BUSINESS

Toyota predicts a 20% drop in earnings as raw material costs rise.

TOKYO, Toyota Motor cautioned that “extraordinary” increases in raw material costs might shave a fifth off full-year earnings, a clear warning that the world’s top carmaker by sales can no longer ignore the global supply-chain crisis.

Also announcing a 33% loss in fourth-quarter operating profit, the Japanese conglomerate’s shares fell more than 5% on Wednesday before ending down more than 4% – their largest one-day drop in two months. The Tokyo index was up 0.3 percent.

Toyota fared well during the early months of a worldwide semiconductor scarcity due to its greater chip stockpile, but it has now joined rivals in cutting output due to the protracted crisis, as well as China’s new COVID-19 limitations.

The maker of the well-known Corolla small vehicle predicted that material prices would more than double to 1.45 trillion yen ($11.1 billion) in the fiscal year that began in April, which it planned to offset by switching to lower-cost materials.

“We need to think about how we can respond to material inflation by erasing the distinction between original equipment manufacturers and suppliers and working together as one,” said chief financial officer Kenta Kon, referring to automobile manufacturers.

“Because material prices are growing, we must try to limit the quantity of resources we use and replace them with less expensive ones.”

This fiscal year, the carmaker plans to sell 8.85 million vehicles globally, a 7.5 percent increase over previous year.

Toyota, which pledged 8 trillion yen in December to electrifying its vehicles by 2030, stated that raw material prices are considerably higher for battery electric vehicles (BEV).

Customers, on the other hand, are price sensitive, according to Toyota Chief Technology Officer Masahiko Maeda, making it difficult for Toyota to pass on increased expenses, a feat that EV leader Tesla (NASDAQ:TSLA) Inc has accomplished effectively.

Toyota, the hybrid vehicle champion, has fallen behind peers in EV spending. It had predicted 3.5 million EV sales per year by 2030, or roughly one-third of current car sales, trailing nearest rival Volkswagen (ETR:VOWG p).

Toyota expects operating profit to dip by approximately 20% to 2.4 trillion yen in the current fiscal year. According to Refinitiv, analysts anticipated earnings to grow 12 percent to 3.36 trillion yen.

Its earnings fell to 463.8 billion yen in the January-March quarter, much below the average projection of 521.1 billion yen.

The dramatic devaluation of the yen to two-decade lows has benefited Japan’s export-driven auto sector. However, rising raw material costs and global supply chain disruptions caused by China’s COVID restrictions are eroding revenues.

In China, vehicle sales practically fell in April, while Tesla’s sales were nearly wiped out due to factory shutdowns and lockdowns.

Toyota dropped its worldwide production target for May by roughly 50,000 vehicles to around 700,000 on Tuesday, announcing intentions to halt certain operations for up to six days owing to China’s lockdowns.

The idea comes after many output cuts between April and June, when suppliers were dissatisfied by frequent production adjustments.

Nonetheless, Toyota expected that global recovery from the epidemic will help the Chinese and US auto markets develop stronger in the current fiscal year.

In China, vehicle sales practically fell in April, while Tesla’s sales were nearly wiped out due to factory shutdowns and lockdowns.

Toyota dropped its worldwide production target for May by roughly 50,000 vehicles to around 700,000 on Tuesday, announcing intentions to halt certain operations for up to six days owing to China’s lockdowns.

The idea comes after many output cuts between April and June, when suppliers were dissatisfied by frequent production adjustments.

Nonetheless, Toyota expected that global recovery from the epidemic will help the Chinese and US auto markets develop stronger in the current fiscal year.

Nissan (OTC:NSANY) Motor Co and Honda Motor Co announce results on Thursday and Friday, respectively. Nissan shares down 1.5 percent on Wednesday, while Honda fell 3.1 percent.

(1 dollar Equals 130.3400 yen)

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