Toyota's Profit Tumbles 28% but Hybrid Strategy Powers Optimistic Forecast

In recent developments, Toyota Motor Corporation has encountered fluctuating market conditions, which have significantly impacted its financial outlook. On February 5th, Toyota reported its fiscal third-quarter results for 2025, experiencing a 28% decrease in operating profit to 1.22 trillion yen, compared with 1.7 trillion yen in the same period last year. This decline in profit was attributed to lower-than-expected performance, falling short of the anticipated 1.42 trillion yen. However, revenue saw a slight increase to 12.39 trillion yen from 12.04 trillion yen a year earlier, and net profit jumped to 2.19 trillion yen, up from 1.36 trillion yen.

Toyota maintained its status as the world's largest automaker for the fifth consecutive year, despite a minor drop in vehicle sales to 10.8 million units in 2024 from 11.2 million units in 2023. The company has steadfastly focused on gasoline and hybrid vehicles even as competitors like Tesla and BYD lead the electric vehicle market. Nevertheless, Toyota's strategic focus on hybrids appears to be paying off, with increased demand offsetting weaker sales in Japan and China.

Notwithstanding the downturn in production and sales volumes globally, Toyota has raised its operating profit forecast for the fiscal year 2025 by 9%, reflecting a more optimistic outlook for future vehicle production and sales. The company now expects an operating profit of 4.7 trillion yen, slightly below the analyst average estimate of 4.8 trillion yen. This assessment was bolstered by the robust demand for hybrid models in the U.S., which has mitigated the effects of slower performance in other markets.

Toyota has implemented plans to bolster its profitability by minimizing incentives, increasing vehicle prices, and stabilizing production levels. The company aims to gain from a weaker yen, which would improve its competitive standing. Investments are ongoing to expand the production capacity for electrified models, including establishing a new subsidiary in Shanghai. The Shanghai operation plans to employ about 1,000 employees initially and target producing 100,000 Lexus-branded electric vehicles annually starting in 2027.

Complementing this, Toyota's $1.4 billion investment in a new plant in North Carolina is set to commence battery shipments in April 2025 for hybrid, plug-in hybrid, and fully electric vehicles. However, Toyota faces potential challenges from prospective high tariffs on imports, which could disrupt its North American supply chain.

The year 2024 proved tumultuous for Toyota, marked by regulatory scandals that prompted production cuts and domestic recalls. The company is focused on restructuring its certification processes and rebuilding public trust, underpinning substantial capital expenditure initiatives.