Toyota Motor Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you very much for coming today. We will now like to start the financial results meeting for the year ending March 2023. My name is Illie from Public Relations, and I will be the MC for today's meeting. Before we announce the financial results, Koji Sato, our President, has a few words to mentioned. Mr.

Operator

Sato, please. I would like to explain the current situation regarding the Daihatsu procedural irregularities issue, which was announced on April 28. Since the announcement, we have had an independent third party review entity conduct a retest of the vehicles concerned. It has once again been confirmed that the vehicles concerned present no quality or safety issues. Based on the results of the retest and after consulting with the related authorities, we have resumed shipments of the Toyota brand vehicles to Malaysia, Mexico and Ecuador.

Operator

As for Thailand and Middle Eastern countries, We will continue to consult with the related authorities. The day before yesterday, Chairman Toyota visited Thailand to explain to our customers and stakeholders what had happened and to convey to them that the vehicles were safe and that our entire corporate group was committed to working to prevent this type of conduct from ever happening again. Daihatsu and Toyota are confirming the facts from various perspectives to prevent our recurrence. Toyota is a company in which all members always stop when a problem occurs. It pursues the root cause of problems by going and seeing the location of process where the problem exists, makes improvements and works to prevent recurrences.

Operator

We will continue to investigate the root cause, believing that it is important to change the environment in which such misconduct occurs. We will keep you informed as and when progress is made. Results.

Speaker 1

Thank you. Now we'd like to call upon with Yoichi Miyazaki, the Executive Vice President and Chief Financial Officer, to explain about the financial results. I'm Yatakiyo, the CFO. And this is the first time I take the podium in this title. I hope you bear with me.

Speaker 1

And before Chen will give you the financial results, We would like to express our heartfelt appreciation to our customers around the world who choose us as well as our shareholders, of our dealers and suppliers and all other stakeholders who support us in our daily activities. Thank you so very kindly. So let me provide a summary of the financial performance of the fiscal year ending March While we experienced production constraints due to tight semiconductor supplies, natural disasters and COVID-nineteen, etcetera, dealers and suppliers as well as production sites have all worked hard in order to deliver as many cars as possible to our customers. In spite of our actual operating income decreasing compared to the last fiscal year due to the impact of such things as soaring material prices, our results related the previous forecast due to our continuous efforts to improve our profit structure. For the forecast for the next fiscal year, we expect action volume of 10,100,000 and sales volume increase in all regions as a result of such things as improvements in semiconductor supply and the efforts of production sites.

Speaker 1

We will continue to both advance our activities towards carbon neutrality and improve our profit structure. Also without slowing down our growth investments, we will promote activities to to change the future of cars. In terms of return to shareholders, in order to reward our long term shareholders. We have a new dividend policy to increase dividends stately and continuously. We have placed more focus on dividends for our shareholder returns, and the year end dividend will be JPY 35 per share, which is an increase of JPY 7 compared to the previous fiscal year.

Speaker 1

The total dividends will be JPY 60 per share, which is an increase of JPY 8 from the previous fiscal year. As for the share repurchases under our policy to conduct flexibly taking into account our share price levels, etcetera. For our year end repurchases, we will proceed with a maximum of JPY 150,000,000,000 which is equivalent to our interim repurchases. Now then, let me explain the summary of our performances for the fiscal year ended March 2023. Consolidated vehicle sales for the period was at 8,822,000 units, which was 107 point 2% of such sales of the previous fiscal year.

Speaker 1

Toyota and Lexus brand vehicle sales was at 9,610,000 units, which was 101.0 percent of such sales in the previous fiscal year. So as for the vehicle sales by region, we saw an increase in all regions compared to the previous fiscal year. Also, the ratio of electrified vehicles became 29.6%. Consolidated financial results were sales revenue of JPY 37,000,000,000,000 JPY 154,200,000,000 operating income of JPY 2,725,000,000,000, income before income taxes of JPY 3,668,700,000,000 and net income of JPY 2,451,300,000,000. Now I'd like to explain the factors which impacted operating income year on year.

