Toyota’s profit drops 42% as costs rise and supply disruption hits

TOKYO — Toyota Motor Corp’s profits plunged to a worse-than-expected 42% in the first quarter as the Japanese automaker was squeezed between supply constraints and rising costs.

Operating profit for the three months ended June 30 fell to 578.66 billion yen ($4.3 billion) from 997.4 billion yen in the same period last year, Toyota said on Thursday, capping a tough period. Global chip shortages and COVID-19 curbs on Chinese factories have repeatedly cut monthly production targets.

The magnitude of the hit to earnings was far beyond expectations, with analysts polled by Refinitiv estimating a 15% decline, but it appears to have taken investors by surprise. Shares of Toyota, the world’s largest automaker by revenue, fell 3% as it widened its losses.

“It’s very bad,” said Koichi Sugimoto, an analyst at Mitsubishi UFJ Morgan Stanley Securities.

Production disruptions had already been warned by automakers, but Sugimoto said rising costs stood out.

The automaker said rising material prices cost it 315 billion yen.

Despite a tough quarter, the automaker stuck to its full-year operating profit forecast and plan to produce 9.7 million vehicles this fiscal year, which it said was a strong residual demand.

A Toyota spokeswoman said the automaker will be able to source the chips that have hampered production, and is expected to resolve staffing shortages at some of the country’s factories due to the COVID-19 outbreak. rice field.

A spokeswoman said production will pick up for the second half of the fiscal year.

Analyst Sugimoto said supply problems are likely to improve thanks to an easing in both the global chip shortage and the COVID-19 situation in China.

Like other automakers, Toyota is grappling with rising costs and concerns that global inflation could put the brakes on consumer demand.

Toyota raised its full-year net profit forecast by 4% to 2.36 trillion yen. This is supported by a weaker yen, which means that sales booked in foreign currencies are more valuable.

Still, the boost from a weaker yen will not be enough to fully offset the impact of higher material costs, said Seiji Sugiura, senior analyst at Tokai Tokyo Research Institute.

Toyota expects material costs for the full year to rise 17% from previous estimates to 1.7 trillion yen.

Toyota’s current production problems mark a departure from its initial success in solving supply chain problems in the early stages of the pandemic.

The automaker cut its monthly production target three times in the April-June quarter, falling 10% behind its original target due to semiconductor shortages and the impact of the COVID-19 lockdown in China.

A Toyota spokesperson said, “We were unable to produce enough vehicles because customers around the world were waiting for their vehicles to be delivered.

Toyota shares, which were down 0.5% just before the earnings announcement, closed 3% lower at 2,091 yen, while the benchmark Nikkei Stock Average was slightly stronger.

Toyota’s Japanese rival Honda Motor Co. is set to release first-quarter results next week.

(1 dollar = 133.7200 yen)

Written by Satoshi Sugiyama