Toyota Motor reports a nearly 28% decline in operating profit for the third quarter, falling below estimates

Toyota Motor announced its second consecutive quarterly profit decline on Wednesday, while also revealing plans to establish a new company in China focused on electric vehicle (EV) production. This strategic move aims to help Toyota catch up with competitors in the rapidly growing EV market.

Financial Performance

For the quarter ending in December, Toyota reported:

• Revenue: 12.39 trillion yen, surpassing analyst estimates of 12.1 trillion yen.

• Operating Profit: 1.22 trillion yen, missing the 1.39 trillion yen forecast and marking a 28% decline year-on-year.

• Net Income: 2.19 trillion yen, up from 1.36 trillion yen the previous year.

• Vehicle Sales: 2.44 million units, down from 2.55 million units in the same period last year.

This follows a 20% decline in operating profit in the previous quarter, highlighting ongoing challenges in key regions like North America and Asia.

Dividend and Forecast Updates

Despite the profit decline, Toyota maintained its full-year dividend forecast at 90 yen, up from 75 yen last year. The company also raised its operating income forecast by 400 billion yen to 4.7 trillion yen for the financial year, reflecting cautious optimism about its future performance.

Expanding EV Capabilities

In a significant move to bolster its EV strategy, Toyota announced plans to establish a new wholly-owned company in Shanghai, China. This subsidiary will focus on developing and producing Lexus battery electric vehicles (BEVs) and batteries, with production expected to begin in 2027. This initiative underscores Toyota’s commitment to expanding its presence in the EV market, where it has lagged behind competitors.

Market Reaction

Despite the profit decline, Toyota’s stock rose over 1% in Tokyo on Wednesday, reflecting investor confidence in the company’s long-term strategy. Toyota has traditionally focused on hybrid vehicles, but the new EV push signals a shift toward embracing fully battery-powered electric vehicles to remain competitive.

Challenges and Opportunities

Toyota’s slower adoption of fully electric vehicles has put it at a disadvantage compared to rivals like Tesla and BYD. However, the company’s strong financial position and global brand recognition provide a solid foundation for its EV ambitions. The new China-based venture represents a critical step in Toyota’s efforts to close the gap and secure a foothold in the rapidly evolving EV market.

Looking Ahead

As Toyota navigates the challenges of declining profits and increasing competition, its focus on EV innovation and expansion will be key to its future success. The company’s ability to adapt to changing market dynamics and consumer preferences will determine its position in the global automotive industry.

Source: Toyota Motor Financial Report and Announcements