Will hybrids and a weaker yen propel Toyota back into profit?

Posted by: Ian Rowley on August 19, 2009

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According to a report in today’s Yomiuri newspaper, Toyota plans to raise its annual production forecast. The Yomiuri reckons the Japanese automaker will now make 6.67 million vehicles this fiscal year, compared to its most recent official forecast of 6.3 million.

If the story proves correct—and Toyota hasn’t confirmed the Yomiuri article—much of the credit must go to hot-selling hybrids. The new Prius, aided by government incentives for cleaner, greener cars, is Japan’s best selling auto. Prius sales have also made a solid start in the U.S. where it is comfortably outselling the Honda Insight. The even newer Lexus LS250h hybrid sedan, a first Lexus offered only as a hybrid, has received 10,000 orders in Japan—twenty times Toyota’s monthly sales projection. And according to a separate report, Toyota is now planning to buy hybrid batteries from electronics giant Sanyo because its current supplier (Toyota controlled) Panasonic EV Energy cannot keep up with demand.

Perhaps of more interest, though, is what all this will mean for profitability. After all, Toyota made a first loss in almost six decades in the fiscal year that ended in March. Meanwhile, critics of hybrids have claimed that because they require batteries, electric motors and other parts in addition to a conventional engine, the technology is too costly to drive earnings. (Nissan chief Carlos Ghosn, a long time skeptic, criticized hybrids at the recent unveiling of the Nissan Leaf electric vehicle.)

Toyota says the boom in hybrid sales in sales won’t have a huge impact. At its most recent quarterly results, it announced a loss of $818 million for the April to June quarter and, despite sweetening its forecast, projected a loss of $4.7 billion for the full year.

To me, though, that number looks conservative. Indeed, with the sales data improving (albeit from a low base) and the yen below the company’s projected level of 92 to the dollar, Toyota could even return to profit this year. For sure, analysts are more upbeat than the company. Andrew Phillips, who covers Toyota for KBC Securities in Tokyo, recently cut his net loss forecast from $2.9 billion to $210 million, citing improving sales volumes and better profitability at group companies. From a deficit of $210 million, it wouldn’t take much more of an improvement in the sales environment—or a weakening of the yen—for Toyota to be back in the black a year ahead of schedule.

Reader Comments

Ballbuster

August 21, 2009 5:17 AM

Has Rowley been living in a cave for the last twenty years? Toyota manufactures Corolla, Matrix, Camry, Highlander, Tacoma, Tundra, Avalon, and Sienna in North America with domestic content approaching over 85% on some models. The Highlander, Corolla, Matrix, Camry and Tundra have higher domestic content than several the models of Chrysler, GM and Ford built entirely in Mexico or imported from oversea. A strong yen has a bigger impact on imported cars but marginally as to domestically produced models. As the North America auto market is Toyota's biggest market and as it recovers, Toyota's profit will re-emerge with or without a strong yen. Unfortunately for Detroit, sales data from the Cash for Clunkers program showed Toyota benefited more than GM, Ford, and Chrysler. This is further proof that even with a weak dollar and strong yen, Americans are buying more Toyota than any other makes. Apparently, Rowley is stuck in a time warp of the past when Toyota made econo-boxes and sold them as cheaper alternatives to cars of GM, Ford, or Chrysler. The fact is that for many years, cars from Toyota, Honda, Nissan and Subaru, built in North America, are priced with a premium above prices of comparable models from the defunct Big Three. As American consumers have embraced hybrids as just another high tech car, hybrids will contribute profit to all hybrid manufacturers, not just Toyota. Rowley blindly recites Nissan-Renault CEO Ghosen’s bleak view of hybrid as evidence that hybrid is a money loser. However, the real loser is Ghosen. It is precisely Ghosen’s myopic view of hybrid and his vocal opposition to producing a Nissan hybrid seven years ago that doomed Nissan’s hybrid development. Trailing Toyota, Honda, and even GM in hybrid development, Ghosen takes every opportunity to preach the short comings of hybrid while praising the virtue of his future electric cars as part of his defensive-offensive strategy. Because Rowley fails to see Ghosen’s desperation, Rowley is a simpleton. Casting a wide net for the naïve and gullible, Ghosen has snared Rowley who swallows hook, line and sinker.

Ian Rowley

August 21, 2009 5:33 AM

Ballbuster, thanks for your comment (I think).

Regarding the yen, according to the most recent guidance I have, a one yen movement in the yen against the dollar, has a 40 billion yen impact on Toyota's operating profits--that's over $400 million per yen--and hardly insignificant.

Regarding hybrid v EVs, just because I point out Ghosn's remarks, it doesn't mean I agree with them (as is evident in the post on the Nissan Leaf).

Ian Rowley

August 21, 2009 5:34 AM

Ballbuster, thanks for your comment (I think).

Regarding the yen, according to the most recent guidance I have, a one yen movement in the yen against the dollar, has a 40 billion yen impact on Toyota's operating profits--that's over $400 million per yen--and hardly insignificant. One reason is that even today Toyota still exports a higher ratio of cars to the U.S. than Honda or Nissan. Another is that the higher margin vehicles, and especially Lexus, tend to be made in Japan.

Regarding hybrid v EVs, just because I point out Ghosn's remarks, it doesn't mean I agree with them (as is evident in the post on the Nissan Leaf).

nyongesa

August 23, 2009 6:52 AM

Ballbuster, although you have some interesting points, all the Ad Hominem's detract from your arguments, particularly your insightfull observation of Gohsn's motivations for his anti-hybrid stance. You seem to Attack Rowley as advocating Ghosn position by his omission of counter arguments, this too ironicaly renders your post simplistic

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