Toyota Motor Corporation has notified that the skyrocketing raw material prices could slash nearly one-fifth of its annual profits, indicating that the global supply chain crisis has finally caught up with the world's largest automaker.
In addition to reporting a 33% drop in fourth-quarter profits, the company saw a 5% decline in share prices on Wednesday, May 11th.
It is worth noting that at the onset of the global semiconductor crisis, the Japanese automaker coped relatively well due to its large chip inventory base. Now with its stockpile depleted and new COVID-19 restrictions in China, the corporation has joined its competitors in decreasing the production.
Toyota has scaled back its May manufacturing target by around 50,000 vehicles to 700,000 vehicles as its operations in China are halted due to the shutdown.
While the company intends to sell nearly 8.85 million vehicles globally – a 7.5 percent increase over the previous year – it anticipates a more than doubled rise in material prices, estimating its cost at USD 11.1 billion, which it plans to offset by switching to inexpensive alternatives.
Notably, Toyota has pledged to invest approximately USD 62 billion in the electrification of its vehicles by 2030, although raw material costs are even higher for battery electric vehicles.
According to Toyota's Chief Technology Officer Masahiko Maeda, customers are extremely delicate to price rises, making it challenging for the company not to participate in this phenomenon, something that EV leader Tesla Inc. could afford to do successfully.
Toyota previously estimated revenue of USD 3.5 million in EV sales by 2030, which was roughly a quarter of its total vehicle sales, but with the forecast of a 20 percent drop in profit, analysts have asserted that the firm's expected earnings could be targeted at USD 25 billion.