TOKYO – Toyota Motor warns that an “unprecedented” rise in raw material costs could cut profits by a fifth of a full year, a clear sign that sales will not overcome the world’s top automaker’s supply-chain crisis that has rocked global industry.
Also reporting a 33% decline in fourth-quarter operating profit, the Japanese giant saw its shares slide more than 5% on Wednesday, before closing more than 4% – their biggest one-day fall in two months. The Tokyo benchmark rose 0.3%.
Toyota did well in the early months of the global semiconductor shortage, thanks to large stocks of chips, but it has now joined rivals in reducing production due to the prolonged crisis as well as China’s new COVID-19 restrictions.
Famous Corolla Compact Car House says equipment costs will double to 1.45 trillion yen ($ 11.1 billion) in fiscal year beginning in April, which it expects to tackle by switching to low-cost equipment.
“We need to think about how we can bridge the gap between real equipment manufacturers and suppliers and work together to respond to material inflation,” Chief Financial Officer Kenta Con told reporters, referring to car manufacturers.
“As equipment prices rise, we need to work to reduce the amount of materials as much as possible and replace them with less expensive materials.”
The automaker expects to sell 8.85 million cars worldwide this fiscal year, up 7.5% from last year.
Toyota, which pledged 8 trillion yen to electrify its vehicles by December 2030, said the cost of raw materials would be even higher for battery-powered electric vehicles (BEVs).
Customers, however, are sensitive to price increases, said Masahiko Maeda, chief technology officer, adding that increasing costs have made it harder for Toyota to do so, an achievement that EV leader Tesla Inc. has successfully accomplished.
Toyota, the champion of hybrid vehicles, lags behind its peers in EV investment. It had previously forecast 3.5 million EV sales per year by 2030, or about one-third of its current car sales behind its nearest rival Volkswagen.
For the current fiscal year, Toyota predicts operating profit will fall by about 20% to 2.4 trillion yen. According to Refinitive, analysts expected revenue to rise 12% to 3.36 trillion yen.
In the January-March quarter, its profit fell to 463.8 billion yen, significantly lower than the average estimate of 521.1 billion yen.
The sharp devaluation of the yen to its lowest level in two decades has worked in favor of Japan’s export-driven auto industry. But rising raw material costs and China’s tight controls are reducing profits, disrupting global supply chains.
In China, auto sales nearly halved in April, when Tesla sales almost wiped out due to factory closures and lockdowns.
On Tuesday, Toyota cut its global production target for May to about 50,000 vehicles by nearly 700,000 as it planned to suspend some activities for six days due to the Chinese lockdown.
The plan follows several cuts in its production plan between April and June after suppliers were frustrated by repeated production changes.
Nevertheless, Toyota predicts that the global recovery from the epidemic will help China as well as the US car market to remain strong for the current fiscal year.
Toyota’s internal rivals Nissan Motor Co and Honda Motor Co reported earnings on Thursday and Friday, respectively. Shares of Nissan closed down 1.5% on Wednesday, while Honda fell 3.1%.
(1 = 130.3400 yen)
(Reporting by Satoshi Sugiyama; Editing by Kenneth Maxwell)