Toyota Motor Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 2 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Thank you very much for coming. We now like to start this 2024, the financial results debriefing meeting. And I'm Ijei and I would like to serve as the MC for today's session. I really appreciate you for coming.

Operator

The first, I would like to introduce Masahi Yamamoto to the of this that the Chief Head of the Accounting Division to report on you the financial results of the FY 2024 Second Quarter. We would like to express our heartfelt appreciation to our customers around the world who chose us as well as our shareholders, dealers and suppliers who support us. First, Let me provide a summary of the Q2 of the fiscal year ending March 2024. Operating income was JPY 2,559,200,000,000. We are grateful for the support of many stakeholders including suppliers from production to logistics, sales and services.

Operator

In addition, our operating income increased compared to the same period of the previous fiscal year as a result of selling each car with care and advises that match the product appeal, we have refined on making ever better cars. As for the full year forecast, we have revised the forecast upward from the previous forecast to JPY 4,500,000,000,000 in light of the impact with exchange rate fluctuation as well as our efforts to improve profitability. The interim dividend will be JPY 30 per share, a year on year increase of JPY 5,000,000,000 and we plan to proceed with JPY 100,000,000,000 as the maximum As for the share repurchases, we intend to continuously evolve our cycle of growth together with stakeholders aiming to realize the mobility society through the business foundation we have built up and through frontline efforts that maximize the effectiveness of such. First, let me explain our financial results for the first half ended September 2023, covering 6 months from April to September. Consolidated vehicle sales for the period was at 4,744,000 units, which was 114.1 percent of the consolidated vehicle sales for the same period over the previous fiscal year, Toyota and Lexus brand vehicle sales was up 5,172,000 units, which was 109.91 percent of such sales for the same period of the previous fiscal year.

Operator

The sales volume increased in all regions also. We increased the sale of electrified vehicles, mainly HEVs, with electrified vehicles constituting 35.3% of sales. Consolidated financial results were sales revenue of JPY 21,981,600,000,000, operating income JPY 2,005, the JPY 59,200,000,000, income before income taxes of JPY 3,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000, JPY589,400,000,000. I would like to explain the factors which impacted operating income year on year. First, effects of foreign exchange rate increased operating income by JPY 260,000,000,000.

Operator

Cost reduction efforts decreased operating income JPY 110,000,000,000 due to the impact of soaring materials prices. Marketing efforts increased operating income by JPY 1290,000,000,000 due to an increase in sales volume, improvement of sales mix and price revisions mainly outside of Japan. An increase in expenses decreased increased operating income by JPY 220,000,000,000 due to an increase in labor costs and investments in areas such as digitalization. We also experienced a positive uplift of JPY 197,800,000,000, largely due to swap valuation gains and losses. As a result, including overall impact of foreign exchange rates, swap valuation gains and losses and other factors, operating income increased by JPY 960,000,000,000 year on year.

Operator

Let me explain the operating income for each region. Japan increased year on year due to strong sales. North America, Europe, Asia and other regions also increased year supported by strong sales and price revisions based on product competitiveness. In the next slide, let me explain about the business in China as well as financial services business. As for business in China, due to steady demand for HEVs, strength, we are maintaining Toyota and Lexus sales volume.

Operator

The operating income consolidated subsidiaries and our share of profit of investment accounted for using the equity method both decreased year on year due to the fluctuation in foreign exchange rates and increase in selling expenses. Regarding the financial services business, operating income, including swap valuation gains losses for the fiscal year decreased year on year, largely due to the decrease in margins.

Speaker 1

Let us now move on to the shareholder returns. The interim dividend for the current fiscal year will be 30 yen per share, an increase of 5 yen compared to the previous fiscal year. We will focus more on dividends and aim to increase dividends stably and continuously in order to reward our long term shareholders. As for share purchases during the current interim period,

Operator

we

Speaker 1

will conduct share repurchases, flexibly taking into account our share price levels and so forth with the maximum acquisition limit of 100,000,000,000 yen Now let me talk about the outlook for the 2024 fiscal year. For both consolidated vehicle Sales volume in Toyota and Lexus brand vehicle sales volume, our previous forecast remains unchanged. For the regional breakdown, while Asia will decrease, reflecting the uncertainty in markets such as China, Thailand and Vietnam, we forecast an increase in North America and other regions where a robust market is expected and in Europe where we expect a recovery in supply. Although beds will decrease reflecting the decline in the Chinese market, we expect a total electrification rate of 37.2%. Next, The full year consolidated financial forecast.

Speaker 1

We have adopted the full year foreign exchange rate assumption of JPY 141 per U. S. Dollar, JPY 152 per euro. Based on this, we forecast for the full year consolidated financial performances of revised upwards, resulting in Sales revenues of JPY 43,000,000,000,000, operating income of JPY 4,500,000,000,000, income before income taxes of JPY 5,500,000,000,000 and net income of JPY 3,950,000,000,000,000 JPY 2,000,000,000 and net income of JPY 3,950,000,000,000. I'd like to explain the factors that we believe will impact operating First, we expect the effects of foreign exchange rates will increase operating income by JPY 1,180,000,000,000.

