Toyota reports 17% profit surge in Q1

Toyota Motor Corporation (7203.T) has reported a 17% increase in first-quarter profit, yet the news has been overshadowed by a significant drop in its share price, highlighting the challenges facing the world’s leading automaker. The company announced on Thursday that its operating profit for the three months ending June reached 1.3 trillion yen ($8.70 billion), aligning with the average of six analyst estimates compiled by LSEG.

Despite the profit increase, which marks the slowest growth in seven quarters, investor expectations were not met, leading to a sharp decline in Toyota’s stock. Shares initially dropped over 5% before the earnings announcement and continued to fall, settling at 2,712 yen, an 8% decrease by 0529 GMT.

Toyota had enjoyed a record profit streak that significantly boosted its stock price, but the outlook has become increasingly complex due to a challenging market environment in China and the repercussions of a certification scandal. In a statement, the company acknowledged, “Despite the inability to maintain stable production in Japan due to factors such as certification issues and recalls, we achieved an increase in profit thanks to the support of all our stakeholders.”

In terms of sales, retail figures for both Toyota and its luxury Lexus brand fell by 2% during the quarter. Interestingly, petrol-electric hybrids accounted for about 40% of sales, reflecting Toyota’s pioneering status in hybrid technology. The automaker has been somewhat insulated from the slowdown in electric vehicle (EV) demand in markets like the United States, which has affected many competitors.

Looking ahead, Toyota has maintained its full-year profit forecast at 4.3 trillion yen, which is considerably lower than the average estimate of 5.3 trillion yen from 18 analysts. The company is also grappling with ongoing scandals related to flawed product certification processes, which have begun to tarnish its long-standing reputation for safety and quality.

Adding to the challenges, the Japanese transport ministry has ordered Toyota to implement significant measures to prevent future misconduct following the discovery of new violations in certification procedures. The automaker is also facing inventory management issues in the U.S. market. Masahiro Yamamoto, chief officer of Toyota’s accounting group, commented, “We still haven’t built up enough of an inventory yet in the United States; however, compared to last year, there’s no doubt that it is recovering.”