What’s Going On Here?Toyota, the world’s biggest carmaker, showed that it’s got power under the hood, posting stellar results on Thursday. What Does This Mean?Being a carmaker isn’t easy these days, but last quarter Toyota managed to hit the gas, posting results with enough vroom vroom to make motorheads everywhere envious. The world’s top carmaker saw sales surge across all regions, and North America – its biggest market – was outright turbo-charged, growing at double the firm’s average global rate. That’s especially impressive given the bumpy ride the firm faced: sky-high material costs meant Toyota had to raise prices in some countries, while the chip shortage has forced it to slash production targets. But the carmaker dodged those potholes, posting an eye-popping jump in operating profit that marked its biggest quarter-on-quarter gain since late 2020. Grateful investors showed their thanks, sending Toyota’s stock skyward. Why Should I Care?Zooming in: Gas guzzling.
Toyota’s hybrid Prius once gave the company a green, environmental sheen, but rivals have gone all-in on electric vehicles since then, and the firm’s reputation has suffered by comparison. In fact, the Japanese company’s languishing in last place in a Greenpeace ranking of climate-friendly carmakers, with its battery-only EVs accounting for just 0.2% of 2021's sales. Sure, history shows Toyota has the guts and gusto to catch-up – but it’s time the firm got a move on.
The bigger picture: Yen-based yikes.
Toyota's results are partly down to a weak yen, which pays off nicely when foreign sales are converted into Japan’s currency. But that phenomenon’s much less helpful than it used to be: a quarter of Japanese manufacturing is now based overseas, up from under 15% just 20 years ago – and that means Japan’s companies often have to pay production costs in stronger foreign currencies. With that trend likely to continue, Japanese companies could end up saying goodbye to the benefits of a weak currency, and hello to all the downsides. | 