Toyota Eyes Steady Profits Amid Hybrid Demand, But US Tariffs Loom Large
Toyota Motor Corp is expected to post stable profits this Thursday, supported by strong global demand for its hybrid vehicles. However, investors remain cautious about the potential impact of US tariffs, especially with looming policy shifts under former President Donald Trump.
Hybrid Sales Support Steady Performance
The world’s largest automaker is predicted to report a modest 2% increase in fourth-quarter operating profit to 1.13 trillion yen ($7.86 billion), according to analysts surveyed by LSEG. This would be Toyota’s first quarterly profit growth in three quarters.
Sales have remained strong in early 2024. Global sales rose 5% year-on-year during January to March, driven by solid demand in the US and Japan. Toyota’s hybrid models such as the Prius and Camry continue to perform well, underlining the company’s long-term commitment to gasoline-electric technology.
While this demand strengthens Toyota’s position, it also places pressure on suppliers struggling to keep pace with rising production needs.
Tariff Threat Poses Risk to Future Profits
A key concern for investors is the potential fallout from US tariffs on imported vehicles. Analysts suggest these could reduce Toyota’s fiscal 2025 operating profit by as much as 800 billion yen. This estimate includes impacts on exports from Japan to the US but does not cover indirect effects like an economic slowdown or additional costs tied to vehicles built in Canada and Mexico.
Toyota has said it will maintain normal operations and focus on lowering fixed costs, avoiding drastic moves like raising vehicle prices. However, reports suggest the company may shift production of its best-selling RAV4 SUV to the US to reduce exposure to future tariffs and currency risks.
Toyota Industries and Shareholding Strategy in Focus
Investors are also watching for developments related to Toyota Industries, a long-time parts supplier. Last month, Toyota confirmed it is exploring a potential investment in a buyout of Toyota Industries, from which the automaker originally spun off.
As of September 2023, Toyota owned 24% of Toyota Industries, which in turn held 9% of Toyota and over 5% of supplier Denso. Analysts warn that increased investment in Toyota Industries could concern shareholders. Conversely, any steps to reduce cross-shareholdings may be viewed positively, especially amid growing regulatory pressure in Japan for corporate transparency and governance reform.
James Hong of Macquarie noted that the structure of any deal involving Toyota Industries would heavily influence investor sentiment.
Earnings Outlook and Market Reaction
Despite the optimism around hybrid sales, Toyota has forecast a 12% drop in full-year operating profit for fiscal 2024, revising its projection to 4.7 trillion yen. This reflects a return to more normalised performance after a record year, as well as potential external challenges.
Toyota’s stock has declined 13% so far in 2025, outpacing the broader Nikkei 225 index’s 8% fall during the same period.
As Toyota releases its annual results, market watchers will closely examine its outlook for fiscal 2025, especially any guidance that factors in the risks tied to tariffs, global supply chains, and changes in production strategy.
with inputs from Reuters