Toyota stock sinks as supply chain issues hit production

Jeff Schuster, LMC Automotive President of Americas Operations and Global Vehicle Forecasts, joins Yahoo Finance Live to examine Toyota's production miss due to chip shortages, the supply chain for automakers, challenges when buying cars, Tesla investing in chip suppliers, automotive sales in the U.S. and Asian markets, and the EV space.

Video transcript

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- Shares of Toyota are suffering their biggest one day drop in nearly two years after the Japanese automaker warned it expects to miss its production target for this fiscal year, thanks in part to those supply chain issues and the global chip shortage. Joining us to talk about it is Jeff Schuster, president, Americas operations and global vehicle forecasts at LMC Automotive. Thanks for being with us, Jeff.

So is this a Toyota issue? Or should we expect more automakers to issue the same warning?

JEFF SCHUSTER: You know, honestly, this is something that is with the entire industry. Toyota maybe was a little optimistic with the restart of the plants towards the second half of last year, calendar year, and then into the first quarter of this year. But honestly, this is something that is going to be with the industry likely through the duration of 2022. And then we can maybe look at getting back to normal production levels on a sustained range and level in 2023.

So unfortunately, it's going to be with us. So Toyota is not alone here.

- I wonder how much is factored into this because of Omicron effects, so to speak, particularly in China with their COVID zero policy. And then which vehicles are they prioritizing then? Is it their more profitable ones, for example, trucks?

JEFF SCHUSTER: Yeah, no question about it. Omicron variant in China, in Southeast Asia where a lot of raw materials are and where the chip production has suffered-- those are going to be risks as we look at the start of 2022 and then certainly into the second quarter as well as we move past their fiscal year. So there's certainly going to be some additional risk associated with that.

In terms of prioritization, again, Toyota is not alone here. Most automakers, including Toyota, is prioritizing those higher margin vehicles. Good news is demand is still there, not only in the US, but on a global scale. So that's why the prioritization of those higher margin vehicles to feed that profitability and to keep things running smoothly is the focus right now.

- What should consumers, though, expect if they're going to be in the market for a new car come the spring? It's a popular time to hit the dealerships and buy a new car. Are these shortages going to lift prices even more? We already have record prices we know for used cars and some parts there. What is this going to do to prices? And what's it going to look like for consumers in the market?

JEFF SCHUSTER: Yeah, I wish I had better news for consumers. The challenge is going to be finding the vehicle that you want, number one, the content and features you want, the color you want. But then expect to pay more for it as well.

As you mentioned, we've seen record prices, really every month additional highs in terms of transaction prices. I wouldn't expect to see that change. It may start to level off as we edge further into 2022, maybe by the middle of the year. But it's going to be a challenging year if you're out there shopping for a vehicle. Best advice would be to remain flexible in terms of what you're looking for.

- And then, Jeff, I want to ask you, you know, automakers have been plagued by these chip shortages for the entire year, right? How did a company like Tesla manage to mitigate that? They drove up production to their highest levels last year.

JEFF SCHUSTER: Yeah. Tesla, obviously, has been impacted as well. Clearly, though, they've been able to mitigate some of the shortages and risk. It comes down to relationships with the suppliers, potentially paying more for the commodity, as well, for the chips.

So I think there's a lot of different avenues to really approach and to mitigate that risk. And all automakers are looking at that right now. Tesla certainly has done well with trying to minimize the impact, though.

- Is there one automaker in particular better positioned than others, as you look at the landscape of vehicle makers at the moment, better positioned to weather this storm and come out the other side relatively unscathed?

JEFF SCHUSTER: You know, I would say Toyota has been-- they were late to have any impact. They've been better positioned. The level of their impact-- and we measure it compared to other global automakers-- they're all in a similar arena of more than a million units of impact last year each, if we look at a Toyota, a General Motors, a Ford, a Volkswagen. But in terms of percentage, because Toyota builds more vehicles and sells more vehicles, their percentage is lower.

I think those that have, again, the relationships with the chip makers, maybe the proximity to where chips are being produced in masses-- so we are seeing some advantages right now with overall sales levels in China. But that affects mostly the domestic automakers in China. Looking across Japan and Korea, Southeast Asia, those that have good relationships there I think are in a better position right now. So your Korean brands, Hyundai Kia right now-- Toyota, I think, is also well positioned relative to everyone else, even though, again, it's still impacting Toyota.

- What does it mean for EV makers new to this space like Rivian, for example, as far as trying to ramp up production? They're just starting to get going.

JEFF SCHUSTER: Yeah, no question. Any vehicle, especially a new automaker like Rivian who has a lot of attention on them right now in terms of their launch-- launches are critical to get and execute correctly. And it becomes extremely challenging when you have supply disruptions and problems all the way through the supply chain.

So it's a management nightmare, essentially, and something that they're going to have to watch very closely as they ramp up production of the vehicle. But that is something-- and we saw it in 2021, if we go back to 2020 as well. And even Tesla had challenges ramping up the Model Y.

So there could be similar issues, I think, with Rivian or anyone launching a vehicle in the start of 2022 here.

- All right. Jeff Schuster of LMC Automotive. Thanks for being with us.