TOYOTA GUIDANCE IS TERRIBLE. COMPETITION IS HEATING UP.

Toyota Motor reported fiscal fourth-quarter results on Wednesday which also means it gave investors a look into its 2025 fiscal year.

Operating profit is set to fall 20% in the coming year as the company invests more in battery electric vehicles and artificial intelligence to keep up with its automotive peers.

For the fiscal fourth quarter ended in March, Toyota earned about ¥1.1 trillion, or $7.1 billion, up from the $4 billion earned in the same quarter of fiscal year 2023. Wall Street was looking for about $5.6 billion.

Foreign exchange changes, pricing, volume, and vehicle mix accounted for most of the improvement.

For fiscal year 2024, Toyota earned ¥5.4 trillion, about $34.3 billion in operating profit, up almost 100% from the $17.4 billion earned in fiscal year 2023. Foreign exchange movement added $4 billion in profit. Volume, pricing, and model mix added another $12.8 billion.

For fiscal year, 2025, Toyota expects an operating profit of $27.5 billion, down almost 20% compared with 2024. More investments in battery-electric vehicles, artificial intelligence, and hydrogen-fuel technology are responsible for the drop.

The guidance falls well short of Wall Street expectations for $34.7 billion in operating profit. Shares were down 0.6% in overseas trading. U.S.-listed American Depoisory Receipts were off were up 0.6% at $232.55, while S&P 500 and Nasdaq Composite futures were down 0.4% and 0.5%, respectively.

It’s a small reaction to weaker-than-expected guidance. Shares were solid coming into earnings. The stock was up about 7% over the past three months. Investors must not have expected 2025 operating profit to match Wall Street’s consensus call. The fourth-quarter ‘beat’ and share buybacks could be buoying investor sentiment.

Labor costs will be up about $1.5 billion year over year. R&D spending will rise to about $7.7 billion from $7 billion. Capital spending, which doesn’t directly impact operating profit, will rise to $13.8 billion from $12.9 billion.

Increased spending is to “accelerate investments towards materializing multi-pathway strategy…and creating a foundation for software-defined vehicles.” said a company spokesperson. That means investing in battery electric vehicles, hybrids, and hydrogen fuel cells while making vehicles smarter and more connected.

Increased spending illustrates to investors how competitive the auto market is. Toyota’s investments are designed to keep up with Tesla, which sells only battery electric vehicles, and with BYD, which offers both BEVs and plug-in hybrid models.

Write to Brian Swint at [email protected]

2024-05-08T09:37:38Z dg43tfdfdgfd