Toyota Motor is expected to report another quarter of double-digit growth, driven by strong demand for hybrids, when it announces its earnings on Thursday. However, signs of slowing growth are emerging after a streak of record profits. Analysts will closely examine how much momentum the world’s top-selling automaker has lost from previous quarters, amid challenges such as a tough Chinese market and fallout from a certification scandal.

Sales data hint at a potential slowdown, with Toyota’s global sales declining 2% year-over-year in the April-June period. This drop occurred despite strong demand in the U.S. and Europe, as declines in Japan and China weighed on overall performance.

For the April-June quarter, analysts expect Toyota to report a 20% rise in operating profit to 1.3 trillion yen ($8.50 billion), according to an average of six analysts’ predictions compiled by LSEG. This would mark the company’s weakest profit growth since July-September 2022. Toyota has already forecast a 20% decline in full-year profit, citing the need for significant investments in both its strategic initiatives and suppliers.

Toyota has capitalized on the global slowdown in demand for electric vehicles (EVs), allowing it to sell more hybrids, which typically have higher margins than regular gasoline cars. The company’s tight inventories in the U.S. have also reduced the need for incentives to attract customers, as noted by James Hong, head of mobility research at Macquarie. “You basically have one of the largest market players with the lowest level of inventory,” he said, highlighting Toyota’s robust hybrid offerings as a factor likely to sustain high earnings.

In the first six months of the year, hybrids accounted for 39% of Toyota’s global sales, or 1.9 million vehicles, including the luxury Lexus brand. The company’s strategy to prioritize hybrid sales in the U.S. over battery-electric vehicles may also protect it from potential changes in U.S. government policy on EVs, especially if former President Donald Trump, who has vowed to end the government EV mandate, wins the upcoming presidential election.

Despite a 13% rise in Toyota’s shares this year, the stock has not performed well in recent months, falling 25% from a peak in late March. In dollar terms, the shares are up 6%, compared to a 10% decline in Tesla over the same period.

Toyota’s strong financial performance and gains in its share price contrast with the pressure faced by Chairman Akio Toyoda over certification irregularities at Toyota Group companies and the automaker itself. In a recent interview, Toyoda, the grandson of the company’s founder, indicated that he might not be re-elected as a board director if shareholder support continues to decline, which has fallen from 85% in 2023 to 72% this year.

While Toyota excels in hybrids, it lags behind rivals like Tesla and European and Chinese automakers in EV sales, which accounted for only 1.5% of its global sales in the first half of the year. The company’s sales in China dropped 11% to 785,000 vehicles, compared to a 14% increase to 1.2 million vehicles in the U.S. over the same period.

(Adapted from BusinessTimes.com.sg)