TOKYO – CEO Koji Sato wrapped his first year at the helm of Toyota Motor Corp. by shattering the company’s earnings records – notching new highs in profits, sales and output.
But Sato also warned that the automaker will take a breather this year. Sales growth is expected to cool, U.S. incentives are likely to increase and profits may fall slightly, he said.
Part of the course correction in earnings for the coming fiscal year stems from a big investment in improving human capital at the home company as well as at dealers and suppliers, and huge outlays for next-generation technologies such as electrification.
Here are the top five takeaways from Sato’s blockbuster earnings announcement on May 8.
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Re-investment
Toyota is plowing its bumper profits back into long-term sustainability.
The automaker will spend about 380 billion yen ($2.51 billion) on improving human capital throughout its supply chain this fiscal year. That includes efforts to support wage increases and better working conditions at suppliers and dealers, and within its own offices and factories.
Also this year, Toyota will boost spending on R&D and capital expenditure and tilt the mix toward “growth” technologies. That covers electrification, hydrogen and other carbon-cutting powertrain systems as well as software-defined vehicles and artificial intelligence.
Toyota will inject 1.7 trillion yen ($11.24 billion) into those areas this fiscal year, amounting to a 500 billion yen ($3.3 billion) increase over spending in the fiscal year that just ended.
Toyota clearly isn’t afraid to share the wealth if it brings a brighter future.
Tempered profit outlook
The ramped-up investment will partly eat into earnings.
Toyota forecast operating profit to decline some 20 percent to 4.3 trillion yen ($28.42 billion) this fiscal year from the record 5.35 trillion yen ($35.36 billion) posted in the year ended March 31. Net income is also seen falling 30 percent from the record just reported.
Global retail sales are forecast to dip 1.3 percent to 10.95 million vehicles this fiscal year, from last fiscal year’s record 11.09 million.
Still, even Toyota’s new net income goal of 3.57 trillion yen ($23.60 billion) amounts to a haul in the double-digit billions. And the net margin would fall to a still-robust 7.8 percent, from an exceptional 11 percent. Most carmakers would envy such a slowdown.
Don’t forget to factor in Toyota’s famously conservative estimates: The company originally projected operating profit of 3 trillion yen ($19.83 billion) in the just-finished fiscal year. It ended up nearly doubling that.
Hybrids still hot
Toyota continues to bank on its trademark hybrid technology.
Toyota sold about 3.7 million hybrids in the just-ended fiscal year, up 32 percent from 2.8 million year before. Hybrids were one-third of global volume, up from 26 percent.
That trend will continue. Toyota sees hybrid sales zooming ahead 25 percent to 4.65 million this fiscal year. And they are likely to account for 42 percent of global volume.
Hybrids are good for the bottom line. Toyota says they are at least as profitable as its gasoline-only models, and usually more so. Thus, the more Toyota sells, the more profit it bankrolls.
The biggest challenge may be getting more hybrids. U.S. Toyota dealers have an average 15-day supply of all vehicles. But for hot-selling hybrids, inventories are just five to eight days.
By contrast, Toyota sold just 116,654 full-electric cars in the fiscal year that ended March 31. EV sales are forecast to increase 46 percent, but will still be only 171,000 in the current fiscal year.
As meager as those EV volumes might seem, they are even lower than what Toyota envisioned a year ago. Back then, the company said it would be selling 200,000 EVs a year by now.
EV optimism
Sato said EVs still are not ready for prime time and that his short-term outlook is conservative.
The infrastructure is not there to support widespread battery-electric vehicle use, and the value-added proposition of EVs still is not attractive enough for mainstream customers, he said.
But after 2026, the “situation might change,” Sato said. “So aiming at that period, we would like to make sure that we are ready to provide BEVs in a Toyota way.”
Toyota is developing a next-generation EV architecture with a reworked platform and battery system. The technologies will debut in the upmarket Lexus brand and were previewed in concept vehicles at last year’s Japan Mobility Show in Tokyo.
Toyota will increase the value-added proposition in these vehicles through better software and artificial intelligence, Sato said. A host of new services will be unlocked.
The way of making these EVs will also undergo a wholesale transformation, he said. “The current production logic is no longer valid,” Sato said. “Car design will totally change.”
Toyota is adapting its famed Toyota Production System to newer, more efficient methods.
Said Sato: “EVs have all this potential.”
What’s ahead for North America
Toyota’s crucial North American operations bounced back to profitability in the fiscal year ended March 31. No longer hobbled by the pandemic or semiconductor shortages, the automaker recorded operating profit of 506.3 billion yen ($3.35 billion), reversing an operating loss of 74.7 billion yen ($493.7 million) the year before. Sales climbed 17 percent to 2.82 million.
A combination of tight inventories, low incentives and booming shipments of higher-margin vehicles such as hybrids, crossovers and trucks helped plump up profits.
Nonetheless, Toyota was also cautious about the coming year. As U.S. pricing pressure heats up, CFO Yoichi Miyazaki said Toyota will join the fray of competitors raising incentives. Toyota needs to do that to capture volume, he said.
Toyota’s spending in that area is already rising. In April, the company’s average marketing outlays per vehicle more than doubled to $1,724 from $808 a year earlier, according to data from Motor Intelligence. That is much lower than the industry average of $3,081.
But Toyota’s sales forecast foreshadows the challenge ahead: It predicts North American sales to inch ahead only 1.9 percent to 2.87 million vehicles in the current fiscal year.
Source: autonews.com