Toyota Motor is expected to benefit greatly from demand for hybrid vehicles when it reports its annual results on Wednesday. This makes it clear that the world’s largest automobile manufacturer by sales will benefit when the hype surrounding battery-electric vehicles dies down.
But the projected record results, supported in part by the rebound of the weak yen currency, belie the significant challenges the country faces in critical markets. In China it is under pressure from a fierce price war and in the US from the impact of consumers struggling with higher borrowing costs.
Globally, the company is feeling increasing competition from Chinese competitors who are rapidly expanding production of low-cost vehicles. Meanwhile, a safety testing scandal at Daihatsu’s compact car division has dented sales in Japan and Toyota Group’s reputation for quality and safety.
In February, the Japanese automaker raised its operating profit forecast for the fiscal year ending March 31 to 4.9 trillion yen ($31.87 billion), a result that would mark a record profit and an 80% increase from a year ago.
Fourth-quarter operating profit is expected to be 747 billion yen, according to the average of nine analysts surveyed by LSEG.
As global demand for battery-powered electric vehicles has slowed, Toyota has made money by selling more hybrid vehicles, which offer relatively higher margins than regular gasoline cars.
Toyota was the pioneer in hybrids more than a quarter of a century ago with the Prius. They accounted for more than a third of the 10.3 million cars sold in the past financial year, including the luxury brand Lexus.
While Toyota is strong in hybrid vehicles, it remains a laggard in electric vehicles, trailing rivals such as Tesla and European and Chinese automakers.
Battery electric vehicles accounted for just 1% of global sales last year, or about 116,500 vehicles, well below the previously announced target of 202,000 vehicles.
The fate of its business in China is likely closely tied to its EV strategy. Given that Chinese buyers prefer cars with software, Toyota may not be able to make a big splash for the next three years until it launches next-generation models in China, said Koji Endo, head of stock analysis at SBI Securities.
“It’s obvious they’re behind on software,” he said.
Toyota announced a partnership with Chinese tech giant Tencent and unveiled two battery electric vehicles for the Chinese market at the recent Beijing auto show.
Toyota sales in China fell 1.6% in the first quarter of calendar 2024, better than sharper declines by Japanese rivals Nissan and Honda but worse than the industry’s 12.5% rise in passenger car sales, data showed an automotive industry association.
In the USA they rose by 20% to 565,000 vehicles in the reporting period.
Shares of Toyota are up 96% in the last year including dividends. In dollar terms, they are up 71%, compared to a 7.5% rise for Tesla over the same period.