Toyota Motor Company (NYSE: TM) ended its fiscal year on a high note, reporting a blockbuster fourth quarter and setting records in sales and profits. Despite being behind Tesla Inc (NASDAQ: TSLA) in the electric vehicle (EV) race, Toyota's strength in hybrids proved beneficial as the EV hype subsided. The company also recently formed a partnership with Tencent Holdings Limited (OTC: TCEHY) to enhance its competitiveness.

In the January-March quarter, Toyota saw its operating profit surge by an impressive 78%. This contributed to a record-breaking full fiscal year profit of 4.94 trillion yen (approximately $31.9 billion) on revenue of 45.1 trillion yen. Global sales reached their highest point ever, exceeding 10.3 million units, driven by strong demand in both the domestic and North American and European markets. Notably, hybrid sales alone increased by 31% to 3.7 million units.

While the results are indeed remarkable, Toyota's guidance for the near future is more conservative due to the company's investments in software and growth areas such as artificial intelligence (AI) and EVs. The earnings outlook for up to March 2025 predicts a 20% decline in profit, with an operating profit of ¥4.3 trillion (approximately $28 billion), down from the ¥5.3 trillion reported for fiscal year 2024.

Toyota's new CEO, Koji Sato, highlighted the company's commitment to cementing its position in the industry and its transformation from an automaker to a mobility-focused company. Sato emphasized the need for Toyota to adapt and invest in software, acknowledging that the success of its hardware-focused business model is limited in the all-electric future of the industry. To drive this change, Toyota plans to invest ¥1.7 trillion in AI and EVs, which it considers to be growth areas.

Although Toyota still lags behind Tesla and other EV rivals, it managed to retain its title as the world's largest automaker by sales for the fourth consecutive year. This achievement should not be underestimated, especially in light of Toyota's collaboration with Tencent and its recent unveiling of two battery EVs for the Chinese market at the Beijing auto show. The collaboration with Tencent will not only enhance Toyota's competitive edge in the EV market but also equip the company to compete in the AI arms race.

Toyota's performance in the fourth quarter showcases its determination to catch up in the EV market by focusing more on software development. While the company remains aware of the challenges ahead, its strong foundation in hybrids and strategic partnerships position it well for the transition to the all-electric era.