Toyota warns profits will slip 20% as raw material costs pile up

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  • Sees FY operating profit at 2.4 trillion yen from 3 trillion yen a year ago
  • Fourth Quarter Operating Profit Down 33% YoY; shares slip 5%
  • FY oper pft target, Q4 result well below analysts’ estimates
  • “Unprecedented increases” in materials and logistics costs
  • “We need to work with suppliers to reduce costs” – CFO

TOKYO, May 11 (Reuters) – Toyota Motor (7203.T) has warned that “unprecedented” rises in raw material costs could slash annual profit by a fifth, a clear sign that the world’s biggest automaker in terms of sales reps can no longer ignore the supply-chain crisis that has rocked the global industry.

Also reporting a 33% drop in operating profit in the fourth quarter, the Japanese giant saw its shares fall more than 5% on Wednesday, before closing more than 4% – their biggest one-day drop in two. month. The Tokyo benchmark (.N225) rose 0.3%.

Toyota had done well in the early months of a global semiconductor shortage, thanks to its larger stockpile of chips, but it has now joined rivals in cutting production thanks to the protracted crisis, as well than China’s new COVID-19 restrictions.

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The home of the popular Corolla compact car said it expects material costs to more than double to 1.45 trillion yen ($11.1 billion) in the fiscal year. began in April, which she planned to manage by switching to lower-cost materials.

“We need to think about how we can respond to material inflation by breaking down the distinction between original equipment manufacturers and suppliers and working together as one,” Chief Financial Officer Kenta Kon told reporters. journalists, referring to car manufacturers.

“As the price of materials increases, we must work to reduce the amount of materials we use as much as possible and replace them with cheaper materials.”

The automaker expects to sell 8.85 million vehicles worldwide this fiscal year, up 7.5% from last year.

Toyota, which in December pledged 8 trillion yen to electrify its cars by 2030, said raw material costs tend to be even higher for battery electric vehicles (BEVs).

Customers, however, are sensitive to price increases, chief technology officer Masahiko Maeda said, making it difficult for Toyota to pass on rising costs, a feat electric vehicle leader Tesla Inc (TSLA.O) managed to do successfully. Read more

A man walks past a Toyota logo at the Tokyo Motor Show in Tokyo, Japan October 24, 2019. REUTERS/Edgar Su

Toyota, champion of hybrid cars, has lagged behind its peers when it comes to investing in electric vehicles. It previously predicted 3.5 million electric vehicle sales a year by 2030, around a third of its current vehicle sales, behind closest rival Volkswagen (VOWG_p.DE). Read more

For the current fiscal year, Toyota’s expected operating profit will drop about 20% to 2.4 trillion yen. Analysts had expected earnings to rise 12% to 3.36 trillion yen, according to Refinitiv.

In the January-March quarter, its profit fell to 463.8 billion yen, also significantly below an average estimate of 521.1 billion yen.

The sharp depreciation of the yen to its lowest level in two decades has worked in favor of Japan’s export-oriented auto industry. But soaring raw material costs and global supply chain disruptions exacerbated by China’s COVID restrictions are undermining profits.

In China, auto sales nearly halved in April, while Tesla sales were nearly wiped out as factories closed and shutdowns hit demand. Read more

On Tuesday, Toyota cut its global production target for May from around 50,000 vehicles to around 700,000 as it plans to suspend some operations for up to six days due to shutdowns in China. Read more

The plan follows several cuts to its production plan between April and June after suppliers became frustrated with repeated production changes.

Still, Toyota predicted that the global recovery from the pandemic would help the Chinese and U.S. auto market strengthen for the current fiscal year.

Toyota’s domestic rivals Nissan Motor Co (7201.T) and Honda Motor Co (7267.T) report results on Thursday and Friday, respectively. Shares of Nissan closed down 1.5% on Wednesday, while Honda fell 3.1%.

($1 = 130.3400 yen)

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Reporting by Satoshi Sugiyama; Editing by Kenneth Maxwell

Our standards: The Thomson Reuters Trust Principles.

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