Investments forecast to hit profits at Toyota

Toyota Motor forecast a 20 percent profit decline in the current financial year on Wednesday, citing looming investment in both its suppliers and strategy after it delivered blockbuster fourth-quarter earnings.

Despite the leaner forecast, the results from the world's best-selling automaker smashed market expectations.

Operating profit surged 78 percent in the January-March quarter. For the full year, it totaled 5.35 trillion yen ($34.5 billion) — the first time for a Japanese company to top 5 trillion yen, the nation's media reported.

While Toyota has been boosted by a weaker yen, it has been a beneficiary of cooling demand for electric vehicles in some markets, such as the United States, where more customers are embracing petrol-electric hybrids, Toyota's traditional area of expertise.

The Japanese automaker was long criticized for pursuing its "multi-pathway" strategy championing hybrids and plug-in hybrids as well as EVs, a stance that is increasingly looking prescient given consumer concerns about EV driving ranges and the availability of charging stations.

Toyota expects operating income to total 4.3 trillion yen in the year to March 2025, a 20 percent decline, as it invests in "human capital" — including support for labor costs at suppliers and dealers — as well as in its multi-pathway strategy.

"We'll make investments in order to firmly protect the supply chain," Toyota CEO Koji Sato told a news conference after the earnings release.

"Even though our operations are run very efficiently, there are many things that still need to be changed to some extent," he said, referring to shifts in the manufacturing process as Toyota makes the leap from automaker to mobility company.

Toyota said it plans to invest 1.7 trillion yen for growth this year in areas such as artificial intelligence and software.

"Guidance in profit seems disappointing," said James Hong, head of mobility research at Macquarie. "Additional cost for suppliers and investment is something unexpected," he added.

Still, the Japanese automaker is not without its challenges, particularly in key markets such as China, where it has struggled to keep pace with a growing number of local manufacturers who are rolling out software-loaded EVs.

Toyota pioneered hybrids more than a quarter of a century ago with the Prius. They made up more than a third of the 10.3 million cars it sold in the financial year that just ended, including the Lexus brand.

Yet battery-only EVs made up just 1 percent of Toyota's global sales in 2023, or about 116,500 vehicles, well below its target of 202,000 vehicles. It expects to sell 171,000 battery EVs in the current financial year.

The fate of its business in China is likely closely tied to its EV strategy.