Toyota, Mazda plan $1.6 bln US plant, to partner in EVs – Q1 net profit up, boost Toyota’s FY forecast

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TOKYO, Aug 5, (Agencies): Japanese automakers Toyota Motor Corp. and Mazda Motor Corp plan to spend $1.6 billion to jointly build auto manufacturing plant in the US — a move that will create up to 4,000 jobs, both sides said Friday.

The plant will have an annual production capacity of about 300,000 vehicles, and will produce Toyota Corollas as well as a new Mazda crossover vehicle for the North American market.

Toyota wouldn’t say where the plant would be built. But because the new plant will build the Corolla, chances are it will be located near Toyota’s current Corolla plant in Mississippi to be close to parts supply companies. The companies expect the plant to begin operations by 2021.

Toyota said it changed its plan to make Corollas at a plant in Guanajuato, Mexico, now under construction, after reassessing the market. Instead it will produce Tacoma pickups there, Toyota President Akio Toyoda said.

President Donald Trump had criticized Toyota and other automakers for taking auto production and jobs to Mexico, saying vehicles for the US market should be built by US workers. Toyoda denied that Trump’s views influenced his decision.

Trump welcomed the announcement in a tweet: “Toyota & Mazda to build a new $1.6B plant here in the USA. and create 4K new American jobs. A great investment in American manufacturing!”

Sales of small cars have slumped in the US amid steadily low gas prices. Corolla sales fell 10 percent through July. But Toyota hopes the market will have shifted by 2021. If not, the plant will have the flexibility to shift to another model, according to spokesman Scott Vazin.

Toyota plans to acquire a 5.05 percent stake in Mazda, valued at 50 billion yen ($455 million). Mazda, which makes the Miata roadster, will acquire 50 billion yen worth of Toyota shares, the equivalent of a 0.25 percent stake.

Together

The companies also plan to work together on various advanced auto technology, such as electric vehicles, safety features and connected cars, as well as products that they could supply each other.

In the past, Toyota was not overly bullish on electric vehicles, which have a limited cruise range. But recent breakthroughs in batteries allow for longer travel per charge. Japanese rival Nissan Motor Co. is allied with Renault SA of France and Mitsubishi Motors Corp., and is the global leader in electric vehicles. Their alliance led world vehicles sales for the first time in the first half of this year.

Toyoda also noted the growing competition from newcomers in the auto industry like Google, Apple and Amazon, stressing he was worried about autos turning into commodities. He praised Mazda as a great partner in that effort.

Friday’s announcement builds on an existing partnership. Toyota, which makes the Prius hybrid, Camry sedan and Lexus luxury models, already provides hybrid technology to Mazda, which makes compact cars for Toyota at its Mexico plant.

The sheer cost of the plant also makes a partnership logical, as it boosts cost-efficiency and economies of scale. Working together on green and other auto technology also makes sense as the segment becomes increasingly competitive due to concerns about global warming, the environment and safety.

“Given the massive level of competition in the industry, partnerships are no longer a surprise,” said Akshay Anand, an executive analyst at Kelley Blue Book.

Politics are another incentive

“The new presidential administration has made it clear investments in the US are a top priority, and this plant may be another nod to that mindset,” Anand said.

Mazda, based in Hiroshima, Japan, used to have a powerful partner in Dearborn-based Ford Motor Co., which bought 25 percent of Mazda in 1979, and raised it to 33.4 percent in 1996. But Ford began cutting ties in 2008, and has shed its stake in Mazda.

Also Friday, Toyota reported its April-June profit was 613.0 billion yen ($5.6 billion), up 11 percent from 552.4 billion yen a year earlier. Quarterly sales rose 7 percent to 7.05 trillion yen ($64 billion), as vehicle sales improved around the world, including in the US, Europe and Japan.

Toyota stuck to its earlier projection for global vehicle sales for the fiscal year, ending in March 2018, at 10.25 million vehicles.

Toyota said Friday its fiscal first quarter net profit jumped 11 percent to $5.6 billion with vehicle sales up in Japan and the United States, while it also lifted its annual earnings forecast.

The Corolla and Prius hybrid maker posted a net profit of 613 billion yen ($5.6 billion) in the three months to June as revenue rose 7.0 percent to 7.05 trillion yen.

Quarterly operating profit, however, fell nearly 11 percent to 574.3 billion yen, partly owing to currency fluctuations, it said.

Toyota, which lost its crown as the world’s top-selling automaker in 2016, now expects profit for the year to March 2018 to come in at 1.75 trillion yen, up from an earlier 1.5 trillion yen forecast, as it forecasted a downturn in the yen.

Vehicle sales were 2.59 million units in the quarter, slightly up from 2.52 million units a year ago. Demand rose in North America, Europe, Central and South America, Africa and the Middle East. Sales also rose in Toyota’s home market, Japan, but they fell in the rest of Asia. The auto giant last year suffered its first drop in annual profit in five years, as it pointed to the cost of customer incentives in the key US market. Quarterly operating profit in the North American market tumbled by nearly half from a year ago owing to those marketing costs, which can include low-interest financing, cash-back rebates and other perks.

“Toyota is facing tough competition in the North American market due to a delay in its shift to pickups and SUVs,” Satoru Takada, an analyst at Tokyo-based research and consulting firm TIW, told AFP ahead of the earnings. US auto sales have been sputtering, forcing automakers to boost incentives to land customers. “Foreign exchange is a key factor for the industry,” Takada added. “Current levels are relatively positive for the Japanese auto industry.”

The level of the Japan’s currency against the dollar and other units is a key factor in Toyota’s competitiveness abroad and the value of profits its earns abroad. The yen has moved sharply over the past year and a half with it surging after Britain’s shock vote to exit the European Union boosted demand for the safe haven asset. The trend briefly reversed course after billionaire Donald Trump’s November US presidential election win boosted the dollar against the yen and other currencies. Japan’s auto industry is facing uncertainty over Trump’s drive to support US firms over foreign imports, a stance that has raised fears of a global trade war.

He has targeted Toyota with strong criticism of its ongoing project to build a new factory in Mexico, threatening it with painful tariffs. This week, rival Honda said net profit for the first quarter rose by double digits boosted by strong motorcycle sales, as it revised up its full-year forecast. The Tokyo-based company said solid sales of two-wheel vehicles in Asia and cost reduction efforts contributed to increased profits. Last week Nissan reported a drop in quarterly net profit, hit by higher costs and weak sales in key markets. It left its annual forecasts unchanged.

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