TOKYO – CEO Koji Sato wrapped up his first year at the helm of Toyota Motor Corp., propelling the world's largest automaker to record sales and production and, most likely, record profits.
But Sato is also building on the momentum of his predecessor and mentor, Akio Toyoda. The scion of the founding family resigned last year after leading Toyota for more than a decade and building a true Japanese giant that appears stronger than ever.
Sato, who replaced Toyoda on April 1, 2023, delivers the official financial results for the fiscal year of his first term at a news conference on May 8 in Tokyo.
By all indications, Sato is likely to announce stellar numbers.
In addition to already recording record sales and production volume in the fiscal year that ended March 31, Toyota expects to achieve a record operating profit. In fact, Toyota expects both operating profit and net income to nearly double compared to the previous year.
But there could still be some questions in the final report, including guidance on the current fiscal year and whether the booming Toyota will be able to maintain its relentless pace.
“We're not going to have growth like this this year, because last year was extraordinary,” says Christopher Richter, lead auto analyst for Asia at CLSA in Tokyo.
“There was the end of the chip shortage, the end of COVID, the world went back to normal. The auto industry is not a fast enough growing industry to support those kinds of numbers for long.”
In fact, Toyota faces five risks to its current earnings.
The Toyota Group has been beset by embarrassing quality scandals that forced production shutdowns and sales suspensions, while tarnishing the company's reputation.
Toyota's truck manufacturing unit, Hino Motors, stumbled in 2022 after manipulating emissions certifications in a brouhaha that still hangs over the company. Hino is scheduled to merge with Mitsubishi Fuso, the Japanese truck maker owned by Daimler.
In December, Toyota's minicar subsidiary Daihatsu suspended global shipments after it was found to have manipulated side crash safety tests. Daihatsu had to suspend shipments of all models.
Then in January, Toyota halted global shipments of 10 models because engines supplied by Toyota Industries Corp. had undergone inadequate power and torque testing.
The reduction in production and sales has affected the optimistic results that Toyota originally expected.
The group's supplier, Denso Corp., reported an 11 percent drop in operating profit for the fiscal year, partly due to quality provisions.
Watch for more knock-on effects in Toyota's final report.
Toyota has partly attributed its scandals to the group's unbridled growth in recent years, which exceeded its product development and vehicle testing resources.
After racing to record results, the company will intentionally pause this fiscal year to reexamine its production cadence and reset to marathon mode, executives say.
The company is slowing its regrouping to achieve long-term sustainable growth. The measures already include the temporary suspension of plants in Japan to reevaluate processes.
The Japanese giant produced a record 11.21 million vehicles in the fiscal year that ended March 31, including output from Daihatsu and Hino.
That total increased 4.5 percent from the previous fiscal year, the third consecutive year of increases. But Toyota is likely to stop production next year.
The ultra-weak Japanese yen has fallen to its lowest levels against the US dollar since 1990 and is also floundering against other global currencies.
The exchange rate has been a boon for Japanese exporters because it makes their products more affordable abroad.
The implosion of the yen also inflates the value of dollar-denominated sales that are repatriated to headquarters in Japan and converted into yen.
Toyota has benefited. Its exports in the just-ended fiscal year reached 2.08 million vehicles, the second highest level since 2012. And the weak yen added about $2.7 billion to the company's operating profits during the first three quarters of the year. fiscal year.
Since then, the yen has weakened further, generating more windfall gains.
A big currency hit could cap the fiscal year, but Toyota may also have to give up some of that bonanza this fiscal year as the yen strengthens toward record highs.
China has been a weak spot for many international players as car buyers gravitate toward domestic brands and electric vehicles. Toyota has fared better than many of its Japanese counterparts in the world's largest auto market, but it is still struggling.
Its sales in China rose 2.1 percent to 1.5 million vehicles in the first three quarters of the current fiscal year and regional operating profit declined. Sales in North America, by contrast, grew 17 percent to 2.2 million in that period, while operating profit there increased eleven-fold.
To shore up its business in China, Toyota unveiled two electric vehicles at last month's Beijing auto show. The bZ3C compact crossover was developed with Chinese electric vehicle producer BYD. The bZ3X midsize crossover was developed with Guangzhou Automobile Group Co.
Toyota said it is rushing to sell both models in China within a year.
But Toyota may continue to experience weakness in that market. Or the automaker could show strengthened confidence that its focus on new electric and hybrid vehicle offerings is gaining traction.
Toyota sold 116,654 complete electric vehicles in the fiscal year that ended March 31. That was more than triple the amount it sold the previous year and up from zero electric vehicles in 2020.
But Toyota's volumes remain small compared to global EV leaders.
Critics have questioned Toyota's slow start in the electric vehicle sector, saying it risks falling behind rivals. Toyota's lackluster performance in EV-obsessed China is presented as evidence.
However, Toyota's profits are soaring, most likely because of its hesitant attitude. By comparison, Ford Motor Co.'s more aggressive electric vehicle business unit lost $1.3 billion in the latest quarter.
For now, Toyota can hide any red tint from electric vehicles thanks to its booming hybrid business. It sold more than 3.7 million hybrids in the just-ended fiscal year, boosting the company's projection of a record operating profit of 4.9 trillion yen ($34.76 billion).
A good amount of hybrid sales in the fiscal fourth quarter may have pushed Toyota above that forecast. Eyes will be on Sato to see how he tweaks his electric vehicle ambitions for next year.