Toyota Says Tariffs Will Erase $1.3
Billion in Profits in Just 2 Months
The automaker’s somber
forecast for the fiscal year underscored how quickly fortunes had turned for many
companies reckoning with President Trump’s tariffs.
·
The
world’s biggest automaker was on a tear.
·
Operating
profit would decline by about one-fifth for the fiscal year ending in March. It
cited headwinds from a stronger yen and predicted a $1.3 billion hit from President
Trump’s tariffs in April and May alone.
·
A 25
percent tariff on vehicle imports into the United States, starting early last month,
was extended to auto parts last week.
·
The
new U.S. tariffs were costing one Japanese automaker $1 million per hour.
·
Of the
more than 2.3 million vehicles Toyota sells annually in the United States, only
around 500,000 are exported from Japan.
·
Smaller
Japanese automakers such as Mazda and Subaru sell a significantly higher proportion
of imported vehicles in the United States, while Mitsubishi Motors does not have
any factories in the country.
·
Japan’s
second- and third-largest automakers, Honda and Nissan, are set to announce fiscal
year earnings next week.
A
year ago, the world’s biggest automaker was on a tear. American consumers were snapping
up Toyota Motor’s hybrids, and a weak yen inflated the value of the company’s earnings.
That May, Toyota reported the highest annual profit ever recorded by a Japanese
firm.
On
Thursday, Toyota presented a significantly more somber
outlook, projecting that its operating profit would decline by about one-fifth for
the fiscal year ending in March. It cited headwinds from a stronger yen and predicted
a $1.3 billion hit from President Trump’s tariffs in April and May alone.
The
company estimated the effect of the auto tariffs, which started in April, only for
those two months. Beyond that, their impact is “very difficult to forecast,” Toyota’s
chief executive, Koji Sato, said in a briefing on Thursday. “The current environment
surrounding the auto industry, including trade relations, is in extreme flux,” he
said.
The
murkiness of Toyota’s forecast underscores how the whiplash of Mr. Trump’s tariff
agenda is upheaving the auto industry and leaving many global companies unable to
estimate future prospects. A 25 percent tariff on vehicle imports into the United
States, starting early last month, was extended to auto parts last week.
The
pain that Toyota is already experiencing from tariffs also highlights the difficult
bind that Japan faces in its ongoing negotiations with the Trump administration.
While
Mr. Trump has paused an across-the-board 24 percent tax on imports from Japan until
early July, higher auto tariffs are already in place and hurting the country’s mainstay
industry. Automobiles and auto parts are by far Japan’s top export to the United
States.
Ryosei
Akazawa, Tokyo’s top envoy for the tariff talks, said recently that the new U.S.
tariffs were costing one Japanese automaker $1 million per hour. Yet negotiations
have moved slowly, bogging down at least in part because Washington has signaled that Japan’s primary demand — an exemption from auto
tariffs — is not up for negotiation.
After
returning from the latest round of talks in Washington, Mr. Akazawa said over the
weekend that the two sides were unable to find common ground. Prime Minister Shigeru
Ishiba urged patience, saying that Japan should not rush
to reach an agreement that would sacrifice the country’s longer-term interests.
Economists
and officials are concerned about the tariffs’ broader potential impact on the Japanese
economy, as automakers and their extensive network of parts suppliers form the backbone
of industrial production in Japan. Last week, Japan’s central bank more than halved
its economic growth forecast, citing the imposition of an “unprecedented level”
of tariffs by the United States.
Toyota’s
remarks on Thursday suggested a challenging period ahead for the Japanese auto industry
as a whole, particularly because most analysts consider Toyota to be among the Japanese
carmakers least vulnerable to Mr. Trump’s tariffs.
Of
the more than 2.3 million vehicles Toyota sells annually in the United States, only
around 500,000 are exported from Japan. And despite the tariff blow to profits,
the company forecast that its sales in North America would rise this fiscal year
by 237,000 units.
Smaller
Japanese automakers such as Mazda and Subaru sell a significantly higher proportion
of imported vehicles in the United States, while Mitsubishi Motors does not have
any factories in the country. Japan’s second- and third-largest automakers, Honda
and Nissan, are set to announce fiscal year earnings next week.
Automakers
outside Japan are also anticipating difficulties. Last week, General Motors lowered
its 2025 profit forecast by over 20 percent, citing projected cost increases of
$4 billion or more this year because of the Trump tariffs. Many European automakers
moved to suspend their financial forecasts for 2025 because of tariff uncertainties.