Toyota Motor Corporation has issued a significant warning over the financial fallout of the Iran war, estimating a $4.3 billion impact on its operations this fiscal year in what is now one of the clearest corporate signals of the conflict’s global economic ripple effects.

The world’s largest automaker said on Friday that its quarterly earnings fell by nearly 50%, while forecasting that full-year profit would drop by about a fifth in the current financial year. The company attributed the outlook to rising war-driven costs that are outweighing strong demand for hybrid vehicles.

Toyota’s accounting group officer, Takanori Azuma, explained that the majority of the 670 billion yen ($4.3 billion) hit is driven by higher material costs.

“The bulk of the 670 billion yen ($4.3 billion) hit will come from higher material costs, with the remainder from delivery delays and lower sales volumes,” Azuma told a briefing.

He further detailed how the conflict is feeding into multiple layers of operational costs across the business.

“The impact of the Iran war is being felt in everything from fuel costs, transportation expenses, and the cost of paint and other materials used at vehicle assembly plants,” Azuma said.

Despite the pressure, Toyota said demand for hybrid vehicles remains strong, with sales expected to surpass five million units for the first time this year. However, the company noted that this surge is not enough to offset the broader cost inflation triggered by the conflict.

The automaker also highlighted a unique burden compared to peers, noting its commitment to supporting suppliers affected by rising costs, which further amplifies financial strain.

Toyota’s operating profit for the three months to March 31 came in at 569.4 billion yen, down sharply from 1.1 trillion yen a year earlier, marking its weakest quarterly performance in more than three years.

Looking ahead, the company expects operating profit of 3 trillion yen for the current fiscal year, significantly below the 4.59 trillion yen median forecast from 23 analysts polled by LSEG.

Following the announcement, Toyota shares closed down around 2.2%, marking their lowest level since mid-October. (Arise News)