Toyota Motor is set to announce annual earnings on Wednesday, with expectations of a significant boost from the demand for hybrids. This demonstrates how the top-selling automaker is poised to benefit while enthusiasm for battery electric vehicles (EVs) cools off. Despite forecasted record results, supported in part by the weak yen currency, Toyota faces substantial challenges in crucial markets.
In China, Toyota is under pressure from a fierce price war, while in the U.S., consumers are grappling with higher borrowing costs, impacting sales. Globally, the company is feeling the effects of increasing competition from Chinese rivals that are rapidly expanding production of low-priced vehicles. Additionally, a safety test scandal at its Daihatsu compact car unit has hurt sales in Japan and dented the Toyota group’s reputation for quality and safety.
Earlier this year, Toyota raised its operating profit forecast for the financial year ended March 31 to 4.9 trillion yen ($31.87 billion), a record profit representing an 80% increase from the previous year. For the fourth quarter, it is expected to deliver an operating profit of 747 billion yen.
While global demand for battery-powered EVs has slowed, Toyota has capitalized by selling more hybrids, which offer relatively higher margins than regular gasoline cars. Hybrids, including the Lexus luxury brand, made up more than a third of the 10.3 million cars Toyota sold in the just-ended financial year. Despite its strength in hybrids, Toyota lags behind rivals in the EV market.
Toyota’s EV strategy, crucial for its business in China, faces challenges as Chinese buyers prefer software-loaded cars. Koji Endo, head of equities research at SBI Securities, noted that Toyota may not be able to make a significant impact in China until it releases next-generation models. Toyota recently announced a partnership with Chinese tech giant Tencent and unveiled two battery EVs for the Chinese market at the Beijing auto show.
In terms of sales performance, Toyota’s China sales were down 1.6% in the first quarter of the 2024 calendar year, while in the U.S., they saw a 20% increase to 565,000 vehicles over the same period. Toyota’s stock has surged, with shares up 96% in the last year, including dividends. In dollar terms, they have risen 71%, outpacing Tesla’s 7.5% increase over the same period.
