Toyota warns profit to skid 20% as raw materials costs pile up

Toyota warns profit to skid 20% as raw materials costs pile up

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 largest automaker by sales can no longer ignore the global supply-chain crisis.

The Japanese conglomerate also reported a 33% reduction in fourth-quarter operating profit, sending its stock down more than 5% on Wednesday before closing down more than 4% – the worst one-day drop in two months. The Tokyo index gained 0.3 percent.

Toyota fared well during the early months of the worldwide semiconductor shortfall due to its greater inventory of chips, but it has now joined rivals in cutting production due to the extended scarcity and China’s new COVID-19 limitations.

The maker of the popular Corolla compact car predicted that material prices will more than double to 1.45 trillion yen ($11.1 billion) in the fiscal year that began in April, which it plans to offset by switching to lower-cost materials.

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“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 Kenta Kon, the company’s chief financial officer.

“Because the cost of materials is rising, we must try to limit the number of resources we use and replace them with less expensive alternatives.”

This fiscal year, the automaker aims to sell 8.85 million vehicles worldwide, up 7.5 percent from the previous year.

Toyota, which pledged 8 trillion yen in December to electrify its automobiles by 2030, claimed raw material costs for battery electric vehicles are significantly higher (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 costs, as EV leader Tesla Inc has done effectively.

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Toyota, the pioneer of hybrid vehicles, has fallen behind its competitors in EV spending. It had previously predicted 3.5 million EV sales per year by 2030, or roughly a third of its current vehicle sales, trailing its closest competitor Volkswagen.

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

Its profit fell to 463.8 billion yen in the January-March quarter, well 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 industry. However, revenues are being sucked dry by rising raw material costs and global supply chain disruptions exacerbated by China’s COVID restrictions.

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Auto sales in China virtually plummeted in April, with Tesla’s sales nearly wiped out when manufacturing was shut down and demand was affected by lockdowns.

Toyota decreased its global production target for May by roughly 50,000 vehicles to around 700,000 vehicles on Tuesday, citing the Chinese lockdowns as the reason for the reduction.

After suppliers were upset by continuous production modifications, the company made significant cuts in its production schedule between April and June.

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

Nissan Motor Co and Honda Motor Co, Toyota’s domestic competitors, announce profits on Thursday and Friday, respectively. On Wednesday, Nissan shares fell 1.5 percent, while Honda fell 3.1 percent.

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