Toyota marks first profit drop since 2022

Toyota joins other automakers in reporting a decline in earnings, marking the company’s first profit drop in roughly two years.

Driving the news: Toyota reported results for its Q2 (through the end of September) overnight. The report sheds light on a difficult period for the brand, which saw it struggle with major recalls, issue stop-sales and contend with weakening trust among consumers and shareholders due to a series of safety scandals in Japan.

• The automaker reported a 20% year-over-year decline in operating profit, making roughly $7.55 billion.

• That decline is much greater than the shift in sales. During the quarter, Toyota’s deliveries dropped by approximately 120,000 units compared to 2023, a shift of only 5%.

Zooming in: Toyota is facing unique challenges compared to other brands.

• Investigations from Japanese authorities likely hindered the company’s growth. Toyota lost roughly $15 billion in market value over the summer due to a probe by Japan’s Ministry of Land, Infrastructure, Transport and Tourism, which raised red flags over safety certifications testing at several facilities operated by the company.

• Recalls and stop-sales also played a probable role. Toyota halted deliveries of the Grand Highlander and Lexus TX in June, a mandate that lasted until September. It also recalled the Corolla Cross Hybrid over brake issues, impacting roughly 42,000 vehicles.

Zooming out: At the same time, Toyota isn’t alone in reporting disappointing numbers later in the year.

• Honda saw a 15% decline in Q2 operating profit. The company attributed the shift to the rising cost of competing in China, where domestic brands have steadily won back market share from foreign competitors.

• BMW has also reported a sharp decline in profits, posting a drop of 61% compared to Q3 2024. Like its fellow German automaker Volkswagen, BMW has struggled to navigate the shift to electric vehicles.

Looking ahead: Declines in profitability may lead automakers to make major adjustments in the coming years. This is already happening to different degrees, with each company pursuing wildly different methods to cut costs and boost efficiency.

• Stellantis is focusing on boosting incentives and lowering prices in the U.S. in an effort to move more inventory and make room for newer models.

• Toyota is planning to do the exact opposite, promising to slash incentives starting next year to buoy profits.

• Volkswagen has been the most aggressive in its efforts to lower costs. The automaker plans to shutter factories in its home country for the first time in its history and is seeking to lower wages by 10%, ignoring threats of strikes from German auto workers.

Bottom line: While it isn’t a surprise that Toyota struggled during the quarter, its performance underlines the struggles facing the global auto industry. Manufacturers are grappling simultaneously with post-pandemic price normalization and the rise of Chinese car brands. Although most are still doing better than they were in 2019, this shift could lead to sweeping changes across the sector as companies adjust to a new phase of the car market.

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