Toyota profits surge as carmaker holds its own in China

Toyota reported a 94 per cent surge in profits as the world’s largest carmaker bucked a sharp slowdown in China that has forced Volkswagen and other rivals to cut their delivery forecasts for the year.

Global auto giants, including Japanese carmakers, have faced a crisis in China as they struggle to keep pace with the rapid shift away from the internal combustion engine and the rise of local electric vehicles groups.

Toyota has also been hit hard, but the company said it was able to offset a 26 per cent profit decline in China thanks to a weaker yen and bumper sales in the US.

However, it noted China’s “competitive environment is becoming increasingly severe due to the rise of local brands”.

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Shares in Toyota briefly rose more than 3 per cent on Tuesday after it reported operating profits increased from ¥578.6 billion (€3.6 billion) a year earlier to ¥1.12 trillion. Analysts had expected profits of ¥925.6 billion, according to S&P Capital IQ.

The Japanese group sold 2.75 million vehicles globally, a year-on-year increase of 8.1 per cent, with sales increasing in all of its key markets. Sales of Toyota and Lexus vehicles rose 8.6 per cent in China for the quarter.

“Toyota did fairly decently in China for an overseas legacy automaker that barely sells any electric vehicles,” said CLSA analyst Christopher Richter.

For the quarter, electric vehicles accounted for 34 per cent of its global vehicle sales, but most of them were hybrids. For pure battery-powered cars, Toyota sold 29,000 vehicles compared with 4,000 vehicles a year earlier.

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Despite its small line-up of electric vehicles, analysts said Toyota had been less affected by the price war sparked by Elon Musk’s Tesla because of its focus on higher-end models, as well as its relatively strong brand.

Mr Richter said Toyota was likely to upgrade its annual guidance in the next quarter and potentially announce a share buyback, after the group achieved 37 per cent of its full-year operating profit target in the first quarter.

Toyota said it was also able to offset its challenges in China with its success in raising prices in the US and Europe. It has also benefited from the weakening of the yen, with the company assuming an exchange rate of ¥125 against the dollar for the current fiscal year compared with the current level of ¥142.

Last week, Germany’s Volkswagen blamed a sales drop in China for its reduced global delivery forecast for the year, while Nissan also cut its annual vehicle sales target for the same reason. – Copyright The Financial Times Limited 2023