Toyota cuts output target on chip shortage and Covid spread

Toyota cuts output target on chip shortage and Covid spread

The relentless spread of Covid and semiconductor chip shortages are impacting Toyota's production targets.

Toyota has trimmed its production outlook for this year by about 3% because the spread of the coronavirus in south-east Asia has disrupted access to semiconductors and other key parts.

The world’s largest car maker, which is adjusting output in September and October, now expects to produce nine million vehicles in the fiscal year through March, down from 9.3 million previously forecast.

The company is sticking to its forecast for operating profit of 2.5 trillion yen (€19.2bn) this year, factoring in the potential to reduce costs.

Toyota warned last month of cuts due to the chip and parts shortages as Covid coursed through the key south-east Asia manufacturing region, shuttering or impacting factories in places such as Malaysia to Vietnam.

The move shows how even Toyota, having weathered the shortages well compared with peers, is vulnerable to the same constraints hurting the wider industry. The car giant is renowned for its supply-chain savvy, honed over decades.

Covid continues to impact suppliers in south-east Asia, Toyota chief purchasing group officer Kazunari Kumakura said. 

Pandemic Impact

Though the car maker is also being impacted by the industry-wide shortage of semiconductors, the spread of Covid is the “overwhelming” reason for the most recent planned cuts, he said.

Toyota had planned a high level of production for the latter half of the fiscal year and will try to recover as much lost output as possible, Mr Kumakura said.

The company is seeking to secure substitute parts to meet inventory-depleting global demand for cars. Toyota partially halted production in China in January and reduced output at five factories in North America because of the chip crunch, while Covid shutdowns have also disrupted operations.

Given the timing and magnitude, Toyota’s production cut “is a shock,” according to Bloomberg Intelligence analyst Tatsuo Yoshida.

“Conditions are changing so fast, even Toyota can’t see the future,” he said. 

"Toyota says it will maintain its earnings forecast, but what about other companies?”

Japanese car makers have, over the past decade, invested heavily in south-east Asia, a source of cheap labour and a supplement to their China operations amid trade tensions between that country and the US. 

Thailand is a major production hub for Toyota, Mitsubishi, Honda and Nissan.

Car makers globally have lost revenue because shortages have slammed output.

  • Bloomberg

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