By Daniël Leussink
TOKYO (Reuters) -Toyota Motor posted its first quarterly profit decline in two years on Wednesday, as weaker sales and production problems in two crucial markets – Japan and the U.S. – halted the Japanese carmaker’s recent record run.
The world’s best-selling carmaker had posted record profits until earlier this year, thanks to its strong focus on hybrid models that helped it capitalize on growing consumer interest in cheaper vehicles compared to pricier battery electric vehicles, amid a rising inflation.
But quality problems at truck and bus unit Hino Motors, fierce competition from Chinese brands in the world’s largest car market and a now-resolved production suspension of two models in the US have slowed sales momentum in recent months.
Toyota (NYSE:) pledged to reduce incentives and improve production in the second half of the fiscal year through the end of March 2025, as the company moves forward with a review of certification and quality-related issues.
“Our Indiana plant in the United States, which had partially halted operations, also restarted last month, and we expect to return to an annual global production rate of 10 million units in the second half of this fiscal year,” said Toyota’s Chief Financial Officer. That’s what Yoichi Miyazaki said in an earnings statement.
Reflecting weaker production in the first half, Toyota on Wednesday cut its production target for the current fiscal year by 1% to 10.85 million units, or 240,000 fewer than the previous year.
Toyota’s operating profit for the three months to the end of September was 1.16 trillion yen ($7.55 billion), down 20% from 1.44 trillion yen a year earlier and largely in line with the average profit estimate of 1.2 trillion yen from nine analysts surveyed by LSEG.
The company maintained its profit forecast for the current year at 4.3 trillion yen.
COMPETITION FROM CHINESE BRANDS
Operating income in North America, which includes the US market, was hit by a deterioration in sales volume and higher labor costs, while profits in Japan, the most profitable market, fell 28% due to lower car sales.
Operating profit in China declined during the first half of the fiscal year, mainly due to higher marketing costs as the company aims to overcome intense price competition with Chinese brands.
Hybrid vehicles accounted for more than two-fifths of total global sales of Toyota and its Lexus-branded cars in July-September, compared with a third in the same period last year.
Earlier on Wednesday, Toyota’s smaller domestic rival Honda (NYSE:) Motor reported a surprise 15% decline in second-quarter operating profit due to a heavy sales decline in China, sending shares of Japan’s second-largest automaker down 5%.
Shares in Toyota rose 1.7% after the results, lagging the broader market’s 2.6% gain.
($1 = 153.6400 yen)
