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Tokyo - Toyota raised its full-year operating profit forecast - albeit falling short of analysts’ estimates - as the carmaker finds a balance between the benefits of a weaker yen on exports of its Prius and Lexus models and the impact of rising trade tensions under US President Donald Trump.
Operating profit will probably be ¥1.85trn in the fiscal year through March, up from its previous forecast of ¥1.7trn but about 10% lower than what analysts estimated. The Toyota City, Japan-based automaker reported third-quarter operating profit declined 39%, also missing consensus estimates.
Even with the benefits of a weaker yen boosting repatriated profits, Toyota must contend with possible trade tensions after Trump criticized the automaker’s plans to build a Corolla plant in Mexico.
The attack broadened with the US leader rebuking Japan for sending the US hundreds of thousands of cars from what he said were “the biggest ships I’ve ever seen” while American carmakers struggle to sell their vehicles in Japan.
‘It’s difficult to give any impact forecast from Trump’s administration at this point,” Tetsuya Otake, a Toyota managing officer, said in a briefing in Tokyo on Monday. “Toyota will cooperate with its group as it watches the moves from Trump’s administration.”
Toyota exports more vehicles to the US than its two largest Japanese peers, Nissan and Honda. The carmaker makes most of the Lexus luxury cars in Japan even as US is the brand’s largest market. It also ships the Tacoma pickup trucks from Mexico to the US In comparison, most major carmakers produce the majority of the vehicles sold in China locally, due partly to the tariffs China levies on car imports.
Trade tension
Japanese carmakers face a “significantly greater risk” from frictions over the trade imbalance with the US than from revisions to the North American Free Trade Agreement with Mexico and Canada, Takaki Nakanishi, an analyst at Jefferies, wrote in a report last month.
Prime Minister Shinzo Abe met with Toyota President Akio Toyoda on Friday, where they discussed current affairs, according to the automaker chief.
Abe, who is scheduled for a summit with Trump in Washington on February 10, told the US leader in a phone call that 75% of parts in the Toyota Camry model sold in the US are made locally, which is a higher proportion than the ‘Big Three’ US manufacturers.
The yen has weakened about 6% against the US dollar after Trump swept to victory in the US presidential elections and traded at ¥112.71 against the dollar as of 09:38 in Tokyo. Toyota has based its full-year earnings forecast on ¥107 per dollar and ¥118 per euro. In November it had based the full-year earnings forecasts on ¥103/$.
US spending
Toyota will invest $10bn in the US over the next five years, maintaining its pace of spending during the last half decade, joining other manufacturers in highlighting projects in response to pressure from Trump to create jobs in America. The spending includes a $600m investment to expand its Indiana plant, adding 400 jobs, the carmaker said last month.
Toyota last year lost its global No.1 sales title to Volkswagen due mainly to its performance in the US and China. Toyota sold 2.4 million vehicles in the US last year, down 2% from 2015.
While sales of SUVs surged on lower gas prices, demand for the Prius hybrid car fell 26%. Demand for the current Camry sedan has also fallen ahead of the introduction of a redesigned model later this year.
Sales in China expanded at a slower pace than the overall market and fell behind Honda for the first time.
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