Honda and Toyota’s results come two weeks after Nissan Motor Co. said it was set to miss its full-year profit goal. (Photographer: Yuriko Nakao/Bloomberg)

Toyota, Honda Become Latest Automakers to Warn of Weaker Profits

(Bloomberg) -- Toyota Motor Corp. and Honda Motor Co. forecast profit and sales short of analysts’ estimates as a trade spat between the U.S. and China threatens global car sales already sputtering from weaker demand.

Both reported results on Wednesday that underscore the challenges faced by automakers across the globe, from having to invest in electrification and self-driving cars, to struggles with tariffs on both sides of the Pacific Ocean and changing consumer tastes.

CarmakerOperating Profit ForecastEstimateSales ForecastEstimate
Toyota2.55 trillion yen2.63 trillion yen30 trillion yen30.4 trillion yen
Honda770 billion yen 838 billion yen15.7 trillion yen16 trillion yen

Takahiro Hachigo, Honda’s chief executive officer, gave a speech to set a new strategic direction for the company, citing “abrupt changes in the global business environment surrounding the automobile industry.” By 2025, Honda will cut production costs by 10 percent and reduce the number of variations for global car models to a third of the current number, he pledged.

Toyota, Honda Become Latest Automakers to Warn of Weaker Profits

“We will realize our goals with a keen sense of speed,” Hachigo said.

Honda and Toyota’s results come two weeks after Nissan Motor Co. said it was set to miss its full-year profit goal. The Japanese carmaker, which has been struggling to reignite earnings and sales while dealing with the fallout from the arrest of ex-chairman Carlos Ghosn, slashed its operating-profit forecast for the year ended March for the second time. Nissan will report final results on May 14.

Although Toyota became the first publicly traded Japanese company to report annual sales of more than 30 trillion yen ($272 billion) and unveiled plans to buy back as much as 300 billion yen of its shares, the stock failed to erase losses and closed down about 1 percent in Tokyo trading. Honda reported after the market close.

In response to President Donald Trump’s threats to raise tariffs on cars and auto parts, Toyota has stepped up investments in the U.S. The company added about $3 billion to a multiyear plan, with the automaker now planning to invest almost $13 billion over a five-year period ending in 2021. Trump said on April 28 that Japanese Prime Minister Shinzo Abe, who had visited him last month, agreed to put “$40 billion into the United States for new car factories.”

While the automaker had been spending more on consumer incentives to make up for sluggish U.S. demand, it’s now scaling them back, helping to bolster profitability, according to Senior Managing Officer Masayoshi Shirayanagi.

At the same time, Toyota is planning to boost China sales by 8.5 percent to 1.6 million units in 2019 and approved this week a $1.64 billion investment to expand one of its Chinese joint ventures’ new-energy vehicle capacity by 400,000 units per year.

Toyota, Honda Become Latest Automakers to Warn of Weaker Profits

As Toyota steps up investment in China and the U.S., there’s concern that the manufacturer may de-emphasize cost cuts, according to Koji Endo, an analyst at SBI Securities.

“Compared with the past, cost reduction contribution is decreasing and that’s worrying,” Endo said. Still, he noted that Toyota’s “vehicle sales and profitability increases are stable compared with others by far.”

A stronger yen is lowering Toyota and other Japanese exporters’ repatriated profits. Honda and Toyota both based their forecasts on an exchange rate of 110 yen to the dollar.

©2019 Bloomberg L.P.