition of Bastian Solutions, a North American logistics system integrator. In the following month, March, the company agreed to acquire all shares of Vanderlande Industries Holding B.V., headquartered in the Netherlands, for approximately 140 billion yen. Vanderlande, established in 1949, had strengths in logistics systems for retail and parcel/postal businesses as well as airport baggage handling systems, operating globally with approximately 4,500 employees across 50 locations. Its 2016 revenue was approximately 130 billion yen, recording 18.4% year-over-year growth.

With the acquisition of both companies, Toyota Industries' logistics solutions business reached combined revenue of approximately $1.69 billion, leapfrogging the previously fourth-ranked Murata Machinery to become world No. 4. Through two M&A transactions, the logistics solutions business — which had been domestic-centered with a very small global share — was rapidly elevated to one of the world's top five. By adding automated warehouse and logistics system proposal capabilities to the world's No. 1 forklift brand and sales network, a structure to compete with KION was established.

Background: Toyota Group restructuring exposes the 'founding house' discount

In June 2025, Toyota Motor announced a tender offer for Toyota Industries at 16,300 yen per share. As part of the restructuring aimed at unwinding Toyota Group cross-shareholdings and rationalizing capital relationships, the offer price was at a discount to both NAV (net asset value) and the market stock price. The special committee determined it could not recommend shareholders to tender due to the market price discount. Multiple procedural and governance issues were also raised, and market participants questioned fairness in light of METI guidelines and TSE rules regarding financial advisor independence, non-procurement of fairness opinions, non-adoption of SOTP valuation, and lack of market checks.

Seizing on this situation was U.S. activist fund Elliott Management. Elliott had acquired over 3% of Toyota Industries shares as of the end of September 2025, with the holding disclosed in the November semi-annual report. In December of the same year, a large-shareholding report disclosed over 5% ownership, and by January 2026, the stake was increased to over 7% of outstanding shares excluding treasury stock. During this period, the value of the listed company share portfolio held by Toyota Industries had increased 43% from the initial TOB announcement date, resulting in a calculated increase of 4,805 yen per share on an after-tax basis. The appropriateness of the TOB price had deteriorated further with the passage of time.

Decision: Phased postponement of the TOB

On January 14, 2026, the Toyota Group commenced the revised TOB at 18,800 yen per share, approximately a 15% increase from the initial price. However, Elliott published a statement opposing the transaction on January 15 and released an open letter on January 18. The core of Elliott's argument was that Toyota Industries' corporate value was being underestimated not due to 'business weakness' but due to 'capital policy and disclosure design.' The company possessed world-class competitiveness in industrial vehicles, yet overinvestment in the automobile business aligned with Toyota Motor's interests, combined with a large cross-shareholding portfolio, was making corporate value opaque.

What Elliott presented was a concrete plan to enhance value on a standalone basis rather than tendering into the TOB. The plan had four pillars. First, complete unwinding of cross-shareholdings and share buybacks with the sale proceeds. Second, correcting investment discipline in the automobile business — arguing that additional investment in a business with an average ROIC of 2.3%, below the cost of capital, should be halted. Third, operational improvement centering on industrial vehicles — integration of the forklift business, integration of automation systems, and market share expansion in smart logistics. Fourth, renewal of governance and investor communication. Elliott estimated that if these were executed, NAV per share would exceed 40,000 yen by March 2028.

Result: Questions posed to a half-century parent-child structure

Elliott's proposal went beyond issues specific to Toyota Industries, constituting a challenge to the capital structure of the Toyota Group as a whole. The company's automobile business is an indispensable part of Toyota Motor's supply chain, serving as an assembly plant for top vehicle lines, providing engines supporting HEVs, and monopolistically supplying compressors. Yet according to Elliott's data, under this relationship, investment in Toyota Industries' automobile business expanded from 579 billion yen in FY2019 (March) to 942 billion yen in FY2025 (March), while ROIC averaged just 2.3% during the same period. In price negotiations with Toyota, Toyota Industries was on the defensive regarding price reductions — cost increases could be passed through but the company had no authority to implement price increases beyond that — an asymmetric relationship was identified.

In August 2025, the Asian Corporate Governance Association (ACGA) also sent an open letter to the boards of Toyota Industries and Toyota Motor, citing a lack of process and governance transparency. Elliott's proposal can be characterized as the first direct challenge from capital market logic to the parent-child reversal structure — where the 'founding house' depends on its subsidiary for over half its revenue as a subcontractor — that began as an employment maintenance measure in the 1950s and has been entrenched for over half a century. The gap between the revised TOB price of 18,800 yen and Elliott's estimated NAV of over 40,000 yen visualizes in numbers the magnitude of the discount this structure has produced.