Toyota Motor Corporation has projected a 20% drop in its annual profit, citing the effects of U.S. trade tariffs and a weakening dollar, which have significantly impacted its North American operations.

The world’s largest automaker by volume expects its operating income to fall to 3.8 trillion yen ($25.2 billion) in the fiscal year ending March 2026, compared to 4.8 trillion yen the previous year. The downgrade comes as Toyota grapples with currency fluctuations, higher labor costs, and increased pressure from U.S. trade policies.

Losses in North America, Toyota’s most important overseas market, widened as operating income fell by 100 billion yen. The company attributed the dip to ongoing restructuring efforts at its manufacturing plant in Indiana, which are part of a broader plan to streamline production and improve long-term efficiency.

“The U.S. remains a key market, but short-term volatility is impacting profitability,” said a Toyota spokesperson. “We are committed to adapting through restructuring and localized investments.”

Like many international carmakers operating in the United States, Toyota faces mounting labor expenses and could be compelled to boost capital spending if it decides to scale up its domestic manufacturing footprint to offset tariffs.

Analysts note that while the company remains fundamentally strong, headwinds from global economic shifts and geopolitical trade tensions may force Toyota to reevaluate its investment strategies, particularly in markets exposed to policy volatility.

Despite the challenges, Toyota confirmed that it remains on track with its electric vehicle development plans and is focused on maintaining competitiveness through technological innovation and supply chain optimization.