Toyota Set to Dodge Earnings Nightmare Caused by Chips Crisis
(Bloomberg) -- Investors should see two scenarios playing out among automakers in Japan this week as the nation’s biggest car manufacturers report their financial results.
On one side is Toyota Motor Corp., which thanks to its forward supply-chain planning has weathered the pandemic relatively well. On the other, everyone else, mired in a morass of factory closures due to the global chip shortage.
“There will likely be winners and losers, depending on their inventories,” said Nakanishi Research Institute’s Takaki Nakanishi. Already that bifurcation can be seen in the U.S. between General Motors Co. and Ford Motor Co., which sees a $2.5 billion chip-shortage cost, he said. GM meanwhile left its full-year outlook unchanged earlier this month.
Like all automakers, Japanese firms have been hurt by a reduction in consumer demand as a result of Covid, although car sales picked up as the year progressed. What’s really hurting is the widespread shortage of semiconductors, caused by a surge in demand for the chips used in electronic devices like laptops, mobile phones and games consoles.
As the consumer devices sector sucked up inventories, many carmakers were left empty handed, sparking wave after wave of production line stoppages. A fire at Renesas Electronics Corp.’s automotive chip plant in Japan and winter storms in Texas only made matters worse.
Toyota, which owns around 3% of Renesas and is one of the company’s largest customers, even sent workers to its Naka plant in eastern Japan in an attempt to keep its own supply chain alive. “Renesas largely owes Toyota” because Toyota supported the chipmaker after Japan’s 2011 earthquake and recent fire, said Takeshi Miyao, an analyst at Carnorama. “In a way, it has an obligation.”
But for smaller and less powerful automakers, procuring chips is a lot harder. As carmakers scramble, the power dynamic that exists between them and chipmakers has been turned on its head. Although global vehicle sales are forecast to expand about 10% in 2021, they’ll still be far below pre-pandemic levels due to “disruptions to the supply chain on the supply side and many consumers navigating difficult financial circumstances resulting from the Covid-19 pandemic on the demand side,” according to Fitch Solutions.
Investors shouldn’t therefore expect much optimism from this latest round of financial results, rather a slew of conservative forecasts that talk mainly to supply chain and ongoing virus risks, Bloomberg Intelligence analyst Tatsuo Yoshida said.
Here’s what we might see from some of the biggest names.
- Investors will be paying attention to whether Toyota will forecast an operating profit for the upcoming fiscal year ending March 2022 that’s higher than pre-pandemic levels, or stick with a more conservative projection
- While the situation is likely to grow murkier in the summer, so far Toyota has emerged largely unscathed from the chip shortage miring its competitors. Analysts are projecting, on average, an operating profit of 2.7 trillion yen ($25 billion) for the fiscal year to March 2022
- For the fiscal year ended March, investors will be looking at whether Toyota, benefiting from recovering global demand for cars, is able to beat its bright operating profit target issued in February
- Previously, Toyota raised its operating profit outlook by more than 50% to 2 trillion yen for the period; analysts project, on average, 2.1 trillion yen. Toyota reports May 12
- Japan’s other large carmaker, Nissan Motor Co., will be watched for whether its continuous cost-cutting and recovering sales this calendar year mean an operating profit in the most recent quarter and an operating loss for the fiscal year that’s at least better than the company’s previous forecast for a 205 billion yen deficit
- How many cars Nissan was able to produce in the 12 months through March will also be a gauge of to what degree its operations are being impacted by the global chip shortage; it previously forecast it would sell about 4.02 million vehicles in fiscal 2020, 150,000 units less than previous projections
- In addition, investors will be paying attention to whether Nissan forecasts an operating profit for the fiscal year ending March 2022; in fiscal year 2019, before the pandemic hit, it posted an operating loss of 40 billion yen
- Nissan announces May 11
- While Honda Motor Co. will likely beat its fourth-quarter operating profit forecast, it will probably have pretty conservative guidance for fiscal 2022 because of the coronavirus and supply chain risks, Yoshida said
- Market expectations are for an operating profit of 761 billion yen for the fiscal year to March 2022
- Honda, which reports May 14, boosted guidance in February, saying it now targets an operating profit of 520 billion yen for the current fiscal year, with sales tracking well despite the chip shortage
- Chip issues have however caused the Tokyo-based group to halt three plants in Japan for around five to six days this month. Delivery of its new SUV Vezel -- especially Vezel’s luxury model -- could be delayed for several months, a sign that the chip crisis is still severe
- Earlier this week, Honda said it would close factories in Thailand and India in May, on both the chips and Covid crises
- The market will be watching for any concrete plans around Chief Executive Officer Toshihiro Mibe’s ambitious goal of 100% electric vehicle sales by 2040, particularly given Honda’s struggles to improve profitability in its four-wheeler segment
- Smaller Subaru Corp. has been hit hard by the chip crunch. The automaker halted output in the U.S. and Japan, slashing production by 25,000 units in total
- Last year, Subaru’s profits were propped up by strong demand in the U.S., where it gets about 72% of its business. In February, Subaru cut its sales target by 43,000 units to 868,000
- It now sees operating profit of 100 billion yen for the fiscal year through March, lower than the average 124 billion yen analysts predict. Its results come May 11
- Mitsubishi Motors Corp. also hasn’t fared too well, in April trimming production by as many as 16,000 cars globally this month -- that’s almost one-fifth of total output.
- To weather the crisis, Mitsubishi, which also reports May 11, is turning to Southeast Asia, in an attempt to also bolster the Nissan-Renault-Mitsubishi alliance
- However sales in some of those nations, like the Philippines and Thailand, are faltering as Covid infections rage
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