Toyota's Expected Profit Drop Amid Cooling Demand

By Daniel Leussink
TOKYO (Reuters) – Toyota Motor (NYSE:TM) is anticipated to post its first profit drop in two years when it reports second-quarter earnings on Wednesday, signaling cooling demand after a run of robust earnings helped by a consumer shift away from electric vehicles.

The world's largest automaker is nonetheless expected to deliver almost $8 billion in quarterly operating profit, benefiting as drivers in several major markets opt instead for petrol-battery hybrids, which typically command higher profit margins than standard petrol cars.

Recent sales and production figures, however, indicate a modest slowdown for Toyota. The company faced a delivery suspension of two models in the United States and, like global rivals, is grappling with fierce competition in China, the world's biggest auto market where demand for EVs remains strong.

The Japanese automaker is forecasted to report a 14% year-on-year operating profit decline in July-September, to 1.2 trillion yen ($7.9 billion), according to the average of nine analyst estimates in an LSEG poll. This would mark its first profit decrease since the same quarter in 2022. Toyota has already noted that quarterly global sales shrank by 4% compared to the previous year and that output fell by 7%.

Toyota's strategy to expand its hybrid lineup in the U.S. might shield it from potential reductions in EV subsidies or similar policy changes, depending on the outcome of the week's U.S. presidential election.

Hybrids accounted for 41% of Toyota's global sales in July-September, or 1.1 million vehicles, including those from the luxury Lexus brand, compared to 33% in the same period last year, according to company data.

Among legacy automakers, Toyota is perceived as one of the slowest to adopt EVs, with battery-only electric vehicles comprising just 1.5% of its global sales in the first nine months of the year.

Toyota Chairman Akio Toyoda stated last month that an EV-only future could result in job losses across the industry.

Despite the anticipated profit decline, Toyota maintained its full-year profit estimate unchanged during the report of its April-June earnings, forecasting a 20% decline compared to the previous financial year due to expected investments in its strategy and suppliers.

Shares of Toyota are up 3% so far this year. In U.S. dollar terms, they are up 2%, compared to a 2% drop in EV rival Tesla (NASDAQ:TSLA) over the same period.

($1 = 152.1200 yen)