Toyota Motor's Quarterly Profit Decline

By Daniel Leussink
TOKYO (Reuters) – Toyota Motor posted on Wednesday its first quarterly profit drop in two years, affected by lower sales and production issues in crucial markets, Japan and the U.S.

The world's top-selling automaker was on a record profit streak until earlier this year, with its focus on hybrid models catering to consumer preferences for more affordable vehicles amid rising inflation.

However, several factors began to hinder Toyota's sales momentum:
– Quality issues at its truck and bus unit, Hino Motors
– Heavy competition from Chinese brands in the world's largest auto market
– A production suspension of two models in the U.S., now resolved

In response, Toyota pledged to reduce incentives and enhance production in the second half of its fiscal year, ending March 2025, while reviewing certification and quality concerns.

"Our Indiana plant in the U.S., which had partially halted operations, also restarted last month. In the second half of this fiscal year, we expect to return to an annual global production pace of 10 million units," said Toyota Chief Financial Officer Yoichi Miyazaki in an earnings statement.

Due to weaker production in the first half, Toyota revised its vehicle production target for the current fiscal year down by 1% to 10.85 million units, or 240,000 fewer than last year.

Toyota's operating profit for the three months ending September was 1.16 trillion yen ($7.55 billion), a 20% drop from 1.44 trillion yen a year earlier, aligned with the 1.2 trillion yen profit estimate average 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 U.S. market, suffered due to declining sales and increased labor costs, while profit in Japan, its most profitable market, fell by 28% due to lower vehicle sales. Operating income in China also dropped in the first half of the fiscal year, primarily due to higher marketing costs amid fierce price competition from Chinese brands.

Hybrids accounted for over two-fifths of total global sales for Toyota and its Lexus brand in July-September, up from a third during the same period last year.

Earlier on Wednesday, domestic rival Honda reported a surprising 15% drop in second-quarter operating profit, driven by significant sales declines in China, causing its shares to fall 5%.

Shares in Toyota rose by 1.7% following the results, lagging behind a 2.6% rise in the broader market.

($1 = 153.6400 yen)