Toyota struggles with chip shortage while Nissan advances

TOKYO — The global semiconductor shortage remains a big problem for Japanese automakers, with long-term relief still out of sight and crimped production hammering sales and earnings.

The supply crisis has fueled a reversal of fortunes of sorts, with traditional profit hero Toyota Motor Corp. suddenly struggling while longtime laggard Nissan Motor Co. catches an updraft.

Toyota — one of the world's most profitable automakers — again downgraded its global sales and production outlooks after operating profit tumbled 21 percent in the most recent quarter. Toyota once managed to shrug off the chip crunch but has succumbed to the slowdown.

By contrast, Nissan saw its operating profit double for the quarter and lifted its full-year earnings outlook.

"We delivered stronger-than-anticipated results despite the challenging environment," Nissan COO Ashwani Gupta said. "The boxes are being checked and we are moving in the right direction."

As Japanese automakers reported their earnings last week, the financial results show how the COVID-19 pandemic and the ongoing microchip shortage continue to challenge them. Industry watcher AutoForecast Solutions projects that automakers worldwide will eliminate more than 1 million vehicles from factory schedules before the year is out.

That is on top of the more than 10 million vehicles that were cut in 2021.

AFS forecasts that automakers could lose 163,000 units of output in Japan this year alone.

And the longer the bottlenecks linger, the more they are hobbling automakers that traditionally find themselves near the top of the Japanese profit pyramid.

Subaru Corp., once the envy of the industry for its double-digit profit margins, cut its sales outlook for the third time this fiscal year and issued its second profit downgrade. Subaru profits cratered by two-thirds in the latest quarter, and its operating profit margin now languishes at 3.8 percent.

"We only have two production sites in Japan and the U.S., and have also narrowed down our models, and have been promoting the use of shared parts," Subaru CFO Katsuyuki Mizuma said.

"We have embraced this select and focused strategy, and because of this, I think we have been hit harder by chip shortages," he said. "This is the fate of taking this select and focused strategy."

To cope, some Japanese manufacturers are resorting to evaluating global supply chains on a daily basis — rather than weekly or quarterly time frame. Others are rerouting microchips around the world to high-margin, high-demand markets. Still others are plotting long-term fixes to make procurement more resilient when — or if — business returns to a pre-pandemic normal.

"We don't think this imbalance between microchip demand and supply will improve anytime soon, and coupled with coronavirus outbreaks, the outlook still remains unclear," a Toyota executive said last week after the company announced financial results.

"This uncertain situation will likely continue into the next fiscal year," he said.

Toyota cut its global consolidated sales forecast to 8.3 million vehicles for the current fiscal year, from an earlier outlook of 8.6 million vehicles. It also expects to lose output of between 100,000 and 200,000 vehicles in March because of the semiconductor bottlenecks. All told, Toyota said it could lose output of up to 480,000 vehicles from January through March.

As recently as mid-January, Toyota was targeting a fiscal year production plan of 8.9 million vehicles. Last year, when it was more confident about chips, it expected to churn out 9.3 million vehicles. It has now revised its outlook to 8.5 million.

"The plan for 8.5 million units is based on our taking into account all the supply shortages for parts that are currently expected and conservatively reducing the forecast," the company said.

With the outlook for recovery unclear, Toyota is reviewing production plans on a "daily basis."

But Toyota's current struggles have overshadowed the reality of its fundamentally strong earnings.

In the October-December fiscal third quarter — even as its profit fell — the company still posted an operating profit that was more than double the combined profits of Nissan, Honda, Mazda, Subaru and Mitsubishi. It also sold nearly as many vehicles as those Japanese rivals combined.

Despite the 21 percent tumble in its operating profit, Toyota still delivered a 10 percent margin.

Moreover, Toyota's profit targets for the fiscal year ending March 31 represent the second-highest earnings on record at the company, coming in just shy of its all-time high.

Finally, the world's biggest automaker kept its global retail sales forecast unchanged at 10.3 million vehicles for the fiscal year ending March 31, including Daihatsu and Hino sales.

That would be an increase from 9.9 million vehicles in the previous fiscal year and fall just shy of the record 10.6 million vehicles sold in the fiscal year ended March 2019.

Embattled Nissan, on the other hand, is rebounding from two straight years of losses and rebuilding from a low base. While tight supply has capped sales volume at Nissan, it has also helped Nissan hold down incentives on the vehicles it can deliver, bumping up profitability.

Nissan's Gupta said a long-term fix for kinked supply needs a concerted effort between automotive and non-auto sectors to improve chip supply and demand as far as 10 years into the future.

"The more semiconductors we get, the more growth we will have," he said. "Our business plan will be driven by how many cars we can make, rather than how many cars we want to sell."

Nissan originally targeted global sales of 4.4 million vehicles this fiscal year. It now sees 3.8 million.

Honda Motor Co. joined its rivals in being able to offset falling sales with lower incentives and higher sticker prices. Japan's No. 3 carmaker even lifted its fiscal year earnings outlook, despite booking a slide in fiscal third-quarter operating profit, net income and worldwide sales.

Honda described the current environment as a global grab game for any and all microchips.

"Everyone's grabbing to get supplies," Executive Vice President Seiji Kuraishi said, adding that the unpredictable situation will continue into the next fiscal year, starting April 1.

Labor shortages at U.S. suppliers, caused by outbreaks of the omicron variant of the coronavirus, have further gummed up logistics. Toyota operations in Japan were similarly hit by flare-ups.

Honda has tried double-sourcing microchips, seeking alternative components and even rerouting limited supplies to feed markets with hot demand or production of vehicles with fatter profit margins, Kuraishi said. "We are giving priority to such products on a daily basis," he said.

Honda will try to buoy profitability this year by introducing new products with better pricing power. The executive did not specify what vehicles are on tap, but the CR-V, HR-V, Passport and Pilot crossovers are all due for updates, in addition to the flagship Accord sedan.

Mazda Motor Corp. is another Japanese automaker banking on fresh product and lower incentives. A just-opened Alabama assembly line has started making the new CX-50 crossover for the U.S. market this year.

Executives hope the new model will stoke earnings momentum in a foggy future.

Mazda's worldwide sales fell 30 percent to 207,000 vehicles in the latest quarter, as its global output contracted 23 percent. But Mazda still managed a 15 percent increase in operating profit for the period, thanks to lower spiff spending and a tailwind of beneficial foreign exchange rates.

"The business environment still remains uncertain," said Masahiro Moro, senior managing executive officer. "We should leverage what we have learned in the pandemic.

"As deliveries to our customers worldwide have been postponed," the Mazda executive said, "we will do our very best to deliver as many cars, as soon as possible."

Naoto Okamura contributed to this report.