Toyota nearly doubles quarterly profit as sales surge, North America lags

TOKYO — Toyota Motor Corp. nearly doubled its operating profit in the latest quarter, as the world's biggest automaker ramped up supply on semiconductor shipments and shifted sales into high gear in major markets, led by Japan.

In the latest three-month period, from April to June, Toyota's operating profit soared to 1.12 trillion yen ($7.75 billion), from 578.6 billion yen ($4 billion) a year earlier.

But Toyota also warned in Tuesday's earnings announcement that lagging performance in the important North American market is undermining investment in electric vehicle production.

Operating margin in North America, the company's top market, languished at 3 percent in the quarter, below that in other regions, such as 14 percent in Japan and 6.3 percent in Europe.
 

"We are not satisfied with an operating profit margin of 3 percent in North America, and we need to raise this more," a Toyota official said. "As we will be making battery-related investments and producing BEVs there, we will need to prepare for such spending from now. And thus, we will need cash. Our operating profit margin is not at a sufficient level."

North America, the carmaker's biggest market, and China — an increasingly tough market for Japanese brands — each posted modest sales gains in the fiscal first quarter ended June 30.

North American sales rose 7.4 percent; China deliveries increased 8.6 percent. Sales in these key regions trailed a global sales increase of 16 percent in the quarter, and a 32 percent gain in sales in Japan, Toyota's second-biggest regional business.

Robust profits 

Toyota said it would seek to improve business efficiencies in North America and China.

"We believe it is necessary to improve our production base to further enhance our volume of supply," Toyota said of its North American operations. "We will continue to work to deliver vehicles as soon as possible, and further improve our profit structure."

A day before the Aug. 1 financial announcement, Toyota said it would streamline its electric vehicle business in China by consolidating its R&D and product development efforts there.

Toyota has said that maximizing profitability from its business in internal combustion and hybrid vehicles is a key step in generating the funds needed to float tomorrow's EVs.

For the time being, parent company profits remain robust, despite what Toyota seems to consider lackluster performance in some corners of the globe.

On a global basis, Toyota delivered a stellar double-digit operating profit margin of 10.6 percent in the quarter, up from a respectable 6.8 percent the year before.

Net income also nearly doubled to 1.31 trillion yen ($9.06 billion) in April-June, from 736.8 billion ($5.10 billion) a year earlier. Global revenue rose 24 percent to 8.49 trillion yen ($58.73 billion) in the quarter.

Toyota stormed ahead as the global semiconductor shortage eased, allowing the company to crank up its global manufacturing machine. Favorable foreign exchange rates also helped.

Consolidated global sales advanced 16 percent to 2.33 million in the quarter, including shipments from the company's Daihatsu minicar and Hino truck-making subsidiaries. North American sales rose 7.4 percent to 682,000; Europe increased 16 percent to 286,000.

Forecasting records

The snappy first quarter keeps Toyota on a path for record fiscal year results. The carmaker kept its forecast locked in for record production, record global sales and record operating profit.

Toyota said it was sticking with that outlook, despite uncertainty in the U.S.

"There is talk of an economic slowdown and interest rate cut in the second half. Moreover, there is also the issue of labor shortage. It is difficult to secure workers in the U.S., including at our suppliers," the Toyota official said. "That said, our car sales have remained brisk and our inventory at dealerships is at four- to five-day levels. ... We would like to keep running our North American operations while paying attention to any risk of a future economic slowdown."

Toyota's outlook calls for production of Toyota and Lexus brand vehicles to climb to a record 10.1 million vehicles in the current fiscal year ending March 31, 2024. Meanwhile, it expects consolidated global retail sales to soar to a record 11.38 million in the current fiscal year.

The combined effort should drive Toyota's operating profit back to its best-ever level of 3 trillion yen ($20.75 billion) in the current fiscal year, according to the company's forecast.