Toyota remains world No.1 but its list of problems is growing

Toyota has retained its lead as the world’s biggest automaker by sales, beating German rival Volkswagen for the fourth consecutive year.

Despite the good news for Toyota (TM), it risks becoming bogged down in scandals over how it puts some of its cars through inspections, and continued fallout from a decades-old problem with exploding airbags.

The Japanese manufacturer said Tuesday it had sold a record 11.2 million vehicles worldwide in 2023, including its Daihatsu and Hino lineups. That represented an increase of 7.2% versus the previous year.

By comparison, Volkswagen Group announced earlier this month that it had delivered 9.2 million vehicles last year, up 12% compared to 2022.

The two have tussled for the title for years. In 2012, Toyota became the world’s top carmaker as it overtook General Motors in sales. Volkswagen later gained on the Japanese company, unseating Toyota in 2017.

In its Tuesday statement, Toyota attributed its growth to “solid demand in each region, in addition to easing semiconductor shortages.”

Sales in its home market of Japan surged 20.9%, while those overseas ticked up 4.1%.

Troubles at Toyota

But the Japanese behemoth may face an uphill battle this year as it grapples with growing concerns over the certifications of some of its vehicles.

On Monday, Toyota announced it would suspend shipments of certain models after finding irregularities in certification tests for diesel engines developed by its affiliate, Toyota Industries.

Overall, 10 models use the affected engines globally, including the Land Cruiser 300 SUV and Hiace van, according to Toyota.

The company says it will now take measures to regain trust, including running new engine certification tests in the presence of regulators as needed.

The revelations came just a month after Daihatsu, the Japanese small carmaker owned by Toyota, halted domestic production after admitting it had forged the results of safety tests for more than 30 years.

Both scandals have raised serious questions for Toyota as a whole.

“We recognize the gravity of the fact that the repeated certification irregularities at [Toyota Industries], following those at Daihatsu, have shaken the very foundations of the company as an automobile manufacturer,” Toyota said in a Monday statement.

The group has also urged people to stop driving some of its cars in the United States and get them repaired immediately. Last week, Toyota warned owners of about 50,000 vehicles — including certain Corolla and RAV4 models dating back to 2003 — that parts of airbags could explode, causing serious injury or death.

Toyota has recalled tens of millions of cars in recent years over faulty Takata airbags. In December, Toyota also recalled about 1 million cars and SUVs in the United States due to a possible defect that could cause the passenger airbag to fail to deploy in a crash.

Growing competition

Volkswagen, too, saw growth in all regions last year, especially from Europe and North America. Deliveries in the two markets surged 19.7% and 17.9%, respectively.

China, which is the company’s biggest market, grew just 1.6%, with management citing a “challenging” environment.

Competition has become fiercer in China’s auto market — the world’s biggest — as homegrown manufacturers gain share and demand slows. Last year, Tesla (TSLA) cut prices in China to attract customers and stem slowing growth, triggering a price war that drew in dozens of automakers.

The battle has driven up sales, but threatened industry-wide profitability.

BYD has become the latest example of a company to see its bottom line affected. On Monday, the Chinese electric automaker said in a stock exchange filing that its net income likely rose by up to 86.5% in 2023 compared to the previous year.

While that is a sizeable increase, it represented a slowdown compared to the whopping 446% jump in profits recorded in 2022.

The news sent BYD shares down 4.4% in Hong Kong on Tuesday.

Warren Buffett-backed BYD has generated a lot of buzz lately after it surpassed Tesla as the world’s biggest seller of electric vehicles (EVs) at the end of last year.

Legacy automakers are also racing to ramp up their sales of EVs. In 2023, Volkswagen logged a nearly 35% jump in sales of fully electric vehicles, selling 771,100 units.

That compared with 104,000 battery-powered vehicles sold by Toyota, which has long lagged behind in the global EV race. The company, which is a leader of hybrid cars, sold 3.7 million electric vehicles total in 2023 when including hybrids.

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