Toyota has said it aims to pay 30 percent of net income as dividends—a lower payout ratio than at Honda Motor Co. last fiscal year—and that the company won't build any new factories until 2015 as it focuses on improving efficiency at existing plants.

“Our fundamental approach to production is to build cars where the demand is,” said Shino Yamada, a Toyota spokeswoman. “Based on this idea, we are working to maximize the utilization and productivity of existing plants and facilities.”

Instead, Toyota plans to increase its “net cash”—available funds minus some liabilities—to 6 trillion yen, from 4.6 trillion yen at the end of last fiscal year.

Behind Toyota's hesitation to spend are memories of tougher times, such as when it reported a record loss in the year ended March 2009, followed by millions of vehicle recalls related to unintended acceleration—adversities that Toyoda has partly blamed on over-expansion.

U.S., China

The company, which hasn't announced any new car plants since January 2012, has the capacity to make about 9.5 million units annually, according to Issei Takahashi, an analyst at Credit Suisse Group AG in Tokyo. Still, production can exceed capacity through added shifts or working hours.

Takahashi estimates capacity is tightest in North America, Toyota's biggest market. Its plants are so stretched that Toyota produces some of its Camry sedans at a Fuji Heavy Industries Ltd. factory.

By comparison, Volkswagen AG announced plans at last month's Detroit auto show to spend more than $7 billion during the next five years in North America. VW seeks to boost sales of its namesake and Audi brands to 1 million vehicles by 2018, the year it has set as a goal to become the top-selling automaker in the world.

In China, Toyota forecasts its sales will rise to above 1.1 million vehicles in 2014, though the company has only disclosed plans to build up annual capacity in the country to 990,000 units in 2015. Toyota saw record sales in the world's largest auto market last year as it recovered from the consumer backlash triggered in 2012 by a territorial dispute between Asia's two largest economies.

“They have to make a decision very quickly,” Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, said in reference to Toyota's capacity in China. “If they don't do it, they'll lose market share. They can't lose more market share.”

One risk of doing so is that like other Japanese carmakers, Toyota is vulnerable to geopolitical tensions, as illustrated by Japanese Prime Minister Shinzo Abe's recent visit to the Yasukuni Shrine, which includes World War II soldiers convicted of Class-A war crimes. In 2012, consumers shunned Japanese products because of a dispute over a group of uninhabited islands, sending Toyota sales down by 4.9 percent, while companies from General Motors Co. to Hyundai Motor Co. increased their deliveries.

“They can't just walk away from China,” said Yoshihiro Okumura, general manager at Chiba-Gin Asset Management Co. in Tokyo. “GM, VW are not hampered by the political headwinds and increased capacity a lot. Toyota will have to be aggressive too.”

VW, which has said it plans to invest 14 billion euros ($19 billion) in China through 2016, is building a new plant in the far western Xinjiang region along the old Silk Road. GM expects to invest at least $11 billion in China from 2013 to 2016, adding four assembly plants and raising capacity to 5 million vehicles.

Returning Cash

In the luxury segment, Toyota's Lexus is the only main brand that doesn't make cars in China. Even smaller marques including Cadillac, Volvo Cars, Infiniti, and Acura are going to be manufactured in China.

For Satoshi Yuzaki, general manager at Takagi Securities Co. in Tokyo, investments into future growth are often better than returning cash to shareholders.

“Is it better to return profits to investors, or keep an appropriate level of cash to invest for the future?” said Yuzaki. “I personally prefer them to invest wisely for projects that can guarantee their future growth.”

Toyota returned 20 percent of profit last fiscal year as dividend payments, compared with 28 percent at Nissan Motor Co. and 35 percent at Tokyo-based Honda.

Still, Toyota's payouts are rising as profits increase, with the company last paying an interim dividend of 65 yen a share, more than double what it paid a year earlier. The trend should continue as earnings keep rising, Credit Suisse's Takahashi said.

“They should return cash to investors no matter in what form,” he said.

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