Toyota cuts output target amid chip crunch as profit tumbles 25%

  • Second-quarter profit of 562.7 billion yen vs. forecast of 772.2 billion yen
  • Cut FY production target to 9.2 million from 9.7 million
  • It’s unclear when the chip shortage will end – exec
  • Results ‘very unremarkable’ given positives – analyst
  • Shares closed down 1.9%, Nikkei up 0.3%

TOKYO, Nov 1 (Reuters) – Toyota Motor Corp (7203.T) on Tuesday reported a 25% drop in quarterly profit, missing expectations and cut its annual output target as the Japanese company struggles with soaring material costs Combat ongoing semiconductor shortages.

The world’s largest automaker by sales also warned that it remains difficult to predict the future after a fourth straight quarter of profit declines, underscoring the strength of the business headwinds it faces.

Toyota has outperformed most automakers at managing its supply chain during the coronavirus pandemic, but it fell victim to a chronic chip shortage this year, repeatedly cutting monthly production targets.

“We’ve come out of the worst stage, but … it’s not necessarily a situation where we have ample supplies,” said Kazunari Kumakura, head of Toyota’s purchasing group. “It’s not known when the chip shortage will be resolved.”

Operating profit fell to 562.7 billion yen ($3.79 billion) in the three months to September, well below the 772.2 billion yen average expected by 12 analysts in Refinitiv. Toyota posted a profit of 749.9 billion yen in the same period last year, compared with 578.6 billion yen in the first quarter.

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Kumakura said the global shortage of automotive chips continues as chipmakers have prioritized supplies of electronics such as smartphones and computers, while natural disasters, COVID lockdowns and factory disruptions have slowed the recovery in automotive chip supplies.

He also said supplies of older semiconductors, which currently attract little capital investment, will remain tight.

Amid the pessimism, Toyota shares closed down 1.9%, while the Nikkei (.N225) averaged 0.3% gain.

“Very unremarkable”

Some analysts were less than pleased with the performance, saying positive factors other than chip shortages should provide a boost.

“The yen weakened in the second quarter, the trading volume in the second quarter was much higher than the first quarter, and the (COVID) lockdown in China did not affect (the trading volume in the second quarter),” said Koji Endo, an analyst at SBI Securities.

“Given those points… the absolute profit in the second quarter has to be higher than the first. It’s pretty unremarkable.”

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Production rebounded 30% in the quarter, but the company warned last week that shortages of semiconductors and other components would continue to limit output in coming months.

Toyota said it now expects to produce 9.2 million vehicles this fiscal year, down from an earlier forecast of 9.7 million but still up from about 8.6 million in the previous fiscal year.

Reuters reported last month that Toyota had told a number of suppliers that it was setting a global target of 9.5 million vehicles for the current fiscal year, and hinted that forecasts could be lowered depending on the availability of magnetic steel sheets.

The yen’s influence weakens

The yen has fallen about 30 percent against the dollar this year, but the benefits of a weaker yen — making overseas sales more valuable — have been offset by soaring input costs.

Toyota said the weak yen boosted profits by 565 billion yen in the first half of the fiscal year, but was outstripped by a 765 billion yen increase in material costs, while the cheap local currency further pushed up import costs.

Toyota maintained its conservative profit outlook, sticking to its full-year operating forecast for the fiscal year ended March 31 at 2.4 trillion yen, well below analysts’ average forecast of 3.0 trillion yen.

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By contrast, South Korea’s Hyundai Motor (005380.KS) raised its revenue and profit margin guidance last month to reflect higher foreign exchange rates.

Toyota, once favored by environmentalists for its hybrid gasoline-electric models, has also come under scrutiny from green investors and activists for its slow push into pure electric vehicles (EVs).

Just a year after its $38 billion electric vehicle plan was launched, Toyota is already considering restarting it to better compete in a market that is growing faster than it expected, Reuters reported last month.

Toyota had to recall its first mass-produced all-electric car earlier this year, which went on sale just two months later, and halted production due to safety concerns. It restarted taking rental orders for the domestic market last month.

Toyota reiterated on Tuesday that battery-powered electric vehicles are a powerful weapon for decarbonization, but there are multiple options for getting there.

(1 USD = 148.3100 yen)

Reporting by Satoshi Sugiyama; Writing by Miyoung Kim; Editing by Kenneth Maxwell

Our Standard: The Thomson Reuters Trust Principles.

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