Image Courtesy: CNBC

Toyota Motor Corporation reported a sharp decline in quarterly operating profit after mounting pressure from U.S. tariffs, rising research costs, and growing competition from Chinese automakers weighed on earnings.

The Japanese automaker said fourth-quarter operating profit fell 49 percent year-on-year to 569.4 billion yen, significantly below analyst expectations of 813.28 billion yen. Revenue for the quarter reached 12.6 trillion yen, roughly in line with forecasts, according to results reported by CNBC following Toyota’s earnings release on Friday.

The company’s operating profit has now declined year-over-year for four consecutive quarters. Toyota said increasing investments in research, workforce development, and future technologies, combined with the impact of U.S. tariffs, contributed to rising costs and a higher breakeven point for vehicle production.

Toyota also lowered its operating income forecast for the financial year ending March 2027 by more than 20 percent, cutting the projection to 3 trillion yen. At the same time, it slightly increased its revenue forecast, signaling that sales growth alone may not be enough to offset mounting expenses.

Research and development spending reached record levels during the quarter. Toyota attributed the increase partly to certification-related issues and production capacity constraints. The company has been investing heavily in future vehicle technologies while also adapting to changing regulatory requirements and intensifying competition in electric vehicles.

The automaker is under increasing pressure in China, where domestic manufacturers have rapidly expanded their electric vehicle offerings. Chinese companies have become more aggressive on pricing and technology, making it harder for foreign automakers to maintain market share.

Toyota’s global vehicle sales also slipped slightly during the quarter, falling from 2.36 million units to 2.29 million year-over-year.

The company said it continues working to reduce waste and production inefficiencies, but warned that inflation and instability in the Middle East could create additional cost pressures. Rising fuel prices and concerns over vehicle affordability have already affected some markets, including the United States.

Toyota is also adjusting its financial planning amid currency volatility. The company adopted a six-month average exchange rate assumption rather than its traditional monthly model, setting the yen at an assumed rate of 150 to the U.S. dollar for the fiscal year.

Despite the weaker quarter, Toyota continues expanding its long-term investment plans. The company announced earlier this year that it would invest up to $10 billion in the United States over the next five years, including $1 billion at two U.S. manufacturing plants.

Toyota also said it expects continued growth in battery-electric vehicle demand across China, Europe, and North America, where it plans to expand its EV business further.

The earnings report highlights the growing challenges facing traditional automakers as they navigate tariffs, geopolitical uncertainty, rising development costs, and an increasingly competitive electric vehicle market.