Toyota Makes Profit, Expects More; Pays U.S. Fine

May was quite a month for Toyota. It paid a $16.4 million fine to settle U.S. allegations it was slow in responding to safety concerns. It reported a profit for the financial year ended in March after the previous year’s massive loss. It said net income will hit $3.35 billion in the current financial year ending in March. And it bought a stake in California battery-powered sports car upstart Tesla Motors.

According to IHS Global Insight analyst Paul Newton described Toyota’s financial performance as “spectacular” as it quickly cut costs. Steep sales declines in the U.S. and Europe were offset by growth in other markets.

In the financial year 2009-2010 ended March 31, Toyota posted net profit of $2.2 billion, compared with a net loss of lost $4.6 billion in the previous year. Toyota managed this financial turnaround despite having to recall about 10 million vehicles since late last year.

“Toyota has been implementing every possible measure to maintain sales momentum, including a hugely successful incentive campaign in the U.S. and a recently launched €20 million pan-European media campaign,” Newton said.

The Financial Times Lex column had some cautious thoughts about Toyota’s prospects in the U.S., where incentives including zero interest loans, discounted leases, two years of free maintenance – are costing Toyota dear in the current financial year.

“There is no doubt they are working: sales in March were up 41 per cent, better than GM, Ford or Hyundai. But they are destroying margins,” Lex said.

Later in May, Toyota announced its deal with Tesla, which has also attracted investment from Daimler.

Bank America Merrill Lynch liked the Tesla news.

.             “It could play a part in improving Toyota’s corporate and brand image in California and the rest of the U.S.

.             It could be effective in the medium term in terms of electric vehicle related joint development”

Toyota has been the darling of Hollywood environmentalists with its Prius hybrid, but this image has taken a bashing following its handling of the various recalls. Toyota had a market share of almost 25 per cent in California in 2009, compared with its nationwide average share of 7.5 per cent, but this slipped back more than one percentage point in the first quarter of 2010. Toyota also closed its NUMMI joint venture factory with GM, but the Tesla deal envisages production of Teslas and more electric vehicles at the plant. Merrill Lynch described the deal as “Tie-up with Tesla: atonement strategy”.