Toyota Motor Corporation, the world’s largest automaker, is bracing for its first profit decline in two years, highlighting a shift in demand dynamics amid intensifying competition in the global automobile market. The company’s second-quarter earnings, expected on Wednesday, are projected to reveal a 14% year-on-year decline in operating profit, down to 1.2 trillion yen ($7.9 billion), according to analysts polled by LSEG. Despite the drop, Toyota remains resilient, benefiting from the strong performance of its petrol-electric hybrids, which have emerged as a popular choice in key markets.

Hybrid vehicles accounted for 41% of Toyota’s global sales from July to September, an increase from 33% in the same period last year. This growing preference for hybrids over fully electric vehicles (EVs) aligns with Toyota’s strategy to capitalize on a segment that provides higher profit margins than standard gasoline-powered cars. The company’s extensive lineup of hybrids, including the luxury Lexus brand, is seen as a competitive advantage in a market where many consumers are still hesitant to fully transition to EVs.

One reason behind Toyota’s hybrid-focused strategy is the uncertain regulatory landscape in markets like the United States. With the potential for policy changes that could affect EV subsidies, especially with ongoing debates in Washington, Toyota’s diversified portfolio—featuring both hybrids and combustion-engine vehicles—may offer stability against policy shifts. Toyota’s Chairman, Akio Toyoda, has been vocal about the risks of an “EV-only” future, warning that such a transition could result in widespread job losses across the auto industry. His perspective has shaped Toyota’s deliberate approach, which includes slow but steady investments in EV technology while reinforcing its hybrid offerings.

However, Toyota faces challenges in key international markets. In China, the world’s largest auto market, competition among global and domestic automakers remains fierce, particularly in the EV sector, where demand has continued to surge. Local Chinese brands, backed by government subsidies, have gained a significant share of the EV market, leaving Toyota and other foreign automakers in a tough position. This intense competition, coupled with regulatory and consumer-driven shifts, has led to a slight cooling in Toyota’s recent sales and production figures.

In the U.S., Toyota temporarily halted deliveries of two models due to production issues, indicating a modest slowdown for the company in North America. Despite these setbacks, Toyota remains optimistic about its hybrid strategy, which could shield it from the fluctuations seen in the EV market and shifting policy incentives.

Looking ahead, Toyota has kept its full-year profit forecast unchanged despite the anticipated earnings dip, anticipating a 20% decline due to planned investments in both its strategy and its supplier network. This conservative outlook underscores Toyota’s focus on long-term sustainability rather than short-term market pressures.

In terms of market performance, Toyota’s shares have seen a modest increase of 3% this year, outperforming U.S. EV giant Tesla, whose shares have dipped by 2% over the same period. Toyota’s strategy of hedging its bets across multiple powertrain technologies appears to be paying off in an unpredictable market, allowing the automaker to adapt to consumer demand shifts and policy changes without compromising its financial stability.

As global automakers continue to compete in a rapidly evolving landscape, Toyota’s cautious approach to EVs and commitment to hybrid technology may offer a model for balancing innovation with practical consumer demands.

(Adapted from Business-Standard.com)