On Wednesday, Toyota Motor Company (TM  ) reported a blockbuster fourth quarter to end its fiscal year, achieving records from sales to profits.

While late in the EV race and significantly behind Tesla Inc (TSLA  ), Toyota's strength in hybrids came in handy as the EV hype cooled down. In late April, Toyota also revealed a partnership with Tencent Holdings Limited (TCEHY  ) in an effort to stay competitive. Besides using the help of Tencent to increase the appeal of its vehicles, Toyota is aware it needs a game change. But, such investments will weight on its near-term profits so the earnings guidance was not at all impressive.

A Blockbuster Fourth Quarter And Fiscal Year

For the January-March quarter, Toyota reported that operating profit surged 78%. What's even impressive is that for the year, it totaled 5.35 trillion yen or about $34.5 billion, which is the first time for a Japanese company to surpass 5 trillion yen. Also for the full fiscal year, Toyota recorded a record profit of 4.94 trillion yen, which amounts to about $31.9 billion, on revenue of 45.1 trillion yen. Global sales reached an all-time high as they surpassed 10.3 million units, fueled by a strong demand both in the home market, as well as North America and Europe. Hybrid sales alone rose 31% to 3.7 million units.

A More Sober Fiscal Year Outlook

Up to March 2025, Toyota guided for a 20% profit decline in with an operating profit of ¥4.3 trillion which amounts $28 billion, down from earnings of ¥5.3 trillion it reported for the fiscal year 2024. Chief executive Koji Sato emphasized that Toyota will be doing what is necessary to cement its positioning as it plans to invest ¥1.7tn in AI and EVs it classifies as 'growth areas'. Toyota also announced its plans to buy back up to 3% of its shares worth ¥1 trillion.

Toyota's journey of an automaker set to become a mobility company.

Sato's leadership has already shown results and the new CEO made it clear that Toyota will do whatever it takes to ensure growth, including the reshaping its hardware-focused business model to focus more on software that is integral component of the all-electric future of the industry. But, while its fiscal year 2024 report smashed its own forecast from February, Toyota opted for a more sober outlook for the fiscal year ahead. Blazing a trail in hybrids paid off this time, but Toyota is well aware that this is not the solution as it needs to get better in software in order to challenge Tesla and remain relevant in the all-electric era.

Fortunately, although Toyota is far behind Tesla in the EV space, as well as it other EV peers, Toyota still managed to defend its title of the world's largest automaker by sales for the fourth consecutive year so its power should never be underestimated. After all, it teamed up with Tencent and unveiled two battery EVs for the Chinese market at the recent Beijing auto show. By pairing up with Tencent, Toyota will also get equipped for the AI arms race besides sharpening its EV competitive edge.

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