A class action lawsuit was filed against Toyota Motor Corporation (TM) by Levi & Korsinsky on June 24, 2024. The plaintiffs (shareholders) alleged that they bought Toyota American Depositary Shares (ADS) at artificially inflated prices between June 23, 2022 and June 2, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Toyota Motor ADS during that period can click here to learn about joining the lawsuit.
Toyota is a Japanese automobile manufacturer with operations spread worldwide. It is home to some of the legacy car brands including Lexus, Prius, and more.
Toyota’s Disclosures
According to the lawsuit, Toyota and four of its current and/or former senior officers and/or directors (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the Company’s legal compliance and certain conduct related to its car certifications from SEC filings and related material.
In the annual report filed on June 30, 2023, Toyota mentioned that there were material irregularities in certification and approval applications for automobiles at two of its consolidated units, Hino and Daihatsu.
At Hino, it identified past misconduct for certification applications related to emissions and the fuel economy performance of vehicle engines manufactured for the Japanese market. Meanwhile, at Daihatsu, irregularities related to side collision tests for vehicles developed for international markets were identified.
Despite these identified flaws, the company failed to examine and diagnose similar flaws in its other units in a timely manner.
Plaintiffs’ Arguments
The plaintiffs maintain that Toyota Motor and the Defendants deceived investors by lying and withholding important information about the company’s business practices and prospects during the Class Period. Importantly, the defendants are accused of misleading investors about the inefficiencies relating to the certification of its cars and issues relating to overall legal compliance.
The truth was revealed before the market opened on June 3, 2024. The company released a statement noting that it conducted an investigation of its model certification applications based on the guidelines received from Japan’s Ministry of Land, Infrastructure, Transport and Tourism (MLIT) on January 26, 2024.
While the investigation was still underway, Toyota identified that seven models used different testing methods from those identified by the authorities. The same was reported to the authorities on May 31. The models were manufactured by two companies, Toyota Motor Corporation and Toyota Motor East Japan. The company’s chairman, Akio Toyoda, acknowledged that vehicles were mass-produced without going through the appropriate certification processes. The company also announced a temporary pause in shipments and sales of three models included in the investigation effective June 3, until it found an apt remedy for the situation.
The press release led to news reports on the issue by leading publications such as the New York Times and Associated Press, resulting in a decline in Toyota’s ADS price.
Overall, Toyota Motor failed to follow adequate certification processes for its manufactured vehicles and had issues related to legal compliance. Owing to these reasons, TM shares have declined 26.7% over the past three months.
