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Toyota sees higher material costs eating into profit

AFP

The company said it expected rising prices for raw materials would lower operating profit by the equivalent of $11 billion in the current fiscal year ending March 2023–a record hit. It projected that net profit would fall 21% in the year to the equivalent of about $17 billion, causing the share price to fall 4.4% in Tokyo trading Wednesday.

Car makers from giants like Toyota to startups like Rivian Automotive Inc. are struggling with rapidly rising prices for lithium, cobalt, nickel and other metals needed to produce modern vehicles. At the same time, chip makers are warning that the shortage of semiconductors is likely to stretch out for several more years.

In the U.S., average new-car prices are hovering around $45,000, which has helped pad earnings at car companies despite production problems. In the recently ended fiscal year, Toyota reported a record operating profit equivalent to $23 billion, despite a January-March quarter marred by production shutdowns. Operating profit in that quarter fell 32% compared with a year earlier to the equivalent of $3.57 billion, although revenue was up 5.5%.

Both General Motors Co. and Ford Motor Co. have warned that rising material prices and logistics costs are beginning to weigh on profitability, despite the historically high prices in the U.S. However, both maintained their profit outlooks for 2022.

“This fiscal year, it’s going to be even more difficult than in other years to make a forecast," said Jun Nagata, Toyota’s chief communication officer.

Mr. Nagata said an end to the Covid-19 pandemic was a potential bright spot in the company’s outlook, but negative factors prevailed otherwise. “Raw material prices are soaring, inflation is having an impact on the daily lives of people, [and] supply constraints of semiconductors will have an impact on the business of auto manufacturers. So the problems are compounding this year," he said.

Mr. Nagata singled out Europe as a particular concern, given Russia’s invasion of Ukraine.

Toyota said an expected rebound in sales volume would help soften the blow from rising costs. It expects revenue in the current fiscal year to increase 5.2% to the equivalent of $253 billion. It said it was exploring where it might be able to increase prices.

Toyota has said its strength in smaller, more affordable models like the Corolla offers it an advantage in periods when consumers might be looking to save on car purchases. Many competitors have abandoned those vehicles in favor of larger, more profitable trucks and sport-utility vehicles.

Toyota said it aimed to produce 9.7 million vehicles this year, a sharp rebound from the pandemic lows of the past two years. Toyota said it was being cautious with its forecast, given that it had been overly optimistic in the past year.

As of January 2022, the company was targeting production of 11 million units in the year ending March 2023 but walked back that target after repeated production problems, said Masahiro Yamamoto, Toyota’s head of accounting.

A year ago, Toyota said it believed it had insulated itself from the worst of the semiconductor shortages, having stockpiled four months worth of chips. But as the shortage grew worse, even Toyota was hit by a series of production cuts. It said Tuesday that some production lines in Japan would close for up to six days this month because of the Covid-19-related lockdown in Shanghai, China.

This story has been published from a wire agency feed without modifications to the text

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Dive Deeper:
Japan's Honda sees profit slide on chips, material cost woes
Honda’s fiscal fourth quarter profit slipped to almost half of what the Japanese automaker earned the year before as it…
Toyota posts record full-year net profit, forecasts cautious
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Grab These 4 Top-Rated Auto Manufacturing Stocks on Sale
Rising input prices due to worsening supply disruptions and a semiconductor chip shortage have been hurting auto manufacturers. In April,…
Elon Musk hints Tesla may stop taking orders as supply chain problems bite
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One subscription that gives you access to news from hundreds of sites
Japan's Nissan returns to profit despite chips shortages
Japanese automaker Nissan has returned to profitability for the first time in three fiscal years, despite challenges such as supply…
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Despite the semiconductor chip shortage, the growing demand for advanced microchips and increasing investments to ramp up domestic chip production…
Get all your news in one place