Toyota to Invest ¥470 Billion on Workforce and Growth Areas Amid Tariff Headwinds

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Despite the high tariff policies of the Trump administration, Toyota Motor Corporation announced on May 8 that it plans to invest ¥470 billion JPY (approximately $3.2 billion USD) by the fiscal year ending March 2026. This investment will focus on developing human resources and expanding into growth areas. It follows a ¥700 billion investment in the previous fiscal year, which was aimed at strengthening the company's manufacturing capabilities.

However, challenges such as high tariffs and the rise of Chinese manufacturers mean the coming years will be a critical test of whether Toyota can maintain its core policy of producing 3 million vehicles domestically.

"Our commitment to domestic production is unwavering," emphasized Toyota President Koji Sato during a press conference on May 8.

Local Production Strategy

Toyota's basic strategy is to produce vehicles locally in markets with demand. To that end, it has invested a cumulative $49 billion in the United States to build a production system on par with Japan's.

At the same time, the company has consistently maintained a domestic production framework of 3 million vehicles. This held even during major disruptions such as the COVID-19 pandemic and the certification fraud scandal of 2024. Despite pressure from Trump's tariffs, Toyota intends to uphold this stance. Continued investment in human resources is a sign of that resolve.

Toyota's Executive Vice President Yoichi Miyazaki stated that the company "would not panic" in response to the uncertainty surrounding the tariffs. This calm approach is supported by an improved profit structure, achieved through cost reductions in collaboration with suppliers.

*US President Donald Trump (©AP via Kyodo)*

Profitability and Efficiency Gains

The company's profit per vehicle (marginal profit) has risen to approximately 1.6 times the level recorded in the fiscal year ending March 2021, at the height of the pandemic.

In response to the certification fraud issue, Toyota has also launched a comprehensive review of its work processes. This "foundation strengthening" initiative is now contributing to higher productivity.

There is no perfect solution to the tariff issue. Potential countermeasures include cost reductions to offset tariff expenses, passing on some costs through price increases, adjusting production at existing sites to boost the US share, and restructuring the supply chain over the medium to long term.

Cost Management

Toyota's strength in cost reduction gives it an advantage. While the US industry's average inventory level is about three months, inventory for Toyota's popular hybrid vehicles is "under five days," according to Miyazaki. This reflects strong product competitiveness and the ability to pass on some increased costs to consumers.

Toyota projects North American sales of 2.94 million units for the fiscal year ending March 2026. This would represent an increase of about 240,000 units compared to the previous year — a bullish forecast.

Tariff Risks and Chinese Competition

Still, prolonged high tariffs would be painful. Maintaining domestic production of 3 million units would require finding alternative export destinations for vehicles originally bound for the US.

Chinese competitors also present a major challenge. Electric vehicle (EV) giant BYD is rapidly expanding its presence across Asia. It surpassed both Honda and Nissan in global sales in 2024. In response, Toyota is deepening its localization strategy in China. For example, it is now adopting Huawei's software for development and production. Yet boosting exports to China — a market even larger than the US — remains difficult.

During the press conference, Sato expressed his intent to overcome the tariff challenge through product strength. Nonetheless, this situation also presents an opportunity for the Japanese government to focus on supporting domestic demand to protect the foundation of the automotive industry.

(Read the article in Japanese.)

Author: Noboru Ikeda, The Sankei Shimbun

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