Toyota Down on Postponement of Re-Opening China Factories

Toyota Down on Postponement of Re-Opening China Factories
February 10, 2020


Toyota Motor Corporation (NYSE: TM), postponed the restart of production in China plants for the second time, due coronavirus outbreak. The auto manufacturer has announced that its factories in China will open only on February 17th. Notably, while reporting better-than-anticipated third-quarter (fiscal 2020) results last week, the company upwardly revised its full-year profit view but cautioned that global vehicle says, and specifically in China, could be affected by the fatal coronavirus. Following the news, the stock lost $1.51 or 1.05% to close at $142.34.

The death toll caused by coronavirus continues to increase at an alarming rate. At the end of last week, China’s National Health Commission revealed that the death toll has risen to 636, while the number of confirmed cases has risen to 31,161.

Concerns over coronavirus have forced Toyota to postpone the date of the restart of production after the end of the Lunar New Year holidays. Initially, the company had planned to restart operations on February 4th. It was later postponed to February 10th. The company has production facilities, in partnership with GAC Motor and FAW Group, at Tianjin, Guangzhou, Chengdu, and Changchun. Overall, the shutdown will affect 12 production facilities, including eight factories manufacturing components and four manufacturing cars, managed by Toyota.

Toyota manufactured roughly 1.4million vehicles for the Chinese market last year, reflecting an increase of over 6% on a y-o-y basis. China is the world’s largest automobile market.

Last week, the company reported third-quarter revenues of ¥7.545 trillion, down 3.3% from the earlier year. However, the figures surpassed analysts’ estimates of ¥7.441 trillion.

For the third quarter, the company posted a net profit of ¥738.03 billion ($6.72 billion), surpassing FactSet analysts’ forecast of ¥572.82 billion. Operating income for the December quarter was ¥654 billion, exceeding Wall Street analyst’s estimate of ¥643.80 billion.

Chief operating officer Masayoshi Shirayanagi also informed that the company might look at alternative production facilities in other countries for manufacturing components, in case coronavirus issued does not get resolved at the earliest.

Masayoshi Shirayanagi said, “very closely at inventories of components which are made in China and used in other countries, including Japan, and at the possibility of alternative production.”

The company recorded weak sales volumes in Japan, China, and North America. However, Toyota gained from consistent growth in Europe, where hybrid gas-electric vehicles represented 52% of sales in 2019. Furthermore, the profit margin in the region increased in the recent quarter to 4.6%, from 3.2% last year.

Toyota anticipates weak yen to support sales and margins for the rest of the financial year, which ends in April and boosted its FY 2019 operating profit forecast by 4.2% to ¥2.5 trillion ($22.7 billion), an increase from the earlier estimate of ¥2.40 trillion and in accordance with analysts’ projections.

Regarding the outlook for global automobile market in 2020, Didier Leroy, a Toyota executive vice president, said: “The global market in 2020 will be probably lower than what was the market in 2019, but you saw our forecast in terms of sales volume for 2020, and we plan to sell more cars than in 2019 — even if the market is declining.”

The company upwardly revised its FY 2019 sales outlook for North America to 2.71 million vehicles, from a prior forecast of 2.69 million vehicles. For FY 2019, Toyota anticipates global vehicle sales of roughly 10.70 million units. The company is yet to assess the impact of coronavirus. The news of postponement in reopening China factories is anticipated to keep the stock in a downtrend in the short-term.

The historical price chart indicates that the stock is facing resistance at 145. The next major support is anticipated near 132. Additionally, the ultimate oscillator is also having a reading below 50. Therefore, we are anticipating the stock price to decline in the short-term.

tm - technical analysis - 10th Feb 2020

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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