Toyota rides out chip shortage as a learner
Print Edition
The global microchip shortage dragging on the auto industry has put barely a dent in production at Toyota, the world鈥檚 biggest automaker, thanks to lessons it learned after Japan鈥檚 2011 tsunami disaster.
While the latest crisis caused by skyrocketing demand for semiconductors has forced global carmakers to revise production plans, Toyota exceeded its sales targets this year and expects to sell even more units in the next 12 months.
Its success lies in part, experts say, in its decision to prepare extensively for disruptions after the experience of Japan鈥檚 devastating earthquake, tsunami and nuclear crisis 10 years ago.
The catastrophe left parts of Japan鈥檚 industry on its knees for months, especially vehicle makers, whose domestic supply chains were thrown into turmoil.
Toyota suffered like its rivals and took six months to return to normal production, but the firm resolved not to let the same thing happen again.
鈥淭oyota learned the lessons of the 2011 earthquake probably better than anybody,鈥 said Christopher Richter, an auto expert and managing director at the brokerage CLSA.
The Japanese giant reviewed all its suppliers, even the most indirect, giving it a better understanding of its supply chain and allowing it to react quicker in times of crisis.
Faced with a global semiconductor shortage this year, 鈥渢hey were just way better prepared than any other automaker in the world,鈥 Richter said.
A source close to another Japanese carmaker agreed.
鈥淲e all took steps like that post-Fukushima, but Toyota did it best, and kept it up,鈥 he said, referring to the nuclear plant that was crippled by the tsunami.
The global auto industry has faced serious headwinds during the pandemic, with lockdowns fuelling declining sales, and a shortage of the chips used in modern vehicles has only compounded the woes.
A surge in demand for home electronics that use semiconductors, as well as a US cold snap, a drought in Taiwan and a fire at Japan鈥檚 Renesas manufacturer have created a perfect storm throttling chip supplies.
Loyal suppliers
Toyota was a pioneer of the widely used 鈥渏ust-in-time鈥 production model 鈥 where stockpiling is kept to a minimum to reduce costs.
But as soon as it spotted the first signs of a chip shortage, the firm switched things up.
鈥淭oyota was the first automaker to adjust its supply chain management system from a purely 鈥榡ust-in-time鈥 model to a hybrid model where it stockpiles more of the critical components such as semiconductors,鈥 said Joshua Cobb, an auto analyst at Fitch Solutions.
鈥淭oyota has always been a leader in developing supply chain management systems, and other automakers tend to follow Toyota鈥檚 lead,鈥 Cobb said.
German auto giants Volkswagen, BMW and Daimler, and their US rival General Motors, have all recently announced that they will change their supply and stockpiling systems to build up more reserves.
But the Japanese firm had a head start, and another crucial advantage: most of its suppliers, including chipmakers, are Japanese companies, which will 鈥減rioritize supplying Toyota,鈥 Cobb said.
Toyota often holds shares and sometimes controlling stakes in these firms, so it has 鈥済reater control鈥 over the situation, he added.
鈥淭his differs from other automakers, specifically European and American automakers which source most of their components from Asian companies,鈥 Cobb said.
An industry source said Toyota also prioritizes good relations with suppliers, ensuring consistently solid sales and pledging not to renegotiate fees after a contract has been signed.
All these factors mean Toyota often comes out on top.
鈥淚f we receive orders from several clients at the same time, we have to prioritize the most powerful and stable,鈥 said the source.
Announcing its earnings Wednesday, Toyota could point to the fruits of its preparations, surpassing its sales target with 9.9 million vehicles sold by all its brands in the financial year to March.
It is now targeting total sales of 10.5 million units in 2021-2022.
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