Latest News

Toyota's earnings are cushioned by the demand for hybrids but a US tariff threat looms

Toyota's profits are expected to remain steady when it reports its annual earnings on the 15th of this month. However, investors will be alert for any signs that U.S. Tariffs could have an impact.

Investors will pay close attention to the impact of President Donald Trump's Tariffs on Toyota's future profits. The levies will likely deal a severe blow to automakers doing business in the U.S.

What Toyota says about Toyota Industries will also be of interest, after the automaker announced last month that they were considering a possible buyout.

Seiji Sugiura is a senior analyst with Tokai Tokyo Intelligence Laboratory. "The focus will be on the guidance for fiscal year ending in March 2026," he said. "I do not know whether Trump's tariffs will be considered or not."

According to the average seven analysts surveyed, the Japanese automaker will deliver a 2% increase year-on-year in operating profit, which would be equivalent to $7.86 billion. This would be the first rise in three quarters.

The company's sales data has already shown that the momentum was maintained at the beginning of the year. Toyota's sales worldwide rose by 5% between January and March compared to a year ago, thanks to strong demand in the United States and Japan, its two biggest markets.

Toyota's operating profits for fiscal 2024 are expected to be lower than last year's record. The automaker increased its forecast of operating profit for the fiscal year that just ended in February to 4.7 trillion Japanese yen. This would represent a 12% drop year-over-year.

Toyota's strong demand for hybrids like the Prius, Camry and other gasoline-electric vehicles has validated its bet on this technology. However, it also poses a challenge to the automaker as suppliers are struggling to keep up.

POTENTIAL TARIFF HIT

Tokai Tokyo’s Sugiura said that the company's operating profit for fiscal 2025 could be affected by 800 billion yen as a result of the impact of tariffs on Toyota’s U.S. bound exports from Japan.

The estimate doesn't factor in any wider impact of Trump's tariffs such as a possible U.S. economy slowdown, or on Toyota exports from Canada and Mexico to the largest economy in the world, where they have production bases and make some of their most popular models.

Toyota previously stated that it would continue its normal operations and focus on reducing fixed costs. It did not take more radical measures, such as raising car prices to respond to tariffs.

Toyota, according to sources familiar with the situation, is looking at producing its next-generation RAV4 SUV on American soil to protect itself from the potential risk of U.S. exchange rates and tariffs. The demand for this car also appears to be outstripping supply.

Toyota shares are down 13% this year compared to the Nikkei index's 8% drop over that time period.

Analysts are also waiting for an update from Toyota on its strategy to unwind cross-shareholdings, as regulators and investors have been putting pressure on Japanese companies in recent years to sell stakes they hold in business partners and affiliates.

The structure of any deal will determine how Toyota's price is affected by a possible investment into a potential purchase of Toyota Industries. Toyota Industries was a company that has been around for nearly 100 years, from which Toyota Motors was spun-off. James Hong, Macquarie's head of mobility analysis, explained.

Toyota Industries owned around 24% of Toyota as of September of last year. Toyota Industries also held more than 5% Denso, a major Toyota supplier, and a Toyota group company.

He said that investors would view any additional investment by Toyota in its supplier as a negative, but steps to address cross-shareholdings and dual listing concerns could be seen as positives for the entire market, including Toyota. $1 = 143.7500 Japanese yen (Reporting and editing by Muralikumar Anantharaman).

(source: Reuters)