Toyota Lifts Profit Forecast on Surging RAV4 Sales

Updated on
  • Carmaker announces buyback of shares worth 250 billion yen
  • Honda raised forecast last week; Nissan to report Wednesday
The 2018 Toyota RAV4 SUV. Photographer: Daniel Acker/Bloomberg

The knives are out on costs at Toyota Motor Corp.

Asia’s biggest automaker saved 100 billion yen ($879 million) in the half year ended September through measures including the continued roll out of a new manufacturing process. That’s more than $3,300 dollars every minute in those six months.

The money saved will help bolster spending on research and development to a record 1.06 trillion yen this year as President Akio Toyoda pushes the company deeper into new electrified powertrains and artificial intelligence, areas he says the automaker needs to lead. Aggressive cost cutting, a weaker yen and continued dominance of the Japanese market led Toyota to raise its full-year profit Tuesday and announce a share buyback.

“We not only need to develop these leading technologies but also need to commercialize them,” Chief Financial Officer Osamu Nagata told reporters Tuesday at a briefing in Tokyo. “In order to do that, we need to increase R&D expenses. This will be a cost burden so we need to speed up cost reduction.”

Toyoda had earlier set up a task force comprising four executive vice presidents, including Nagata, to ensure new spending is funded by cuts in other programs.

Japan’s biggest automaker predicted operating income in the year ending in March may be 2 trillion yen, up from the 1.85 trillion yen forecast in August. The improved forecast signals Toyota may avert a second consecutive annual profit decline, a landmark that last happened since 1994 and something Toyoda has vowed to prevent.

To read David Fickling’s piece on Toyota earnings, click here.

A weaker yen is providing a strong tailwind, adding 175 billion yen to projected operating income. Toyota now sees the yen averaging 111 per dollar and 128 per euro over the year to March, from 110 and 124 seen in August.

Toyota shares rose 0.6 percent to 7,228 yen as of 10 a.m. in Tokyo Wednesday, after climbing as much as 1.8 percent. The Nikkei 225 Stock Average declined 0.6 percent.

“With Toyota aggressively investing in hybrid vehicles, solid-state batteries and self-driving technologies while also actively partnering with other companies, it will likely emerge as the auto industry’s next-generation technology leader,” Masataka Kunugimoto, an analyst at Nomura Holdings Inc., wrote in a note to clients. “We expect Toyota to continue to gain U.S. and European market share over the medium term, given its technological prowess and strong sales network.”

Nomura, which has a buy rating on the stock, also named Toyota as its top pick in the automotive industry.

Click here for a wrap of what analysts are saying about Toyota’s earnings

While Toyota joins Honda Motor Co. in raising annual profit forecasts, Subaru Corp. cut its estimate for the fiscal year and Mitsubishi Motors Corp. maintained its numbers. Nissan Motor Co. is scheduled to announce its earnings Wednesday.

Toyota warned that incentive spending and the continued customer shift toward trucks and SUVs is clouding the outlook for the U.S. market, the company’s biggest. Despite the caution, Toyota is on pace to sell more vehicles in the country this year than in 2016, even as the market heads for its first annual contraction since 2009.

In the three months to September, Toyota took a 15 percent share in the U.S. for the first time since 2009, outselling Ford over the entire quarter. Toyota’s RAV4 is the best-selling compact crossover in the country, and in July it introduced an all-new Camry, America’s best-selling car. The Camry is the first model from Toyota that has been redesigned from scratch around the new manufacturing process, which saves costs by using more shared parts across different vehicles.

Toyota is strengthening its presence in the U.S., joining with Mazda Motor Corp. to build a $1.6 billion auto plant in the country. The location of the plant is due to be decided early next year, with production beginning in 2021. As a consequence of the plan, Toyota reduced the size of its initial investment in a new Mexican factory by 30 percent to $700 million.

In January, President Donald Trump criticized the Mexican factory plan, demanding Toyota build a plant in the U.S. instead. Trump, who is in Asia this month, left Japan on Monday without a concrete agreement to address what he deems an unfair trade relationship between Japan and the U.S.

Some additional highlights:

  • First-half group operating income declined about 2% from year earlier to 1.12 trillion yen
  • CFO Nagata said the decrease was mainly on account of marketing expenses
  • Nagata hopes to improve profitability in the second half and next year after increasing production capabilities of SUVs, pick-ups that are doing well
  • Camry to contribute to profitability in North America
  • Toyota to continue with share buybacks to improve capital efficiency

— With assistance by Livia Yap, and Jie Ma

    Before it's here, it's on the Bloomberg Terminal.