Still struggling with rising material costs and a persistent chip shortage, Toyota Motor Corp. on Tuesday reported a worse-than-anticipated 25% decline in quarterly profit and lowered its annual output target. The largest automaker in the world by sales also issued a warning, highlighting the severity of the business challenges it is currently facing.
“We’re out of the worst phase,” Kazunari , Toyota’s purchasing group chief, told Reuters. “I don’t know when the chip shortage will be resolved.”
The chip shortage comes as manufacturers are favoring computer and smartphone manufacturers over automakers, the automaker said.
The numbers, and their fallout
For the three months that ended in September, operating profit decreased to ¥562.7 billion ($3.79 billion). Toyota Sales posted a profit of ¥578.6 billion in the first quarter and ¥749.9 billion a year earlier. Production jumped 30%, but the company stated that semiconductor and component shortages would continue to hamper output going forward.
Toyota’s annual production forecast of 9.2 million vehicles is down from the 9.7 million it had previously forecast, but is ahead of the 8.7 million units it produced last year.
Still, it was less than two weeks ago, that Toyota revealed the latest round of downtime in November, blaming the global shortage of semiconductor chips for the closure of many of its major Japanese production lines on specific days. An estimated 800,000 units are expected to be produced in November, with roughly 250,000 of those vehicles coming from Japan and the remaining 550,000 coming from other countries.
On August 10, Toyota predicted that its global output for September would be 850,000 vehicles, but that its monthly average from September to November would be 900,000. On September 22, however, the October manufacturing schedule lowered that expectation due to a shortfall of semiconductors to 800,000. A week later, the October target was changed to 750,000 automobiles.
Shortages plague the industry
Toyota is by no means alone in the lack of semiconductor supplies. According to Reuters, Honda idled up to 40% of its Japanese production capacity in October as a result of supply chain issues.
Meanwhile, American manufacturers have curtailed their output by more than one million units.
“Our production in North America has been relatively strong and stable since the third quarter of last year. However, short-term supply chain disruptions continue to occur,” GM spokesman David Barnas said in an email earlier this year. In addition, vehicles are being built without certain options to maintain production. And GM has reduced then number of chip families by 95% in an effort to simplify semiconductor supply chains. Nevertheless, the company also sees shortages lingering into 2023.
In Europe, manufacturers have also cut about a million units of production with Volvo stating late last month that its Gothenburg factory will be closed for seven days. While demand for vehicles remains strong, semiconductor shortages are affecting output.
Nevertheless, this is progress compared to 2021, when more than 11 million automobiles remained unbuilt due to a shortage of semiconductor chips.
Still, for Toyota, and other Japanese manufacturers, the dollar’s strength should be an economic advantage. The yen has plunged around 30% against the U.S. dollar this year. Theoretically, this should make international sales theoretically more profitable. But spiraling costs have wiped out any currency benefit.
While Toyota expects a fiscal year operating profit of ¥2.4 trillion, below analysts’ average forecast of ¥3.0 trillion yen. The company’s fiscal year ends on March 31, 2023.
Meanwhile, other automakers are faring better. In October, Hyundai Motor Company raised its predicted revenue growth to 20%, up 6% from its January forecast, with a profit margin of as much as 7.5%, up 1% from its previous forecast.
And other costs continue to mount. Last month, reports surfaced that Toyota is rethinking its $38 billion EV strategy, which will impact product launches while negatively impacting profitability. The move followed a recall of its first EV, the bZ4X crossover.