Toyota Motor Corporation, the world's leading automaker, has reported a significant 20% drop in its second-quarter operating profit, marking the first decline in two years. This downturn is largely attributed to challenges in key markets such as the United States and China, where the company has faced increased competition and production issues.

For the three months ending in September, Toyota's operating profit fell to 1.16 trillion yen ($7.55 billion), down from 1.44 trillion yen a year earlier. Despite this decline, the results were in line with analysts' expectations, who had forecasted a profit of around 1.2 trillion yen. The company has maintained its full-year profit forecast at 4.3 trillion yen.

Toyota's recent success has been driven by its hybrid models, which have gained popularity as a more affordable alternative to fully electric vehicles. In the July-September quarter, hybrids accounted for over 40% of Toyota's global sales, up from a third in the same period last year. However, the company has faced stiff competition from Chinese brands in the world's largest auto market, China, and a temporary production suspension of two models in the US, which have impacted its sales momentum.

In North America, Toyota's operating income was affected by a decline in sales volume and increased labor costs. Similarly, in China, the company faced higher marketing expenses as it battled intense price competition. Despite these challenges, Toyota's shares rose by 1% following the earnings announcement, although this was below the broader market's 2.2% rise.

Toyota's strategic focus on hybrids may help mitigate potential impacts from changes in US policy regarding electric vehicle subsidies. However, the company has been slower than some competitors to fully embrace electric vehicles, with battery-only cars making up just 1.5% of its global sales in the first nine months of the year.

Overall, while Toyota's profit decline highlights the challenges it faces in adapting to changing market dynamics, its continued investment in hybrid technology and strategic market positioning suggest a resilient outlook for the future.