All car companies have endured near catastrophic trading conditions for the Q2 of 2020. From April to June the global health pandemic disabled manufacturing and shipping, while dealerships were unable to trade freely. This ushered in an unprecedented period of staggered activity for the automotive industry, the consequences of which were only being reported now.
As the world’s largest car companies started reporting their consolidated earnings for Q2 of 2020, a disturbing pattern of losses was confirmed. Although not unexpected, they framed which brands were in a healthier financial position – and would be best positioned to deliver on future product development commitments.
Despite prevailing trading conditions being disastrous, Toyota had amazingly managed to remain profitable. The Japanese auto giant’s most credible rival, in both scale and breadth of product, was VW. And for the Germans, 2020 had been brutal, tipping the VW Group into an overall R30 billion loss.
By contrast, Toyota delivered a profit of R25 billion. Measured year-on-year, that number was 74% down, but Toyota managed to do what most of its rivals could not: remain profitable during Q2. For the Japanese auto industry, which was weak entering 2020, the series of global Covid-19 lockdowns proved impossible to negotiate. Honda and Nissan both posted losses during Q2.
Luxury vehicle brands with the potential to harvest huge margins on lower overall unit sales, could not match Toyota’s profitability and cost management. BMW and Mercedes-Benz recorded Q2 losses of R13.5 billion and R37 billion, both rather significant numbers for two of the world’s most outstanding car companies.
Not getting drained by EV costs
How did Toyota manage to turn a profit when all of its most significant rivals fell into a loss? The Japanese company had a lower burden of R&D development, compared to Audi, BMW, Mercedes-Benz and VW. All those German car industry champions were now having to contend with hugely expensive electric vehicle architecture development, complex battery chemistries and the coding of unfamiliar drive systems.
Toyota had been typically conservative. It derived a great deal of profit from very simple ladder frame vehicles such as Hilux, Fortuner and the Land Cruiser range. These rugged products were cheaper to design and build, than those hybridised and fully electric vehicles Audi, BMW, Mercedes-Benz, and VW were having to develop.
The recent surge in R&D costs, compounded by a few months of virtually evaporated revenue, had been a nightmare risk scenario for most car companies.
As Toyota transitions into the immediate post-Covid world with far healthier financials than many of its German rivals, what does that mean for customers and product?
Those German and Japanese car companies which made losses in Q2 were at risk of having to rationalise future product development. This might not influence core models but could trim niche products dramatically over the next few years.
In comparison, Toyota followers can expect a very linear and consistent product development and launch schedule for the next few years. The Japanese company would certainly weather lockdown better than most.
By Lance Branquinho