Japanese automakers raise profit forecast on rising China demand

Major Japanese automakers have raised their profit forecast as demand for vehicles from China rose after the slump due to coronavirus pandemic.

Toyota Motor Corporation more than doubled its full-year operating profit forecast on Friday, as vehicle sales rebound in China from a coronavirus pandemic squeeze earlier this year that contributed to a 24% slide in second-quarter earnings.

Honda Motor Co also more than doubled its full-year operating profit forecast as it reported second-quarter earnings grew 28% amid a rebound in China.

Toyota, Japan’s top automaker, said it now expects an operating profit of 1.3 trillion yen ($12.6 billion) for the year through March, 2021, up from the 500 billion it predicted previously. Operating profit for the previous financial year was 2.47 trillion yen.

That topped the 1.25 trillion yen average estimate for full-year profit from 26 analysts polled by Refinitiv.

For the second quarter, from July to September, operating profit fell to 506 billion yen from 662.4 billion in the same period a year earlier, according to Reuters’ calculations, as sales dipped amid the coronavirus impact globally.

Still, the numbers already showed progress compared with April-June, Chief Financial Officer Kenta Kon said.

“If you compare the second quarter to the first you can see a dramatic recovery,” Kon said, speaking during an online press briefing.

Reaction from investors was muted, with shares up just 0.5% near the close of trading in Tokyo, while the Nikkei benchmark index rose 0.9%.

“Investors are looking at how Toyota is faring overseas and given the yen’s appreciation (versus the dollar) and a resurgence of the coronavirus, we have to consider the (profit forecast) revision cautiously,” said Kazuo Kamiya, a fund manager at Nomura Securities. A strong yen reduces the value of sales booked in the United States.

The maker of the RAV4 sports utility vehicle (SUV) crossover and the Prius gasoline hybrid now expects to sell 9.42 million cars this year - up 3.5% from a previous forecasts of 9.1 million this year, but still well below last year’s sales of 10.46 million.

Although still weaker than last year, demand has bounced back, particularly in China, the world’s biggest auto market. Toyota and rivals are pinning recovery hopes on winning business there as China recovers from the pandemic faster than other countries.

Overall vehicle sales in China in September increased 12.8%, a sixth straight monthly gain, although sales were still 6.9% lower than the same time a year earlier.