Speaker 1

Cost reduction efforts will increase operating income by JPY 100,000,000,000 We expect marketing efforts will increase Operating income by JPY 370,000,000,000 due to an improvement in sales mix as well as price revision, especially outside of Japan. Increase in expenses will decrease operating income by 110,000,000,000 yen The factors that we

Operator

Now we would like to introduce the Executive Vice President and CFO, Mr. Yoichi Yamazaki, who will tell us about our growth strategy of the company that we aim at. Next speaker is Mr. Miyazaki. Thank you very much.

Operator

I'm Miyazaki, the CFO. Regarding our financial results, of course, Yamamoto has already explained. However, our profit structure is steadily improving. We believe that the foundation for such a similar growth has been laid. Thanks to our customers around the world who chose us as well as our shareholders, dealers and suppliers and all other stakeholders who support us.

Operator

Once again, I would like to express my deepest gratitude. We intend to further strengthen this foundation with our many stakeholders who support and sustain us from a medium to long term perspective from the past, present and into the future. Today, I would like to talk about the kind of growth we aim to achieve. First, let me talk about the characteristics of our business foundation. Our business has 3 characteristics.

Operator

First, we have a full lineup of vehicles worldwide in the balanced regional representation. 2nd, we have a global customer base of more than 100,000,000 units. And third, we offer hybrids which provide both CO2 emission reduction and profitability. These characteristics lead to the stabilization of earning power, which is less susceptible to the effects of fluctuations in economic and market environment in each country. And not the major point.

Operator

It's a careful timing of our investment decisions. Our comprehensive assessment of investment in BEVs in batteries, while considering the energy situation in infrastructure of each country, the evolution of technology and changes in actual customer demand has enabled us to achieve a strong financial foundation upon which we can promote investment for the future. This financial foundation has been made even more successful by a steady continuous improvement activities of our suppliers and those on the front lines of manufacturing and logistics as well as our dealers. On the front lines of manufacturing, we are working to improve quality and productivity by accumulating second by second improvements, reducing the burden on workers through digitalization and visualization, visualizing the skills of our skilled craftspeople. On the front line of logistics meet shortage of truck drivers and ships.

Operator

We have been making improvements by drawing on wisdom of related companies. As a result, in part distribution, we have simplified routes and increased loading capacity and in finished car logistics. We have reduced vacant space rates by jointly transporting vehicles with other companies on the front lines of sales. We are utilizing digital transformation to build a system that links production, transport and sales to provide customers with accurate delivery date information and to deliver vehicles quickly and without waste.

Speaker 1

We intend to continuously evolve Our cycle of growing together with stakeholders through the business foundation we have built based on making ever better cars initiatives and through GEMBA or frontline efforts that maximize the effectiveness, including the efforts of related parties. We will continue striving to deliver ever better cars that meet the needs of our customers in each region, develop new customers in emerging markets and further strengthen our unique and solid business foundation. We also plan to expand and strengthen our investment in the future, including in BEVs, Hydrogen, Software and Energy and increased touch points with our customers and alliance partners beyond the automotive industry with our total package. That should lead to the expansion of our business domain toward becoming a mobility company and the transformation of our corporate group's business structure. Next is investment for the future.

Speaker 1

At our technical and manufacturing or monozukuri workshops, we have shown you our technologies and skills that have been accumulated over the years. You don't just wake up to find yourself in the future. The future is made up of the steady accumulation of day to day activities of today. To leave many options open for the future, Our engineering efforts will drive investment in various advanced areas and we plan to actively solve the seas for the future by combining manufacturing techniques with digital and innovative technologies. And for key investments in mass production, we plan to determine investment timing based on the technologies and skills we have formed from a long term perspective while closely watching market trends.

Speaker 1

When it comes to shareholder returns, we aim to continue to increase dividends to reward long term shareholders. Finally, here is our capital strategy. Our transformation into a mobility company requires a muscular balance sheet, while selling strategic stocks that have Decline in significance to our holdings and conducting home and away activities within our corporate group, we have been building alliances to accelerate our transformation. By continuing to reduce our number of strategic shares, reviewing growth groups cross shareholdings and utilizing more effectively treasury stock and cash on hand. We aim to build the optimal structure as a mobility company and maintain and improve our competitiveness.

