Toyota’s Profit Drops Despite Weak Yen As Chip Shortage Persists

Key Insights

• Weak yen failed to provide enough support to Toyota’s results. 
• Chip shortage remains a material problem, and Toyota had to cut its production guidance from 9.7 million vehicles to 9.2 million vehicles. 
• Ford has recently cut prices of Mustang Mach-E in China. The emerging competition on price in the key region may hurt all automakers with exposure to China. 

Toyota Cuts Production Guidance Amid Supply Problems

Toyota‘s recent earnings report higlighted the negative impact of chip shortage in the auto industry. The company’s quarterly profit declined despite the weak yen.

Toyota (and other Japanese producers) were set to benefit from the weak yen. This year, USD/JPY moved from 115 to 150 due to the ultra-dovish policy of the BoJ, which keeps the interest rate at -0.1%.

The weak yen could have provided significant support to Toyota’s results but the company got hit by rising input costs. The chip shortage weighs on production plans, and Toyota expects to produce 9.2 million vehicles in the current fiscal year, down from the previous guidance of 9.7 million.

Not surprisingly, traders were disappointed by the guidance cut, and Toyota stock was down by more than 2% in today’s trading session. It should be noted that the stock has been under pressure since February and is down by more than 25% year-to-date.

Other Auto Stocks Are Mostly Moving Lower Today

Shares of traditional auto manufacturers like Ford and General Motors are losing some ground today as Toyota’s report reminds about persistent problems with chips.

Electric vehicle stocks like Tesla and NIO enjoyed some support at the start of the trading session on China demand hopes but lost momentum and pulled back.

The key question is whether supply shortages will continue to impact the performance of the automakers in the upcoming quarters. Ford’s problem with unfinished vehicels is well known, but other players in the industry also face similar challenges.

The potential “race to the bottom” in China is another topic to keep an eye on. Ford has recently cut prices of Mustang Mach-E in China, following the similar move from Tesla. China is an extremely important market for electric vehicles, so rising competition on price may hurt all electric vehicle producers with exposure to China.

For a look at all of today’s economic events, check out our economic calendar.