Yamaha feels Shanghai lockdown heat

Yamaha Motor Company has acknowledged that the China lockdown imposed in Shanghai has “impacted the electronic components used in our electrically power-assisted bicycles and motorcycles”. 

The company is now “starting to see ways” to resolve the issue with some parts and expects the effects to be minimised from the second quarter onward. These comments were made by its leadership team in Japan as part of an analyst briefing following the first quarter (Jan-March) results for calendar 2022.

“For semiconductor components, there is no change to our plan to recover from the second quarter onwards, but the shipping and delivery situation varies for each component, and in working through allocation, we have not yet seen any major improvements,” continued the YMC top brass. 

As the company shifts to products that are easy to manufacture, it is also moving to modify “our products to use semiconductors meant for general consumers”. There is no specific mention of India in this response but given that the focus in this market is largely on premium two-wheelers, the Shanghai lockdown will pose its own set of challenges as is the case with other manufacturers and suppliers in the subcontinent.

According to YMC, the “robust demand” for its outboard motors continues, but “while we are now able to ship product out”, logistics issues have resulted in units becoming stuck in transit. “We would be just about on schedule with motorcycles if there were no shortage of semiconductors and other parts. We saw the insufficient supply of semiconductors affect the model mix,” said the leadership team at the Q&A session.

All in all, sales grew but profits fell in the first quarter compared to last year, but were largely in line with forecasts. Demand in each business continues to be strong. Negative factors include soaring raw material costs, reduced production due to semiconductor shortages, spiking logistics costs due to shortages of ships and shipping containers, and product warranty-related expenses. 

Positive factors, continued the YMC top brass, include strong sales in Indonesia, Latin America, and China for the motorcycle business, and positive foreign exchange effects. In addition, each sales base continued to conduct breakeven-point management and to pass on costs via price increases “to help us cover for the negatives”. 

From the second quarter onward, YMC expects fluctuating unit volumes, spiralling material costs, an increase in ocean freight rates, and—while minor—the direct sales impact from Russian and Ukrainian conflict to “negatively impact figures in relation to our forecast”. 

The positive news, though, is that the company expects to be able to achieve its 190 billion yen target by passing on prices, undergoing cost-cutting measures through breakeven point management, and benefiting from advantageous exchange rates. Outboard motors will be key and products stuck in transit should reach the US in the second and third quarters.

“Seasonality in the US begins to cool beyond July and August, so we are moving forward to deliver products before that. We aim to flip things back toward profit growth from the latter half of the second quarter to the first half of the third quarter,” said YMC. 

The effects of price revisions are still limited in the first quarter and it expects to begin seeing results from the high season second quarter onward as volumes build up. The impact of the Ukraine conflict on raw material prices were not apparent in the first quarter but the Japanese automaker is now expecting to see impacts from higher prices for iron, steel, plastics, and other materials in the future.

As for the backlog on logistics, YMC has stated it will absorb the effects of cost increases by “diligently incorporating their impacts” on the business and pass on those costs through price increases on an ongoing basis. As this situation is likely to be a prolonged one, it will implement measures to minimise the impact and “avoid overlooking points of improvement” as much as possible. 

“We are considering alternatives for each region, including possibly utilising non-logistics operators, as we take on the challenge of shipping products at the right time while keeping expenses at a reasonable level,” YMC has stated. Once again, this is likely to be true for India too which is an important market and second in line only to Indonesia.

The company is hopeful that from the second quarter onward, its countermeasures will start to take effect leading to a rise in profitability. In the motorcycle business, the challenge is to introduce substitute semiconductors to high-value-added models and get production started.

Since the recreational vehicles business has seasonality, an early second quarter response is required. The SPV (smart power vehicle) business is being affected by the Shanghai lockdown as well as provisions for product warranties. 

“Since warranty provisions are a cost in the process, they do not constitute a significant impact. If we can deal with the parts out of stock due to the Shanghai lockdown, we can achieve our sales plan,” summed up YMC in the analyst briefing.