Toyota And Honda's Profits Drop Due To Challenges In China

On Wednesday, Toyota Motor Corporation TM issued its fiscal second quarter results, posting a weaker-than-expected profit due to production halts and macroeconomic events.  Its smaller domestic rival, Honda Motor Co. Ltd. HMC reported a surprising decrease in operating profit that was dragged down by a significant sales drop in China.

Honda’s disappointing Q2 results reflect significant hit from unfavorable market conditions in China.

Honda reported that fiscal second quarter net profit contracted by 20% 494.68 billion yen, equivalent to $3.26 billion with operating profit dropping 15% to 257.9 billion yen.

For the fiscal year that will March 2025, Honda now expects an even bigger net profit drop, increasing its prior guidance of a 9.7% fall to a 14% drop. While it previously expected to sell 3.9 million units during the fiscal year, it now lowered its guidance to 3.8 million as first-half group car sales dropped 8% to 1.78 million. During the six months that ended on September 30th, revenue still grew 12% so despite falling short of estimates, Honda remains optimistic. 

Toyota’s Fiscal Q2 Highlights

For the quarter that ended on September 30th, Toyota reported its operating income tumbled 20% to 1.16 trillion yen which amounts to $7.81 billion, coming short of Bloomberg’s estimate of 1.25 trillion yen. This was Toyota’s first profit decline in two years and it is owed to weaker sales in its main market, North America. 

The world’s largest automaker by sales volume reported revenue of 11.44 trillion  yen, topping LSEG’s consensus estimate of 11.41 trillion yen while net profit attributable to company more than halved compared to last year’s comparable quarter to 573.7 billion yen. Sales volume slipped to 2.3 million from 2023’s comparable quarter when it amounted to 2.42 million units. 

One should note that sales were up against 2023’s record as Toyota benefited from pivoting towards hybrids over all-electric vehicles. Hybrid sales fell 35% YoY over the past six months, but Toyota still sold an impressive figure of 1.8 million units.

Toyota's Trimmed Guidance

Toyota lowered its prior sales forecast of 10.95 million units to 10.85 million. However, it reaffirmed its annual sales revenue guidance of 46.00 trillion yen and a net income of 3.57 trillion yen. 

Overall, Toyota posted stable sales in a challenging macroenvironment. Despite surface-level weakness in unit sales and profitability, Toyota’s latest report shows a relatively stable performance. 

Historically, Toyota has a good track record when it comes to growth, but the EV era that is in the making brought its fair share of challenges which will undoubtedly continue to test Toyota’s strength.

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