Toyota is expected to report a fourth consecutive year-on-year decline in quarterly operating profit, with a forecasted operating profit of 813 billion yen ($5.17 billion) for the January-March quarter, down 27% from a year earlier.
This decline is attributed to rising material and labor costs, the impact of U.S. tariffs, and the Middle East conflict’s disruption of supply chains. Despite these challenges, Toyota continues to benefit from strong demand in key markets, particularly in the United States, where higher-margin hybrids have supported earnings.
The company’s full-year operating profit is projected to be around 4 trillion yen, a three-year low, highlighting the pressure on Toyota despite high production and sales volumes globally.
Toyota is heading into its earnings report next week carrying some heavy baggage. For the fourth quarter in a row, the world’s largest automaker is expected to post a year-on-year drop in operating profit — and this time, it’s a combination of forces hitting all at once.
Analysts surveyed by LSEG estimate Toyota’s operating profit for the January-March quarter will come in around 813 billion yen (roughly $5.17 billion), a steep 27% fall from the same period last year. Step back and look at the full picture, and it’s even more sobering: Toyota’s annual operating profit is on track for a three-year low of around 4 trillion yen.
To be clear, this isn’t a demand problem. Toyotas are still selling well — especially hybrids, which have become a real bright spot in key markets like the United States. The trouble is that the money coming in is increasingly being eaten up by the money going out.
A Perfect Storm of Rising Costs
Wages across the supply chain have gone up. Raw material prices have climbed. And then there are U.S. President Donald Trump’s import tariffs, which have added another layer of financial pressure on an already strained bottom line.
But perhaps the most unexpected headache has come from the Middle East. Since the conflict began on February 28, prices for aluminium, naphtha, and other key materials have surged — and car shipments to the region have been thrown into disarray.
Asia feels this particularly acutely. The region relies heavily on crude oil, gas, and other imports from the Gulf, and any disruption there ripples quickly through manufacturing supply chains.
“If the current situation in the Middle East continues, higher aluminium prices would be quite tough to absorb,” said Yuya Takahashi, an analyst at Marusan Securities.
Toyota’s sales in the Middle East dropped by nearly a third in March alone, contributing to a second consecutive month of declining global sales. While the region accounts for a relatively modest volume — around 34,000 vehicles last month — it punches above its weight in profitability, being known for demand in higher-margin models.
The Delayed Pain Could Be Worse
Here’s the part that should concern investors most: the worst may still be ahead. Takahashi points out that higher aluminium prices typically take around six months to fully work their way into automakers’ cost structures. That means the real financial hit from recent price spikes may not fully show up until later this year.
Even Toyota’s famously resilient supply chain — built up through years of careful investment — may struggle to fully absorb what’s coming. “It may be difficult for Toyota to fully offset increasing material costs,” Takahashi said.
Toyota’s share price tells a similar story. It’s down more than 20% since the U.S. and Israel attacked Iran at the end of February, and roughly 10% for the year so far.
The mood among Toyota’s key suppliers isn’t much brighter. This week, Aisin, Denso, and Toyoda Gosei all flagged growing uncertainty in their outlooks, warning that higher aluminium and oil-linked costs could dent their profits.
New Leadership, New Pressures
All eyes will also be on who’s delivering the news. May 8 will be one of the first major tests for Kenta Kon, who became Toyota’s new CEO last month. A close ally of Chairman Akio Toyoda and his former secretary, Kon stepped into the top role after playing a central part in Toyota’s successful — if contentious — bid to take group company Toyota Industries private, a move that drew pushback from investors including activist fund Elliott Investment Management.
How Kon frames Toyota’s path forward — particularly around the Middle East conflict’s impact on vehicle volumes and the looming threat of higher material costs — will be watched very closely by investors looking for reassurance in an uncertain moment.
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