Toyota: Material prices cause big profit miss despite currency boost

Carmaker has squandered the advantage it gained from yen’s weakness

Toyota has announced a 42 per cent plunge in operating income. The figure is much worse than expected. The Japanese automaker’s results in the quarter to June come despite a weak yen – a significant profit advantage over non-Japanese rivals. That signals trouble ahead.

The bigger surprise was Toyota’s forecast of operating profit of 2.4 trillion yen (€17.6 billion) for the fiscal year to the end of March, nearly 30 per cent short of analyst expectations. Shares fell 3 per cent even as the benchmark Nikkei 225 index rose.

Carmakers outside Japan will be just as surprised as analysts with the results. The weak yen, which fell to a 24-year low during the quarter and remains above 130 to the dollar, should turbocharge foreign revenues.

Toyota’s sales overseas are nearly double those made at home. Every one yen of weakness adds about 45 billion yen (€330 million) to Toyota’s profit. The currency has weakened by more than a fifth in the past year from 109 yen to the dollar to 134 yen. Smaller local peers such as Subaru posted a 25 per cent increase in the same quarter, thanks to the boost.


At Toyota, the currency-related fillip to reported income of 195 billion yen (€1.43 billion) was more than offset by steeper material prices. That is about to get much worse. Toyota expects the impact from commodity input costs to be about 1.45 trillion yen (€10.6 billion) for the fiscal year.

Supply chain disruption, including lockdowns in Shanghai and chip shortages, are a concern. Toyota has already cut its monthly production targets three times during the quarter.

The shares have fallen more than a tenth from a January peak, reflecting downward revisions in production goals. They still trade at 10 times forward earnings, more than double that of peer Volkswagen.

The yen has started showing signs of a reversal this week as investors slash short positions. The latest quarter provides clues to what is coming in future quarters. Toyota has squandered the advantage it gained from currency weakness. Such lucky breaks are rare in car-making.

– Copyright The Financial Times Limited 2022