Summary
- Toyota Q2 profit 562.7 bln yen vs 772.2 bln yen estimate
- Lowers FY production target to 9.2 mln units from 9.7 mln
- Unclear when chip shortage will end – executive
- Results ‘very unimpressive’ considering positive factors -analyst
- Shares close down 1.9%, Nikkei benchmark rises 0.3%
Toyota Motor Corp (7203.T) on Tuesday reported a worse-than-anticipated 25% fall in quarterly profit and lowered its annual output target, as the Japanese firm struggles with rising material costs and a prolonged semiconductor shortage.
The world’s largest automaker by sales also cautioned that it remained hard to forecast the future after reporting its fourth successive quarterly profit drop, highlighting the strength of business headwinds it faces.
During the coronavirus pandemic, Toyota achieved better results compared to most car makers in managing supply chains, but it fell victim to the extended chip shortage this year, lowering monthly production targets continually.
Kazunari Kumakura, Toyota’s purchasing group chief, said:
“We’re out of the worst phase, but … it’s not necessarily a situation where we’re fully supplied. I don’t know when the chip shortage will be resolved.”
Operating profit for the quarter ended September dropped to 562.7 billion yen ($3.79 billion), well below an average estimate of 772.2 billion yen in a poll of a dozen analysts by Refinitiv. Toyota sales recorded a 749.9 billion yen profit a year ago, and 578.6 billion yen in profit in the first quarter.
Kumakura said the global auto chip shortage persists, as chipmakers have prioritized supplies for electronics goods such as computers and smartphones, while COVID lockdowns, natural disasters, and factory disruption have weakened a recovery in auto chip supplies.
He also said the supply of older-type semiconductors, which bring in minimal capital investment currently, would continue to be tight. Amid the gloom, shares in Toyota ended down 1.9%, against a 0.3% jump in the Nikkei (.N225) average.
‘Very Unimpressive’
Several analysts were disappointed by the performance, saying other positive factors other than the chip shortage should have supported a boost.
Koji Endo, an analyst at SBI Securities, said:
“The yen is weaker in the second quarter, the volume in the second quarter is much higher than in the first quarter, and the (COVID) lockdown in China does not affect (the volume in the second quarter). Considering these points … the absolute amount of profit in the second quarter has got to be higher than that of the first quarter. It is very unimpressive.”
Production bounced back by 30% in the quarter, but the company cautioned last week shortages of semiconductors and other components would continue to keep down output in months to come. Toyota said it now hopes to assemble 9.2 million vehicles this fiscal year, a drop from the previously estimated 9.7 million but still more than last financial year’s production of about 8.6 million units.
Reuters reported in October Toyota had informed several suppliers it was setting a global target for the current business year of 9.5 million vehicles and indicated that the forecast could be cut, based on the supply of electromagnetic steel sheets.
Buy Crypto NowMuted Yen Impact Toyota
The yen has fallen around 30% in 2022 against the U.S. dollar, but the benefit of the weak yen – making sales overseas cost more – has been offset by surging input costs.
Notably, the weak yen increased profit by 565 billion yen in the first six months of this financial year, but the gain was more than canceled out by a 765 billion yen rise in material costs, with the cheap local currency further jacking up import costs, Toyota said.
Toyota maintained its conservative profit outlook, keeping its full-year operating forecast of 2.4 trillion yen for the fiscal year through March 31 – well short of analysts’ average forecast of 3.0 trillion yen. By comparison, South Korea’s Hyundai Motor (005380.KS) lifted its revenue and profit margin guidance in October resulting from a foreign exchange lift.
Toyota, once cherished by environmentalists for its hybrid gasoline-electric models, is also under investigation from activists and green investors over its slow push into fully electric vehicles (EV). Just a year into its $38 billion EV plan, Toyota is already looking at rebooting it to better compete in a market expanding beyond its expectations, Reuters reported in October.
In a reputational hit, Toyota had to recall earlier in 2022 its first mass-produced all-electric vehicle after merely two months on the market because of safety concerns, and halt production. It resumed accepting leasing orders last month for the domestic market.
Toyota restated on Tuesday that battery-powered EVs are a powerful weapon for decarbonization, but that there are several other alternatives to accomplish the goal.
($1 = 148.3100 yen)