Toyota Motor Corp. said Tuesday its net profit in the six months ended September fell 23.2 percent to 1.17 trillion yen ($7.9 billion) from a year earlier, with its earnings situation getting even worse after the first quarter, as soaring material costs outweighed the positive impact of a weaker yen.
Sales of the world's largest automaker, which posted a 17.9 percent fall in net profit in the first three months, rose 14.4 percent to a record 17.71 trillion yen in the April-September period. However, its operating profit dropped 34.7 percent to 1.14 trillion yen as the auto industry grapples with a protracted global semiconductor shortage.
The profit decline came as the yen depreciation, which typically boosts its overseas earnings, has become a double-edged sword for Toyota.
Operating profit was reduced by 765 billion yen due to higher prices of materials such as steel and aluminum, it said. However, benefits from the yen's rapid fall, amounting to over 500 billion yen, were not enough to offset the loss.
"We may not be able to fully make up for the negative effect of rising material prices within this fiscal year, but we eventually will, although it may take time," Chief Financial Officer Kenta Kon told an online press conference.
Toyota cut its full-year production plan through next March to 9.2 million vehicles from 9.7 million announced in May, saying it is still reeling from the global chip shortage that has affected manufacturers.
"We caused trouble to our suppliers and customers by repeatedly cutting output, but we are still maintaining a very high production level historically," Kon said.
For the current fiscal year ending March, the automaker left its net profit forecast unchanged at 2.36 trillion yen but raised its sales outlook to 36 trillion yen from 34.5 trillion yen projected in August, citing a positive effect from the weaker yen.
It now expects the U.S. dollar to trade at 135 yen over the full year, compared with its previous estimate of 130 yen, taking into account the recent drop in the Japanese currency.
The yen has fallen sharply against the dollar in recent months, hitting a 32-year low in October on the back of widening interest rate differentials between Japan and the United States.
Following the annual output cut, Toyota also lowered its annual group-wide sales target, including vehicles from Daihatsu Motor Co. and Hino Motors Ltd., to 10.4 million units from 10.7 million.
Toyota's output reduction underscores the difficulty of procuring enough computer chips as global manufacturers, from car companies to electronics makers, scramble to ramp up production as they recover from the fallout of the coronavirus pandemic.
"We may be past the worst of the semiconductor shortage, but we are still not in a satisfactory situation if we look at the situation of individual chips," Kazunari Kumakura, head of Toyota's procurement division, said, adding that he cannot say when the shortage will end.
Global inflation, driven by Russia's invasion of Ukraine, is another factor weighing on Toyota's profit. The company said it is raising prices in some markets as part of efforts to offset rising costs.
The rapid depreciation of the yen prompted some Japanese manufacturers to try to return overseas production to Japan, betting the weak currency will boost their exports, but Toyota said it is not buying into such an idea.
"It is difficult to move around our production sites based on short-term fluctuations in the foreign exchange market," considering the size of supply chains built around them, Kon said. "It is important for each production area to increase its competitiveness so it won't be affected by such fluctuations."
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