Speaker 1

In summary, to realize a cycle of growing with our stakeholders, We will continue striving to strengthen our earning power, accelerate investment for the future, utilize more effectively our accumulated assets and create a new structure as a mobility company to gain a competitive edge. Precisely because this is an age in which it is hard to predict the future. We hope to work together with your support and encouragement to create the future of mobility. To this end, we would like to use the results we have been able to generate, thanks to our many stakeholders

Operator

as

Speaker 1

a source of growth together with our customers, shareholders, suppliers, employees and local communities. If we do not act, we will not be able to carve up a future for ourselves. We hope that you will continue to look forward to what Toyota will achieve and support us in the future. Thank you very much for your attention today.

Operator

Thank you very much. Now we would like to entertain questions. So Please wait for a few minutes until we prepare for that. Thank you. Now we'd like to start the question and answer session.

Operator

So that people who will be responding to those questions, please come up to the stage. I'd like to introduce the speakers today, the Executive Vice President and Chief Financial Officer, Yoichi Miyazaki. Chief Officer and the Chief Communication Officer, Jun Nagata. Masahiro Yamamoto, Chief Officer of the Accounting Group. So please excuse us to be seated so that the speakers will be seated as well.

Operator

Now we'd like to entertain the questions So from the floor as well from online participants, so we'd like to have a separate session. The first is a question to entertain from the people in this whole, in this room. Those of you who have a question, please raise your hand and speak to the microphone. And we'd like to give chance to meet as many people as possible. So Please refrain from asking more than 2 questions.

Operator

So 2 questions per person, please. And thanks for your understanding. And the person in the middle, Ron, please. Inagaki Obasagi, thank you very much for this opportunity. So about this the outlook of this full year, the JPY 1.183,000,000 is not a good figure, but JPY 141 to the dollar, that is the currently the depreciation of yen is still ongoing.

Operator

So what about your outlook on the exchange foreign exchange rate? Do you think that it will further be adjusted upward? And the second question is related to this foreign exchange rate. Yen is weak and Fitch is actually pushing up this raw material expense. So that's a negative factor of the weak yen.

Operator

How do you perceive that negative impact? On behalf of TMC, of course, the exporting companies tend to enjoy the benefit of this weak yen. However, what is optimal level of the foreign exchange rate? How do you perceive that? Thank you very much for your question.

Operator

As to this fluctuating foreign exchange rate and what is our assumption in our company, like automatically that we just base upon the past results and then this future assumption is based upon that. So in the remaining expense, JPY 120 to the dollar is the current assumption. So that is the level of assumption. However, as to the fluctuating exchange rate, what is the impact upon our company? Yen is weak.

Operator

Yen is good or bad is not the issue. But foreign exchange rates, I think the stability is something we want to happen. That's something we appreciate, stable exchange rates. TMC, in other countries in Japan, we would like to produce the automotive industry and we'd like to continue to produce here in Japan. In the past, the trend, the yen was so high and then in the Great East, the Japan earthquake struck.

Operator

During that difficult time, rather than shifting the plans to overseas, we continue to the creative employment by building the plants and then continuing operation to continue to the local and regional communities in Japan. So we have a strong basis here in Japan. That means that when we export vehicles from Japan, of course, In the current phase of the weak yen, there's an effect and then it might push up our the income and the revenue. If you look at the overall supply chain, the yen is weak, might be positive or it could be negative in some other regions. So it just depends upon which region you are talking about.

Operator

So what we want is a more stable, the fluctuation of this exchange rate. We built this production plans and take a deep root in that community and we can quickly shift your production sites easily. That's my answer. Thank you very

Speaker 1

much. Thank you very much. Next question, please. Yes, I see your hand in the first row. Now I'd like to ask you about the Chinese market.

Speaker 1

For the second half of the year, what is your outlook for the market? In the first half, the production level was rather low and the sales level was maintained from the previous year as I understand. But after the second half of the year and onwards, what will be the competitive landscape and what would be your sales projections. And the related question to that would be about your BEM's sales forecast 200,000 vehicles was the original plan. Now you've reduced that amount in your new forecast.

Speaker 1

Is it because the demand for bevs has declined Or is it because of Toyota's product plans, something specific to Toyota itself rather than the market? These two questions related to the Chinese market. That's the first part of my question. The second is that hybrid including PHEV are growing in your business. Earlier, Toyota's hybrid has garnered the same profitability as ICE vehicles.

Speaker 1

Now in terms of the plug in hybrid vehicles, is the profitability on par with the ICE vehicles set the profitability of PHEVs is the second question of mine. Thank you. Thank you very much for your questions. In terms of the Chinese market, I would like to respond. First of all, as for the market itself, BEVs market is growing, centering around domestic OEMs.

Speaker 1

And Ikeda san has mentioned, we are maintaining our share of the market and remain stable. As Yamamoto mentioned earlier, the very strong intensive discount competition has begun, especially in the area of BEVs. Under such circumstances, local OEMs in China as well as incumbent OEMs are competing very fiercely in terms of prices. Therefore, the discount rates had started. We plan to maintain our share of the market and currently we are maintaining it and going forward that would remain our assumption going forward in our business in China.

