Toyota Motor is expected to benefit from demand for hybrid vehicles when it reports annual results on Wednesday, showing the world’s best-selling automaker is poised to benefit from the cooling craze for battery-electric vehicles.
However, the forecast record results, which will be partly helped by the weak yen, do not reflect the considerable challenges the carmaker faces in crucial markets. In China, it is under pressure from a fierce price war and, in the United States, the fallout from consumers grappling with higher borrowing costs.
On a global scale, it is suffering the effects of growing competition from its Chinese rivals who are rapidly developing their production of low-cost vehicles. Separately, the safety testing scandal at its Daihatsu compact car unit has hurt sales in Japan and the Toyota Group’s reputation for quality and safety.
In February, the Japanese automaker raised its operating profit forecast for the fiscal year ending March 31 to 4.9 trillion yen ($31.87 billion), which would represent a record profit and an increase of 80% compared to the previous year.
For the fourth quarter, it is expected to post an operating profit of 747 billion yen, according to the average of nine analysts surveyed by LSEG.
As global demand for battery-powered electric vehicles has slowed, Toyota has taken advantage of this by selling more hybrid vehicles, which have relatively higher margins than regular gasoline-powered cars.
Toyota pioneered hybrid vehicles more than a quarter of a century ago with the Prius. They accounted for more than a third of the 10.3 million cars sold in the just-ended financial year, including luxury brand Lexus.
Although strong in hybrid vehicles, Toyota still lags behind when it comes to electric vehicles, behind rivals such as Tesla and European and Chinese automakers.
Battery EVs accounted for just 1% of global sales in the just-ended fiscal year, or about 116,500 vehicles, well below the previously announced target of 202,000 vehicles.
The fate of its China business is likely closely tied to its electric vehicle strategy. Since Chinese buyers prefer software-equipped cars, Toyota may not be able to make a big impression in the next three years before launching next-generation models in China, said Koji Endo, head of the equity research at SBI Securities.
“Obviously they are behind in terms of software,” he said.
Toyota announced a partnership with Chinese tech giant Tencent and unveiled two battery electric vehicles for the Chinese market at the recent Beijing Motor Show.
Toyota’s sales in China fell 1.6% in the first quarter of calendar year 2024, better than the sharper declines of Japanese rivals Nissan and Honda, but worse than the rise of 12,000. 5% of passenger vehicle sales industry-wide, according to data from an auto industry association.
In the United States, sales increased 20% to 565,000 vehicles during this period.
Toyota shares are up 96% over the past year, including dividends. In dollars, they grew by 71%, compared to 7.5% for Tesla during the same period.
($1 = 153.7700 yen) (Reporting by Daniel Leussink in Beijing; Additional reporting by Qiaoyi Li in Beijing; Editing by David Dolan and Jamie Freed)
