Toyota Forecasts 21% Profit Drop As Tariffs Strike

Toyota Motor announced a projected 21% decline in operating income for the fiscal year ending March 2026, as new U.S. tariffs and currency headwinds overshadow strong hybrid vehicle demand. The world’s largest automaker expects operating income to fall to 3.8 trillion yen ($26 billion), down from 4.8 trillion yen in the year that just ended, according to CNN Business.

The forecast aligns with analyst expectations but signals significant challenges ahead as automotive manufacturers navigate an increasingly complex global trade environment. Toyota’s share price fell 2.3% following the announcement, though it remains up 8% for the year.

Tariffs Create Immediate $1.7 Billion Impact

Toyota revealed it has already set aside 180 billion yen ($1.7 billion) just to cover tariff costs for April and May 2025, highlighting the immediate financial burden created by President Trump’s trade policies. The dramatic cost increase comes after the U.S. implemented a 25% tariff on imported vehicles and a similar duty on auto parts including engines and transmissions, according to The Logic.

“Whether these tariffs are permanent or not, and what will happen is not something we can decide,” said Toyota CEO Koji Sato during Thursday’s press conference. The company emphasized that predicting the long-term impact remains challenging given the uncertainty surrounding trade policy evolution.

For Toyota, which sold 2.3 million vehicles in the U.S. in 2024 — its largest global market — the stakes are particularly high. The company must now balance maintaining market share while managing increased costs that could eventually be passed to consumers.

Multiple Pressure Points Beyond Direct Tariff Costs

Toyota’s challenges extend beyond the immediate tariff impact, with currency fluctuations becoming an even more significant factor in its forecast. The company cited three main headwinds: strengthening yen, higher material prices, and tariff impacts, according to Reuters.

Currency movement is expected to be the largest single impact on Toyota’s full-year forecast at 745 billion yen, more than four times the direct tariff cost. Uncertainty around trade policies has weighed on the dollar, meaning Toyota earns less in yen terms when bringing U.S. profits home.

Industry analysts warn of potential ripple effects beyond immediate costs. “Right now, things are very rosy in the U.S. just because customers are panicking and rushing to the market to buy cars. But what happens if these tariffs continue? You need to raise prices,” noted Christopher Richter, an auto analyst at brokerage CLSA.

Strategic Response Takes Shape

Despite financial headwinds, Toyota is not planning immediate price increases. “Just because of tariff rising prices in — hastily is not the type of reaction Toyota is thinking of,” Sato explained, suggesting the company will temporarily absorb some costs to maintain market position.

Longer-term, Toyota plans to increase domestic U.S. production in response to tariffs, though specifics remain under development. The company currently operates manufacturing facilities in states including Kentucky, Texas, Indiana, and Mississippi, with varying levels of domestic content.

Any production shifts would require significant investment and time to implement. Toyota would also face higher labor costs and capital expenditures if expanding its U.S. manufacturing footprint, creating additional financial pressure beyond direct tariff impacts.

Bright Spots Amid Challenges

Not all markets show declining performance for Toyota. Japan, the company’s most profitable market, provided a rare bright spot with an 18% profit increase in the fourth quarter. The domestic market continues to show strong demand for Toyota’s hybrid vehicles, which remain the company’s technological focus.

Toyota also maintains a stronger position in China compared to other Japanese automakers, though it continues to face challenges from local manufacturers. The company’s diversified global footprint provides some insulation against region-specific challenges.

The automaker’s forecast comes as other manufacturers also adjust to new trade realities. General Motors recently lowered its 2025 profit forecast, estimating Trump’s tariffs will cost it at least $4 billion this year, highlighting the industry-wide impact of current trade policies.