Speaker 1

First, the effects of foreign Exchange rates increased operating income by JPY 1,280,000,000,000. 2nd, cost reduction efforts decreased operating income by JPY 1,200,000,000,000. The JPY 1,545,000,000,000,000. Of JPY 90,000,000,000. The JPY 1,545,000,000,000 impact of soaring material prices includes 500,000,000,000 yen for activities aimed at strengthening the structure of the entire supply chain in addition to fluctuations in market conditions for materials.

Speaker 1

3rd, marketing efforts increased operating income by JPY 680,000,000,000. 4th, increase in expenses decreased operating income by JPY 525,000,000,000. Lastly, we also incurred a negative impact of JPY 415 point JPY 6,000,000,000 largely due to swap valuation losses and the cost to terminate our production in Russia. As a result, Excluding the overall impact of foreign exchange rates, swap valuation gains and losses and other factors, operating Income decreased by JPY 1,135,000,000,000 year. Now let me explain the operating income for each region.

Speaker 1

Japan increased by JPY 477,000,000,000 year on year due to the effects of foreign exchange rates despite the negative effect from Soaring material prices. North America decreased by JPY 457,800,000,000 year on year due to soaring material prices. Going forward, Europe also decreased by JPY 115,000,000,000 year on year due to soy material prices and the cost to terminate our production in Russia despite the positive effect from our marketing efforts. Asia increased by JPY 55,700,000,000 year on year due to the effects of foreign exchange rates and increase in sales volume. Other regions increased by JPY 36,700,000,000 year on year.

Speaker 1

In the next slide, let me explain about our business in China as well as our financial service business. As for our business in China, while the operating income of consolidated Subsidiaries decreased year on year mainly due to the impact of fluctuations in foreign exchange rates and the decrease in sales volume. Our share of Profit of investments accounted for using the equity method increased year on year, mainly due to cost reduction Regarding the Financial Services business, operating income for the fiscal year increased year on year due to the impact of fluctuations in foreign exchange rates. Next, I'd like to explain about our return to shareholders.

Operator

In order to reward our long term shareholders, we have eliminated our conventional guideline of consolidated dividend payout ratio of 30%. Instead, we have revised our policy to increase dividends stably and continuously so as to have more focus on dividends. The year end dividend for the current fiscal year will be JPY 35 per share, which is an increase of JPY 7 compared to the previous fiscal year. Together with the interim dividend of JPY 25, results. The total full year dividends for this fiscal year are JPY 60 per share, which is an increase of JPY 8 from the previous fiscal year.

Operator

Previously, we have conducted share repurchases based on factors such as investment in growth, dividend levels and cash on hand. However, we have revised our policy to conduct flexibly taking into account our share price levels, etcetera. For year end repurchases, considering the current share price level, we set aside JPY 150,000,000,000 as of maximum limit of year end repurchase, which is equivalent to our interim. Next, I will explain the forecast for the fiscal year ended March 31, 2024. First of all, I will explain the production volume forecast for the Toyota and Lexus brands.

Operator

We expect 10,100,000 units, which is 110.6% of the previous fiscal year. The reason behind the increase in production forecast for the previous fiscal year is as follows. We have been working on examination of alternatives regarding them in light of supply risks of the future as well as on promoting improvements aimed at improving operating when it's at the factories. Since March, we have been able to continue high level production while prioritizing safety and quality. At sales sites in each region, the production volumes still cannot keep up with customer demand, So we will continue to promote improvements together with our suppliers in order to further increase the production volume.

Operator

We expect consolidated vehicle sales of 9,600,000 units, which is 108.8% compared to the previous fiscal year. As the semiconductor supply and demand has improved, We expect growth in all regions. As for Toyota and Lexus brand vehicle sales, We expect 10,400,000 units, which is 108.2% compared to the previous fiscal year. We expect electrified vehicle sales of 3,843,000 units, which is 134.9% compared to the previous fiscal year, and the Electrified Vehicles ratio is expected to be 37.0%. Next, I will explain the forecast for the fiscal year ending March 31, 2024.

Operator

We have adopted the Full year foreign exchange rate assumption of JPY 125 per U. S. Dollar and JPY 135 per euro. Based on this, our forecast for full year consolidated financial performance are sales revenue of JPY 38,000,000,000,000 operating income of JPY 3,000,000,000,000, income before income taxes of JPY 3,690,000,000,000 and net income of JPY 2,580,000,000,000. Next, I would like to explain the factors that may impact operating income.

