Toyota warns of tough times ahead as competition heats up

Toyota used conservative currency assumptions in maintaining its profit forecast. The company is assuming an exchange rate of 117 yen per US dollar, even though it said the rate was 121 yen during the last three months.

"It is a decent result," said Kentaro Hayashi, an analyst at Tachibana Securities Co.

"There is still room to revise earnings once again later this fiscal year given the currency rate."

Toyota stock traded in Europe rose 0.6 percent to 8,166 yen as of 10:59 am in Frankfurt. The stock declined 1 percent to close at 8,121 yen in Tokyo before earnings were announced.

Toyota told workers in Japan in June that it would be "very difficult" to meet its annual sales target due to weak demand in emerging markets.

In a union newsletter, Managing Officer Yoichi Miyazaki said the company must make up for the shortfall by boosting sales in developed markets and asked for the cooperation of Japanese workers in handling the increased workload.

Toyota on Tuesday boosted its forecast for Japan production this year by 80,000 vehicles to 4.05 million. It also raised its projection for sales in the country by 35,000 vehicles to 2.14 million.

While President Akio Toyoda is ending what he described as an intentional pause by building car factories in Mexico and China before the end of the decade, it will take a few years before the new production capacity outside Japan is ready.

Toyoda, 59, imposed a temporary ban on new assembly plants in 2013 in a push to be more efficient.

The company said earlier this year it will spend about $1.4 billion to build factories in Mexico and China, adding about 300,000 vehicles of production capacity by 2019.

On Tuesday, Toyota also said it will begin production of another new assembly line in Tianjin by mid-2018.

While that expansion will allow the company to make another 100,000 vehicles per year, this will be mostly offset by ending output on an existing assembly line in China.