Toyota succumbs to chip shortage and cuts September output

Global semiconductor chip shortfall that began late last year is hitting car manufacturers hard

A Toyota car factory in Onnaing, northern France. The Japanese car maker will slash its production plan by 40 per cent in September owing to a shortage of semiconductor chips. AP

Toyota's efforts to stockpile enough chips and other key components to ride out supply disruptions only protected the company so long before it, too, succumbed to the shortages eviscerating car makers.

The manufacturer will suspend production at all of its 14 Japanese assembly plants for various lengths of time through next month. The impact of these cuts will be harshest in September, with Toyota slashing its production plan by 40 per cent, though risks will carry forward beyond next month.

It’s the latest sign that even the best supply-chain planning is proving no match for a pandemic that virtually ground the car industry to a halt a year ago and has plagued efforts to restore production. Toyota and BMW — two manufacturers least scathed by the semiconductor shortage in the first half — have now warned of significant blows to their operations in the coming months.

“This isn’t a Toyota-only problem,” said Tetsuo Seshimo, a fund manager at Saison Asset Management Co. “But the fact that this is happening at Toyota means that recent worries about the supply chain in Asia being disrupted by the spread of the coronavirus are materialising. There are a lot of companies manufacturing goods in Asia that could be impacted.”

Toyota said 27 assembly lines in Japan will be affected, having an impact on production of models including the RAV4, Corolla, Prius, Camry and Lexus RX. The news — first reported by the Nikkei — took the market by surprise, with investors sending Toyota shares down 4.4 per cent, their biggest daily drop since December 2018.

“Especially in South-East Asia, the spread of Covid and lockdowns are impacting our local suppliers,” Kazunari Kumakura, the chief officer of Toyota’s purchasing group, said on Thursday. Going forward, the company will look at ways to further diversify its supply chains and not focus on one region while it attempts to find replacement parts from suppliers in other regions.

Production cuts had been factored into previous forecasts, so Toyota is maintaining its plan to produce 9.3 million vehicles for the fiscal year ending in March. The company maintained its annual operating profit projection this month at 2.5 trillion yen ($22.7 billion) for the fiscal year through March, below analysts’ average projection for 2.95 trillion yen.

Early on in the chip shortage that began late last year, Toyota was lauded for its supply-chain savvy. The company has an intricate system in place to monitor its vast network of suppliers and has an early warning system for shortages.

That may be no match for a pandemic that’s confounding scientists, governments and public health officials, sparking fresh lockdowns around the world and wreaking more havoc on a vast array of industries.

BMW recently warned of uncertain months ahead as the global chip shortage worsens. After saying this year that it had ordered enough semiconductors and expected its suppliers to deliver, the luxury car maker now expects production restrictions in the second half.

Volkswagen also has flagged worsening supply woes, while Daimler dialled back its delivery expectations due to the shortage.

Research by Susquehanna Financial Group showed that the amount of time it’s taking for chip-starved companies to have orders filled has stretched to more than 20 weeks, indicating the shortages that have held back car makers and computer manufacturers are worsening.