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Toyota has forecast a 20 percent drop in annual profit as the world’s largest carmaker increases spending on electric vehicles and artificial intelligence in a “game changer” to compete with Chinese rivals.
Shares of Toyota briefly fell as much as 3 percent on Wednesday on weak guidance, despite a blockbuster year that boosted the automaker’s profits to a record on strong sales of gas-electric hybrids and the weaker yen.
For the fiscal year ending March 2025, the company expects operating profit of 4.3 trillion yen ($28 billion) compared with 5.3 trillion yen in fiscal 2024, an estimate that was well below analysts’ expectations.
At a news conference on Wednesday, Toyota Chief Executive Koji Sato said the Japanese group would focus on “consolidating its position” and ensuring growth by reshaping its hardware-focused business model to include mobility services and software.
“For this fiscal year, we will spend the necessary money and time to consolidate our position,” Sato said.
The company plans to invest 1.7 trillion yen in “growth areas” such as AI, electric vehicles and software. The company also plans to buy back up to 3 percent of its shares worth ¥1 trillion and said it will begin unwinding more of its numerous cross-holdings.
In late April, Toyota announced a partnership with Tencent, the Chinese owner of super app WeChat, as foreign automakers seek partnerships with Chinese companies to stay competitive in the country’s fiercely competitive market.
Toyota Chief Financial Officer Yoichi Miyazaki said the Japanese carmaker was “significantly behind” its Chinese rivals in some areas, adding that it needed to “persevere” through several difficult years and avoid being drawn into a price-cutting competition with local brands .
“We need to think about how we can turn things around through increased investment,” Miyazaki added.
In the three months ended March, Toyota’s operating profit rose 77 percent year-on-year to ¥1.11 trillion, driven by a sharp fall in the yen against the dollar.
Group vehicle sales were mostly flat at 2.4 million units in the quarter, as a series of security and data scandals at some of its nearest subsidiaries hit sales in Japan. The company sold 374,000 vehicles in China, 1.6 percent less than the previous year.
The group, which includes Daihatsu and Hino Motors, expects to sell 10.4 million vehicles in the current financial year, compared to 10.3 million vehicles last year.
Koji Endo, head of equity research at SBI Securities, said the biggest surprise was Toyota’s extensive share buyback plan, which could reflect broader changes in the Japanese group’s corporate governance.
He also added that “a pause” in Toyota’s profit growth was inevitable as the company’s large supplier and staff network was depleted by production disruptions caused by a safety testing scandal at Toyota’s Daihatsu subsidiary.