Steep Drop in Toyota's Profit Forecast: A Hit from US Tariffs
Reduced Profit Outlook for Toyota by One-Third Due to US Tariffs - Reduced Profit Prospects for Toyota due to American Tariffs: Estimated Drop by One-third
Oh boy, here we go again with those US tariffs on auto imports! First came the 25% duty on finished cars in April, and now, starting in May, auto parts joined the list. And guess who's feeling the heat? You got it—Toyota. According to their latest announcement, the impact of these tariffs amounts to a whopping 1.1 billion euros.
Koji Sato, the man in charge at Toyota, admitted it's tough to gauge the exact impact. But he's right—these tariffs are still being hammered out in negotiations between Japan and the US over a trade agreement. Finding favorable terms is crucial for Tokyo, as 28 percent of Japanese exports head straight for the US market, and the automotive industry accounts for about one in eight jobs in the country.
Toyota moved more than a quarter of its cars in the US last year, totalling 2.33 million units. Almost half of them—1.06 million—were shipped from Japan or Mexico. Sato pledged to adjust deliveries to the US in the short term. But in the medium and long haul, the goal is to create locally-tailored production to meet customer needs.
It ain't exactly a walk in the park to relocate production, though. As Takaki Nakanishi, an auto industry expert at the Nakanishi Research Institute, points out, it's costly and time-consuming. Toyota's got ten plants in the US and a notable presence in Mexico. An eleventh plant, a battery factory for electric and hybrid cars in North Carolina, is due to start operations soon.
In the fiscal year that ended in March, Toyota sold 10.27 million vehicles, a slight dip of 0.3% compared to the previous year. revenue jumped by 6.5% to about 295 billion euros. However, profits took a hit, dropping 3.6% to around 29.3 billion euros.
Business in China has been lackluster for Toyota. Local competitors are making waves with electric vehicles, causing a six percent dip in Toyota's sales in the last fiscal year. In response, the company revealed plans to establish an electric vehicle plant in China.
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Gear Up: Toyota's Projected Profit Drop of 35%
With the expansion of US tariffs to auto parts, Toyota faces a steep drop in net profit. The carmaker has forecasted a net profit of 3.1 trillion yen ($21.6 billion) for the 2025-26 fiscal year, marking a 35% year-on-year decrease.
A significant portion of this drop can be attributed to the recent US auto tariffs. These tariffs affect both finished imported cars and auto parts such as engines and transmissions. In North America, Toyota's operating income, excluding valuation gains/losses from interest rate swaps, took a significant hit, reflecting the challenges faced by the company in the region.
- Net Profit Forecast: Toyota has forecasted a net profit of 3.1 trillion yen ($21.6 billion) for the 2025-26 fiscal year, a 35% drop year-on-year.
- Year-on-Year Decrease: The drop in profits is largely due to US auto tariffs.
- The Commission, in the context of the European Monetary System, has recommended that tariffs on auto imports should be carefully considered, as they could potentially harm businesses like Toyota.
- If Toyota continues to struggle with US tariffs, it might need to consider relocating its production to countries with more favorable weather conditions, such as Sato's proposed plan to create locally-tailored production in the US or Mexico.
- At the end of the 2025-26 fiscal year, Toyota Motor Corporation is expected to experience a significant year-on-year decrease in net profit, nearly reaching a 35% drop, largely due to the expansion of US tariffs to auto parts.
