Toyota supplier Denso’s Q1 profit tumbled 41% despite higher revenue

TOKYO — Japan’s Denso Corp.an affiliated supplier to Toyota Motor Corp.lowered its operating profit forecast for the current business year by 14 percent, expecting automakers to undershoot production plans.

The world’s second-largest auto supplier, which specializes in vehicle air conditioning, power trains and automated driving systems, on Friday lowered its operating profit forecast to 480 billion yen ($3.61 billion) from 560 billion yen for the year ending March 31.

Denso initially estimated automakers’ production would be 5 percent lower than they had planned, but their output fell 22 percent short of planning in the April-June quarter due to a pandemic lockdown in Shanghai.

Denso has now adjusted its estimate of vehicle production to a 10 percent shortfall for each of quarter from the second quarter onward, CFO Yasushi Matsui said.

The company reported a 41 percent slump in first-quarter profit, hurt by automakers’ production cuts and by high costs of commodities and logistics.

Denso’s operating earnings of 63.6 billion yen ($476.7 million) for the three months to June 30 fell short of an average estimate of 80.8 billion yen from 10 analysts, according to Refinitiv data. A year earlier, the company earned 107.2 billion yen. Revenue rose 4.3 percent to 1.42 trillion yen ($12.9 billion).

Matsui said he was concerned that logistics costs could continue to trend upward. The company would be greatly affected by high shipping charges due to a shortage of containers, he said.

Nonetheless, Matsui saw reasons to be hopeful. I have noted that a rise in material costs was easing and that car demand was solid.

“I have heard that each automaker has several hundred thousand units back-ordered, so they will be very active just to make up for the back-orders,” Matsui said. “Since they also need to further increase inventories, I believe that the demand will be strong for a while from now, so the question comes down to how much they can produce.”

A two-year chip shortage and supply disruptions partially caused by China’s COVID-19 curbs have forced car makers, including Toyota, to repeatedly cut production. On Thursday the Japanese automaker said output for the April-June quarter had failed some 10 percent short of its initial plan.

But a recent glut in chip supplies due to a pullback in demand in other markets, such as consumer electronics, may finally start to ease things for car makers. Toyota struck a more optimistic note for its business from August.

Denso expected demand for automobile chips to be about a third higher by 2025 than it was in 2020, as these key components were increasingly used in fossil-fuel cars, electric vehicles and autonomous driving technology, CTO Yoshifumi Kato said last month.

Denso ranks No. 2 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $43.6 billion during its 2021 fiscal year.