Toyota revises output target amidst chip shortage as profits fall 25%

Toyota’s shares fell the most in a month after the company cuts its output target

Toyota Motor Corp on Tuesday announces a 25% drop in its quarterly profits and reduces its annual output target amidst continuing semiconductor shortage and increasing material costs. The annual output target is reduced from 9.7 million vehicles to 9.2 million for the financial year till March but is still ahead of previous financial years’ production of 8.6 million units. The shares of the company fell the most in a month after Toyota cuts its output target. The operating costs of the company are ¥2.4 trillion ($16.2 billion) which is yet below the expected analysts’ estimate of ¥2.98 trillion.

Toyota, one of the world’s biggest automakers warned about the difficulty in predicting the future as profits decline for the fourth consecutive quarter. The Covid-19 lockdowns have caused chip shortages, which caused the company to cut down monthly production targets constantly and it also affected the global automaker industries especially when the costs increase for logistics and materials along with changes in supply- chains.

Toyota’s chief accounting officer Masahiro Yamamoto states that the business environment is changing rapidly just like the swift changes happening in rising interest rates, foreign exchange rates, and increasing material prices.  The Operating profit for the three months ended September fell to 562.7 billion yen ($3.79 billion) which is less compared to the last year’s when Toyota sales reported a 749.9-billion-yen profit.

Japan’s currency plummeted to a 32-year low in the month of October with an additional weakening of 22% against the dollar this year. The firm calculated that each one-yen decline would push its operating profit by ¥45 billion. The weak Yen helps the car manufacturers in Japan to increase the competitiveness of the vehicle sold in other countries, but they fail to get the benefits as usual as the weaker Yen intensifies imported costs of energy and raw materials.

Kazunari Kumakura, Toyota’s chief officer in charge of purchasing states that the situation is better for chips used in consumer products, constraints will be applicable in semiconductors for automobiles. The car manufacturing giant introduced a share buyback of ¥150 billion that will go from November 2 through May 12. The firm’s shares declined around 2.6% against a 0.1% rise in the Nikkei average. The decline in share could be seen as the lowest since September 30. Toyota raised its sales target to ¥36 trillion, compared with analysts’ estimate of ¥36.3 trillion and the company’s prior guidance for ¥34.5 trillion for the complete year.

The company reported an operating profit of ¥563 for the July-September quarter which is less than the analyst estimate of ¥765 billion. The previous year, the company recorded a profit of ¥750 billion. The revenue of the firm rose 22% to ¥9.2 trillion in the quarter. Toyota along with other car manufacturers left Russia which caused a loss of ¥97 billion, including the cost of asset impairments and retirement allowances. The company decided to temporarily give its new buyers one smart key instead of the usual two due to chip shortage and looks to ration semiconductors.

This will be applicable to 14 models which are for sale in Japan. Toyota’s truck and bus unit Hino recently encountered a scandal over the fabrication of engine data which forced to suspend domestic shipments. Hino stated that the full-year operating profit could fall as much as 82%. The car company received criticisms due to its slow progression into fully electric vehicles and a year into Toyota’s $38 billion EV plan, the company is considering rebooting in order to have better competency in the market.