Toyota has disclosed a £3bn financial blow resulting from the ongoing war in Iran, as the cost of parts and materials surged and vehicle sales declined. The world's largest automaker stated that profits fell in its fiscal year ending March, citing an inability to absorb the additional impact from the Middle East conflict. This marks one of the most significant corporate warnings yet regarding the war's economic repercussions.
Breakdown of Financial Impact
The Japanese manufacturer faced a 400bn yen (£1.9bn) increase in materials expenses linked to the war, alongside a 270bn yen loss from lower sales. Toyota, which holds a dominant position in the Middle Eastern automotive market, saw its operating profits drop to 3.8tn yen for the year. Additionally, tariffs imposed by former US President Donald Trump cost the company 1.38tn yen.
Broader Economic Turmoil
The US-Israeli attacks on Iran and the subsequent closure of the Strait of Hormuz have disrupted global industry. Trump, under domestic pressure due to rising gasoline prices, has indicated a potential deal to reopen the strait, but Iranian officials have yet to show willingness to negotiate. Asian manufacturers have been particularly affected due to their heavy reliance on Gulf exports, many of which have been stranded since the conflict began. Japan's automotive industry lobby group reported that 70% of the country's aluminium imports originate from the Middle East, while oil price hikes have increased tyre costs.
Future Outlook
Toyota anticipates that profits for the year ending March 2027 will decline for the third consecutive year due to the war's ongoing impact. The company expects operating income for the upcoming fiscal year to be 3tn yen (£14bn), a drop of more than 25%. Takanori Azuma, Toyota's chief accounting officer, stated: "We do not believe we can fully offset the negative 670bn yen Middle East impact." According to Reuters, Azuma noted that the war's effects are evident in fuel costs, transportation expenses, and the cost of paint and other materials used at vehicle assembly plants.
Sales and Electrification Strategy
Toyota sold 9.6 million cars during the year, half of which were hybrid vehicles combining a petrol engine with a small battery. Global sales rose by 2%, supported by 9% growth in North America. The company has focused its electrification efforts on hybrids, despite their higher pollution levels, betting on a slower transition away from fossil fuels than rivals expected. Toyota sold only 600,000 battery-electric cars during the year, though that figure was more than double the previous year's sales.
