TOKYO — Japanese automakers — even Toyota — are bracing for a tough year. With few exceptions, the country's manufacturers expect profits to decline or stall out as soaring costs eat up earnings.
And spiraling R&D budgets — virtually across the board — are only pushing costs higher.
Japan's automakers are keeping the pedal to the metal on product development, sometimes to record levels, to meet mounting demand for a staggering array of new technologies.
Chief among them is electrification, as Japan Inc. races to catch up in full-electric vehicles in the face of criticism from climate advocates.
Toyota Motor Corp. by far outpaces the pack, with plans to spend more than $9 billion this year on R&D, more than double the budget of its nearest Japanese rivals. But Honda, Nissan, Subaru, Mazda and Mitsubishi all plan to ramp up R&D spending, even amid the earnings slowdown.
Bigger R&D investments will gobble up a bigger slice of shrinking profits. Some Japanese players even plan to shell out more on R&D than they anticipate booking in fiscal year operating profit.
The R&D double-down underscores the traditional long game played by Japanese automakers, which obsessively balance planning for the future against careful cost control.
"The management environment will likely be more unclear than the previous year due to higher-than-expected costs of various things. But we are committed to pushing growth with a sense of speed by introducing new products," Mazda CEO Akira Marumoto said during this month's earnings report.
Mazda's sentiment sums up the Japanese industry's forward focus.
Mazda Motor Corp. has better reason than most to be optimistic in the current fiscal year, which ends March 31. The automaker, based in Hiroshima, expects operating profit to climb 15 percent.
Joining it in the growth club is Subaru Corp. The all-wheel-drive specialist sees operating profit more than doubling this fiscal year as it clears supply chain bottlenecks that have pinched production.
But the rest of Japan's automakers are not as bullish. Toyota and Honda expect operating profit to fall, while Nissan and Mitsubishi see it mostly flat. Rising raw material costs are the main drag.
The calculus of R&D outlays highlights the advantages of scale.
A behemoth such as Toyota can spread the spending wider and thinner. The world's largest automaker, for example, plans to plow a whopping $9.3 billion into R&D this fiscal year. That's a record for Toyota and nearly half the amount it forecasts for operating profit.
Toyota's spending works out to around ¥106,000 ($869) for each of the 10.7 million vehicles it expects to sell worldwide this fiscal year.
Honda Motor Co. is Japan's No. 2 maker; it plans to sell fewer than half as many vehicles as Toyota. This fiscal year, Honda is preparing to spend more on R&D than it has in at least a decade — and more than it earns from operations. Honda's outlays equate to about $1,640 per vehicle.
Nissan Motor Co., now the third-biggest Japanese player behind Honda, is budgeting a record $4.51 billion for R&D as it rushes to update and electrify its lineup. The spending equates to around $1,123 per vehicle.
Of course, this year's R&D spending is linked to vehicles set to arrive several years from now, not the ones landing on dealership lots in 2022. But the list of upcoming high-tech goodies is a long one.
Toyota, Honda and Nissan are all developing solid-state battery technology. Subaru will soon start building its own EVs in-house. Mazda is reviving its trademark rotary engine.
Throw in work on hydrogen fuel systems, automated driving and connectivity — as well as ambitious goals to electrify lineups by 2030 — and Japan is looking at an expensive decade.
"We keep increasing R&D year on year because we know R&D is the growth pillar," Nissan COO Ashwani Gupta said. "We didn't stop investing in the future."
Naoto Okamura contributed to this report.
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