Collaborating Intimately with Wholesalers and Providers to Reduce the Effects of First Half Decline in Production for FY2022
In the face of soaring material costs and market volatility, Toyota Motor Corporation is taking proactive steps to improve costs, reduce fixed costs, and increase vehicle value. The Japanese automaker has announced a net cost improvement effect for the full year of 345 billion yen, which is a decrease compared to the previous year.
Toyota's gross annual cost improvement target remains at 300 billion yen, but the latest forecast is slightly below this due to market conditions. The company attributes its sales success to effective communication with dealers, tight inventories, increased used car prices, and low sales incentives.
One of Toyota's main strategies for cost improvement is electrification and hybridization. The company plans to expand its global lineup of electrified vehicles to approximately 70 models by 2025, with 15 models being battery electric vehicles. Toyota aims to sell 2 million zero-emission vehicles a year globally by 2030.
To further improve profitability, Toyota is investing 1.5 trillion yen in batteries to serve as the base for battery electric vehicles. The company is also focusing on value chain earnings, diversifying its revenue streams by strengthening relationships with existing customers and enhancing aftermarket services.
In terms of financial management, Toyota strives to maintain sufficient financial security to ensure a consistent and stable return on capital. This includes monitoring the cost of capital and enhancing corporate value over the medium to long term. The company is also actively engaged in negotiations to mitigate tariff impacts, which have previously affected its profitability.
Toyota's supply chain optimization efforts have been crucial in maintaining profitability. The company has a history of adapting its just-in-time supply chain to manage inventory levels effectively, especially during times of component shortages. For instance, it increased semiconductor inventory levels in response to the COVID-19 chip shortage.
Toyota's relationship with suppliers is based on the concept of "co-existence and co-prosperity", where they work together to improve costs, increase supplier competitiveness, and share benefits fairly. The company communicates with suppliers accurately and quickly about production cuts, and the suppliers have never experienced losses due to being over-ready to supply.
Toyota's COO, Nagata, emphasizes that the company is committed to reducing CO2 emissions and offering a full lineup of electrified vehicles for customers to choose from. The company plans to further improve profitability in areas other than new car revenue, such as supply parts, accessories, used cars, connected business, and software.
Despite production constraints, Toyota recorded all-time first-half highs in sales revenue and operating income. The production forecast has been revised downward by 300,000 units to 9 million units, and the sales forecast has been lowered by 200,000 units to 9.4 million units. Toyota announced a production forecast of 9.3 million vehicles for the fiscal year ending March 31, 2022, but has revised it several times due to COVID-19 and chip shortages.
By combining these strategies, Toyota aims to maintain its market leadership and adapt to changing market conditions effectively. The company is also committed to protecting the 5.5 million jobs in the automotive industry in Japan through technological innovation. Toyota's approach to cost improvement is based on the principle that prices are determined first through market competition, while profits are secured through cost improvements. The company aims to make cost improvement efforts as positive as possible without the influence of foreign exchange rates in the short term.
Toyota Motor Corporation is also exploring opportunities to boost revenue in sectors beyond new car sales, such as supply parts, accessories, used cars, connected business, and software, aiming to enhance profitability in these areas. In the realm of finance, Toyota is actively negotiating to minimize tariff impacts, as they have previously affected the company's profitability.
