Toyota has warned of an 80 per cent collapse in its operating profits over the next 12 months, as the world’s second-largest carmaker predicted that the coronavirus shock to vehicle sales would be far bigger than that during the global financial crisis.
However, the Japanese group on Tuesday pledged to maintain pre-pandemic levels of capital and research spending, as it projected a full recovery in demand from the US and Europe in early 2021.
“The decline in vehicle sales will be bigger than during the Lehman crisis, but because we will be able to remain profitable, we can continue to make investments for the future” in areas including self-driving technology and smart cities, said Akio Toyoda, chief executive, during an online news conference.
For the fiscal year ending in March 2021, Toyota said it expected an operating profit of ¥500bn ($4.6bn) compared with ¥2.4tn in the previous year. That was significantly below analysts’ expectations of ¥1.8tn in profit, according to S&P Global Market Intelligence, and would mark Toyota’s weakest annual performance since the 2011-12 fiscal year when Japan was devastated by a massive earthquake and tsunami.
The group said it also expected its global vehicle sales to drop from 10.5m in its previous fiscal year to 8.9m in the current period, prompting Toyota’s Tokyo-traded shares to fall 2 per cent on Tuesday.
Despite the weak outlook, Toyota is one of the few global carmakers that has been able to release a full-year forecast. Competitors including Ford and Honda have pulled or withheld guidance due to the uncertainty created by shutting down plants and the sudden evaporation of global demand as a result of the virus.
“The impression is quite positive — that Toyota has been able to release an annual profit forecast without even a decline in its capital expenditure plan,” said Koji Endo, head of equity research at SBI Securities.
Toyota also disclosed that it had tapped into a ¥1.25tn credit line to bolster its already cash-heavy balance sheet. The move is meant to potentially support its vast empire of sales subsidiaries and parts suppliers that have been hit hard by the coronavirus crisis.
The impact of the pandemic was particularly acute during Toyota’s most recent fiscal fourth quarter, wiping ¥160bn from its operating profits, which fell 27 per cent for the three-month period.
More than a third of the hit to profits was caused by the company setting aside reserves for its finance and leasing arm, which is vulnerable to any increase in car loan payment delinquencies and further falls in used vehicle prices in the US.
Also on Tuesday, rival Honda said it posted a quarterly operating loss of ¥5.6bn compared with a profit of ¥42.3bn a year earlier, due to a ¥130bn hit from the coronavirus outbreak.
Takahiro Hachigo, chief executive, also said Honda would “continue with investments for its future survival” as the group armed itself with ¥2.4tn in cash and loans to weather the crisis.
Both Toyota and Honda have restarted production in North America and the UK this week, while sales in China have shown signs of recovery from April. Still, Honda said demand in the US was unlikely to pick up as quickly as in China.