TOKYO (Reuters) – Japan’s three major automakers expect a stronger yen to cost them around $ 14 billion in lost operating profits this year alone – just as they need to invest more in everything , cleaner fuels for driverless cars.
After three years of supernatural profits from a weaker currency, Toyota Motor, Nissan Motor and Honda Motor now face a reality check as the yen has flipped.
As the monetary windfall of recent years has filled the coffers of automakers – Toyota alone has about $ 10 billion in cash – a squeeze in margins will put pressure on them to concentrate their investments, analysts say.
“How to respond to the rising yen while securing profits and pursuing future investments: this balance is important,” Toyota executive vice president Takahiko Ijichi said this week.
The US dollar has climbed about 60% against the yen between late 2011 and mid-2015, a huge boon for Japanese automakers, but so far this year it has fallen about 9% against the Japanese currency.
Toyota, the world’s largest automaker, forecast a 40% drop in operating profits this year due to the stronger yen – a blow of 935 billion yen ($ 8.6 billion) to a company which exported nearly half of its Japanese production last year. Honda expects an impact of 303 billion yen on its operating profit, while Nissan expects a “massive impact” of 255 billion yen on its operating profit.
Even automakers who have invested more in local production outside of Japan expect currency difficulties. Suzuki Motor Corp, which, through its Maruti Suzuki company, has nearly 50 percent of the market share in India, expects its annual net profit to fall by a fifth.
That’s all the money that could be invested in cleaner alternative propulsion systems, technology to link cars to data services, and the development of autonomous driving.
In the United States, for example, General Motors has invested $ 500 million in ride-sharing service Lyft to develop an on-demand network of autonomous vehicles. He also bought Cruise Automation, a San Francisco start-up focused on developing driverless cars.
Toyota has announced that it will create a research and development company to focus on artificial intelligence in Silicon Valley, deviating from its cautious stance on automated driving.
The “big three” Japanese automakers are on the conservative edge, however, with their assumed 105 yen to the dollar rate, which is more pessimistic than a Reuters poll of currency analysts, which predicted the yen to fall. to 115 to the dollar by next April. .
And this is already having an impact.
Toyota is forecasting its smallest increase – just over 2% – in R&D spending in four years, to 1.1 trillion yen in 2017.
“We are seeing a double whammy of the strength of the yen combined with Japan Inc’s tendency to take a very conservative stance,” said Stefan Worrall, director of Japanese equity sales at Credit Suisse.
“So you need to recognize some uncertainty about how much capital spending will actually be affected by the stronger yen, as we don’t know how much we are seeing an exaggeration in the weak earnings forecast.”
Nissan, whose development capabilities could be bolstered by a planned merger with Mitsubishi Motors, has stepped up production of its Rogue crossover SUV in Japan, a model that is selling well in the United States. It made sense when the yen was weak, less now.
But capacity constraints mean Nissan has little hope of changing its plans to increase production in Japan.
âWe don’t use it as a strategy, we use it as an opportunity. We have capacity available in Japan and no capacity available in North America, âsaid CEO Carlos Ghosn.
He called the stronger yen a âmassive headwindâ.
In the near term, companies will seek to contain costs, analysts say – and that could be bad news for Prime Minister Shinzo Abe’s efforts to spur a stalled economic recovery, as wages are likely to be a prime target.
Reporting by Naomi Tajitsu, with additional reporting by Minami Funakoshi, Joshua Hunt and Norihiko Shirouzu; Editing by Clara Ferreira-Marques and Ian Geoghegan