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Toyota expects a double-digit decline in profits for the second consecutive year in the wake of a stronger yen and slowing car sales in the US.

The world’s second-largest carmaker projected its net profit to fall 18 per cent to ¥1.5tn ($13bn) for the new fiscal year through March 2018, compared to analyst forecasts for a profit of ¥1.95tn. Revenue is expected to fall 0.4 per cent to ¥27.5tn with annual vehicle sales expected to remain flat at 10.25m vehicles.

The conservative guidance on Wednesday comes as Toyota grapples with rising research costs to develop self-driving technology as well as fuel-cell vehicles and electric cars. The group is also upgrading its plants worldwide as it rolls out new models over the next few years with revamped vehicle platforms and components.

In line with rival Honda, Toyota assumed an exchange rate of ¥105 against the US dollar compared to ¥108 in the previous fiscal year. That would have a negative impact of ¥135bn on its annual operating profit.

The US auto market is also declining faster than expected after peaking last year, resulting in higher incentive costs for many carmakers worldwide.

For the fiscal fourth quarter, Toyota said its net profit declined 6.6 per cent to ¥398.4bn.

Copyright The Financial Times Limited 2017. All rights reserved.
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