Operator

First, the effects of foreign exchange rates will decrease the operating income by JPY 875,000,000,000. Second, the cost reduction efforts are expected to increase profits by JPY 360,000,000,000, while the impact of decrease in materials cost is expected to be JPY 510,000,000,000, resulting in a total decrease of JPY 150,000,000,000. 3rd, the effects of marketing activities will increase the operating income by JPY 1,285,000,000,000 due to an increase in sales volume and an improvement in product mix, led by improved semiconductor supply and demand, while other expenses are expected to decrease by JPY 260,000,000,000. Compared with the pre COVID fiscal year ended March 31, 2020, we became able to offset the impact of soaring material cost through TPS, cost reductions and marketing efforts as a result of our long standing product results and region centered approach. We have also established a foundation for steadily increasing growth investments.

Operator

We live in an era where there is no right answer and the future is uncertain. So we will always keep our antennas up and carefully manage risks

Speaker 1

Thank you. We'd now like to ask our President, Koji Sato, to take the floor again. Once again, I am Koji Sato. As Miyazaki san just mentioned, despite the severe business environment, including soaring material prices, We were able to secure an operating profit of JPY 2,700,000,000,000 in the previous fiscal year. Our new management team assumed the reins on April 1.

Speaker 1

However, the financial results figures for the previous fiscal year were based on the 14 years of former President, Akio Toyoda's efforts, making me once again keenly aware that our change in management took place while Toyota was being managed at top speed. As such, our new management team will be able to focus on strategic initiatives in growth areas based on this current foundation. When Chairman Toyoda took office as President, he said growth is about being able to continuously change ourselves in response to ever changing needs of customers and society. And I believe that his 14 years as President embodied exactly that. Now that he is Chairman, he is in a position to support our new management team, and we will implement a new form of team management with the Chairman and President working simultaneously and according to an optimal division of rules at any given time.

Speaker 1

Our team will take advantage of this environment to promote speedy management. With that in mind, I would like to once again talk about our future management. I believe that the growth Toyota We should aim for going forward is growth that creates a future in which the automobile industry transforms itself into a mobility industry through enhancing its added value as it works in cooperation with many other industries. The foundation for this is carbon neutrality. Toyota aims to reduce new vehicle CO2 emissions by more than 50% globally by 2,035.

Operator

To achieve this, we will continue to provide regionally optimal solutions at an accelerated pace without wavering from our multi pathway approach. When it comes to battery electric vehicles or BEVs, which are especially rapidly progressing. We have set a pace of selling 1,500,000 units by 2026 as our base volume, and we plan to launch 10 models ranging from luxury vehicles to compacts and commercial vehicles, mainly in the United States and China. Regarding the battery supply, we will seek to speedily secure the necessary volume by increasing our in house production capacity and collaborating with our partners. Our new model scheduled for launch in 2026 will be built on 3 new platforms: the body and chassis, the electronic platform and the software platform.

Operator

They will all be renewed as we aim to achieve mobility by way of a new vehicle packaging with a rational structure that is unique to BEVs. From from now on. The new dedicated organization, BEV Factory, will lead results. And the initiatives will be accelerated. We would like to present concept for vehicles of such at the Japan Mobility Show this autumn.

Operator

At the same time, as our BEV initiatives, we will also accelerate our efforts to realize a hydrogen society. We will advance our projects in the commercial domain, especially in Europe and China, where hydrogen consumption is particularly high, centered on fuel cell electric vehicles. Furthermore, we will focus on the use of hydrogen energy for personal mobility and on the cycle of producing, transporting and using hydrogen. And we will conduct activities for the development of social infrastructure, including through social implementation in Thailand. To actively promote these initiatives, we will also increase our immediate earning power.

Operator

Percent or more by 2,030. We will strengthen our earning base by focusing on hybrid electric vehicles to capture market growth. To transform automobiles into a mobility industry. We will further increase our currently at approximately 3,000,000,000,000 yen in R and D expenditures and capital investment, while increasing the ratio of future investment to achieve sustainable growth. Thank you for your kind attention.

