Toyota boosts profit forecast after third quarter beats projections

Tokyo — Japan’s Toyota Motor raised its full-year operating profit forecast by nearly 9% on Tuesday, after its third-quarter earnings raced past analysts’ estimates thanks to a weaker yen and strong sales of high-margin cars and hybrid vehicles.

Toyota shares surged after the announcement and closed 4.8% higher — the biggest one-day gain in nearly eight months.

The improved outlook from the world’s best-selling automaker contrasts with a downbeat forecast from many rivals that have warned of tepid sales growth and announced output cuts amid high interest rates and slowing demand for electric vehicles.

The Japanese automaker, a laggard in battery-powered electric vehicles (EVs), is expected to outperform competitors this year, helped by robust demand for hybrid vehicles, which it pioneered more than a quarter-century ago with the Prius model.

Toyota is likely to benefit from relatively higher margins on hybrids and the fact that some models tend to be costlier, said analyst Seiji Sugiura from Tokai Tokyo Research Institute. Selling prices are going up in the absence of discounts, he added.

Earlier, Toyota CFO Yoichi Miyazaki said that efforts to adjust production to better respond to demand for popular models had helped the automaker sell vehicles without resorting to the usual discounts and incentives.

The Japanese firm raised its profit forecast for the year ending March to ¥4.9-trillion ($33bn) from ¥4.5-trillion expected previously. That is well above an average analyst forecast of ¥4.6-trillion, according to LSEG data.

Toyota’s operating profit for the third quarter ended December 31 was ¥1.68-trillion, beating the average ¥1.3-trillion profit estimate in a poll of nine analysts by LSEG.

Hybrid sales soared 46%, contributing to an 11% rise in overall vehicle sales. Hybrids accounted for about a third of the total sales of more than 10-million vehicles of its Toyota and luxury Lexus brands last year.

Strongest growth

A weaker yen, which has tumbled about 10% against the dollar since end-2022, bolstered the impact of Toyota’s robust global sales.

By geography, North America, Toyota’s biggest market by volume, reported the strongest growth with a 28% sales surge. Sales of hybrid vehicles have been rising in the US as consumers baulk at high EV prices and are anxious about the range of electric cars.

Demand for hybrids is so strong that buyers have to wait for about a year to get deliveries of some models, such as the Toyota Sienna multipurpose vehicle, according to some US dealers.

Miyazaki said the share of hybrids in sales improved across all markets, including China, where Toyota and many other foreign automakers are struggling due to growing competition from local EV makers, but warned that Toyota is not optimistic about conditions in the world’s biggest vehicle market.

Sales in its home market, Japan, grew just 5% but it reported the highest earnings and margin among its major markets.

Japan contributed two-thirds of Toyota’s quarterly profit and generated a 20% operating margin, well above the company’s overall margin of 14% and North America’s 3.4%.

Toyota’s profit margin of 14% is far ahead of Tesla’s 8.2% as the US automaker has been slashing vehicle prices in major markets, including the US and China, to shore up demand.

However, with the operating profit margin at a considerable 14%, sales may become tougher from now as competition among automakers heats up, analyst Sugiura said.

“Another factor is that the [economic] outlook for the US, China and Southeast Asia is not so good,” he said, adding that Toyota is also facing rising labour costs, especially in the US and Japan.

Toyota retained its crown as the world’s top-selling automaker for the fourth consecutive year in 2023 after posting record annual sales of 11.2-million vehicles.

But the company is grappling with a series of scandals at its group companies over product certification test procedures that threaten to hurt its reputation for quality and safety. Toyota’s chair apologised last week for the inconvenience and concern caused by misconduct at two subsidiaries and an affiliate.

The company on Tuesday slashed its annual vehicle sales target by 150,000 units to 9.45-million vehicles to reflect the suspension of shipments from Daihatsu Motor due to an ongoing safety certification scandal investigation.

Reuters