Rip-roaring Toyota pauses to worry about costs

TOKYO — After reporting record results last week, Toyota Motor Corp. is tapping the brakes on its enthusiasm because of mounting market uncertainty and global supply chain mayhem.

Company executives said during their quarterly earnings press conference that current inflationary trends are making it difficult to chart a short-term trajectory.

Among the chief worries for Toyota as it sizes up its future performance: inflation and rising gasoline prices. Both cast a shadow over the automaker's plans for electrification.

On one hand, higher pump prices typically mean an uptick in sales of fuel-saving hybrids and electric vehicles. But on the other, soaring inflation means higher costs for those vehicles.

Toyota expects raw material costs to more than double from last year.

But even that outlook is clouded by uncertainty over inflation in markets such as the U.S., lingering semiconductor supply chain woes, pandemic lockdowns in China and the ongoing war in Ukraine.

"These factors will be compounded," Chief Communications Officer Jun Nagata said.

"This fiscal year, it's going to be even more difficult than other years to make a forecast."

Toyota believes rising raw material prices will take a big bite out of its profits this year. And electrified vehicles — which require specialized metals and rare earth elements for their batteries and motors — will feel a disproportionately big hit, Chief Technology Officer Masahiko Maeda said.

"Material prices tend to manifest more seriously in BEVs," Maeda said. "The higher cost for materials and batteries does have a huge impact on overall cost structure."

Maeda said customers are very sensitive to price fluctuations. So Toyota will be conservative in passing along costs through higher sticker prices, he said.

While there are some vehicles and regions that may accommodate price increases, other markets and models won't.

Higher prices have been exacerbated by tight inventories as chip shortages crimp production.

Average new-vehicle transaction prices in the U.S. surged to $46,526 in April, up 13 percent from a year earlier, according to Kelley Blue Book. Toyota saw a 7.5 percent year over year increase.

The average price for EVs dropped in April, as lower-priced offerings came to market, Kelley Blue Book says.

But the EV segment still averaged $65,000 — in line with premium models.

In announcing its latest sales outlook, Toyota said it expects deliveries of electrified vehicles to climb 31 percent to 3.07 million vehicles worldwide in the current fiscal year through March 31, 2023.

Standard gasoline-electric hybrids, such as the Prius or RAV4 Hybrid, will account for the bulk of those shipments — some 2.85 million vehicles. Battery-electrics will chip in a relatively modest 95,000.

That forecast is up from just 16,000 EVs in the fiscal year ended March 31, but it is a long way to go to the 3.5 million EVs Toyota expects to sell in 2030, just eight years from now.

Toyota's EV forecast gives the clearest indication yet of the company's expectations for its first two dedicated EVs — the Toyota bZ4X and Lexus RZ. Both crossovers launch this year.

All told, electrified vehicles will make up about 30 percent of Toyota's worldwide volume in the coming fiscal year. The automaker expects global retail sales to rise 3.1 percent to 10.7 million vehicles.

In the just-finished fiscal year, Toyota racked up all-time highs for revenue, operating profit and net income. Operating profit climbed 36 percent to ¥3.00 trillion ($24.61 billion) in the 12 months ended March 31, topping the previous high from the fiscal year ended March 31, 2016.

Operating profit margin zoomed to a robust 9.5 percent.

Toyota's profits rose despite soaring costs for raw materials and logistics, as well as increased expenses for labor, R&D and depreciation. A tailwind from beneficial foreign exchange rates and lower marketing costs helped offset the cost surge.

But spiraling costs will hit harder in the current fiscal year, tamping down profits.

Ever-conservative Toyota warned that both operating profit and net income will retreat this year despite expectations for record sales and record revenue.

Toyota will do its best to shelter suppliers from raw material price increases by absorbing the extra cost, CFO Kenta Kon said.

Executives declined to offer more details.

But Nagata said Toyota's strength is being a full-lineup player that can offer everything from economical compacts to luxurious SUVs. The company, he said, has an offering in just about everybody's price range, even in an era of inflation.

Toyota eked a 6.2 percent increase in global output to 10.06 million vehicles in the just-finished fiscal year as it ramped assembly lines back up to recover lost output from the previous two fiscal years.

But the company has said that, because of supply chain challenges, it will take its foot off the gas in that effort. The recovery push will slow from April to June as part of an "intentional pause" to achieve a more "reasonable" pace of output as the chip shortage and pandemic continue to pressure the industry.