Toyota Motor (TM 1.07%) said for months that it would be able to deliver 9 million vehicles in its current fiscal year ending on March 31 -- despite the ongoing global shortage of semiconductors.
On Tuesday, the auto giant admitted that its supply chain wrangling has fallen short. Toyota said that tight chip supplies have forced it to cut its February production plan by about 150,000 vehicles. As a result, it will fall short of that 9-million-vehicle goal for the year.
Toyota's announcement has some implications for investors in any automaker, old or new.
What Toyota said about the chip shortage and its production plans
"Current demand [for vehicles] is very strong, therefore we were aiming for a high February production plan," the company said in a statement. "However, due to the impact of the continuing demand for semiconductors across all industries, we have adjusted our production plan by around 150,000 units globally" to about 700,000 units, down from a planned 850,000.
About half of the production cuts will come from 11 production lines in eight of Toyota's Japanese factories. Most of those reductions were made to lines that produce sedan models, including Toyota's Corolla and Prius and the Lexus LS and IS luxury sedans.
Toyota will cut production at eight of its Japanese factories next month, amid a global shortage of semiconductors. Image source: Toyota.
Toyota didn't share details of its plans for production cuts outside of Japan. But trade publication Automotive News, citing a Toyota spokesperson, reported that Toyota's North American operation expects to lose between 25,000 and 35,000 units of production in February.
Toyota said that it's looking into using substitute chips in some of its models, and that it's continuing to work with suppliers to try to increase production as quickly as possible. But that won't happen in time to save its full-year production target.
"As a result of the revision, the full-year production forecast for the fiscal year ending March 31, 2022 is expected to be lower than the previous forecast of 9 million units," the company said.
What it means for Toyota and other automakers -- old and new
For starters, the cuts to sedan models are a strong hint that Toyota, like most of its rivals, is prioritizing production of higher-profit SUVs and trucks now.
That's the right move from a bottom-line perspective. But it means that its dealers will continue to be short of some of the lower-priced models like the Corolla and Prius that have historically attracted many younger and less-affluent buyers to the brand. That may have a longer-term impact.
It also emphasizes that not even Toyota, which has an unusually high level of control over its supply chain, is immune to the effects of the chip shortage -- and that the shortage isn't over.
That has implications for just about every automaker, even the start-up electric-vehicle makers that investors have enthusiastically embraced over the last two years. Shares of Michigan start-up Rivian Automotive took a big hit last month when the company said it would fall short of its 2021 production goal by "a few hundred vehicles," a shortfall that the company attributed to supply chain issues.
Toyota's latest round of cuts also reminds us that the chip shortage is affecting different companies at different times, depending on the situations of their individual suppliers. Toyota was able to maintain something close to full production in the first half of 2021, while rivals including Ford Motor Company had to make drastic cuts.
That has now reversed, at least to some extent: Ford has had good supplies of chips and other parts since August, while Toyota has struggled to keep its assembly lines running at full speed.
What it means for auto investors
For investors in Toyota and other large automakers like Ford, these disruptions are best thought of as bumps in the road. Supplies of chips are expected to improve over the next few quarters, and demand for new vehicles remains strong. The longer-term investment cases for these companies remain intact for now.
But for the smaller start-ups, there could be more supply chain pain ahead, and -- as we saw with Rivian -- that could mean some pain for their shareholders as well.