Speaker 1

Next, we'll have a question and answer session. So please do wait for a few seconds while we set up the stage. Thank you. Now that we'd like to start the Q and A session,

Operator

could we ask

Speaker 1

Let me introduce the members on the stage, President Koji Sato, Executive Vice President, Chief Technology Officer, Hiroki Nakajima results. Executive Vice President Chief Financial Officer, Yoichi Miyazaki. Please do take your seats on the stage. Now then we are ready to take questions. If you have any questions, please raise your hand to indicate that you'll be asking question and wait for the microphone.

Speaker 1

We'd like to give the opportunity to as many people as possible. So we would like to restrict Your questions to 2 questions each, please. So the 3rd person The person in the 3rd row from the front, please. Thank you. I am from Yomiyuri.

Speaker 1

My name is Yamauchi. I have a question to President Sato. The first question, results. How would you sum up the overall financial results? What were good points?

Speaker 1

What are the points which you highly evaluate or points that you think were

Operator

here.

Speaker 1

When you look at the breakdown of the operating profit, the external environment such as ForEx and the soaring materials prices highly affected your results. And so how about the growth in reduction of cost, etcetera, I think, which did have an impact on the results. So as President, How do you intend to evolve or increase the basic earnings power of the company? Thank

Operator

you. Thank

Speaker 1

you for that question. The first question had to do with my summing up or impression of the financial results. Well, when we look at the short term financial results, We were able to obtain an operating income of JPY 2,700,000,000,000, which I believe in terms of our earnings power that exceeds our part of last year. And I'm sure you realize at the impact of ForEx and also the soaring materials prices were actually improved through various efforts to generate operating profit, a good operating profit in the end. So manufacturing cars and delivering them to customers was a very difficult endeavor this year.

Speaker 1

However, I think The financial results indicate that in that process, there were various engineers and various devices that we were able to endure due to these difficulties and that there are many factors included in the financial results, which indicate our ability to strengthen our financial prowess. Also, the for example, the production plan fluctuation was very large, but especially the suppliers responded so flexibly to them and also the members involved in manufacturing internally and also Their efforts also are very important. And also, in order to meet the customers' needs, providing smiles to customers through engineering various production improvement, etcetera. I think all of these efforts have led to the financial results. So in the short run, Despite the difficulties, I think that there is still there was still room much room for improvement, and such improvement efforts have been launched.

Speaker 1

So I think that was what the financial results indicated. But in the long run, The economic environment has long been deflationary for many, many years. And against that backdrop, We are being involved in manufacturing centered around cars and around our products. And so when you if you look at things from a span of 10 to 20 years, then not only domestically, but against the United States. For example, inclusive of incentive payment, we were able to increase the marketing power of our products.

Speaker 1

So in the end, we will not make automobiles a commodity. We must provide a good value added, results and develop a strong business that is appreciated by customers and such efforts have been made over these many years, which culminated in such good results despite the very demanding economic conditions and by the very difficult supply constraints that we had. We were able to create a corporate structure, which could meet those adversities. So in the short term and the long term, I believe that The financial results do indicate that we have been able to reinforce the corporate fiber to our years of efforts. As for the profit structure, This, I think, overlaps with what I said in relation to the first question.

Speaker 1

Because we will manage Our operations centered around products, what we must do first and foremost is to develop good quality cars and deliver them to the from us. And for supply issues, we are seeing improvements in supply constraints. And as was mentioned earlier, So we have set some vehicle sales forecasts, which must be produced. And also, We will improve the appeal and attractiveness of our products to generate higher profitability. So these are the basics, but it's very important to return to these basics.

Speaker 1

And by so doing, the ForEx or soaring material prices, which are, results. Of course, variables, we can create a good resistivity against them. Also, on a global scale, we run a global business. We are a company that wants a global business. So stabilizing the profit structure requires not focusing on a specific geography, but to be able to create a corporate foundation that would enable us to generate profit in all regions and areas.

