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Toyota cuts annual production target as pandemic hits supply chains

Toyota Motor Corp updates

Toyota has cut its production forecast this year because of the deepening semiconductor crisis after a resurgence of Covid-19 cases in Asia.

The world’s largest carmaker warned it will need to trim annual production by 3 per cent as chip shortages worsen in south-east Asia, disrupting supplies and forcing factory closures.

It comes less than a month after the Japanese company said it was slashing this month’s global production by 40 per cent because of supply chain problems.

Toyota has closed plants around the globe as parts fail to reach factories, while Peugeot in Europe and Ford and General Motors in the US have cut shifts, blaming semiconductor supply constraints.

The Japanese group said it was reducing production by another 70,000 vehicles in September and by 330,000 vehicles in October.

It expects to build 9m vehicles by the end of the fiscal year in March, instead of 9.3m forecast earlier. In August, it said it would cut output by 360,000 units in September. 

“Although our plants and suppliers are taking thorough quarantine and vaccination measures in response to the pandemic in south-east Asia, the spread of Covid-19 infections remains unpredictable, making it difficult to maintain operations due to lockdowns at various locations,” the company said in a statement.

Supply constraints have been exacerbated by natural disasters as well as the coronavirus, with a large portion of semiconductors manufactured in Asia.

Analysts say production cuts stem from shutdowns of factories in Malaysia, which make chips for brake systems, and Vietnam, which manufactures semiconductors for wire harnesses used in cars. 

Since its earlier warning in August, Toyota said another parts supplier in Malaysia reported a new cluster of Covid cases.

While the company is scrambling to secure substitute car components, Kazunari Kumakura, Toyota’s global procurement chief, said it was becoming increasingly difficult to fill the gap in supplies.

Until recent months, Japanese carmakers, particularly Toyota, had escaped the worst of the shortages thanks to its large chip inventory and supply chain management skills honed during past natural disasters.

But even their supply chains are under severe pressure with inventory levels running thin.

“Although the Malaysian semi chips plant has already resumed operations, the rate of utilisation and timing of deliveries have not led to the rapid recovery envisioned on August 19, and this is the cause of the additional cut,” Jefferies analyst Takaki Nakanishi said.

The brokerage estimates the pandemic-related turmoil to resolve in October, and the global chips shortage to ease next year.

In a recent interview with the Financial Times, Hidetoshi Shibata, chief executive of Japanese chipmaker Renesas Electronics, said there were signs that some carmakers are starting to make “double and triple bookings” for next year to increase inventory levels, creating a wider gap between supply and demand.

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