Toyota Motor experiences its first quarterly profit drop in two years, falling by 20%.

The company Toyota Motor faced its first quarterly profit decline on November 6, 2024, in two years. The primary reasons were production issues and a drop in sales in key markets — the USA and Japan — which halted the record growth previously observed in the world's largest automaker.

Decline in Toyota's Profit and Reasons for the Drop

In the second quarter, Toyota's operating profit amounted to 1.16 trillion yen (approximately $7.55 billion), which is 20% lower than 1.44 trillion yen for the same period last year. This result closely aligns with analysts' average estimates, which anticipated a profit of 1.2 trillion yen, according to LSEG. Prior to this, Toyota had shown consistent growth, focusing on the production of hybrid vehicles and benefiting from the demand for more affordable transportation compared to electric cars amid rising inflation.

Toyota's Production Challenges and Plan Adjustments

Given that Toyota's production in the first half of the year fell short of expectations, the company has revised its targets for the current financial year. The new production target has been lowered by 1% to 10.85 million vehicles, which is 240,000 units less than last year. Despite this, Toyota has maintained its annual profit forecast at 4.3 trillion yen.

“Our plant in Indiana (USA), which was partially halted, resumed operations last month. In the second half of the financial year, we plan to return to an annual production pace of 10 million units,” stated Toyota's Chief Financial Officer Yoichi Miyazaki in the earnings report.

Toyota's Competition Issues and Plant Disruptions

Production challenges have affected Toyota's Hino Motors division, which specializes in trucks and buses. Additionally, the company is facing intense competition from Chinese brands in the world's largest automotive market — China. Furthermore, the temporary suspension of production of two models in the USA has also impacted sales volumes.

Toyota noted that it plans to reduce incentives and enhance production efficiency in the second half of the financial year, which ends in March 2025. The company is also continuing to work on improving the quality and certification of its products.

Impact on Operating Profit and Hybrid Vehicle Sales

The decline in operating profit has affected the North American market, including the USA, where decreased sales volumes and rising labor costs have led to financial losses. In the Japanese market, where Toyota earns the most profit, operating profit fell by 28% due to a decrease in vehicle sales. In China, increased marketing costs and price competition with Chinese brands have also negatively impacted the company's performance.

In the second quarter, hybrid vehicles accounted for over two-fifths of all Toyota and Lexus sales, representing a significant increase compared to the same period last year when hybrids constituted about a third of sales.

Comparison of Toyota with Honda's Results and Stock Market Reaction

On the same day, Honda Motor, one of Toyota's main competitors, also reported a 15% decline in operating profit for the second quarter due to a sharp drop in sales in China. This led to a 5% drop in Honda's stock. While Toyota's shares rose by 1.7% following the announcement of results, they still lagged behind the growth of the Japanese stock market index, which was 2.6%.