Toyota cuts output target amid chip crunch as profit tumbles 25%

  • Q2 profit 562.7 billion yen versus 772.2 billion yen forecast
  • Cut FY production target to 9.2 million units from 9.7 million
  • Unclear when chip shortage will end – executive
  • Results ‘very unimpressive’ considering positive factors – analyst
  • Stocks end up 1.9%, Nikkei benchmark up 0.3%

TOKYO, Nov 1 (Reuters) – Toyota Motor Corp ( 7203.T ) posted a worse-than-expected 25% drop in quarterly profit on Tuesday and cut its annual output target as the Japanese firm grapples with rising material costs and a persistent semiconductor struggling shortage.

The world’s biggest carmaker by sales also warned that it remains difficult to predict the future after posting its fourth straight quarterly profit decline, underscoring the strength of business headwinds it faces.

During the coronavirus pandemic, Toyota fared better than most automakers in managing supply chains, but this year it has fallen victim to the prolonged chip shortage, which has repeatedly cut monthly production targets.

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

Operating profit for the three months ended September fell to 562.7 billion yen ($3.79 billion), well short of an average estimate of 772.2 billion yen in a poll 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.

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Kumakura said the global shortage of automotive chips continued as chipmakers prioritized supplies for electronic goods such as smartphones and computers, while natural disasters, COVID lockdowns and factory disruptions delayed a recovery in automotive chip stocks.

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

Amid the gloom, shares in Toyota closed up 1.9%, versus a 0.3% rise in the Nikkei (.N225) average.

‘VERY UNIMPRESSIVE’

Some analysts were underwhelmed by the performance and say other positive factors besides 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) containment in China does not affect (the volume in the second quarter),” Koji Endo said . an analyst at SBI Securities.

“Taking these points into account … the absolute amount of profit in the second quarter should be higher than that of the first quarter. This is very unimpressive.”

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A Toyota logo is displayed at the 89th Geneva International Motor Show on March 5, 2019 in Geneva, Switzerland. REUTERS/Pierre Albouy/File photo

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 previously forecast 9.7 million, but still ahead of last fiscal year’s production of around 8.6 million units.

Reuters reported last month that Toyota had told several suppliers it was setting a global target for the current business year at 9.5 million vehicles and indicated that the forecast could be lowered depending on the supply of electromagnetic steel sheets.

MUFFLED JEN IMPACT

The yen has fallen by around 30% against the US dollar this year, but the benefit of the cheap yen – which makes overseas sales more valuable – has been offset by rising input costs.

The weak yen boosted profit by 565 billion yen in the first half of this financial year, but the profit was more than wiped out by a 765 billion yen rise in material costs, with the cheap local currency pushing up import costs further, Toyota said. said.

Toyota kept its conservative profit outlook and stuck to its full-year operating forecast of 2.4 trillion yen for the fiscal year to March 31 – well below analysts’ average forecast of 3.0 trillion yen.

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By comparison, South Korea’s Hyundai Motor ( 005380.KS ) raised its revenue and profit margin guidance last month to reflect a rise in foreign exchange.

Toyota, once a darling of environmentalists for its hybrid gasoline-electric models, is also under scrutiny from green investors and activists over its slow push into fully electric vehicles (EV).

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

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

Toyota reiterated Tuesday that battery-powered EVs are a powerful weapon for decarbonization, but that there are several other options to achieve the goal.

($1 = 148.3100 yen)

Reporting by Satoshi Sugiyama; Writing by Miyoung Kim; Editing by Kenneth Maxwell

Our Standards: The Thomson Reuters Trust Principles.

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