Speaker 1

Our BVs as has been mentioned is the area we have downgraded our forecast, but then our hybrid vehicles are expected to increase. So the total number of vehicles that we can sell in the market will remain and that is one of the ways of avoiding the price competition. So, VV units are declining. Why? Well, because of the fears, price competition is one factor.

Speaker 1

Actually, in the eyes of the customers, they have more choices and options, BG4X and other Toyota vehicles still have room for improvement and that's the message we are receiving from the market. We are talking about cars. We improve our models periodically. And therefore, going forward, we will continue to do so responding to what the market tells us. As for the second point, I'd like to ask Yamamoto san to respond.

Speaker 1

Thank you very much for your about the profitability of plug in hybrid, which is on par with hybrid vehicles. Thank you.

Operator

Thank you very much. Next is the person wearing a white jacket around the middle row, please? Thank you. Nagai of this at EV Tokyo. I have 2 parts Questions first about this strategy and policy based shareholding.

Operator

Mr. Miyazaki mentioned that you would like to reduce the cross holding and you would like to really revise that with even within the group companies. But you refer to that now at this time, What is the timescale that you would like to further revise or reduce the holding of the cross holding of those policy related shares? The second is idea on this pay rise. Different companies during the latter part of the half of this year, they would like to raise this the labor cost and then they will have additional spending for that.

Operator

But what is the policy? And what is this cost related to the labor cost of some of these suppliers and others. What do you think of that? Well, as to the policy and strategy related course holding of share, During this the previous quarter, the announcement of this financial results already mentioned our philosophy and concept on that. And you really urge that we should be more clear about that of the shareholding.

Operator

After the end of the Q1, the announcement that we gave you our idea. And this time, again, including even the group across shareholding that we touched upon this policy on this shareholding. And the graph I showed you also showed. In the past, we have done some of the measures and implemented measures. Our thought is unchanged, same idea.

Operator

The when there's no longer any significance of cross holding the share and so on, we revise it. We might make that money and then will be the financial resources for investing in the other new areas. We will switch the asset mix and then we find the new partners, we will invest in new areas. That is why we like to revise this is a cross holding of shares. As to this group shareholding, we apply the same cost.

Operator

Optimal business within the group, we'd like to achieve that optimum business and information structure should be revised accordingly. And together with other companies, we are implementing this home and away concept. And when our lineup is changing, we would like to really promote that kind of concept in the future as answer the question about the timing when we will implement that. Well, the need arises, we immediately implement that needed action. That's our thought.

Operator

Therefore, it's not something for the sake of this particular goal that we have the basic concept When the need arises quickly, we'll implement our action. That's what we'd like to do. As to the second question, Nagata will respond. Thank you very much. As to this thought on the salary hike or pay rate, as Miyazaki also touched upon that at the beginning.

Operator

For the sake of stakeholders, we've been building across together with other stakeholders. Our message is constant. We like to create the future together. Automobile is something that we work together and build together. So the first question is our concept on the pay rates within TMC.

Operator

Of course, naturally, that our employees and we are the partners. And so that for this the term to the next fiscal term, the inflation is taking place and other factors pushing up the living costs. So they have worked so hard and then we of course appreciate their hard work. So taking all those factors into account, we like to really have a good talk with employees. Once a year, we have a spring level, but that's not all.

Operator

Every month, we have a dialogue with the labor union members to try to improve the situation and then another improvement and one after another we improve. So taking that into account, the pay raise level will be considered to the next year. As to the second question, about how do we respond to that with regard to the on to that with regard to the suppliers, employees, because the raw materials and all these things, the costs increased Due to the weak yen, I think this the procurement became so expensive, especially raw materials and electricity supply as the pay raise related areas. Since last year, we have taken that into account and then we paid this accordingly to the suppliers. And we will maintain that stands that the policy this fiscal term, so that to the people around our stakeholders and suppliers, we will pay them accordingly.

Operator

And then how should we push that up for the Tier 2 and other suppliers. So eventually, our message will be conveyed to all the suppliers, including Tier 1 to the rest. Thank you, Iosunan. I have added about this question. Just additional one comment.

Operator

In my presentation, we talked about shortage of truck drivers and logistics and transportation is the issue. And so in that sense, of course, for the logistics costs, I think this is area we want the improvement and we will extend our cooperation. As to the transportation costs, we are negotiating with this logistics company to raise the fee for them, So that the effect should be the increased reward for the truck drivers as well. So that's something we are talking with this logistics and transportation company. So we hope that we will really pay accordingly.

Operator

Thank you.

Speaker 1

Thank you very much. Next 4th row alongside the aisle, please. EV exports from China is something that I'd like to ask about. In addition to that, would that have impact to Southeastern Toyota Businesses, what is the immediate situation and your outlook going forward? And also, higher interest rate will not have any impact to your procurement as well as sales.

