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Toyota has warned that the ongoing war in Iran is expected to cost the company approximately $4.3 billion this financial year. On Friday, the world’s largest automaker reported a nearly 50% drop in quarterly earnings and projected that full-year profits will fall by 20%. The company stated that the rising expenses associated with the conflict are currently outweighing the record demand for its hybrid vehicles.
The bulk of the 670 billion yen ($4.3 billion) hit will come from higher material costs, with the remainder from delivery delays and lower sales volumes, Toyota's accounting group officer Takanori Azuma told a briefing.
“The impact of the Iran war is being felt in everything from "fuel costs, transportation expenses, and the cost of paint and other materials used at vehicle assembly plants," Azuma said.
Sales of hybrids are expected to exceed 5 million vehicles for the first time this year, said Toyota, whose overall results highlight the lopsided impact of the Iran war, as higher energy prices drive customers to fuel-efficient cars but not enough to offset underlying cost pressures.
Toyota's estimates exceeded those given by many major companies so far, including airlines. Unlike many companies, the Japanese manufacturer has an additional burden as it has pledged to take on cost increases faced by its group suppliers.
Operating profit totalled 569.4 billion yen for the three months to March 31, from 1.1 trillion yen a year earlier. It was the smallest quarterly profit in more than three years.
For the current fiscal year, Toyota expects an operating profit of 3 trillion yen, well below the 4.59 trillion yen median in an LSEG poll of 23 analysts.
Toyota shares ended down around 2.2%, their lowest close since mid-October.