Speaker 1

So against various risks, we must flexibly grapple with good management in the regions, so as to establish a very stable profit structure. And I think that would be very important in creating a corporate management that is resistive to external factors. And we must also create a strong global product portfolio. And by doing so, we believe that we can strengthen our financial

Operator

Thank you very much. My name is Hiroka from Newspix. This year, the If there is no part supply constraints, I believe the production should go up. But in the case of Toyota, there you have always been focusing on producing in Japan. Mr.

Operator

Sato, what is your view on domestic production? If is it possible that you will recover the 3,000,000 mark for production? If there are more electrified vehicles, I believe the parts used will be different. So what is your communication How is your communication with suppliers? And second, how to make profits and how to make sure that Your products become commodities are important.

Operator

So you have many profitable vehicles and that is the source of competitiveness. But at the same time, BEV and other models, So your first question was about domestic production. For TMC, domestic production is the starting point in protecting manufacturing in Japan. So that positioning will not waver, and we will always consider how to protect manufacturing in Japan. So with electrification, the parts used will change and including transactions with our suppliers.

Operator

So what is my forecast, I believe, was your second question. With electrification, of course, the parts used will be different. But on the other hand, The supply chain is not just part of the business. Each party has its own strength and respect each other as partners. And with that stands, we do business with them in vehicle manufacturing.

Operator

So each The supplier has their own strengths. And if you look at each piece of technology, even if the parts change, There are some suppliers who have advantages in specific areas. So we will partner with them and communicate to them what kind of vehicles we want to produce. We will communicate that earlier than before, and we would like to create a business where we can capitalize on each other's strengths gradually. Your next question was what should we do to make sure that vehicles do not become commodities?

Operator

As you mentioned, hybrid technology is one of our strengths.

Speaker 1

And as I

Operator

mentioned in my presentation, One of the growth areas is emerging countries. In these countries, CO2 reduction is necessary and at the same time, our demand is expected to grow. So with hybrid Securing a profit base is necessary, and we will have to be close to the local community We look at the characteristics of each area or geographic area, and we provide our products that are most suitable for that region. Not only hybrids, but in all vehicles. So we need to provide vehicles that is very Toyota like.

Operator

We are trying to look at how we can provide bibs and of various vehicles that are very car manufacturer like. So it's not just the powertrain that changes. So We are going to focus on BIV as well. And the purpose of establishing the new organization of the BIV Factory is results and we want to create appealing battery cars as well. One additional point.

Operator

In domestic production, Not only volume, but you're trying to make a profit through various supply chains, right? So we're not just looking at TMC alone. We have suppliers. So with the suppliers, so we want to change the characteristics of vehicles. In the past, the hardware results accounted for the majority of the value of the vehicle.

Operator

That was in the past, but now we have software and also Post marketing update and customization is possible. So we want to make sure that the vehicles results meet the customers' demands more. It's not just the car manufacturers that should be making efforts. We have to work with many flyers and capitalize upon our advantages so that we can transform mobility.

Speaker 1

Thank you, Teraoka san. Next question? So I'm Hans from Automotive News. I'd like to ask

Speaker 2

I have 2 questions. One is about production and one is about the profit structure for EVs. About production, it seems that you are aiming for maybe a record production in the current fiscal year. Is that correct? And how do you expect to get there?

Speaker 2

Is the chip crisis then seeing an end? Do you have some kind of new approach to securing enough chips or is it naturally coming to an end? How do you get this new production to a new record level? The second question is about the BEV profit structure after 2026. You want to introduce a new platform which will have lower costs, maybe faster turnaround time and also new revenue sources through the software side.

Speaker 2

What do you imagine the profitability to be like in the second half of the 2020s compared to today, will it be higher? Often we think about EVs as being more expensive or more costly with slimmer margins, but

Speaker 1

results. Regarding the first question, I would like to answer. I think related to the first question, the Previous term, we wanted to deliver as early as possible to the customers' demand, but we were not able to fulfill the demand. So the numbers that we have cited are an accumulation of the response of the production site to the customers' needs and also the products that we want to launch going forward. So regarding that, we believe that We can probably set a base volume of 10,100,000 units as was mentioned earlier.

