By Daniel Leussink
TOKYO (Reuters) – Demand for hybrid vehicles is likely to drive another quarter of double-digit growth for Japan’s economy. Toyota Motor Co. (NYSE:) is expected to report a net profit when it reports earnings on Thursday, although it is expected to show signs of slowing after a string of record earnings.
Analysts will be paying close attention to how much momentum the world’s best-selling automaker has lost from previous quarters, given challenges such as a tough market in China and fallout from a certification scandal.
Sales data already suggests a slowdown is possible. Toyota’s global sales fell 2% in the April-June period from a year earlier, as strong demand in the United States and Europe was not enough to offset declines at home and in China.
Toyota is expected to post a 20 percent rise in operating profit for the second quarter to June to 1.3 trillion yen ($8.50 billion), according to six analysts’ forecasts, according to LSEG.
This would be the company’s weakest earnings growth since July and September 2022. The automaker had already forecast a 20% drop in full-year earnings, citing impending investment in both its strategy and its suppliers.
Toyota has benefited from slowing global demand for electric vehicles, allowing it to sell more hybrids, which typically have higher margins than regular gasoline-powered cars.
Macquarie’s head of mobility research, James Hong, said the company’s U.S. inventories are also tight, reducing the risk of stimulus spending to lure customers to buy cars.
“You basically have one of the largest players in the market with the lowest level of inventory,” he said, adding that, combined with the company’s growing hybrid offering, that will likely help keep profits at a high level.
Hybrid vehicles accounted for 39 percent of Toyota’s global sales in the first six months of the year, or 1.9 million vehicles, including the luxury brand Lexus, according to company data.
The strategy to boost U.S. sales of hybrid vehicles in the short term rather than battery electric vehicles may also protect it from potential changes in U.S. government policy on electric vehicles.
Former President Donald Trump, the Republican presidential candidate, said he would end the government mandate for electric cars if he wins.
Toyota shares are up 13% so far this year, but have underperformed in recent months, falling 25% from their peak in late March.
In dollar terms, it’s up 6%, compared with a 10% decline in Tesla (NASDAQ:) over the same period.
Toyota’s strong financial performance and gains in its stock price belie the pressure Chairman Akio Toyoda has faced over certification irregularities at Toyota Group companies and the automaker itself.
In an interview published Monday, the grandson of the company’s founder said he might not be re-elected as a board member if shareholder support for him, which has fallen to 72% this year from 85% in 2023, continues to decline at the pace it has been.
Despite its strength in hybrid vehicles, Toyota still lags behind rivals like Tesla and European and Chinese automakers when it comes to electric vehicles, which accounted for just 1.5% of its global sales in the first half of the year.
Toyota’s sales in China fell 11% to 785,000 vehicles in the first six months of 2024, compared with a 14% increase to 1.2 million vehicles in the United States during that period.
(1 dollar = 152.8800 yen)