By Daniel Leussink
TOKYO (Reuters) – Robust demand for hybrids is expected to underpin steady profits at Toyota when the world’s top automaker reports annual earnings on Thursday, although investors will be on high alert for any sign of a looming impact from U.S. tariffs.
Investors will be paying close attention to how Toyota will factor in the hit from U.S. President Donald Trump’s tariffs on its future profits, as the levies are expected to deal a heavy blow to car makers doing business in the U.S.
Another attention point will be what Toyota will say about Toyota Industries after the automaker confirmed last month that it was considering investing in a potential buyout of the key parts supplier.
“The focus is on the guidance for the fiscal year ending March 2026,” said Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory. “I don’t know whether the Trump tariffs will be factored in or not.”
For the fourth quarter, the Japanese automaker is expected to deliver a 2% year-on-year rise in operating profit to 1.13 trillion yen ($7.86 billion) according to the average of seven analysts surveyed by LSEG, a result that would mark the first increase in three quarters.
Sales data have already indicated that momentum for the company has held up at the start of the year. Toyota’s global sales rose 5% in January-March versus a year earlier on solid demand in its top market, the United States, and Japan.
Toyota’s operating profit for fiscal 2024 is set to come in lower than the prior year’s record one. In February, the automaker raised its operating profit forecast for the fiscal year just ended to 4.7 trillion yen, a result that would mark a 12% year-on-year drop.
Strong demand for its gasoline-electric hybrids such as the Prius and the Camry has vindicated Toyota’s bet on the technology but also presents a challenge for the automaker, as suppliers have been struggling to keep pace.
POTENTIAL TARIFF HIT
The company’s fiscal 2025 operating profit could face a hit of 800 billion yen due to the impact of the tariffs on Toyota’s U.S.-bound exports from Japan, said Tokai Tokyo’s Sugiura.
The estimate does not factor in any broader impact from Trump’s tariffs, such as from a potential U.S. economic slowdown or on Toyota’s exports to the world’s biggest economy from Canada and Mexico, where it has production bases and makes some of its most popular models.
Toyota has previously said it will continue to run its operations as normal and focus on bringing down fixed costs, stopping short of implementing more radical steps such as hiking car prices in response to the tariffs.
People familiar with the matter have told Reuters that Toyota is considering producing the next version of its top-selling RAV4 SUV in the U.S. in order to shield itself from potential risks from U.S. tariffs and exchange rates and as demand for the car looked likely to outstrip supply.
Toyota’s shares have lost 13% so far this year, compared with an 8% decline for the Nikkei 225 index over that period.
Analysts will also be watching for an update on Toyota’s strategy on unwinding cross-shareholdings amid broad pressure from regulators and investors on Japanese companies to get rid of stakes in affiliates and business partners.
How Toyota’s market price will be impacted by its possible investment in a potential buyout of Toyota Industries, a nearly 100-year-old company from which Toyota Motor was spun off, would depend on the structure of any potential deal, said James Hong, head of mobility research at Macquarie.
Toyota owned about 24% of Toyota Industries as of September last year, while Toyota Industries held around 9% of the world’s biggest automaker and more than 5% of Denso, another major Toyota supplier and Toyota group company.
Extra investment in the supplier by Toyota would likely be taken as a negative by investors, while steps aimed at addressing cross-shareholding and dual-listing concerns might be seen as a positive for the whole market, including Toyota, he said.
($1 = 143.7500 yen)
(Reporting by Daniel Leussink; Editing by Muralikumar Anantharaman)
