Toyota optimistic amid China slowdown as Lexus sales grow

TOKYO (Reuters) - Toyota Motor Corp on Tuesday said it sees room to expand in China as growing sales of its luxury brand Lexus help it buck an emerging trend of slowing demand which has hit profit at some of its global rivals.

Japan's biggest automaker also raised its full-year operating profit forecast by 4.3 percent, saying improved marketing pushed up sales in China, Europe and elsewhere, while a weaker yen will have a bigger positive impact.

Growing demand for Toyota's Lexus luxury brand has boosted China sales in the past year. Import tariff cuts from July have also supported Lexus models, which are shipped from Japan - though Toyota is considering producing them locally, Reuters reported last month.

That demand has helped the automaker weather the market's steepest sales drop in nearly seven years in September amid a broader slowdown in economic growth.

"Even if there is uncertainty in China, potentially the market will grow in the longer term," Didier Leroy, Toyota's chief competitive officer, said at briefing.

"Lexus is growing in China but if you compare it with other brands we still have a small brand ... That means that we have a lot of room to improve and Lexus has strong potential in China."

Toyota sold about 1.3 million vehicles in China in 2017 and has a market share of 5 percent, much smaller than General Motors Co and Volkswagen AG. Leroy said region-specific marketing and a diverse product offering has helped Toyota sales, which jumped 20 percent in July-September.

BRIGHTER FORECAST

Toyota now expects full-year profit of 2.4 trillion yen ($21.18 billion) - flat versus the year prior - based on the yen averaging around 110 yen to the U.S. dollar through March rather than 106 yen in its previous forecast.

The upgrade comes after a 1.9 percent rise in global sales in July-September helped operating profit rise 11 percent to mark Toyota's strongest second-quarter performance since 2015.

Higher sales in China helped lift Asia sales by 9.2 percent, while sales rose 4.8 percent in Europe. Sales in North America eased slightly, but less discounting lifted regional operating profit by 12.6 percent.

(Click here for an interactive graph on Toyota's quarterly operating profit: https://tmsnrt.rs/2RF14bW)

Toyota and domestic rivals face the possible need to increase investment in North America, as Japan's auto industry considers ways to raise localised production following an updated trade pact between the United States, Canada and Mexico.

(Click here for an interactive graph on Japanese automaker vehicle sales in the U.S., China: https://tmsnrt.rs/2RjnBuA)

The industry is also bracing for higher U.S. tariffs on Japanese imports, likely pushing up prices at Toyota which imports nearly one-third of all of the vehicles it sells in its biggest market from Japan.

(Click here for an interactive graph on Japanese automakers' annual global vehicle sales https://tmsnrt.rs/2RnFOr2)

($1 = 113.2900 yen)

(Reporting by Naomi Tajitsu; Editing by Christopher Cushing)