Toyota and Honda warn of weaker profits

Japan's largest and third-largest car makers feel pinch as ride-sharing technology and the race to develop self-driving cars disrupts industry

Toyota Supra at the firm's Tokyo HQ, It and Japanese rivals are facing increasing pressures. EPA

Toyota and Honda forecast profit and sales short of analysts’ estimates as a trade spat between the US and China threatens global car sales already sputtering from weaker demand.

Both reported results on Wednesday that underscore the challenges faced by automakers across the globe, from having to invest in electrification and self-driving cars, to struggles with tariffs on both sides of the Pacific Ocean and changing consumer tastes, Bloomberg said.

Toyota said its annual net profit fell by a quarter, despite record sales, blaming investment losses.

Toyota's bottom line for the past year was pushed down by some ¥294 billion (Dh9.8bn) in book losses on its investment portfolio, according to AFP.

The maker of the Camry saloon and Prius hybrid said net profit was down 24.5 per cent, from its best-ever result the year before, at ¥1.88 trillion in the year to March 31.

Toyota forecast lower growth in operating profit for the current year on an expected drop in revenue and weaker vehicle sales in Japan and North America, Reuters said.

Japan's largest car maker said it expects profit to rise 3.3 per cent to ¥2.55tn in the year to March 2020, slightly lower than the ¥2.61tn average of 23 analyst estimates compiled by Refinitiv and compared to last year's 20 per cent jump.

While it forecast global group retail sales at a record 10.74 million vehicles for the current year, compared with 10.6 million in the previous year, Japan sales were seen down 1.2 per cent and North American sales down 1.6 per cent.

Net revenue was forecast to slip to ¥30tn from ¥30.2tn.

"We still weren't able to improve our costs enough last year," chief financial officer Koji Kobayashi said. "We need to work to find new ways to cut costs this year."

Toyota has recently outlined plans to offer car makers and auto suppliers royalty-free access to nearly 24,000 electrified vehicle technologies patented by it.

In the past 20 years, Toyota has managed to dominate the global market for hybrid cars by constantly improving and lowering the cost of the technology it pioneered in its Prius model - and keeping this expertise a closely guarded secret.

Now, it says it aims to use partnerships to cut by as much as half the outlays for expanded electric and hybrid vehicle components production in the United States, China and Japan.

Toyota's operating profit forecast is based on the assumption that the yen will trade around ¥110 to the US dollar in the current financial year, compared with ¥111 yen in the year just ended.

The company also said it would buy back ¥300bn worth of its shares through September.

Also on Wednesday, Honda forecast a 6 per cent increase in operating profit for the current fiscal year due to cost reduction efforts and a restructuring of its production network in Europe.

Japan's third-largest car maker signalled that it was looking to reduce global production costs by 10 per cent by 2025 and scale back the number of model variations, underscoring the cost pressures facing traditional automakers as they compete in a market that is being reshaped by tech companies and ride-sharing.

Honda expects profit to rise to ¥770 billion (Dh25.7bn) in the year to March 2020, compared with the ¥834bn average of 22 analyst estimates compiled by Refinitiv.

Operating profit was ¥726bn in the year ended March, versus an average estimate of ¥803bn.

Honda's profit forecast is based on the assumption that the yen will trade around ¥110 to the US dollar in the current financial year, compared with ¥111 in the year just ended.

A stronger currency can dent profits repatriated from overseas.

Honda and Toyota’s results come two weeks after Nissan Motor said it was set to miss its full-year profit goal. The Japanese car maker, which has been struggling to reignite earnings and sales while dealing with the fallout from the arrest of ex-chairman Carlos Ghosn, slashed its operating-profit forecast for the year ended March for the second time. Nissan will report final results on May 14, according to Bloomberg.