Toyota cautions on impact of rising raw material costs

TOKYO: Toyota Motor has warned that “unprecedented” hikes in raw material costs could slice a fifth off full-year profit.

This is a clear sign that the world’s top automaker by sales can no longer shrug off the supply-chain crunch that has roiled the global industry.

Also reporting a 33% drop in fourth-quarter operating profit, the Japanese giant saw its shares slide more than 5% yesterday, before closing down more than 4% – its biggest oneday fall in two months.

The Tokyo benchmark was up 0.3%. Toyota had fared well during the earlier months of a global semiconductor shortage, thanks to its larger stockpile of chips, but it has now joined rivals in slashing production thanks to the prolonged crunch, as well as China’s fresh Covid-19 restrictions.

The home of the famed Corolla compact car said it expects materials costs to more than double to 1.45 trillion yen (Us$11.1bil or Rm48.86bil) in the fiscal year that started in April, which it expected to deal with by switching to lower-cost materials.

“We need to think about how we can respond to material inflation by eliminating the distinction between original equipment manufacturers and suppliers and working together as one,” chief financial officer Kenta Kon told reporters, referring to car makers.

“Since the price of materials is rising, we need to work to reduce the amount of materials we use as much as possible and to replace them with less expensive materials.”

The automaker expects to sell 8.85 million vehicles globally this fiscal year, up 7.5% from last year.

For the current fiscal year, Toyota forecast operating profit will fall about 20% to 2.4 trillion yen (Rm80.88bil) from almost three trillion yen (Rm101.10bil) in the previous year.

Analysts had expected earnings to rise 12% to 3.36 trillion yen (Rm113.21bil), according to Refinitiv.

In the January-march quarter, its profit slumped to 463.8 billion yen (Rm15.63bil).

This was also significantly below an average estimate of 521.1 billion yen (Rm17.55bil).

The yen’s sharp depreciation to two-decade lows has worked in favour of Japan’s export-driven auto industry.

But the surging raw material costs and global supply chain disruptions exacerbated by China’s tough Covid measures are putting pressure on profitability.

Toyota’s domestic rivals Nissan Motor Co and Honda Motor Co report earnings today and tomorrow, respectively.

Nissan shares closed 1.5% lower yesterday, while Honda dropped 3.1%.