Toyota raises 2024 profit forecast but faces surging risks from falling China sales

Toyota Motor Corp. announced its revenue and profit forecast for fiscal 2024 on Tuesday, raising its full-year profit projection to approximately 1.2 trillion yen, an increase of about 8% from the estimate for the same period last year. This adjustment is primarily attributed to two factors: sustained strong demand for hybrid vehicles and the depreciation of the yen against the U.S. dollar, which has increased the foreign currency returns on exported vehicles. Despite the seemingly favorable overall performance, the company’s results in the Chinese market have shown a significant decline, with second-quarter sales dropping by approximately 25% year-on-year, posing a major risk to global growth.

In the global automotive market, hybrid vehicles have become a core competitive advantage for Toyota. Since the early 2010s, the company has established its market leadership in North America, Europe, and its home market of Japan through advanced hybrid technology and superior fuel efficiency. In 2023, global sales of hybrid vehicles surpassed 2 million units, accounting for approximately 12% of total sales. Furthermore, with governments in various countries implementing strict carbon emission regulations, hybrid vehicles continue to maintain high market demand in the short term. The weakening yen has further enhanced the competitiveness of Toyota’s exports, as the lower exchange rate makes Japanese-made vehicles more price-appealing in key markets such as Europe and the United States, thereby boosting export volumes.

However, the situation in the Chinese market is starkly different. In the second quarter, Toyota’s sales in China fell by 25% year-on-year, marking the first significant decline since 2021. The primary reasons include the rapid rise of local brands such as BYD, NIO, and Li Auto in the new energy vehicle sector, which offer more price-competitive models that align with Chinese government subsidy policies. Additionally, adjustments to tariffs on imported vehicles and market access restrictions on foreign brands by the Chinese government have also somewhat suppressed Toyota’s sales performance. It is worth noting that Toyota’s main production base in China consists of joint ventures with local automakers. While the joint venture model facilitates localization, it has proven relatively slow in responding to the price and technology competition from domestic brands.

In response to this challenge, Toyota has begun adjusting its strategy for the Chinese market. Company executives stated that they will accelerate technological innovation within their joint ventures, particularly in the integration of hybrid and electric vehicle technologies. In addition, Toyota is considering establishing more independent research and development centers in China to respond more quickly to market demands and policy changes. From a financial perspective, despite the sales decline in China, Toyota is still able to maintain stable profit margins globally, largely due to the sale of high-margin models in North America and Europe and the increased foreign currency earnings resulting from the weaker yen.

Overall, Toyota’s profit upgrade and the sales decline in China reflect that the global automotive industry is in a critical period of transition and intensifying competition. With the rapid development of new energy vehicle technology, traditional hybrid vehicles, while still holding a market advantage, are expected to be overshadowed by pure electric vehicles in the long term. To maintain competitiveness in the Chinese market, Toyota must increase its investment in the electric vehicle sector and collaborate with local enterprises to jointly develop products that meet the needs of Chinese consumers. Moreover, while the weaker yen boosts export profits in the short term, a continued decline in the currency could negatively impact consumers in the Japanese domestic market, further weakening domestic demand.

In its future operational strategy, Toyota will need to achieve a better balance among global supply chain management, technology research and development, and market positioning. For investors, Toyota’s profit upgrade provides a degree of confidence, but it also serves as a reminder to focus on the company’s ongoing performance in the Chinese market and the progress of its investments in new energy vehicles. For the automotive industry as a whole, Toyota’s case highlights the difficulty of finding the optimal point between globalization and localization, and emphasizes the critical importance of technological innovation and market agility in competition.

(Source: Central News Agency)