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Toyota has forecast a 20 per cent decline in annual profit as the world’s largest carmaker increases spending in electric vehicles and artificial intelligence in a bid to create a “game changer” to compete against Chinese rivals.
Shares in Toyota briefly fell as much as 3 per cent on the weak forecast on Wednesday despite a blockbuster year that boosted the carmaker’s profits to a record on the back of strong sales in gas-electric hybrids and the weaker yen.
For the fiscal year through March 2025, the company expects an operating profit of ¥4.3tn ($28bn) compared with ¥5.3tn in fiscal year 2024, an estimate that was significantly below analyst expectations.
At a news conference on Wednesday, Toyota chief executive Koji Sato said the Japanese group would focus on “cementing its position” and ensure growth by reshaping its hardware-focused business model to include mobility services and software.
“For this fiscal year, we will be spending the necessary money and time with the resolve to cement our position,” Sato said.
The company plans to invest ¥1.7tn in “growth areas” such as AI, electric vehicles and software. It also plans to buy back up to 3 per cent of its shares worth ¥1tn and signalled it would start unwinding more of its many cross-shareholdings.
In late April, Toyota unveiled a partnership with Tencent, the Chinese owner of the superapp WeChat, as foreign carmakers seek partnerships with Chinese companies to stay competitive in the country’s cut-throat market.
Yoichi Miyazaki, Toyota’s chief financial officer, said the Japanese carmaker was “well behind” its Chinese rivals in some areas, adding that it would need to “endure” several difficult years and avoid getting sucked into a price-cutting competition with local brands.
“We need to think about how we can bring about a game change” through increased investment, Miyazaki added.
In the three months to the end of March, Toyota’s operating profit rose 77 per cent from a year earlier to ¥1.11tn, boosted by a sharp decline in the yen against the dollar.
Group sales of vehicles was mostly flat at 2.4mn units for the quarter as a series of safety and data scandals at some of its closest subsidiaries hurt sales in Japan. The company sold 374,000 vehicles in China, down 1.6 per cent from a year earlier.
The group, which includes Daihatsu and Hino Motors, expects to sell 10.4mn vehicles in the current financial year, compared with 10.3mn vehicles in the previous year.
Koji Endo, head of equity research at SBI Securities, said the biggest surprise was Toyota’s large share buyback plan, which could reflect broader governance changes at the Japanese group.
He also added that “a pause” in Toyota’s profit growth was inevitable, with the company’s large network of suppliers and staff worn out by production disruptions caused by a safety test scandal at Toyota’s subsidiary Daihatsu.
