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Toyota expects 2% profit rise as it shrugs off chip shortage

Japanese auto giant says hybrids and plug-ins will still predominate in 2030

Toyota overtook Volkswagen in sales in 2020, retaking its position as the world's top-selling automaker for the first time in five years. (Photo by Akira Kodaka)

TOKYO -- Toyota Motor is bullish on prospects for higher sales, forecasting a net income of 2.3 trillion yen ($21.1 billion) for the current business year through next March, up 2.4% from fiscal 2020, while its rivals continue to struggle with semiconductor shortages.

The Japanese auto giant remains confident that hybrid and plug-in hybrid vehicles will continue to play a major role for the company worldwide in 2030, as it expects to sell 2 million battery and fuel-cell electric vehicles that year, equal to just one-fourth of the automaker's total expected sales of electrified vehicles.

For 2021, Toyota's operating income is projected at 2.5 trillion yen, up 13.8% on the year, while revenue is forecast at 30 trillion yen, a 10.2 % increase. Toyota posted net income of 2.24 trillion yen in fiscal 2020 ended March, up 10.3% from 2019.

Toyota's bright outlook stems from its belief that the effect of the chip shortage on its output will be limited. "We are carefully monitoring our initial plan to increase production, but at present we don't foresee significant impact" from the shortage, said Kenta Kon, Toyota's chief financial officer, in an online earnings announcement Wednesday.

Toyota's unit sales are expected to come in at 8.7 million this year, up 13.8% from fiscal 2020. Sales are expected to rise in every market, Kon said, as demand rebounds from the pandemic slowdown.

Toyota, which faced a serious supply shortage after the March 11, 2011 earthquake and tsunami in Japan, has since stockpiled parts throughout its supply chain, including chips, while streamlining the assessment process for alternative parts. This contingency planning, which reduced the company's reliance on the 'just-in-time' manufacturing strategy of keeping parts inventories to a minimum, appears to have lessened the impact of the chip shortage compared with overseas rivals.

The current semiconductor crunch is caused by an unexpectedly strong rebound in global auto demand last fall, which coincided with a booming consumer electronics market. The situation was made worse by widespread chip manufacturing disruptions in the U.S. state of Texas due to severe weather in February, and a fire in March at Japan's Renesas Electronics, one of the world's largest manufacturers of automotive chips.

Toyota is known as a leader in overcoming the pandemic slowdown, backed by new car launches worldwide. Its global unit sales of both Toyota and Lexus cars fell by nearly half, year on year, last April, but recovered quickly. In March 2021, the company sold 980,000 vehicles, up 44% from the previous year, a record monthly sales figure. In 2020, Toyota overtook Volkswagen by sales, regaining the crown as the world's top-selling automaker for the first time in five years.

Nikkei recently reported that Toyota plans to make more than 10 million cars in the year ending in March 2023, which would be another record high.

Toyota has also announced share buybacks, purchasing up to 250 billion yen of shares between June and September.

Demand for Toyota's shares rose sharply after the announcement, sending its stock up more than 2% by the close of trading in Tokyo on Wednesday. The strong showing contrasts sharply with that of Japanese rival Nissan Motor, whose shares plunged 10% to their lowest level in more than five months after the carmaker said Tuesday that its earnings would be hurt by the chip shortage and rising costs for raw materials.

Toyota held a separate session dedicated to its decarbonization efforts aimed at dispelling concerns that the automaker is not making sufficient environmental efforts, as the company is often thought to place little emphasis on battery-powered EVs.

"We have to remember that the goal is not electric vehicles, but the goal is carbon neutrality," said James Kuffner, Toyota's chief digital officer, stressing that a decarbonization technology first needs to be chosen by customers to have the effect of reducing emissions.

Toyota pioneered the market for hybrid cars with the 1997 launch of the Prius. Together with its other electrified vehicles, that helped Toyota cut the carbon emissions of its vehicles by 140 million tons over 20 years, which is equivalent to removing 1.5 million gasoline-powered cars from the road every year, Kuffner added.

Toyota believes 50% of its new vehicles sold in China will be either EVs or fuel cell vehicles, called "new energy vehicles" in the country, while the rest will be other types of electrified vehicles, including hybrids, by 2035, as the company phases out internal combustion engine cars. Toyota predicts that as a whole, electrified vehicles will account for 95% of sales in Japan and 70% of North American sales by 2030. EVs and fuel cell cars will make up 10% of these electrified vehicle sales in Japan and 15% of sales in North America by that year.

Toyota plans to make more than 10 million cars, a record, in the year ending in March 2023. (Photo by Koji Uema)

To meet this target, Toyota says it needs to increase battery supply and production lines thirtyfold versus today, and vowed to spend the money needed to make that happen.

Toyota's push comes as global automakers rapidly shift their focus to EVs. Volkswagen said in March it will build six EV battery plants in Europe by 2030, the same year it aims to have electric vehicles account for 60% of its sales in the region. General Motors of the U.S., meanwhile, has said it intends to only sell zero-emission vehicles by 2035, with a major focus on EVs.

Some of Toyota's big investors are raising questions about its electrification strategy, which ranges from hybrids and plug-in hybrids, to fuel cell vehicles and battery-powered cars. Danish pension fund AkademikerPension told Reuters that it would consider preparing a shareholder resolution for the company's next annual shareholders meeting if it fails to deliver on its commitment to address environmental issues.

"I feel very confident that we can continue to lead the industry ... changing and producing products that are chosen by customers all over the world -- that will deliver clean energy and clean transportation," said Kuffner, who pointed out that making batteries presents challenges, including the mining of rare metals, such as lithium, cobalt and nickel.

Masahiko Maeda, Toyota's chief technology officer, said hybrids are now the most competitive. "Hybrids are now considered by average drivers to be the most practical, and this is reflected in the number of units sold," he said. "With more charging infrastructure for [battery-powered cars] some might believe EVs are more practical. It is not that EVs are in advance or falling behind ... but the technology needs to be compatible with convenience."

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