Toyota Motor Corporation, the world’s leading automaker, is projected to report its first profit drop in two years on Wednesday, signaling a slowdown in demand following a period of robust earnings.
While the company is still expected to post a substantial operating profit, the anticipated decline reflects changing market dynamics and competitive pressures.
Hybrids bolster profitability
Despite the projected decline, Toyota is expected to report an operating profit of nearly $8 billion for the second quarter.
This resilience stems partly from the continued popularity of hybrid vehicles, which offer higher profit margins compared to traditional gasoline-powered cars.
Consumers in key markets have shown a preference for hybrids, bolstering Toyota’s financial performance.
Sales and production slowdown
Recent data indicates a softening in Toyota’s sales and production figures.
The automaker faced a delivery suspension of two models in the United States and, like its global competitors, is navigating intense competition in the Chinese auto market, the world’s largest.
While global demand for electric vehicles remains strong, particularly in China, Toyota has seen a modest overall slowdown.
Analysts predict a 14% year-on-year decline in operating profit for the July-September period, totaling approximately $7.9 billion (1.2 trillion yen), according to an LSEG poll.
This marks the first profit decrease since the same quarter in 2022, following a 4% drop in global sales and a 7% decline in production.
Navigating the EV Landscape
Toyota’s strategic focus on expanding its hybrid lineup in the US could mitigate the impact of potential policy changes related to EV subsidies, depending on the outcome of the US presidential election.
Hybrids constituted a significant portion of Toyota’s global sales in the recent quarter (July-September), accounting for 41% or 1.1 million vehicles (including Lexus), compared to 33% during the same period last year.
Compared to other legacy automakers, Toyota has been perceived as slower to embrace fully electric vehicles.
Battery-electric vehicles comprised just 1.5% of its global sales in the first nine months of this year.
Chairman Akio Toyoda recently voiced concerns about job losses within the auto industry resulting from a shift to an exclusively EV-focused future.
Maintaining a steady outlook
Despite the projected second-quarter decline, Toyota maintained its full-year profit forecast when it reported its April-June earnings.
The company anticipates a 20% decrease compared to the previous financial year, attributing this to planned investments in its overall strategy and supplier network.
Toyota’s stock performance remains positive, with a 3% increase year-to-date and a 2% rise in US dollar terms, outperforming electric vehicle competitor Tesla, which experienced a 2% decline over the same period.
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