Automaker warns of county's prospects amid rising profits
Toyota Motor Corp said it "can't be optimistic" about profitability in China, the world's biggest auto market, where slowing growth is forcing the Japanese manufacturer to cut prices and offer buying incentives to keep up with rivals.
The Corolla and Camry maker reported net profit of 646 billion yen ($5.2 billion) in the three months to June, up 10 percent year-on-year, beating analyst expectations, while revenue rose 9.3 percent to 6.98 trillion yen.
The Japanese giant's vehicle sales, however, were slightly lower in the period and it trimmed its 2015 calendar year sales forecast to 10.12 million vehicles from 10.15 million units.
Toyota and Volkswagen are locked in a tight race for the title of world's biggest automaker this year, after the German giant outsold its Japanese rival in the first half.
Toyota - which also said its fiscal year to March revenue would be slightly higher than the expected 27.8 trillion yen - credited a weak yen and cost cuts for its latest financial results.
The Japanese currency's steep slide has helped make Japanese -automakers more competitive overseas and inflated the value of repatriated profits.
"Toyota has benefited from the weak yen and strong sales in North America, while sales of its Lexus models have been steady," said Tokyo-based auto analyst Takaki Nakanishi.
Last quarter, sales in the key North American market rose, but fell in Europe and Asia - including Toyota's home market Japan, where consumer spending dived after the government raised sales taxes last year.
Executive Tetsuya Otake said there were signs of a pickup in Japan, but warned of a stock market rout in China and signs of a weaker economy.
"There has been a change in the environment" in China, he told reporters."For the time being, we have not seen an impact on our sales, which have been increasing in recent months, but stock markets are falling and other indicators are mixed, so we want to be vigilant."
Airbag crisis
Separately, Toyota said it was reorganizing its Chinese operations, including adding a production line at a plant in the northern city of Tianjin with an annual capacity of 100,000 vehicles to replace an older assembly line.
The changes underline a "commitment to plants that are competitive, rather than plants that simply aim to maximize production," the automaker said.
Toyota has been focusing on squeezing out productivity gains and better using existing plants - it postponed building new factories for several years.
The company began operating a new Thai plant in 2013, but then halted investment as the global car market struggled with oversupply and weak demand.
In April, the company announced it was ending the construction freeze as it unveiled plans for a $1 billion plant in rising Mexico.
The company is also overhauling its production methods, vowing to slash development costs to try to offset any downturn in the global automotive market.
Last week, rivals Honda and Nissan both reported strong results, but observers warned over the threat of a China slowdown and costs tied to a exploding airbag crisis.
"Concerns over recalls related to Takata's airbags continue to cast a shadow on the sector," said Yasuo Imanaka, analyst at Rakuten Securities in Tokyo.
"Unexpected, massive recalls are a sizable risk for any automaker."
Toyota is working to regain its reputation for safety after the recall of millions of cars globally for various problems, including the problems at embattled supplier Takata.
Its defective airbags have been blamed for eight deaths and scores of injuries around the world.
The defect - thought to be associated with a chemical propellant that helps inflate the airbags - can cause them to deploy with explosive force, sending metal shrapnel hurtling toward unsuspecting drivers and passengers.
Ten global automakers, also including General Motors and Germany's BMW, are being forced to recall some 34 million cars in the U.S. alone to replace the inflators - the biggest recall in US history.
