Toyota set to ride on returning market for cars, expects V-shaped recovery

Tokyo

TOYOTA Motor Corp unveiled a 250 billion yen (S$3.05 billion) share buyback and expects to return to pre-pandemic profitability in the current fiscal year.

Its ability to keep churning out vehicles amid a global shortage of automotive chips also puts it in a prime position to capitalise on a swiftly recovering demand for cars.

The Japanese automaker forecast 2.5 trillion yen in operating profit for the 12 months ending in March, compared with a 2.4 trillion yen profit in fiscal 2019, before the pandemic. Analysts are predicting, on average, an operating profit of 2.7 trillion yen.

In a tumultuous period for the auto industry, Toyota quickly pulled ahead of the pack, straightening out its supply chain and ramping up production in order to meet rising demand for cars.

The world's No 1 automaker now stands primed for the V-shaped Covid recovery eluding many of its peers, which are having to scale back because of the global chip shortage.

Seiji Sugiura, an analyst at Tokai Tokyo Research Institute Co, said: "Toyota has overcome the chip shortage. The forecast is conservative and there could be an upward revision, maybe up to three trillion yen of operating income."

By manoeuvring through the disruptions of the pandemic, Toyota became the world's largest automaker last year, wresting the title back from Volkswagen.

Japanese rival Nissan Motor Co, by contrast, reported an operating loss of 151 billion yen for the fiscal year on Tuesday. Honda Motor Co is set to announce its earnings on Friday, with analysts predicting, on average, a profit of 549 billion yen, down 13 per cent from the previous year.

Early implementation of infection-prevention measures and a timely ramp-up of production in China, where virus-related disruptions dissipated relatively early, meant Toyota has been able to increase its global output above the previous year's level each month since August.

That has enabled Toyota to meet demand for cars that rose swiftly in regions beginning to emerge from lockdown. Overall, unit sales for the fiscal year ended in March were down just 4 per cent from the previous year.

Amid the gloom, Toyota's results "stand out as particularly bright", Bloomberg Intelligence analyst Tatsuo Yoshida said. The company's sales are proving sturdy, he said.

Stronger-than-anticipated demand for cars threw the auto industry for a loop at the beginning of this year, when realised they had not ordered enough chips to raise their output. The failure to secure semiconductors, which are crucial to making tech-laden modern cars, is expected to result in millions of lost vehicle sales this year. Experts are saying the dearth will probably get worse before it gets better.

The chip shortage is likely to impact 500,000 units of Nissan's output this current fiscal year, though it aims to recover half of those losses in the latter half of the year when the crunch begins to ease, said Nissan chief executive officer Makoto Uchida, speaking at a briefing on Tuesday.

Toyota has emerged relatively unscathed up until this point, thanks to its practice of monitoring small suppliers and stockpiling chips, although a fire that broke out at an automotive chip plant owned by Renesas Electronics Corp in March still poses a risk to the all of Japan's automotive sector.

Toyota's hybrid system of keeping inventory of some crucial parts gave it a leg up on other automakers depending heavily on the "just-in-time" manufacturing strategy of keeping a low stock of goods on hand.

As the shortage drags on, Toyota still expects to have sufficient semiconductors for production in the near term, though the summer months get a little cloudier, said Bob Carter, Toyota's top sales executive in the US in a recent interview.

Indeed, the company's performance in the fiscal year just ended was impressive. Even though sales revenue dipped, net income increased on the strength of Toyota's financial services business, and margins rose to 8.3 per cent from 6.8 per cent.

The company's deep contingency planning is putting it in a good position to reap sales from consumers in the US and China, who are snapping up cars, emboldened by signs the pandemic is waning.

Toyota's global sales in March rose 44 per cent to 982,912 units, an all-time record for a single month. The company expects sales for the current fiscal year to hit 10.6 million. Electric vehicle sales alone should reach eight million units by 2030, said the company's communications chief Jun Nagata on Wednesday.

While a stronger rebound may be delayed by the chip shortage, Toyota is likely to recover any lost sales when the situation eases to due to strong underlying auto demand in markets like China, wrote Roman Schorr, a director at Fitch Ratings, in a recent note. This could help accelerate the recovery in its operating performance and credit metrics to pre-pandemic levels, he said.

Toyota shares rose as much as 2.7 per cent on Wednesday, bringing gains for the year to around 7 per cent. The company will do a five-for-one share split per the register as of Sept 30. The purpose of the stock split is "to reduce the minimum investment price," Toyota said in its earnings statement. BLOOMBERG