Friday, November 26, 2021

Toyota’s Rising Profits Refute Global Auto Parts Shortage

Toyota posted quarterly operating income well above estimates, raised its full-year forecast and announced a 150 billion yen ($ 1.3 billion) share buyback, reflecting confidence it can boost production to meet strong demand for cars after how a shortage of parts will disrupt production.

Shares in the world’s largest automaker by sales surged after it forecast operating income of 2.8 trillion yen for the fiscal year to March, up from 2.5 trillion yen announced in August. Analysts expect an average of 3 trillion yen. For the last quarter from July to September, Toyota’s operating income was 750 billion yen, higher than analysts’ forecast of 553 billion yen.

Optimistic earnings figures, which are also supported by a weaker yen, which is helping to boost earnings in the country, even as the automaker had to cut production due to the Covid-19 outbreak in Southeast Asia, which affected access to chips and other key components … He also supports the automaker’s predictions that supply chain problems will diminish, allowing it to recover lost production.

“This is a positive surprise,” said Tatsuo Yoshida, an analyst with Bloomberg Intelligence. “The fact that they are forecasting 2.8 trillion yen means they will reach or exceed consensus estimates.”

Toyota kicked off the July-September quarter in good shape, eliminating the spare parts shortage in the industry. July sales rose to a record high and total production rose at double digits. However, by mid-August, supply problems were affecting Toyota’s production. Around this time, the governments of Southeast Asia, a manufacturing hub for Japanese automakers, were imposing strict restrictions on local business operations amid a resurgence of coronavirus infections.

Unable to obtain a number of key parts, including wire harnesses from Vietnam and chips from Malaysia, Toyota announced it would cut production by about 40% in September. These cuts continued to affect production plans, with Toyota slashing its annual production forecast to 9 million vehicles from 9.3 million units.

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This forecast now looks somewhat conservative, Toyota CFO Kenta Kohn said at a briefing. Despite this, “there are still some risks after December,” he said.

The rise in used car prices makes it easier for dealers to reduce incentives for new cars, increasing the amount of profit that Toyota and other automakers can make from each vehicle withdrawn from sales lots. Quarterly sales rose 11% to 7.55 trillion yen, beating analysts’ forecasts by 7.13 trillion yen. Toyota maintained its annual sales target of 30 trillion yen.

According to Shinji Kakiyuchi, an analyst at Morgan Stanley MUFG Securities, as supply does not keep up with demand, stocks are depleted, leading to higher prices and a temporary increase in profits. As Toyota ramps up production, “if operating profit remains high, it will lead to high profitability,” he said in a recent briefing, noting that the automaker should enter a “production recovery” phase this month.

Toyota said last month that conditions in Southeast Asia are improving and that it has had to cut production less than originally anticipated. The company is targeting a November production volume of 850,000 to 900,000 units, up from the same month in 2019 and 2020. It was originally planned to produce 1 million vehicles this month.

“Production has declined globally, but our suppliers, factories and dealers have gone to great lengths to deliver as many vehicles as possible,” said Toyota’s presentation materials. “We have also benefited from reduced supply and strong demand in the new car market,” which has helped us achieve results that “exceed our core capabilities,” the company said.

Nation World News Desk
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