Speaker 1

Once again, the immediate situation and the outlook, I'd like to ask, do you have any responses to those developments? Thank you very much. I would like to respond to the first question of yours.

Operator

The bad exports from China

Speaker 1

was a question. From China was the question and how that would impact our operations in Southeast Asia. Now, net exports from China is increasing, and we have confirmed that Thailand and other countries has seen batteries becoming a certain industry segment. For the future outlook, most probably Chinese BEVs and other OEMs will continue to strengthen their exports or expand their operations overseas. That's something we have to expect.

Speaker 1

What do we do about it? Well, I'm sure you all know it's not that we don't have the battery EV lineups. The question is when we introduced them and launched them as products. I cannot be too specific, but from Japan to Southeast Asia and the Chinese exports have different levels of tariffs in different countries. So at what timing we consider local production or which timing we start exporting from Japan to Southeast Asia, our BEVs.

Speaker 1

We really have to be watchful of the market situations as well as the competitive landscape going forward. Thank you for your question. In terms of the higher interest rates, especially in the area of Sales and Financing Services, I believe. You're very right, especially in the United States. Interest rates are being raised.

Speaker 1

And in terms of procurement, the margin of profit is declining. But the financing business of ours is not really losing steam. It's still stable because of the residual value that is the cost or the value of the used car remains very strong. Overall, the used cars have maintained a higher price point. So what we hear from the market is the power of the products, which maintains residual value of the used cars contributing to profitability.

Speaker 1

So that's the value of coming up with powerful products and that certainly has positive impact to the profitability? Thank you for your question.

Operator

And you speak. My name is Hirooka. And then will there be any change to investment practice because the first is that in this financial results, cash seems to be accumulated a lot in your company. 6 months ago, at the press conference, you said that the share price was a bit down, so that you mentioned about the shareholders. But as of now, but your share prices went up to a high level.

Operator

But of course, it's not something you would determine by your company, I'm aware. But the share price is high. So shareholders are really expecting the further growth in your company. And then so the more investment means more return and the shareholder price is so high. So maybe capital cost funding cost is going down for your company, I recognize.

Operator

So you have that abundant cash and it might be spent as a dividend payout to the shareholders. But maybe stakeholders really expect that their companies to grow further. Maybe you can invest that into R and D that is for the sake of the future. Is it likely you invest more for R and D and other future projects? Thank you for your question.

Operator

In this interim announcement figure, well, our the feeling and on that is that something I'd like to touch upon. Because In our presentation, I have also tried to convey you this message. But in this announcement of the financial results, because the people who project 3rd model and then lock them. We should really appreciate users so that the number really refers that we should really express the gratitude. There are lots of customers who are waiting for our vehicle.

Operator

As soon as possible, we will deliver the vehicle. Therefore, the suppliers and then manufacturing plants and logistics company people and others are working hard to deliver it as soon as possible, dealers as well. So I like to take this opportunity to thank all the stakeholders because of hard work. We finally achieved this good number this time. As a result, an inflation in each the offices and the frontline fields, These partners were supported by the local community residents and other stakeholders.

Operator

So it's all thanks to all these people who contributed to these numbers. So I can really think of the better words. But anyway, these earning the profits are not to be used for our own sake, but rather we like to spend it to transform the Japanese Automotive Industry. How can we create and explore the new mobility business here in Japan and so on? So that's where we'd like to make further investment so that we can return this to the society at large.

Operator

So one company alone cannot change the future of the automobile. Multiple companies and we should form a partnership and we like to actively invest in new areas So that how can we change, transform the future of the automobile? That's something we like to explore. And the result of this effort, we like to further strengthen our earning power, as I said. Again, I would like to return that benefit back to the stakeholders.

Operator

And with their support, we like to go up this next step. So we like to steadily turn this good cycle. That's something we like to do. That is a basis, our foundation. And then we decide on where to invest further.

Operator

We have to really solve different plants and what kind of seeds are needed is not yet clear. We will plant the seeds, sow the seeds in many places, explore different possibilities. And then we might create a new species of plants and so forth. That's something we like to try. Thank you.

Operator

Another question is that that's the domestic production. Foreign exchange rates are likely to really change, fluctuate much. But 10 years ago, so yen used to be strong. So the domestic employment and suppliers had to be protected. And then as a mother plant, in the short term, it's not really situation, but you still endured through that difficulty.

Operator

But now the foreign exchange rate has changed. So purely, you have a high quality and producing here in Japan makes The most competitive situation for you to continue to pursue in Japan is the most competitive. What do you think of that competitive edge of the domestic production? Thank you for your question. As to the competitive edge, before that, talking about competition, because 3,000,000 units of the domestic production level has been maintained for a long time because TMC even when we had the Loom production company, because we were the company born in Japan, we've been a Japanese company.

