Subaru FY2020 profits plunged by half as automaker grapples with the pandemic, microchip shortage and other factors. - IMAGE: Flickr.com

Subaru FY2020 profits plunged by half as automaker grapples with the pandemic, microchip shortage and other factors.

IMAGE: Flickr.com

BOBIT – Subaru reported its Fiscal Year 2020 operating profits were half of original forecasts. The company cited the microchip shortage, the pandemic, foreign exchange losses and rising costs as the reasons.

Although we see continued risk from the semiconductor chip shortage, we feel there is a strong recovery in demand. We expect demand to rebound solidly, particularly in North America.

The Japanese automaker’s operating profits plummeted to $930.2 million in the fiscal year ending March 31, compared to $1.91 billion in the previous fiscal year. Net income also nosedived to $694.3 million, and revenue declined 15% to $25.68 billion over the same 12-month period. 

The United States marks the company’s largest market, generating 71% of the company’s unit sales in FY 2020. U.S. sales fell 13% to 611,600 units, while global sales tumbled 17% to 860,200 vehicles.

The hits pile up as the semiconductor supply squeeze forced Subaru to slash global production by 61,000 vehicles in the January to March quarter. “The current business environment remains unclear because of the chip shortage,” reported Subaru President Tomoni Nakamura in a recent earnings call with investors. 

Nakamura predicted better days ahead as he pointed out the company aims to sell 1 million vehicles in Fiscal Year 2021. This prediction marks nearly a 16% increase in global sales and almost double operating profit to $1.82 billion. 

Subaru points to increasing demand in the United States as the reason behind this forecast. The company saw sales in the third quarter of FY2020 best levels in the third quarter of FY2019. “Although we see continued risk from the semiconductor chip shortage, we feel there is a strong recovery in demand. We expect demand to rebound solidly, particularly in North America,” reported CFO Katsuyuki Mizuma. 

It will help that Subaru plans to enter the electric vehicle space in 2021, with a new electric sport utility vehicle developed with Toyota Motor Corp., which holds a 20% stake in the company.

Still, Nakamura has downgraded the operating profit margin goal, setting a new target of 8% versus the original goal of 9.5%.  Subaru reached an operating margin of 3.6% for the fiscal year ending March 31, down from 6.3% in FY2019.

The automaker hopes to lift its market share to 5% by strengthening its retail network and increasing penetration in sunbelt markets. Subaru’s U.S. market share hit 4.2% in 2020.

READ: Toyota, Kia, Honda and Hyundai Sales Soar After Pandemic Slip

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