Picture: REUTERS
Picture: REUTERS

Tokyo — Toyota is stepping up cost reductions to shore up its money chest, as it looks to ramp up investment in new technologies, but cautioned a stronger yen would chip away at its operating profit and higher annual sales.

Toyota’s plans to spend ¥1.08-trillion ($10bn) on research and development in 2018 comes at a time when global car makers are sharpening their focus on electrification and automation to stay competitive amid rising demand for vehicles powered by cleaner technologies.

As a buffer against currency moves and to ensure there were funds for research and development, Toyota "will prioritise sticking to its roots, the Toyota production system and cost cuts", president Akio Toyoda said, referring to a strategy to co-ordinate with suppliers to make cars when needed, minimising inventories.

A recently introduced production system based on more standardised parts that can be used across different models would also continue to help deliver cost cuts, he said.

Cost reductions are expected to contribute about ¥130-billion to operating profit in 2018, after adding ¥165-billion to Toyota’s earnings in 2017.

"We’ve become a leaner, trimmer firm and in the past year we’ve developed our remaining fat into muscle, so we’re in a strong position to be more competitive," Toyoda said.

Japan’s top car maker posted a 20% jump in operating profit to ¥2.4-trillion for the year to March 2018, outpacing rivals Volkswagen and Daimler for a fifth straight year. Despite cost cuts and high global sales, Toyota expects operating profit of ¥2.3-trillion for the year to March 2019, better than analysts’ estimates but 4.2% lower than a year ago due to a firmer rate of about ¥105/$ versus ¥111/$ in the previous year.

A firmer yen eats into profit repatriated from abroad and raises the cost of exported vehicles and parts, making Japanese products less competitive overseas and denting margins.

Toyota’s warning comes on the heels of similar projections by other Japanese car makers, such as Honda and Mazda. Only Mitsubishi sees a rise in operating profit despite a stronger yen.

Toyota is targeting total group sales of a record 10.5-million vehicles globally in the year to March, versus 10.44-million in 2017, led by strength in Asia.

It expects sales in Asia to rise 8.2% to 1.67-million units, while it sees sales in North America, its biggest market, dropping slightly to 2.8-million units.

In North America, Toyota and its domestic rivals are grappling with intense competition and falling demand for sedans, a mainstay of Japanese automakers in the region, amid an overall slowdown in the world’s second-biggest auto market.

North America remains "challenging", senior managing officer Masayoshi Shirayanagi said, adding the company planned to keep vehicle discounts, a major cost to the company, at current levels or lower them this year.

Shares in Toyota reversed early losses to close up 3.8% on Wednesday, buoyed partly by a company plan to buy back shares worth up to ¥300bn.