Operator

And we were in the Japanese society and to the nation of Japan, how can we continue to make contribution to the people of Japan, that is our important mission several about 1000 years ago. The great the earthquake occurred in Tohoku and then Yen was so strong. There were 6 hardships we suffered and then lots of plants moved to overseas. So after that aftermath of that earthquake, we created the East Japan Toyota Motors, and we wanted to contribute to this local community with by automobile production. So we did something, reverse the trend compared to other parties.

Operator

But now, East Japan, in Tohoku, we believe that we have made contribution to the HOKO region and we still do. And we would like to maintain the policy to remain units to be continued to be produced here in Japan. In terms of numbers, Of course, the drama is also relevant to here. But anyway, as you're aware that in Japan, the JPY 15,000,000,000,000 in income for Japan, thanks to this export automobile, so basically energy costs are going up here in Japan as well due to inflation. But still, it's a kind of difficult situation.

Operator

But 2 or 3 years ago, the JPY 15,000,000,000 was spent to really procure the energy in Japan imported. So in order for Japan to economically feasible, I think you have to continue to earn foreign currency. So Toyota should really support that kind of system as a company and the number should really approve that. So as we had mentioned that what about the future? We should never debate from this policy.

Operator

We'd like to keep this stronghold here in Japan and continue to make contribution to the local community and regional communities here in Japan.

Speaker 1

Thank you. Next question, please. This person in the 2nd row from the front, please. Thank you. I am Katsumata from Chubuke Sai Xingbun.

Speaker 1

I have one question for you. As for April to September repricing efforts, Over the past recent years, it seems it has had major impact. So would you be more concrete in telling us what you have done? And as Nagata san mentioned earlier, rewarding your suppliers is something that you have done. Based on that, Cost reduction efforts together with the suppliers is another area of interest that I would like you to elaborate on.

Speaker 1

Thank you. Thank you for your question. Improvement efforts at Gemba can take multiple forms. As you've seen in Miyazaki san's slide, I listened directly to people in Genba, and I'm feeling the advancement of digitalization. I'm referring to a specific slide here.

Speaker 1

In terms of machined parts, the visual inspection of the surface finds 1 out of 10,000 some defective parts. And people in the Genba have a very intense job because they should not overlook such defects. But then you introduced AI camera. It can really be effective. On the right, you see sealers being applied, sealers that you're paying to reduce water leaks, it really takes skills.

Speaker 1

And then there are seasoned craftsman for so good at it. Except, VR algorithms can read in what seasoned craftsman would do and newcomers can mimic what the seasoned craftsman would do and that results in reduction in training hours and such specific techniques can be handed down to the next generations. But 3 years ago, together with our labor union, we decided to catch up with others in implementing such digital technologies. And certainly production area, our engineers and technicians are really eager to learn all I am pleased. Over the past couple of years during the pandemic, we have seen such results with very strong workload in Genba, use of technologies as such certainly has proven quite effective.

Speaker 1

This is something Toyota does. This is something that we do together with our suppliers. Now what was your second question? Would you repeat your question? No, it's okay.

Speaker 1

You have addressed my question. Well, in terms of our suppliers, I've given you several examples. We have direct touch with Tier 1, Tier 2 suppliers of ours. So we have direct touch points with them. And that probably is a physical limit of our reach.

Speaker 1

Then if improvement efforts should cascade it down to further down in the pyramid, then JAMA and part suppliers associations together should work together in implementing such improvement efforts. Nagata san is working on that. Nagata san, do you have anything to add? Thank you. This is also an activity of JAMA.

Speaker 1

As Miyazaki san mentioned, JAMA's supply chain committee is the forum that we work together, especially in a deeper down in our supply what they should do is something that JAMA can communicate very well and parts suppliers association as well in terms of the creative ideas of what can be implemented. And of course, sometimes we can visit the gemba of those lower tier suppliers and that's the effort made by the entire those with JAMA and I think that's extremely important right now. Now in the future, as has been mentioned, electrification and transition to bevs, how should we go about that? As you go down, our supply chain, especially the smaller suppliers, they are at loss what to do. And especially in the area of Carbon neutrality, there are a lot of what to do.

Speaker 1

So not only our direct suppliers, But JAMA and part suppliers associations networks should be leveraged so that we can work from both directions.

Operator

Now we like to shift to the online participants to entertain their questions. Online participants, when you have a question, please push the button to raise your hand and we call out your name. And then please turn on your microphone and camera before you speak. Online participants, no one has raised the question. So I'd like to return to the people on the floor in this hall to entertain questions directly from them.

Operator

The person on the 3rd row from the I'm Hayakawa from NHK. So For this financial results, you presented the operating income and then the profit that you have achieved a record high. And as EVP Miyazaki mentioned, the express is gratitude. However, how do you perceive over this 6 months the financial results? But Of course, the raw materials and other prices are going up.

