Toyota Posts Lower Profit for FY Ending March 2026, but Remains at a High Level; Middle East Situation in Focus

2026-05-08

Business performance is down, but still at a high level

"Even amid major environmental changes, we were able to generate 3.8 trillion yen in profit." At the earnings press conference on the 8th, Kenta Kon, who became president in April, summed up the fiscal year ending March 2026 this way. Operating profit came to 3.7662 trillion yen, down 21% from the previous year, but despite a 1.38 trillion yen drag from U.S. tariffs, it secured the third-highest level on record.

In the auto industry, in addition to the tariff policies of the Trump administration, reviews of EV strategies are advancing amid factors such as the abolition of purchase tax credits. Germany's Volkswagen has ended production of some EVs in the U.S., and its net profit fell by 30%. Honda is also expecting losses from write-offs of EV-related assets and equipment, impairment losses, and losses associated with suspending sales and development.

Profitability supported by the value chain

What underpins Toyota's performance is its value-chain businesses, such as aftermarket parts and auto finance. Operating profit from these businesses in the fiscal year ending March 2026 was 2.1 trillion yen, accounting for more than half of consolidated operating profit. By leveraging its customer base of 150 million Toyota vehicles worldwide, the company is building a profit structure less vulnerable to economic fluctuations.

Global sales reached a record high of 10.47 million units, up 2% from the previous year. Even as rivals concentrated on EVs, Toyota maintained its all-around strategy offering HVs, EVs, PHVs, and FCVs. Sales of electrified vehicles surpassed 5 million units for the first time at 5.04 million, and in the period of slowing EV demand, HV sales grew.

Preparing for the Middle East crisis and supply chains

Toyota is also advancing regional diversification on the sales side. North America accounts for only about 30% of the total, and in Japan it will maintain a "3-million-unit production system" from the standpoint of preserving employment. Vice Chairman Tsuneharu Sato explains, "We develop products suited to the local market locally and produce them locally."

In India, Toyota plans to build three new finished-vehicle plants and raise production to 1 million units in the 2030s, triple the current level. In March, it also announced plans to invest a total of $1 billion in finished-vehicle plants in Kentucky in the southern U.S. and Indiana in the Midwest.

Meanwhile, the intensifying Middle East situation is becoming a management challenge. In April, production of Land Cruisers and other models for the Middle East at domestic Japanese plants will be reduced by 18,000 units, and from May through around November, overseas production of pickup trucks and other vehicles will be reduced by about 38,000 units, mainly for the Middle East.

On the procurement side, concerns over naphtha supply are becoming even more pronounced. Hiroshi Yasuda, vice president of Toyota Gosei, said, "We have secured supply through the end of May, but we have information that concerns may emerge sometime in June." If bottlenecks occur somewhere, the impact could spread across Toyota's overall production.

Mr. Kon also cited improving the breakeven production volume as an issue. This is the sales volume at which revenue and expenses are balanced and profit is zero; lowering it improves profitability. Although figures have not been disclosed, they are thought to be worsening due to rising component costs, and a renewed push for production improvements is being called for.

Toyota is promoting the flexible allocation of parts and materials within the group, substitution with alternative products, and reductions in usage. Takanori Higashi, head of the accounting division, said regarding the profit impact from the Middle East situation, "We are working across the company on whether we can avoid a surge in material prices."

Furthermore, in anticipation of tighter Chinese export restrictions on rare earths to Japan, companies such as Aisin and Denso are also developing products that use less of these materials. Toyota plans to expand production-efficiency efforts—centered on its Japanese plants, where it will reduce the variety of parts by up to 80%—to 18 plants worldwide in Europe, the U.S., and elsewhere, and to standardize screws and tools as well.

In the 1970s, in response to two oil crises, then-President Eiji Toyoda pushed ahead with "kaizen" and the Toyota Production System. For President Kon as well, the challenge is to steer the company in a way that simultaneously invests in line with local needs and improves its ability to earn profits globally.

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