Forecast Sees Toyota Profits Up 31% on Record Sales

TOKYO – Toyota will report ¥3.0 trillion ($39.5 billion) in operating profits in fiscal 2015, according to an industry study by Goldman Sachs Global Investment Research.

The investment house projects earnings will grow 31.0% from fiscal 2013 levels of ¥2.3 trillion ($22.4 billion) on record sales of ¥27.0 trillion ($264.3 billion), up 5.1% over the 2-year period.

Goldman Sachs attributes the upbeat forecast to the automaker's continued focus on cost-cutting and expanding sales in the premium segment, where Toyota's Lexus brand is expected to account for 19.6% of earnings, up from 16.2% last year and 13.2% in fiscal 2012.

Lexus has been able to achieve sales growth in the U.S. market without resorting to substantial discounting, according to the study.

In calendar 2013, Toyota sold 273,847 Lexus models in the U.S., about half of its global total and up 12.2% year-on-year.

Meanwhile, Toyota’s next-generation hybrid lineup, starting with the Prius in 2015 or 2016, will be based on the automaker's new global architecture. TNGA, as the architecture is known, reportedly will cut development costs by upwards of 20%.

By 2017, CLSA Asia Pacific Markets, a rival research group, estimates 60% of components in Toyota cars will be developed under the scheme.

While CLSA is reasonably confident the yen will not appreciate significantly, holding steady at ¥100-105:$1 levels, it nevertheless warns that, for each yen the currency fluctuates against the dollar, a ¥40 billion ($393 million) swing in profits would result.

Other findings in the Goldman Sachs report include:

2025 CAFE Targets a Stretch

Also, the report says, Japanese automakers are close to satisfying U.S. 2016 CAFE targets of 35.5 mpg (6.6 L/100 km) but will find the 2025 target of 54.5 mpg (4.3 L/100 km) challenging. In Europe, the car companies will meet the European Union’s 2015 carbon-dioxide-emissions target of 130 g/km but will need to reduce vehicle weight and increase sales of hybrids and electric vehicles to reach 90 g/km, the 2020 target.

To meet the U.S. 2025 fuel-economy targets, Hyundai must make a 35% improvement; Toyota and Fuji (Subaru), 36%; Honda, 39%; Mitsubishi, 40%; Volkswagen, 42%; Nissan and Hyundai, 44%; BMW, 46%; Ford, 52%, General Motors, 61%, Chrysler, 64%; and Daimler, 81%.

To meet the EU’s 2020 CO2 targets, the report says, Fiat will need to make 25% improvements; Toyota and PSA Peugeot Citroen, 29%; Renault, 31%; Ford, 36%; Hyundai and Suzuki, 38%; GM and VW, 42%; Nissan and BMW, 46%; Honda, 50%; and Daimler, 51%.

Fuel economy improves 2.4-3.5 mpg (1.0-1.5 L/100 km) for every 220-lb. (100-kg) reduction in vehicle weight. North American-built models are projecting average yearly increases in aluminum content of 15.4 lbs. (7 kg) through 2025, from 350 lbs. (159 kg) in 2012 to 548 lbs. (249 kg), raising the share of aluminum to 15% from current levels of 5%-10%.

The auto sector accounts for 6% of global aluminum demand with cars claiming 6% and trucks 4%. Most aluminum used by the industry is 5000-series aluminum-magnesium alloy. The 6000 series, for heat treatment to improve tensile strength, finds use in auto parts.

U.S. aluminum sheet manufacturers are expected to add an estimated 900,000 tons (816,300 t) of production capacity by 2018, up from slightly less than 100,000 tons (90,720 t) in 2013. A major switch to aluminum for a vehicle such as Ford’s redesigned F-150 pickup will add $900 to $1,500 (¥91,965 to ¥153,270) to the cost.

Japanese automakers have been reluctant to switch to aluminum because of their commitment to high-tensile steel. Aluminum per vehicle peaked at 319 lbs. (145 kg) in 2005, while high-tensile steel, which accounted for 230 lbs. (105 kg) of weight 10 years ago, has risen to 550-660 lbs. (250-300 kg).

Major reasons Japanese automakers prefer high-tensile steel to aluminum include price ($0.90 per pound [¥200/kg] compared to $2.70-$4.00/lb. [¥600-¥900/kg]) and domestic steel makers’ global leadership in high-tensile steel development with only a minor presence in aluminum alloy.

Also, because Japanese manufacturers are the most advanced in hybrid and EV development, there is less need for them to switch to costlier materials for vehicle bodies.

Increased use of aluminum will benefit Japanese robot manufacturers, notably Fanuc, a major equipment supplier to Nissan and the Detroit Three. Existing spot-welding lines cannot join aluminum body sections and magnets cannot be converted to aluminum. Additionally, aluminum is softer than steel, requiring greater care in handling.

Robot demand will grow 10% annually in part because the installation rate in Asia is still well below 100 units per 10,000 workers, the current level in Japan. The installation rate per 10,000 workers is 70-75 in Germany, 70 in the U.S., 55-60 in South Korea, Thailand, 25; and in China, 15-20.

According to the International Federation of Robotics, global automotive demand grew to a record 70,000 units in 2013, up from 66,450 in 2012. Between 2010 and 2013, the federation reports growth averaged 22%, with China, Germany, the U.S. and South Korea the main markets.

Carbon fiber-reinforced plastic, currently limited to sports cars, currently costs about $18 per pound (¥4,000 per kg). Japanese models using the material include Toyota's Lexus LFA for the cabin, Nissan’s GT-R for the radiator-core support and Fuji Heavy Industries’ Subaru Impreza WRX.