Toyota set to report first profit drop in two years as demand cools

Toyota Motor Corp. will release second quarter earnings on Wednesday and is expected to show its profit decline for the first time in two years. The forecast indicates a falloff in demand as profits from strong earnings from an EV era shift to hybrids.

But the world’s largest automaker is still on course to post a healthy quarterly operating profit of around USD 8 billion. Strong sales of petrol-electric hybrids, which tend to be unprofitable, have helped the company too. In the July to September period, Toyota sold hybrids on 41 per cent of its total units, compared to 33 per cent in the same period last year.

But Toyota is watching signs of a modest slowdown. The automaker is also trying to cope with intense competition in China, the world's biggest auto market, where demand for EVs remains strong, while it recently saw deliveries suspended for two models in the US as a result. Toyota's global sales also fell 4 percent year on year and the company saw production slump 7 percent in the quarter.

Toyota is expecting to report a 14 per cent year-on-year fall in operating profit for the second quarter to 1.2 trillion yen (USD 7.9 billion), the first quarterly fall in profit since the same period a year ago. This strategy to concentrate on hybrid vehicles may protect Toyota from upcoming changes to U.S. policies, where moves by EV subsidies are under strong scrutiny as the presidential election looms.

Among traditional automakers, Toyota has been the slowest to embrace fully electric vehicles. It sold just 1.5 per cent of its global sales in the first nine months of the year. The auto industry risks job loss over a move to an EV-only future, says chairman Akio Toyoda.

Despite the profit dip, Toyota shares are up 3% this year, outperforming EV rival Tesla, whose shares have dropped 2% over the same period.