Breakingviews - Tariffs will extend Toyota's lead over Japan Inc
HONG KONG, June 30 (Reuters Breakingviews) - Tariffs will accelerate Toyota Motor's (7203.T), opens new tab advantage. The world's largest carmaker is barely raising its prices in the U.S., despite President Trump's 25% levy on auto imports. If Tokyo fails to win a reprieve, manufacturers with slimmer margins will struggle to emulate the $222 billion company and could lose market share fast.
Toyota said this month that it will raise prices for some vehicles sold in the country by an average of $270 as part of a regular review. This represents just 0.7% of the mean unit price for a Toyota car sold in North America, according to Visible Alpha.
Other Japanese carmakers appear to have opted for similar tactics in the first month of tariffs: the value of auto imports from Japan to the U.S. fell 24.7% in May from a year earlier, though volumes dropped just 3.9%, according to official trade data released on June 18. These numbers suggest importers lowered the price of vehicles before duties, in effect absorbing the cost of levies rather than letting sticker prices rise.
For most companies, that strategy will not be sustainable. Toyota's operating margin was 10% in the financial year that ended in March, while the average for a basket of its domestic peers was 5%. That gives Toyota exceptional flexibility to keep prices stable; even if it absorbed costs associated with the levies, operating profit would only decline some 7%, Morningstar analyst Vincent Sun calculates.
By contrast, Honda Motor (7267.T), opens new tab would face a 25% drop in earnings if it tried the same approach, while struggling Nissan Motor's (7201.T), opens new tab operating loss would grow by nearly a third, Sun reckons. In the end, weaker companies will have little choice but to ask customers to foot the bill. Even if a U.S.-Japan bilateral trade agreement were to halve the levies, Japanese importers stateside would probably still have to pass through about 80% of the impact to consumers, consultancy AlixPartners estimates.
That bodes ill for their market share. Those who can't avoid hiking may lose out to Toyota or, worse for Japan, to non-Japanese brands like Tesla (TSLA.O), opens new tab. That would hurt: the U.S. is the largest single market for Honda and Nissan, and imports to the country accounted for more than a tenth of their global sales volume in 2024.
Toyota might be able to cope with the tariff pain if it endures, but Japan Inc., overall, will lose.
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