Toyota posts first quarterly profit drop in two years, hit by production woes

6:46 am Wednesday, November 06th, 2024

By Daniel Leussink

TOKYO (Reuters) -Toyota Motor posted on Wednesday its first quarterly profit drop in two years as its weaker sales and production issues in two crucial markets – Japan and the U.S. – stalled the Japanese automaker’s recent record run.

The world’s top-selling automaker had been on a record profit run until earlier this year, with its heavy focus on hybrid models helping it benefit from growing consumer interest in more affordable vehicles compared to the costlier battery-powered electric vehicles amid soaring inflation.

But quality issues at its truck and bus unit Hino Motors, heavy competition from Chinese brands in the world’s biggest auto market, and a now-resolved production suspension of two models in the U.S. have started slowing its sales momentum in recent months.

Toyota pledged to reduce incentives and improve production in the second half of its fiscal year to end-March 2025, as it moves ahead 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 in the second half of this fiscal year, we expect to return to an annual global production pace of 10 million units,” Toyota Chief Financial Officer Yoichi Miyazaki said in an earnings statement.

Reflecting weaker production in the first half, Toyota on Wednesday revised down its vehicle 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 end-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 1.2 trillion yen profit estimate average of 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, was hit by a deterioration in its sales volume and higher labour costs, while profit in Japan, its most profitable market, tumbled 28% due to lower vehicle sales.

Operating income in China fell during the first half of the financial year mainly due to higher marketing costs as the company seeks to overcome heavy price competition against Chinese brands.

Hybrids accounted for more than two-fifths of the total global sales of Toyota and its Lexus brand cars in July-September compared to a third in the same period last year.

Earlier on Wednesday, Toyota’s smaller domestic rival Honda Motor reported a surprise 15% drop in second-quarter operating profit due to a heavy sales drop in China, sending shares in Japan’s second-largest automaker down 5%.

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

($1 = 153.6400 yen)

(Reporting by Daniel Leussink; Writing by Miyoung Kim; Editing by David Dolan and Muralikumar Anantharaman)