Satoshi Sugiyama

TOKYO (Reuters) – Toyota Motor Corp is expected to report a small rise in quarterly profit on Tuesday, with a sharp rise in the cost of parts and materials almost offsetting gains from a weaker Japanese yen and a recovery in production.

The world’s biggest carmaker by sales said last week that its global production rebounded by 30% in the quarter ended in September, but warned that shortages in semiconductors and other components would continue to hold back output in the coming months.

A gradual improvement in auto chip shortages should help boost output in the second half of the current fiscal year, but investors’ focus will shift to the demand outlook, other potential supply chain disruptions and its electric vehicle strategy when Toyota reports earnings.

“It’s worth paying attention to why there is such a gap in the supply chain process,” said Kohei Takahashi, an analyst at UBS Securities Japan, noting the improvement in chip supplies.

“It’s been too long for the same reason, so something new has to come,” he said.

Earlier this month, Toyota warned that it was unlikely to meet its production target of 9.7 million vehicles this financial year due to chip shortages. He did not give a new forecast.

The company is expected to report a 3% rise in July-September operating profit to ¥772.22 billion ($5.3 billion), the highest since the December quarter, according to the average estimate in a survey of 12 analysts by Refinitiv.

This would be the first increase in profit in three quarters and marks a significant improvement from a sharper-than-expected 42% fall in quarterly profit in June, helped in part by the yen, which further increased losses.

The yen has fallen about 30% against the US dollar this year, increasing the value of Toyota’s overseas sales. Toyota adjusted its yen forecast for the year to 130 yen from 115 yen in the first quarter, but the currency is now trading much lower at around 146 yen to the dollar.

The benefits of a cheap yen have been offset by a sharp rise in resource costs. In August, Toyota estimated full-year material costs at ¥1.7 trillion, up 17%.

Toyota shares have fallen about 2% this year, compared with a decline in the Nikkei average of about 4%.

Toyota and its main Japanese rivals Nissan Motor and Honda Motor are also grappling with long-term issues, including their slow move into electric cars.

Reuters reported this month that a year after ending its $38 billion EV plan, Toyota is already considering rebooting it to better compete in a market that is growing beyond forecasts.

Earlier this year, it also had to recall its first production all-electric car after just two months on the market due to safety concerns. It resumed accepting leasing orders this month.

(1 dollar = 146.4200 yen)

(Reporting by Satoshi Sugiyama; Editing by Muralikumar Anantaraman)

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