Toyota Motor is expected to report record annual earnings, driven by strong demand for hybrids, as hype around battery electric vehicles cools. While the weak yen currency is expected to boost their results, the company faces several challenges in key markets, such as a fierce price war in China and higher borrowing costs in the U.S. Additionally, competition from Chinese rivals and a safety scandal at their Daihatsu unit have impacted sales and reputation.
### Rising Profit Forecast
In February, Toyota raised its operating profit forecast for the fiscal year ending March 31 to 4.9 trillion yen, representing an 80% increase from the previous year and a record profit. For the fourth quarter, analysts expect an operating profit of 747 billion yen. This growth is attributed to the higher margins of hybrids compared to regular gasoline cars, making up a significant portion of the 10.3 million vehicles sold in the last financial year.
### Hybrid Success
Toyota has been a pioneer in the hybrid market, with the Prius leading the way over 25 years ago. Hybrids, including the Lexus luxury brand, accounted for over a third of their total sales. However, the company lags behind in the EV market compared to rivals like Tesla and European and Chinese automakers, with battery EVs making up only 1% of global sales.
### Electrification Strategy
The fate of Toyota’s business in China is closely tied to its EV strategy, as Chinese buyers prefer software-loaded vehicles. While the company may be behind in terms of software, it has partnered with Chinese tech giant Tencent and introduced two battery EV models in the Chinese market. Toyota’s sales in China declined marginally in the first quarter of 2024, while they saw a 20% increase in the U.S., outperforming Japanese rivals but lagging behind sector-wide growth.
### Stock Performance
Despite these challenges, Toyota’s stock has performed well, with a 96% increase in the last year, including dividends. In comparison, Tesla saw a 7.5% increase in the same period. The company’s focus on hybrids and strategic partnerships in the EV market could position it for continued success in the evolving automotive industry.
### Future Outlook
As Toyota continues to navigate challenges in key markets and strives to enhance its EV offerings, the coming years will be crucial for the company’s growth and competitiveness. By leveraging its expertise in hybrids and expanding into the EV space, Toyota aims to maintain its position as a global leader in the automotive industry.