EDITORIAL | How Toyota Invests Record Profits Can Propel the Economy

Toyota Motor Corporation's consolidated financial results for the fiscal year ending March 2024 show an unprecedented level of profits. 

Operating profit, namely from its mainstay motor vehicle business, exceeded ￥5 trillion JPY ($32.3 billion USD). That topped its operating profit for the fiscal year ending March 2022 by more than ￥2 trillion ($12.9 billion). Until now, that had been the highest on record for any Japanese business. 

With the stature of many Japanese companies shrinking in world markets, Toyota's outstanding performance stands out in stark contrast. We hope that Toyota will continue to invest in growth, further improve its earning power, and provide impetus to the Japanese economy as a whole. 

Profits Helped by Hybrid Vehicle Sales

The huge margin by which Toyota improved on its record profits can be largely attributed to robust sales of its highly profitable hybrid vehicles (HV). Global sales of Toyota vehicles, including the Lexus brand, centered on hybrids. These sales topped 10 million units for the first time. 

Improved performance and other factors also smoothed the way for price increases. The fact that sales numbers did not slump despite the price increases demonstrates how appealing consumers find Toyota products. Improved export profitability due to the weak yen was another factor boosting profits. 

Earnings are, however, expected to decline during the current fiscal year as management reportedly aims to invest around ￥2 trillion ($12.9 billion) in future developments. The company identified initiatives such as electric vehicles (EVs), artificial intelligence (AI), workplace environment improvement as examples. 

Expanding investment to deal with management issues will also be essential for future growth. We highly value management decisions that prioritize long-term growth over immediate profit. 

Investing in the Next Challenges

Above all, it is imperative that Toyota steadily improves its EV business. Toyota plans to boost its global EV sales to 1.5 million units by 2026. Nonetheless, currently, it is only selling about 250,000 vehicles annually, including plug-in hybrid vehicles (PHVs) capable of being charged. We believe EVs will become the core motor vehicle decarbonization technology in the medium- to long-term. And we are eager to see Toyota quickly rebound in this sector. 

At the same time, Toyota is due to allocate ￥300 billion ($1.9 billion ) for raising transaction prices for its component suppliers and dealers. This money is intended to help cover their rising labor costs and other expenses. 

The growth of a broadly-based auto industry is essential for the overall development of the Japanese economy. It is appropriate that Toyota shares a reasonable amount of its profit with its business partners to preserve and strengthen its supply chain. 

Maintaining Toyota Quality

Despite the record profits, a shadow still hovers over the Toyota Group. That is because of a series of fraudulent safety certification tests discovered at Daihatsu Motor Co, Ltd, and other affiliates and subsidiaries. 

The reason why Toyota products are prized worldwide is that they have acquired a reputation for reliability. Reform of corporate governance within the Toyota Group is urgently needed if it hopes to continue to grow in the future. 

We urge Toyota to implement thorough measures to prevent a recurrence of recent issues and strive to restore trust in the Toyota Group. 

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(Read the editorial in Japanese.)

Author: Editorial Board, The Sankei Shimbun