Investors should see two scenarios playing out among automakers in Japan this week as the nation’s biggest car manufacturers report their financial results.

On one side is Toyota Motor Corp. which, thanks to its forward supply-chain planning, has weathered the pandemic relatively well. On the other, everyone else, mired in a morass of factory closures due to the global chip shortage.

"There will likely be winners and losers, depending on their inventories,” said Nakanishi Research Institute’s Takaki Nakanishi. Already that bifurcation can be seen in the U.S. between General Motors Co. and Ford Motor Co., which sees a $2.5 billion chip-shortage cost, he said. GM meanwhile left its full-year outlook unchanged earlier this month.

Like automakers in other countries, Japanese firms have been hurt by a reduction in consumer demand as a result of COVID-19, although car sales picked up as the year progressed. What’s really hurting is the widespread shortage of semiconductors, caused by a surge in demand for the chips used in electronic devices like laptops, mobile phones and games consoles.

As the consumer devices sector sucked up inventories, many carmakers were left empty handed, sparking wave after wave of production line stoppages. A fire at Renesas Electronics Corp.’s automotive chip plant in Japan and winter storms in Texas only made matters worse.

Toyota, which owns around 3% of Renesas and is one of the company’s largest customers, even sent workers to its Naka plant in eastern Japan in an attempt to keep its own supply chain alive. "Renesas largely owes Toyota” because Toyota supported the chipmaker after Japan’s 2011 earthquake and the recent fire, said Takeshi Miyao, an analyst at Carnorama. "In a way, it has an obligation.”

But for smaller and less powerful automakers, procuring chips is a lot harder. As carmakers scramble, the power dynamic that exists between them and chipmakers has been turned on its head. Although global vehicle sales are forecast to expand about 10% in 2021, they’ll still be far below pre-pandemic levels due to "disruptions to the supply chain on the supply side and many consumers navigating difficult financial circumstances resulting from the COVID-19 pandemic on the demand side,” according to Fitch Solutions.

Investors shouldn’t therefore expect much optimism from this latest round of financial results, rather a slew of conservative forecasts that talk mainly to supply chain and ongoing virus risks, Bloomberg Intelligence analyst Tatsuo Yoshida said.

Investors will be paying attention to whether Toyota will forecast an operating profit for the upcoming fiscal year ending March 2022 that’s higher than pre-pandemic levels, or stick with a more conservative projection.

While the situation is likely to grow murkier in the summer, so far Toyota has emerged largely unscathed from the chip shortage miring its competitors. Analysts are projecting, on average, an operating profit of ¥2.7 trillion ($25 billion) for the fiscal year to March 2022.

For the fiscal year ended March, investors will be looking at whether Toyota, benefiting from recovering global demand for cars, is able to beat its bright operating profit target issued in February.

Previously, Toyota raised its operating profit outlook by more than 50% to ¥2 trillion for the period; analysts project, on average, ¥2.1 trillion. Toyota announces its financial results on Wednesday.

While Honda Motor Co. will likely beat its fourth-quarter operating profit forecast, it will probably have pretty conservative guidance for fiscal 2022 because of the coronavirus and supply chain risks, Yoshida said.

Market expectations are for an operating profit of ¥761 billion for the fiscal year to March 2022. Honda, which reports Friday, boosted guidance in February, saying it now targets an operating profit of ¥520 billion for the current fiscal year, with sales tracking well despite the chip shortage.

Chip issues have however caused the Tokyo-based group to halt three plants in Japan for around five to six days this month.

Delivery of its new Vezel SUV — especially the luxury Vezel model — could be delayed for several months, a sign that the chip crisis is still severe

Earlier this week, Honda said it would close factories in Thailand and India in May, on both the chips and COVID-19 crisis.

The market will be watching for any concrete plans around Chief Executive Officer Toshihiro Mibe’s ambitious goal of 100% electric vehicle sales by 2040, particularly given Honda’s struggles to improve profitability in its four-wheeler segment.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.