Could hybrids and a weaker yen propel Toyota back into profit?Ian Rowley
According to a report in today’s Yomiuri newspaper, Toyota plans to increase raise its annual production forecast. The Yomiuri reckons Toyota will now make 6.67 million vehicles this fiscal year, compared to its most recent official forecast of 6.3 million.
If the story proves correct—and Toyota hasn’t confirmed the Yomiuri story—much of the credit must go to hot-selling hybrids. The new Prius, aided by government incentives for cleaner, greener cars, is Japan’s best selling auto. Prius sales have also made a solid start in the U.S. where it is comfortably outselling the Honda Insight. Meanwhile, the even newer Lexus LS250h hybrid sedan, a first Lexus offered only as a hybrid, has received 10,000 orders in Japan—twenty times Toyota’s monthly sales projection. And according to a separate report, Toyota is planning to buy hybrid batteries from electronics giant Sanyo because its current supplier (Toyota controlled) Panasonic EV Energy cannot keep up with demand.
Perhaps of more interest, though, is what all this means for profitability. After all, Toyota made a first loss in almost six decades last year. Meanwhile, critics of hybrids claimed that because they require batteries, electric motors and other parts in addition to a conventional engine, the technology is too costly to drive earnings. Nissan chief Carlos Ghosn again criticized hybrids at the recent launch of the Nissan Leaf electric vehicle.
Toyota says the recent uptick in sales won’t have a huge impact. At its most recent quarterly results, it announced a loss of $818 million between April and June and projected a loss of $4.7 billion for fiscal year which runs through March 2010.
Still, to me, that number looks conservative. Indeed, with the sales data improving (albeit from a low base) and the yen below Toyota’s projected level, it wouldn’t be a surprise if Toyota returned to profit this year. For sure, analysts are certainly more upbeat than the company. Andrew Phillips, who covers Toyota for KBC Securities in Tokyo, recently cut his net loss forecast from $2.9 billion to a $210 million, citing improving sales volumes and better profitability at associated companies. From a deficit of $210 million, it wouldn’t take much more of an improvement in the sales environment—or a weakening of the yen—for Toyota to be back in the black a year ahead of schedule.