Operator

So for the future, the outlook, you have upwardly revised the future outlook. However, what are some of the concerns and some of the factors you are considering carefully? Thank you very much for your question. Earlier, I have made some summary statement in my remarks, but the actual numbers we have thing we are saying, of course, each field and each the position people work so hard to come to this good result in the last for 6 months. And now as to the full year outlook we have presented, of course, we have the resolved that we will continue to do this good work by working hard.

Operator

However, the efforts are really observed in this marketing sales. This number is so good. So what is the backdrop for this good marketing? We have introduced the company system to build ever better car. The appealing the products lineup have been prepared are ready.

Operator

That is a major important basis. The second factor is that many changes are occurring. However, Every day in the daily operation, the accuracy is going up and then we have to make a quick decision. But local specification has been tailored made for each area and then the fact in the field and frontline has been considered to make a quick decision. And those results have been reflected in this good result.

Operator

More than ever, to build ever better car and in the local community that the local the Genba based decision is made quickly. In others, all these people involved in this production and logistics and so on, This the united efforts of these people were reflecting this good number. So anyway, cannot be done overnight. It's been the result of all these accumulated hard work and daily improvement and the united efforts, all that results are reflected in this good result that we are announcing today. So we are faced with a good situation now, and we like to continue this good practice from now on.

Operator

We have just completed half of this full year, the business, and we can never feel So easy because we still have lots of risks that we have to be prepared as some pointed out. And the full year, the production is JPY 10,500,000. So we haven't changed that production outlook. But from my standpoint, we might have had a kind of a positive outlook. However, as you pointed out, there are lots of concern.

Operator

This market behavior is changing in China or in China. The real estate situation is uncertain, impacting the Southeast Asia and Thailand. And in those like Vietnam and Thailand, the market itself is going through some changes. We can never feel too optimistic. We really have to be careful.

Operator

But still, anyway, that the uncertainty in front of us and that uncertainty is getting more serious. So we should really have the spread antenna to have a good communication with the local CEOs and others to supply these are good cars which will please the customer there and then really adjust the cars according to the customer needs in each region. That's what we like to be prepared. Thank you very much.

Speaker 1

Next question, please. Yes, person in the front row, please. I am Kato from Mainichi Daily.

Operator

I

Speaker 1

have two questions. Now Miyazaki san, you talked about the contribution to the future mobility industry, the future automotive industry And yesterday, you made an announcement about additional investment in the United States in production. So hydrogen, battery, carbon neutrality areas will become the focus of your future investment. And the second question is, earlier you experienced some accident at your supplier's factory, which caused some halting of your production line. Has it had any impact in your production plans going forward?

Speaker 1

Thank you for your questions. Now the investment for the future, of course, carbon neutrality is a major focus area. And going forward, battery EVs as well as hydrogen will become important areas as well because they will lead to new business domains. There are multiple options for investments. During the technical workshops and monozukuri manufacturing workshops, you have witnessed all those endeavors that we are making.

Speaker 1

Investment certainly is made into the areas where we have a basis of technologies and engineering and capabilities and technical workshops have demonstrated that we do have such a foundation and in monozukuri workshops, you have witnessed our engineering prowess, which would enable further investment in such areas. Now the question I'm sure would be what about ROI and profitability. How can we connect those different pieces of technologies and engineering prowess

Operator

and

Speaker 1

how to make allocate our investment going forward is something that we will still have to determine going forward. Thank you very much. You asked about the accident at Choo O Spring Company. Now actually, because of the data deficiencies, we have experienced halting of our assembly lines at the Chuo Spring Company. They have resumed production.

Speaker 1

So bringing them up to speed certainly would be the current focus. As of now, we haven't changed our production plans. So before the end of the year, we will make some recoveries. So that's something that we do to respond to that particular But what we have to do is because frequent incidents like this or accidents like this but only inconvenience our customers. So how to manage aging manufacturing equipment and facilities is something that we really have to go through together with our suppliers.

Speaker 1

And we've already begun our endeavors, so that going forward, we will not cause any inconvenience to the future customer of ours. We will continue steadily for the improvement. Thank you very much.

Operator

So we'd like to just entertain 2 more questions because time is getting short. Thank you for this opportunity. In the U. S. A, about the American market, That's my question.

Operator

3 months ago, when you announced the Q1, the results that there are some risk factors and then you mentioned about the risk. But what is outlook of the U. S. Market from now on? The second question is that UAW strike has finally been settled.

Operator

So what will be the impact and the reporting effect due to the that strike in the USA? Because the U. S. Automakers, their burden was is going up. And some people say that it will be advantageous for the Japanese companies, but maybe cost will go up because of the overall impact.

Operator

So what do you think of that settled labor union strike in the U. S. As to the outlook for the U. S. Market, let me respond to that part of the question.

Operator

First, the economic numbers themselves, I think might present and make us feel a bit cautious. But from actual operator in the U. S. Market, that is not yet being filled directly in the market because inventory level, stock level might have been improved slightly, but there's a shortage of products and the most inventory level, that's the U. S.

