Toyota set to report record $31.87 bn profit driven by demand for its hybrid vehicles

Toyota Motor Corporation is set to announce its annual earnings on Wednesday, with analysts forecasting a substantial boost from the growing demand for hybrid vehicles.

Despite facing significant challenges in key markets, such as China and the U.S., Toyota is expected to report record results, partly due to the favourable impact of a weak yen. In China, the company is grappling with a fierce price war, while in the U.S., consumers are dealing with higher borrowing costs, impacting sales.

Globally, Toyota faces increased competition from Chinese automakers, who are rapidly expanding production of low-priced vehicles. Additionally, a safety test scandal involving its Daihatsu compact car unit has led to a decline in sales in Japan, affecting Toyota’s reputation for quality and safety.

In February, Toyota raised its operating profit forecast for the fiscal year ending March 31 to 4.9 trillion yen ($31.87 billion), which would represent a record profit and an 80% increase from the previous year. For the fourth quarter, analysts expect an operating profit of 747 billion yen, according to a poll by LSEG.

Amidst slowing global demand for battery-powered EVs, Toyota has capitalised on selling more hybrids, which offer higher margins compared to regular gasoline cars. Toyota has been a pioneer in hybrids for over a quarter of a century, starting with the Prius. Hybrids accounted for more than a third of the 10.3 million cars it sold in the just-ended financial year, including the Lexus luxury brand.

Despite its success in the hybrid market, Toyota lags behind rivals like Tesla, as well as European and Chinese automakers, in the EV sector. Battery EVs made up just 1% of Toyota’s global sales in the last fiscal year, well below its previous target of 202,000 vehicles.

However, the future of Toyota’s business in China hinges on its EV strategy. Given that Chinese consumers prefer software-rich cars, Toyota may not make significant strides until it releases next-generation models in China, according to Koji Endo, head of equities research at SBI Securities.

Toyota recently announced a partnership with Chinese tech giant Tencent and unveiled two battery EVs for the Chinese market at the Beijing auto show. While Toyota’s China sales were down 1.6% in the first quarter of the 2024 calendar year, this was better than the sharper declines seen by Japanese rivals Nissan and Honda but lagged behind the 12.5% rise in sector-wide passenger vehicle sales.

In the U.S., Toyota saw a 20% increase in sales to 565,000 vehicles in the same period. Over the past year, Toyota’s shares have surged by 96%, including dividends, or 71% in dollar terms, outperforming Tesla’s 7.5% increase over the same period.

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