Toyota expects to lose $1.3 billion in two months, as the US and Japan are deadlocked over "automobiles"

Last year, the world's largest automaker, Toyota, was in the limelight. The demand for Toyota's hybrid vehicles among American consumers was strong, and the depreciation of the yen also boosted the company's profits. In May 2024, Toyota announced record annual profits.

However, this prosperity came to an abrupt halt this year. On Thursday, Toyota announced a bleaker outlook, expecting its operating profit for the fiscal year ending in March to decline by about one-fifth. Toyota attributed this to the strengthening yen and the tariff policies of the Trump administration. In just April and May, Toyota expects to lose $1.3 billion due to Trump's tariff policies.

Toyota CEO Koji Sato stated in a briefing that it is "difficult to predict" the impact of tariff policies on the automotive industry,

"The current environment of the automotive industry, including trade relations, is extremely turbulent."

According to CCTV News, the U.S. measure to impose a 25% tariff on imported auto parts took effect on the 3rd. U.S. media reported that this will harm the interests of American consumers and automakers and could permanently change the U.S. automotive industry.

"Auto Tariffs": Japan's Dilemma and Negotiation Stalemate

Toyota has already felt the pain brought by tariffs, and Japan is facing difficulties in ongoing negotiations with the Trump administration.

Although the Trump administration has suspended the 24% comprehensive tariffs on Japanese imports until early July, higher auto tariffs have already taken effect and are hurting Japan's pillar industry. Automobiles and auto parts are Japan's largest export items to the U.S.

According to media reports, Japan's chief negotiator Ryosei Akazawa recently stated that the new U.S. tariffs are causing a Japanese automaker to lose $1 million per hour. However, negotiations are progressing slowly, partly because the U.S. side has made it clear that Japan's main demand—exemption from auto tariffs—is not on the negotiating table.

Ryosei Akazawa stated last weekend that the two sides have failed to find common ground. Japanese Prime Minister Shigeru Ishiba urged patience, stating that Japan should not rush to reach an agreement that sacrifices the country's long-term interests.

Notably, according to Xinhua News, on the 8th local time, the UK and the U.S. reached an agreement on the terms of the tariff trade agreement. However, the previously imposed 10% so-called "reciprocal tariff" has not been canceled.

Evercore ISI analyst Sarah Bianchi stated, "The 10% baseline tariff will continue to exist; if the UK cannot reduce it to zero, then it is almost impossible for other countries to do so." U.S. Secretary of Commerce Howard Lutnick stated in a media interview on the 8th that negotiations for trade agreements with Japan and South Korea will take longer to complete than the recently announced U.S.-U.K. framework agreement.

Wide-ranging Impact, Japan's Economy Faces Downside Risks

Economists and officials are concerned about the broader impact of tariffs on Japan's economy, as automakers and their extensive network of parts suppliers form the backbone of Japanese industrial production. Last week, the Bank of Japan cut its economic growth forecast by more than half, citing the "unprecedented" tariffs imposed by the U.S.

The entire Japanese automotive industry will face a challenging period, with particular concern that most analysts believe Toyota is one of the Japanese automakers least affected by Trump's tariffs.

Of the more than 2.3 million vehicles Toyota sells annually in the U.S., only about 500,000 are exported from Japan. Although tariffs have impacted profits, the company forecasts an increase of 237,000 units in its North American sales this fiscal year.

Smaller Japanese automakers, Mazda and Subaru, have a much higher proportion of imported vehicles sold in the U.S., while Mitsubishi has no factories in the U.S. Japan's second and third largest automakers, Honda and Nissan, will announce their fiscal year financial reports next week.

In addition to Japanese automakers, manufacturers outside Japan also signal industry troubles. Last week, General Motors cut its profit forecast for 2025 by more than 20%, citing an expected increase in costs of $4 billion or more this year due to Trump's tariffs. Many European automakers have suspended their financial forecasts for 2025 due to the uncertainty surrounding tariffs