Toyota’s Second-Quarter Profit Expected to Rise 18%, First Increase in Six Quarters

Toyota Motor is expected to report an 18% increase in operating profit for the July–September 2026 quarter, marking its first quarterly profit growth in six quarters. A weaker Japanese yen, strong demand for higher-margin hybrid vehicles and the absence of US tariff-related costs that affected the year-earlier period are expected to support the recovery.

The anticipated improvement comes despite declining vehicle sales in key markets, particularly China and the Middle East. Investors are watching whether Toyota can sustain earnings growth through a more profitable product mix while responding to competition from Chinese electric vehicle manufacturers and increasing investment in automation, software and autonomous driving.

Toyota Operating Profit Forecast at ¥992 Billion

According to a Reuters report citing a survey of nine analysts conducted by LSEG, Toyota’s operating profit is expected to reach ¥992 billion (approximately $6.3 billion) for the July–September quarter.

This would represent an 18% increase compared with the same period a year earlier and end a six-quarter stretch of declining operating profit.

Revenue is forecast to increase 8% to ¥13.4 trillion, indicating that the expected recovery is supported by both higher sales value and improved earnings conditions.

The figures are analyst estimates ahead of Toyota’s earnings announcement, not confirmed financial results. Investors will assess the actual performance alongside the company’s updated full-year outlook.

Weak Yen Provides Support to Earnings

Currency movements are expected to play an important role in Toyota’s quarterly performance.

As a Japanese automaker with substantial international operations, Toyota generates revenue across multiple currencies. When the yen weakens against currencies such as the US dollar, overseas earnings can translate into larger amounts when converted into yen.

This can improve reported revenue and operating profit even without a corresponding increase in vehicle sales.

The yen’s weakness is therefore expected to provide an earnings cushion as Toyota navigates slower demand in some international markets.

However, currency movements can also increase the cost of imported components and materials. The overall impact depends on Toyota’s production footprint, currency exposure and supply-chain arrangements.

Hybrid Vehicle Demand Supports Profit Margins

Strong demand for hybrid vehicles is another major factor behind the expected earnings recovery.

Toyota has built a substantial business around hybrid technology, combining conventional combustion engines with electric motors and batteries. These vehicles appeal to customers looking for improved fuel efficiency without depending entirely on charging infrastructure.

The company has benefited from demand for electrified vehicles in North America, where sales of these models increased by more than 30% to nearly 430,000 units during the July–September period.

Higher-margin hybrid models can improve profitability because the mix of vehicles sold influences how much an automaker earns from each unit.

Yuya Takahashi, an analyst at Marusan Securities, told Reuters that rising gasoline prices were supporting demand for more fuel-efficient hybrids. He also highlighted the importance of how many of these higher-margin vehicles Toyota can sell.

The trend illustrates how Toyota’s multi-pathway strategy, which includes hybrids alongside battery-electric and conventional vehicles, is contributing to its earnings performance.

China and Middle East Sales Remain Weak

Despite the expected profit recovery, Toyota continues to face challenges in several major markets.

Global sales of Toyota and Lexus vehicles declined 4% to slightly more than 2.5 million units during the July–September period.

China recorded a particularly sharp decline, with sales falling 22%. The Middle East also experienced a substantial slowdown, with sales dropping by approximately one-third.

China remains a major concern because domestic automakers have strengthened their position through competitively priced electric vehicles, advanced software features and rapid product development.

Companies such as BYD have intensified competition in the world’s largest automotive market. Their growing presence is putting pressure on international manufacturers that rely heavily on conventional petrol vehicles and hybrid models.

Toyota’s challenge is to defend its market position while adapting its product portfolio to changing consumer preferences.

The weakness is also affecting the wider automotive supply chain. Japanese supplier Denso recently reported that its operating profit in Asia declined by more than one-third for the six months through September, reflecting weaker vehicle demand in China and higher material costs.

US Tariff Costs No Longer Weigh as Heavily

The absence of US tariff-related costs that affected Toyota’s earnings a year earlier is another factor supporting the expected improvement.

Trade tariffs had increased costs for Japanese automakers selling vehicles in the United States, creating pressure on operating margins.

The comparison with the previous year’s quarter is therefore more favourable because those earlier tariff-related expenses are no longer expected to have the same impact.

For Toyota, the combination of currency benefits, stronger hybrid demand and lower year-on-year tariff-related pressure could help offset weakness in other markets.

However, trade policy remains an important uncertainty for global automakers. Changes in tariffs, production requirements and trade agreements can affect manufacturing decisions and the economics of exporting vehicles.

Toyota Plans Major Investments in Automation and Software

Investors are also monitoring Toyota’s long-term technology investments as the automotive industry undergoes a major transformation.

The company is increasing its focus on factory automation, robotics, vehicle software and autonomous driving. These investments are intended to improve manufacturing efficiency and help Toyota compete in an industry increasingly shaped by software and advanced vehicle technologies.

Toyota has estimated that modernising its factories could cost approximately ¥1 trillion annually from 2028 as it expands the use of automation and robotics.

The investment programme could improve productivity and reduce manufacturing costs over time. However, it also represents a significant financial commitment that investors will consider when evaluating future margins and capital expenditure.

The competitive challenge is particularly important in China, where domestic electric vehicle manufacturers have moved quickly to integrate digital services, advanced driver-assistance systems and software-driven features into their vehicles.

Toyota must balance its established strengths in manufacturing and hybrid technology with the need to remain competitive in emerging automotive technologies.

The Bigger Picture

Toyota’s expected earnings recovery highlights the difference between vehicle sales growth and profitability. Although global sales declined during the quarter, a stronger mix of higher-margin hybrid vehicles, favourable currency movements and lower comparable tariff costs are expected to support operating income.

The results also underline the importance of Toyota’s multi-pathway strategy. Rather than relying exclusively on battery-electric vehicles, the company continues to sell hybrids, conventional vehicles and other electrified models across different markets.

However, the competitive environment is changing. Chinese automakers are expanding internationally, software is becoming increasingly important to vehicle differentiation, and manufacturers are committing substantial capital to automation and new technologies.

For Toyota, sustaining profitability will require it to defend its hybrid business while accelerating its response to changes in electric vehicles and software.

Looking Ahead

Toyota’s earnings announcement will provide investors with a clearer picture of how much support the weaker yen, hybrid demand and reduced tariff-related costs have provided. The company’s updated full-year forecast, regional sales performance and comments on China will be important indicators of whether the expected recovery can continue beyond the September quarter.

Longer term, Toyota faces the challenge of maintaining its manufacturing advantages while investing in software, robotics and autonomous driving. Its ability to balance current earnings with these future investments will help determine its competitive position in the global automotive industry.