Daniel Leussink
TOKYO (Reuters) - Strong demand for hybrids is expected to earn steady profits at Toyota when top global automakers report annual earnings on Thursday, despite high imminent impact on U.S. tariffs.
Investors will keep an eye on how Toyota considers U.S. President Donald Trump’s tariffs on future profits as taxes are expected to hit automakers doing business in the U.S.
Toyota's perception of the Toyota industry will be another concern after the automaker confirmed last month that it was considering investing in purchases from potential key parts suppliers.
"The focus is on guidance for the fiscal year ending March 2026," said Seiji Sugiura, senior analyst at Tokai Tokyo Intelligence Laboratory. "I don't know if Trump's tariffs will be considered."
In the fourth quarter, the Japanese automaker is expected to increase its operating profit by 2% year-on-year to 11.13 trillion yen ($7.86 billion), according to the average of seven analysts surveyed by LSEG, which will mark the first increase in the third quarter.
Sales data have shown that the company's momentum has been holding up early this year. Toyota's global sales grew 5% a year ago in terms of steady demand in its top markets, the United States and Japan.
Toyota's operating profit in fiscal 2024 will be lower than the previous year's record. In February, the automaker raised its operating profit forecast for the fiscal year to just hit 4.7 trillion yen, a result that would mark a 12% year-on-year decline.
The strong demand for gasoline-electric hybrids such as the Prius and Camry is a testament to Toyota's bet on the technology, but challenges for automakers have also been challenging as suppliers struggle to keep pace.
Potential tariff hit rate
Tokai Tokai Tokai Tokai's Sugiura said the company's operating profit in fiscal 2025 could face a 800 billion yen attack as tariffs impact Toyota's exports from Japan's U.S. corporates.
It is estimated that any broader impact of Trump tariffs can not be considered, such as the slowdown in the U.S. or Toyota's exports to the world's largest economies from Canada and Mexico, where it has a production base and creates some of the most popular models.
Toyota has previously said it will continue to operate normally and focus on reducing fixed costs and stop implementing more radical steps such as hiking car prices to cope with tariffs.
People familiar with the matter told Reuters that Toyota is considering producing the next version of the U.S. best-selling RAV4 SUV to protect itself from potential risks of U.S. tariffs and exchange rates, and as demand for cars may seem likely to outweigh supply.
Toyota's stock has fallen to 13% so far this year, while the Nikkei 225 index has dropped by 8%.
Analysts will also be under enormous pressure from regulators and investors on Japanese companies to get rid of stakes in branches and business partners to get to know Toyota’s latest news about relaxing its cross-equity strategy.
How Toyota’s market price will be affected by possible investments in potential acquisitions of Toyota Industries, a nearly 100-year-old company that rotates from the company, will depend on the structure of any potential deals, said James Hong, head of mobility research at Macquarie.
As of September last year, Toyota owns about 24% of the Toyota industry, while Toyota Industries owns 9% of the world's largest automaker, while Denso owns more than 5% of Denso, but another major Toyota supplier and Toyota Group Company.
He said Toyota's additional investment in suppliers could be seen as negative by investors, and measures aimed at addressing cross-equity and dual emergence may be seen as positive for the entire market, including Toyota.
($1 = 143.7500 yen)
(Reported by Daniel Leussink; Edited by Muralikumar Anantharaman)