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Automobiles

Toyota lifts 2019 earnings outlook despite coronavirus risk

Japanese automaker predicts 25% rise in net profit to $21bn

Toyota earned a net profit of 2.013 trillion yen during the April-December period, a 41% surge from the year-earlier term.

TOKYO -- Toyota Motor on Thursday raised its earnings forecast for the fiscal year ending March 2020, predicting a 25% rise in net profit to 2.35 trillion yen ($21 billion).

The carmaker attributed the 200 billion yen rise compared with its previous estimate to higher sales in China and improved profitability in the U.S. It expects sales to decline 2% on the year to 29.5 trillion yen and its operating profit to rise 1%, or 100 billion yen, to 2.5 trillion yen. It left its operating revenue forecast unchanged.

Toyota predicts its global unit sales will increase 1% to 10.73 million cars, versus its initial plan for sales of 10.7 million cars. Its sales in China are expected to expand 10% to 1.62 million cars, giving it a market share of 6%, the highest among Japanese manufacturers in China.

The growth is due in part to the introduction of new models. According to research specialist MarkLines, Toyota rolled out 10 new models in the U.S. in 2018-2019, twice as many as in 2016-2017. In China, it introduced 11 new models, compared with just one in the earlier period. Germany's Volkswagen, by contrast, increased its new models only 40% in the U.S. and twofold in China.

Toyota Operating Officer Masayoshi Shirayanagi speaks at press conference on Feb. 6 in Tokyo. (Photo by Shihoko Nakaoka) 

Toyota's outlook has turned murky, however, with the coronavirus that is sweeping through China threatening its global supply chain.

"We're scrutinizing inventory and alternative production potential," said Masayoshi Shirayanagi, a Toyota executive officer, at a news conference on Thursday, adding, "Current [global] operations are fine. Operations [in China] will be suspended until [Feb.] 9. Nothing has been decided after that." Although Toyota, unlike fellow Japanese carmaker Honda Motor, does not have a factory in Wuhan, where the epidemic is centered, it has temporarily shuttered its four plants in China.

Meanwhile, South Korea's Hyundai Motor has suspended production at all three of its domestic plants due to a delay in parts supplies from China.

Because earnings from Toyota's Chinese subsidiary will include only those from the final three months of the 2019 calendar year, the coronavirus outbreak will not affect Toyota's consolidated results for the current fiscal year.

However, China is a key production hub for the Toyota group. Toyota Boshoku imports seat covers made in Zhejiang Province to Japan. Chuo Spring supplies door lock cables made in China to Japan.

After a massive earthquake in northeastern Japan and severe flooding in Thailand forced Toyota to suspend production in 2011, the company revamped its supply chain. It now has a little over 30 days worth of parts at its plants, on average. Although that is a larger cushion than the 22 days of inventory it had during the severe acute respiratory syndrome epidemic in China in 2003, a prolonged shutdown in China could affect Toyota's domestic production.

Sluggish spending by Chinese consumers will be a further challenge, as the Japanese carmaker relies more heavily than before on the Chinese market. In 2003, Toyota sold only around 100,000 cars in China. Last year it sold 16 times as many -- 15% of the company's global sales.

Toyota has told parts makers that it hopes to lift its sales in China to 1.76 million cars in 2020 and to about 1.9 million cars next year.

Additional reporting by Nana Shibata in Tokyo.

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