Toyota’s record profit buoyed by weak yen, strong SUV, HV sales

The Yomiuri Shimbun
Toyota Motor Corp.’s Corolla Cross SUV, foreground, is seen at Toyota Mobility Higashi-Nagoya in Nagoya on Thursday.

A weak yen and strong sales of sport-utility vehicles and hybrid vehicles boosted Toyota Motor Corp.’s midterm business results.

The automaker posted record sales and net profit for its consolidated results in the first half of fiscal 2021 through Sept. 30, the company announced Thursday.

Even with drastically reduced production, the weak yen has greatly contributed to Toyota’s bottom line, and sales of popular models such as SUVs have been robust.

However, concerns remain over the shortage of parts due to the coronavirus pandemic and the rising cost of raw materials.

Turning a corner

“Vehicle production was stagnant all over the world, but Toyota dealers, suppliers and factories worked hard to deliver as many cars as possible,” Toyota Chief Financial Officer Kenta Kon said during an online press conference.

Toyota began substantially reducing production in September due to difficulties in procuring parts because of the spread of COVID-19 infections in Southeast Asia. That month, Toyota’s global sales volume — including those of its subsidiaries Daihatsu Motor Co. and Hino Motors Ltd. — were negative in the same month for the first time in a year, at 761,823 units, down 16.9% from September 2020.

Nevertheless, Toyota was able to limit the impact.

The automaker sold 5.26 million units from April to September, a 20% increase from the same period last year and only a slight decrease from 2019, prior to the coronavirus outbreak.

Toyota’s profits have been supported by robust sales of popular SUVs and hybrids, including the RAV4, Harrier and Corolla Cross, which are said to have high margins.

Also, the production cutback is showing signs of bottoming out, with the number of vehicles slashed in September decreasing from the originally expected 430,000 units to 350,000 units.

The production curtailment continued in October.

As restrictions associated with the spread of the coronavirus have been eased in Southeast Asian countries and alternative production of auto parts has progressed, Toyota’s manufacturing volume for November is expected to recover to a record high level for a single month.

In addition to solid sales, the weak yen has greatly contributed to the automaker’s strong performance.

Toyota’s operating profit increases by ¥40 billion on an annual basis when the yen depreciates by ¥1 against the dollar. The yen declined from its expected level of ¥105, to around ¥110 to the dollar.

On an operating profit basis, the profit increase due to the weaker yen was ¥255 billion compared to the same period last year.

Rising cost of raw materials

Risk factors to the firm’s business performance have emerged, with one being the rising cost of raw materials.

The prices of steel, aluminum and other materials are putting pressure on group profits that include Toyota’s auto parts suppliers.

The company’s operating profit was pushed down by about ¥180 billion in the April-September period due to the rise in raw material costs, which offset the effect of cost improvement amounting to nearly ¥150 billion.

The company foresees raw material costs increasing in the future.

Toyota has revised the forecast for fiscal 2022 ending March 31 that year upward from a projection the company made in August, increasing operating profit by ¥300 billion to ¥2.8 trillion and net profit by ¥190 billion to ¥2.49 trillion.

However, the upward revision does not mean the company will be able to maintain a strong performance in its core business.

“Excluding the effect of the weaker yen, our actual forecast would be revised downward due to the prices of raw materials and other factors,” Kon said.

The automaker is also under pressure to switch to electric vehicles as part of the decarbonization drive.

Toyota has adopted a “full lineup strategy” to offer a wide range of electric vehicles, including HVs, to meet the needs of each country.

“If the cost of renewable energy falls, EVs will no doubt become one of the mainstream electrified vehicles,” Toyota Operating Officer Jun Nagata said. “It’s said that Toyota is opposed to EVs, but we’ll earnestly manufacture them.”

The company plans to introduce 15 EV models by 2025.