Toyota Cuts Output Target Amid Chip Crunch As Profit Tumbles 25%

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Toyota Motor Corp on Tuesday posted a worse-than-expected 25% drop in quarterly profit and cut its annual production target, as the Japanese company battles soaring material costs and a lingering shortage of semiconductors. The world’s biggest automaker by sales also warned it remains difficult to predict the future after posting its fourth straight quarterly decline in profit, underscoring the strength of the headwinds it faces. During the coronavirus pandemic, Toyota has fared better than most automakers in managing supply chains, but it has fallen victim to prolonged chip shortages this year, repeatedly slashing production targets monthly.

“We’ve come out of the worst phase, but…it’s not necessarily a situation where we’re fully stocked,” said Kazunari Kumakura, head of Toyota’s purchasing group. “I don’t know when the chip shortage will be resolved.”

Operating profit for the three months ended September fell to 562.7 billion yen ($3.79 billion), well below an average estimate of 772.2 billion yen in a survey of of 12 analysts by Refinitiv. Toyota sales reported a profit of 749.9 billion yen a year earlier and 578.6 billion yen in the first quarter.

Kumakura said the global shortage of automotive chips continues as chipmakers have prioritized supplies of electronics such as smartphones and computers, while natural disasters, COVID lockdowns and factory disruptions have slowed the recovery of automotive chip supplies.

He also said the supply of older-type semiconductors, which currently attract little capital investment, would remain tight.

Amid the gloom, shares of Toyota closed 1.9%, versus a 0.3% rise in the Nikkei average.

“VERY UNIMPRESSIVE”

Some analysts were disappointed with the performance, saying other positive factors beyond the chip shortage should have provided a boost.

“The yen is weaker in the second quarter, the volume in the second quarter is much higher than in the first quarter, and the (COVID) lockdown in China does not affect (volume in the second quarter),” Koji Endo said. , analyst at SBI Securities.

“Given these points … the absolute amount of profit in the second quarter must be greater than that of the first quarter. This is very unimpressive.

Production rebounded 30% in the quarter, but the company warned last week that shortages of semiconductors and other components would continue to limit output in coming months.

Toyota said it now expects to produce 9.2 million vehicles this fiscal year, down from the 9.7 million previously forecast but still ahead of the previous fiscal year’s production. approximately 8.6 million units.

Reuters reported last month that Toyota had told several suppliers it was setting a global target for the current fiscal year of 9.5 million vehicles and signaled the forecast could be lowered, depending on sheet metal supplies. of electromagnetic steel.

HUGE IMPACT ON THE YEN

The yen has plunged about 30% this year against the US dollar, but the advantage of the cheap yen – which increases the value of overseas sales – has been offset by soaring input costs.

The weak yen boosted profits by 565 billion yen in the first half of this fiscal year, but the gain was more than offset by a 765 billion yen increase in material costs, the cheap local currency inflating more import costs, Toyota said.

Toyota retained its cautious earnings outlook, sticking to its full-year operating forecast of 2.4 trillion yen for the fiscal year through March 31 – well below analysts’ average forecast. 3.0 trillion yen.

By comparison, South Korea’s Hyundai Motor raised its revenue and profit margin forecasts last month to reflect an increase in exchange rates.

Toyota, once a darling of environmentalists for its gasoline-electric hybrid models, is also under scrutiny from investors and green activists for its slowness in fully electric vehicles (EVs).

Just a year into its $38 billion EV plan, Toyota is already planning to restart it to better compete in a growing market beyond its projections, Reuters reported last month.

In a reputational blow, Toyota earlier this year had to recall its first mass-produced all-electric vehicle after just two months on the market due to safety concerns, and suspend production. It started taking leasing orders again last month for the domestic market.

Toyota reiterated on Tuesday that battery electric vehicles are a powerful weapon for decarbonization, but that there are various other options to achieve this goal.

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