Operator

Market situation and the market demand is strong. So that's analysis as of now. However, if we're looking at the other OEMs, maybe it's not the case for everyone. Differentiation amongst different OEMs in the U. S.

Operator

So what we actually feel, There's a strong market tendency right now. That is because of a good powerful lineup and appeal of our products. And because of that, the good line of products, we are in a good position. As to the overall market condition, we have to be cautious and we need to monitor closely. As to the U.

Operator

S. Market itself is in that kind of condition right now. But what about the global situation. The U. S.

Operator

Or the European markets are strong markets. On the other hand, as I said, China, the economic situation is getting a bit stagnant and then the market is changing in some of the emerging countries as well. So when you look at the overall global situation, we have a well balanced portfolio around the world. Where we should do what kind of operation should be really scrutinized by us. As to your second question, Nagata will respond to your second question.

Operator

Thank you, Mr. Miyamoto, for your question. After the UAW strike, of course, would that have any impact on Toyota and other companies other than Detroit, too, well, we aren't so sure about the possible impact on us. However, we feel after the strike that basically in U. S.

Operator

Operations like TMNA basically should have the dialogue with the employees like Toyota's the intercompany labor union, and we should have a good dialogue with the employees, their hard work and company competence should be discussed between the management and the level union members. What about the pay raise? What is a good optimal to our pay raise in order to improve the productivity and the competitive base. So we have a good dialogue with employees. The local entity announced yesterday for the North American company, they have the regular pay rights.

Operator

And then they announced the result of the settlement. As I said, the employees made a great contribution in comparison to the other companies' pay level. That's how we decided to revise and increase our pay level. So we like to enhance our competitive edge and it should be a good cycle. And in the North America, the company should really upgrade itself toward the better future.

Operator

We really like to create a good cycle toward a better future. As Miyazaki said that he intends to make an investment in many new areas. That's what we'd like to do. And that's the belief of Toyota for the future. Thank you.

Speaker 1

Thank you very much. Let us entertain the last question for today. I am Yamamoto Shinya, a freelance journalist. Now your numbers overwhelming. Well, Chairman, Akio, has saw the seas for the over past 14 years and those numbers indicate the results of that.

Speaker 1

I'm sure the new management executive group will do something that is unique to them. What sort of cease do you think they will saw? And also what would be the weaknesses that Toyota has to continue watching for? Well, thank you for your questions. It's a very tough question as a matter of fact.

Speaker 1

So in the seas, when it comes to this new executive group, As you've seen at the Tokyo Mobility Show, there are new areas that we are working on right now. When you saw seas, you cannot expect it to burden immediately. And you don't know whether the seeds were sown by yourself or someone who before you. But anyway, it's an all out effort of the entire company under the new executive team, nurturing new ideas, we would like to explore new possible business domains. And as we do so daily, several years later, we will look back at what we did and what we discussed and find that we have done several years ago has been a very good decision and have flourished.

Speaker 1

So what are the weaknesses of Toyota, as you asked? As I mentioned earlier, If we become complacent and lose focus in what we do, that will turn out to be a major weakness. So what is our cause? Why do we work each and every day? And why do we make strides forward?

Speaker 1

Those are the things that we would like to continue talking with our employees to make sure that we are aligned. We would like to raise the level of the entire automotive industry of this country and we will do our very best in contributing to that end. And for that purpose, I thank you in advance for your understanding and your cooperation.

Operator

Thank you very much. So this concludes all the question and answer session. So we would like to ask these speakers to stand up. So the speakers will now step down from the stage. Thank you.

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Key Takeaways

  • In the first half (April–September 2023), Toyota delivered 4.74 million vehicles worldwide (114.1% YoY), with 35.3% electrified mix, driving consolidated revenue of ¥21.98 trillion and operating income of ¥2.01 trillion, up ¥960 billion year-on-year.
  • Q2 operating income reached ¥2.56 trillion, boosted by ¥260 billion FX gains, ¥110 billion in cost reductions, and ¥1.29 trillion from sales-mix and price improvements, partly offset by ¥220 billion higher expenses.
  • Full-year guidance was raised to ¥4.5 trillion operating income (with sales revenue of ¥43 trillion), assuming ¥141/US$ and ¥152/€ FX rates; vehicle sales volume forecasts remain unchanged while electrification is pegged at 37.2%.
  • Shareholder returns include an interim dividend of ¥30 per share (up ¥5) and authorization of up to ¥100 billion in share buybacks, reflecting strong cash generation and capital strategy.
  • Toyota reiterated its “ever-better cars” foundation, emphasizing Gemba-driven quality and productivity gains, digital/logistics improvements, and targeted investments in BEVs, hydrogen, software and energy while optimizing strategic shareholdings.
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Earnings Conference Call
Toyota Motor Q2 2024
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