Hybrids drive solid growth in Japan, but Chinese consumers favor rival EVs
NAGOYA, Japan — Although strong sales of hybrid and luxury vehicles boosted Toyota Motor’s net profit to an all-time quarterly high in the three months through June, the automaker is showing signs of losing momentum in markets beyond Japan where electric vehicles are gaining ground.
The company sold a total of 2.53 million vehicles under the Toyota and Lexus brands, up 8% on the year, according to earnings reported Tuesday. Sales of hybrids rose 26% to around 800,000, accounting for only about a third of the total but contributing more than 80% of volume growth.
“The cost of hybrid systems has fallen to about one-sixth of where it initially started,” said Chief Financial Officer Yoichi Miyazaki. Hybrid models are now about as profitable for Toyota as their fully gasoline-fueled counterparts.
“Our product- and region-centered management led to these results,” Chief Communications Officer Jun Nagata said.
Demand for hybrids looks set to keep growing in the near term, fueled by high gasoline prices and lingering concern over the driving range of electric vehicles.
Toyota’s luxury segment also made a strong showing. Sales of Lexus models climbed 42% to 210,000 vehicles, driven by hybrids and high-end models, as production rebounded from the automotive semiconductor shortage that lasted until last year.
Even amid these positive results, however, the Japanese automaker’s performance in foreign markets shows some cause for concern.
Toyota’s market share in Japan grew 4 percentage points to 35.3%, solidifying its lead, but it fell 1.3 points in both the U.S. and China to 13.8% and 7%, respectively — marking its first drop in China in seven years. Its share of the European market also shrank for the first time in eight years.
The growing popularity of electric vehicles in these markets is a key factor. While Toyota, Volkswagen and General Motors each logged increases of around 10% to 20% in global sales, EV specialist Tesla’s sales swelled 80%, and those of Chinese peer BYD doubled.
And although Toyota’s quarterly net profit per vehicle has jumped 60% over the past year to 470,000 yen ($3,280), it still lags behind Tesla, even after price cuts dropped the American company’s figure to the equivalent of 790,000 yen.
China has impacted Toyota on the earnings front. While operating profit grew in North America and Europe during the April-June quarter, income fell at the company’s China operations.
Operating profit in China dropped 26% from a year earlier to 53.6 billion yen, while Toyota’s equity method investment gain from its Chinese arm shrank 32% to 54.3 billion yen.
“New energy vehicles have been doing well in the Chinese market while sales of conventional gasoline vehicles and HVs [hybrid vehicles] have been tough,” said a Toyota representative. “Price competition has also intensified throughout the market, so we have no choice but to respond.”
GAC Toyota Motor, the company’s joint venture with Guangzhou Automobile Group, let go of about 1,000 workers, terminating their contracts prior to their expiration dates. The number represents 5% of the JV’s entire headcount.
In North America, which accounts for an estimated 30% to 40% of Toyota’s operating profit, there are concerns that the interest rate hikes will slow down demand for cars. Inventories have recovered due to a rebound in production, resulting in higher sales incentives to deal with the competition.
If interest rates are raised higher, it would negatively impact Toyota’s financial business in North America.
Toyota has built up an expansive footprint in Southeast Asia by rolling out the durable IMV (Innovative International Multi-purpose Vehicle) series developed for emerging markets. However, the carmaker’s position is not guaranteed in that market either.
In Thailand, Chinese EV manufacturers are attempting to chip away at Toyota’s domain. BYD announced it will build a new EV factory in Thailand.
“There are risks in every market, including the U.S., China, Europe, and we’re not looking at the remaining three quarters optimistically,” said Nagata.
Toyota plans to boost the annual global sales volumes of EVs to 1.5 million units by 2026, then to 3.5 million EVs in 2030. The company will invest 5 trillion yen in the EV segment through 2030 to boost production capacity, including for batteries. Although Toyota’s first-quarter EV sales rose sevenfold from the year-earlier quarter, the sales volume of roughly 29,000 units is still small compared to the top players.
Source: NikkeiASIA
