Toyota raises full-year profit forecast on exchange rate gains

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TOKYO — Toyota Motor on Thursday raised its full-year net profit forecast through March 2022, expecting the impact of recent production cuts to dissipate, along with chip shortages.But the Japanese automaker stressed in its latest earnings announcement that the upward revision stems largely from a weaker yen and other favorable market conditions, and is “in substance a downward revision.” It predicted lower unit sales for the year and sounded the alarm over soaring prices for raw materials.Toyota said it now expects to post a net profit of 2.49 trillion yen ($21.8 billion), up from the 2.3 trillion yen profit it had predicted in May. Its revenue is forecast to hold steady at 30 trillion yen, while operating profit is expected to rise to 2.8 trillion yen, up from 2.5 trillion yen.The company posted a record net profit of 1.52 trillion yen for the April-September period, up 142% from the previous year. Its operating profit stood at 1.74 trillion yen, a 236% increase. Strong sales of highly profitable models such as sport utility vehicles in major markets contributed to performance.”The supply of parts has been insufficient, due to plant shutdowns in Southeast Asia,” Chief Financial Officer Kenta Kon told reporters in an online earnings conference. In September, Toyota recorded a year-on-year fall in unit sales for the first time in 13 months. But sales did not dip as sharply as production, Kon said, as dealerships reduced inventory and shared cars with other dealerships to maximize sales opportunities.Toyota predicts it will sell 10.29 million vehicles worldwide together with Daihatsu Motor and Hino Motors, down 2.5% from the previous forecast.
Toyota’s Chief Financial Officer Kenta Kon, in an online earnings conference on Nov. 4, expressed confidence that production will rise sharply in the coming months. (Screenshot from Toyota’s website) 

As for output, Toyota’s production declined sharply in the second quarter, including September’s 39% on-year cut, prompting the company to revise its annual production plan to 9 million from previous 9.3 million. “Although some risks remain [from the production cut from] December, the current [production plan] is a somewhat conservative assumption. … There is no doubt that production will recover to a very high level,” Kon added.Kon’s remarks suggest the chip shortage and supply chain disruptions are easing for the company. He said the automaker will take all possible measures, including operating plants on Saturdays, to make up for the lost output.The company announced on Oct. 15 that it planned to make 850,000 to 900,000 vehicles in November, 15% less than it had previously planned but still a record output level for a single month.But carmaker faces rising cost pressures. Excluding the impact of the foreign exchange rates, which was revised from 105 yen to 110 yen a dollar, Toyota expects a 175 billion yen fall in operating profit this fiscal year from the last forecast despite cost-cutting efforts.Negotiations with Nippon Steel in August resulted in significant price hikes for steel. In addition to higher iron ore and aluminum prices, those for rare earths such as lithium, cobalt and nickel, which are used in automotive batteries, keep rising as well.Jun Nagata, Toyota’s chief communications officer, said at the news conference that he understood why Nippon Steel had sought to raise steel prices, but he also stressed the difficulty of passing those higher prices on to car buyers.” We are in the business of delivering finished cars to customers,” Nagata said. “We are steadily reducing costs for each process, one by one.”Regarding Nippon Steel’s patent infringement suit against Toyota over electrical steel sheet technology, Nagata declined to comment, citing the ongoing dispute.”When the problem of parts supply is solved, carmakers tend to rapidly increase output. We need to make sure that this does not raise materials costs,” Kon said.Investors’ reaction to Toyota’s announcement was mixed. Its shares briefly rose on Thursday, on the back of the upward revision to the company’s earnings outlook and a share buyback. But they later sold off due to the lower unit-sales forecast. Toyota shares ended slightly higher, up 0.7% from their Tuesday close. Markets were closed Wednesday for a holiday.Seiji Sugiura, a senior analyst at Tokai Tokyo Research Institute, said that while Toyota has considered the risks of raw material price hikes, uncertainties remain for its supply chain.Previously known for stockpiling microchips to mitigate the impact of the chip crunch, the company has suffered in the second quarter from similar production cuts to other automakers, he pointed out.”It is doubtful that Toyota’s suppliers are able to beef up output in the coming months in line with the carmaker’s aggressive production plan,” Sugiura said. “If any player among the supply chain cannot make it, the plan won’t be achieved.”

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