It is expected that the Toyota report a fourth consecutive drop in quarterly operating profit next week as rising materials and labor costs and the impact of U.S. tariffs offset strong demand, especially for hybrid vehicles.
The world’s biggest automaker is expected to report operating profit of 813 billion yen ($5.17 billion) in the January-March quarter, a 27% drop from a year earlier, according to the median estimate of seven analysts surveyed by LSEG.
This would bring Toyota’s annual operating profit to a three-year low of around 4 trillion yen, highlighting the pressure faced by the Japanese automaker despite continued high production and sales volumes globally.
Analysts say rising costs – including higher wages across the supply chain, the impact of US President Donald Trump’s import tariffs and rising raw material prices tied to the Middle East conflict – could affect results.
Toyota forecasts operating profit of 3.8 trillion yen for the just-ended fiscal year as it continues to benefit from strong demand in key markets such as the United States, where higher-margin hybrids have helped support profits.
Impact on the Middle East
Asia is the region most vulnerable to supply disruptions, depending more than others on crude oil, gas, fuel and other imports from the Gulf. Without this, some companies are finding it increasingly difficult to operate.
“If the current situation in the Middle East continues, higher aluminum prices will be quite difficult to absorb,” said Yuya Takahashi, an analyst at Marusan Securities.
Although the conflict, which began on February 28, has mainly affected only the last month of the quarter, it has already raised the prices of aluminum, naphtha and other materials, as well as disrupting the shipment of cars to the Middle East.
Toyota’s sales in the region fell by nearly a third in March, contributing to a second consecutive monthly decline in global sales, the company said last week.
Although the Middle East is a relatively small market for Toyota, with sales of nearly 34,000 cars last month, it is known for its demand for higher-margin models.
Attention will also be on how new CEO Kenta Kon will handle the earnings report on May 8. Kon, a close ally and former secretary of President Akio Toyoda, became executive director last month.
Kon was a key figure behind the takeover bid to privatize group company Toyota Industries 6201.T , an effort that succeeded in March after facing opposition from investors including activist fund Elliott Investment Management.
Ripple effect
Takahashi said higher aluminum prices are typically reflected in automakers’ costs, with a delay of about six months, pointing to a possible bigger impact on Toyota and its suppliers in the current financial year, which began April 1.
He added that it may be difficult for Toyota to fully offset rising material costs, even though years of investment in its workforce and supply chain have made it more resilient to external shocks.
Toyota shares have fallen by more than a fifth since the US and Israel attacked Iran in late February, and by around 10% this year.
On Tuesday, Toyota suppliers including Aisin 7259.T, Denso 6902.T and Toyoda Gosei 7282.T warned of growing uncertainty over its prospects, with executives pointing to possible impacts on profits due to rising input costs linked to aluminum and oil.
Investors will closely watch how Toyota addresses the impact of the war in the Middle East on vehicle volume and how much rising material prices could weigh on profits in the current fiscal year, analysts said.
“The question is to what extent these two factors will be reflected in the guidance,” Takahashi said.
