Toyota plans investments in EVs and AI to compete against Chinese rivals

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Good morning. Toyota has forecast a 20 per cent decline in annual profit as it ramps up spending in electric vehicles and artificial intelligence in an attempt to create a “game changer” to compete against Chinese rivals.

Shares in Toyota briefly fell as much as 3 per cent on the weak forecast yesterday despite a blockbuster year that boosted the carmaker’s profits to record levels.

The company plans to invest ¥1.7tn in “growth areas” such as AI, electric vehicles and software.

Yoichi Miyazaki, Toyota’s chief financial officer, said the carmaker was “well behind” its Chinese rivals in some areas, adding that it would need to “endure” several difficult years and avoid getting sucked into a price-cutting competition with local brands.

We have more today on international carmakers and their attempts to compete in the cut-throat Chinese auto market:

Here’s what else I’m keeping tabs on today:

• Xi Jinping in Hungary: Ahead of his visit, China’s leader praised Hungarian Prime Minister Viktor Orbán’s government for pursuing an “independent” foreign policy and “defying” great power politics.

• Economic data: China reports April trade balance figures, while the Philippines publishes first-quarter GDP.

• Monetary policy: Malaysia publishes its monetary policy statement and the Bank of England makes its interest rate decision.

• Results: Nippon Steel, Nissan, Panasonic, Japan Tobacco, Warner Bros Discovery are among those reporting earnings.

Five more top stories

1. A Hong Kong court has banned the protest anthem “Glory to Hong Kong”. Judges said it could be used as a “weapon” and deemed it seditious, in a ruling that raises concerns about civil liberties in the Chinese territory and puts pressure on US tech groups including Google and Meta to comply with increasingly stringent security regulations.

2. EU countries have agreed to use an estimated €3bn in profits from Russia’s frozen state assets to jointly buy weapons for Ukraine. The deal struck by the bloc’s 27 ambassadors yesterday only targets profits made by Belgium’s central securities depository Euroclear, where about €190bn of Russian central bank assets are held.

• Israel-Hamas war: The US last week “paused one shipment of high payload munitions” to Israel over concerns about its looming ground operation in Rafah, US defence secretary Lloyd Austin said.

3. Shares in SoftBank-backed Arm dropped by about 8 per cent after the UK chip designer issued lacklustre projections for revenue this year. The groups lower than expected forecast of between $3.8bn and $4.1bn raised concerns that spending by tech companies on artificial intelligence hardware could slow down.

• Airbnb: The home rental platform’s profits more than doubled in the first quarter, but it forecast lower than expected sales and earnings for the second.

4. Angola has agreed a deal with China to ease a debt crunch by unlocking cash from a Chinese-controlled account to pay interest on a crucial loan, its finance minister said. The unusual deal between the southern African nation and the China Development Bank highlights efforts by Chinese lenders to provide payment support short of outright debt relief to poor countries that are struggling to pay them back.

5. A company controlled by hedge fund manager Sir Paul Marshall has lost a legal battle with the South African government over $43mn of silver bars recovered from a second world war wreck in the Indian Ocean. Pretoria had argued it did not owe Marshall’s salvage company payment for the silver bars, which had been purchased by the then Union of South Africa from the Indian government in 1942.

The Big Read

According to Cushman & Wakefield, prime office rents across Hong Kong have dropped by nearly 40 per cent from their peak in 2019, and government figures show vacancy rates at a record high of 16 per cent. Amid higher interest rates and lower prices, can Hong Kong’s real estate market recover?

We’re also reading . . . 

• Japanese deal surge Down Under: Once treated with suspicion in Australia, a new wave Japanese investment has deepened the two countries’ partnership, writes Nic Fildes.

• UK-India ties: There are clear signs of progress but domestic politics are complicating relations, writes Anand Menon of think-tank UK in a Changing Europe.

• The BoJ’s huge stock portfolio: The central bank has called time on its ETF buying but has yet to say what it will do with its massive investments, writes Toby Nangle.

Chart of the day

Fifty corporate winners from the coronavirus pandemic have lost roughly $1.5tn in market value since the end of 2020, as investors turn their backs on many of the stocks that rocketed during early lockdowns.

Take a break from the news

Before a single person had set foot on the red carpet, this year’s Met Gala already felt surreal. This was in part owing to the dress code, based on “The Garden of Time”, a 1962 JG Ballard short story about an aristocratic couple who must protect themselves from an angry mob by plucking a dwindling supply of crystal flowers that allow them to briefly pause time. Here’s how attendees interpreted the theme.

Additional contributions from Tee Zhuo and Gordon Smith