Toyota profit plunges 25% on chip shortages and surging costs

Toyota’s quarterly operating profit fell 25 per cent from a year earlier as the world’s largest carmaker warned that it was struggling to cope with yen volatility, interest rate rises in the US and production disruption caused by China’s coronavirus lockdowns.

Following record profits last fiscal year through March, Toyota’s fortunes have reversed as persistent chip shortages and rising materials costs wiped out benefits from the yen’s decline to a 32-year low.

For the July to September quarter, the automaker posted an operating profit of ¥562bn ($3.8bn), down from ¥749bn a year earlier. That was lower than market estimates of ¥784bn, according to S&P Global Market Intelligence, causing shares to fall as much as 2.6 per cent.

“The business environment is changing dramatically, such as the rapid changes of foreign exchange rates, raising interest rates, soaring materials prices and more,” Masahiro Yamamoto, an executive in charge of accounting, told reporters at an online earnings conference on Tuesday.

“A number of changes are occurring simultaneously that could affect the future of the broad automotive industry . . . It’s hard to look six months ahead,” added Kenta Kon, executive vice-president.

Toyota maintained its annual operating profit forecast of ¥2.4tn for the fiscal year through March, but the carmaker cut its output target for the year to 9.2mn vehicles from 9.7mn because of semiconductor shortages.

Toyota, which has kept its target to manufacture 3mn vehicles in Japan, enjoys larger benefits from the weaker yen than rivals who have shifted more of their production overseas. Still, executives said Toyota’s cost-cutting efforts were not able to offset the steep rise in raw material costs.

The chip shortage is expected to remain a bottleneck “for the time being,” according to Kazunari Kumakura, an executive responsible for purchasing, saying he hadn’t expected the disruption to last this long.

“There will still be some constraints in semiconductors for automobiles as capital investment has not kept pace,” Kumakura said, explaining that over the past two years, the company has held daily emergency meetings with suppliers to track components in short supply.

Toyota is also concerned about the impact of a global economic slowdown on consumer spending, said Jun Nagata, Toyota’s chief communication officer.

While the automaker expects demand for vehicles to rise in the US, Europe and Japan next year as supply constraints are resolved, “we need to consider how customers will be affected by future interest rate increases as they are probably considering leasing or loans”, Nagata said.