Speaker 1

And these are 10,100,000 units as Hans san results question earlier. How do we intend to achieve results because we were having such difficulty manufacturing last year. That's probably the point of your question. But 1 year ago, We had no idea which semiconductor chips will be in short supply at what time. So as Sato said, Suddenly, there would be a shortage of components, and we had to lose the production volume against the plan.

Speaker 1

That was the situation that continued last year. But we want to make these risk Semiconductor is visible. And once we gained visibility, then we will change the design so that we can have alternative sources and the doctors. And through these efforts over 1 year, although things are not perfect, our ability and power to manage semiconductor supply has been greatly improved. And so as the new base volume, we believe that the 10,100,000 Units is a feasible number that we can cite.

Speaker 1

What we want is the customer smiles. And for that, We want each person in the production site or in the regions to set up a good communication relationship with the customers. And As a result of our focus on product and manufacturing, we were able to cite this number of 10,100,000. So as you said, Our base volume would be record number of vehicle sales. So may I respond to the second question?

Speaker 1

Hans san, thank you for that question. After 2026, We intend to launch next generation battery Versus And as was explained at the policy meeting earlier, The key point would be how to reduce costs. I think that is one angle that's critical. In the case of battery EVs, as you know, The proportion of batteries against the total cost structure is very high. So how to develop a car or designer car that can more efficiently utilize the power of the battery.

Speaker 1

Now battery EV through the development and manufacture of But with this, we've learned a lot of things, so we want to incorporate these learnings. And at the same time, the next generation BEV must change the factories themselves. And so we are now discussing this point. So the manufacturing process itself will be totally changed. So it's not placing an engine on the body and then assembling parts on top, totally new and refreshed process, for example, reducing the total line by half or improving the production efficiency.

Speaker 1

Through these very drastic Improvements, we would like to reduce cost, the manufacturing cost. So how to reduce the increasing costs will be a key result. And I think this is adding intelligence. Adding intelligence is most important. There are some appealing attractive software using a product value add that can only be achieved with BEV.

Speaker 1

We believe it's possible to enhance the customer's experience value as a result of this. And so we just earlier released a new news on the new organization and leaders who have learned in China under new team membership will grapple with developing a new battery with EV. So we have just started this team's activities. So I do hope that you will support these activities going forward as well. Thank you.

Speaker 2

And what about the profitability level in the later half of the 2020s? Will it be comparable to what we see today or higher?

Speaker 1

Well, not only battery EVs, but we will be delivering various electrified vehicles through multi pass base. So we wanted to secure the same level of profitability as today. We've already said this earlier. There may be various difficulties, but We want to deliver even better cars to customers. And by pursuing this goal, we believe that we should be able to achieve that goal of profitability.

Speaker 1

Thank you.

Operator

Thank you very much. Now to the next question. The person in the 5th row from the front. My name is Yamane from NHK. I have two questions.

Operator

The first question is related to the number 10,100,000 production. So this number You're not pursuing volume. Is that the intent? And that is my first question. And second question is about the Chinese business.

Operator

Mr. Miyazaki said last year sales volume went down. Results. New energy vehicles are increasing and the Japanese makes are struggling in the Chinese market. So TMC, what is your stance on the current status of Chinese market, which is said to be the largest in of the world and what about your future prospects?

Operator

Thank you very much for your question. 10.1 sales volume forecast. As Mr. Miyazaki mentioned, so we need production and sales that will be able to meet the demand so that we'll be able to meet the needs of the customers. So Ultimately, we need to be selected by the customers.

Operator

And when that only when that happens, we'll be able to achieve that number. And Chinese business will be discussed by Mr. Miyazaki. On the Chinese business, looking back on the results of last year, We weren't able to secure sufficient semiconductors. And something that is specific to China was the COVID impact from the beginning of the year.

Operator

So demand went down from time to time. So Lexus exported to China from Japan went down last year. However, as you know, in China, we have local business. So if you look at Chinese business overall, last year, although we were struggling in terms of volume compared to the previous year, our share increased steadily in the Chinese market. Many people look at the BIV market alone, but in China, there is the hybrids, the PHEVs as well.

Operator

And And many of our customers are using these vehicles. And last year, our share has gone up to around 9%. So the market will continue to be very competitive. However, Vehicles that will be loved by Chinese customers and vehicles that will please the Chinese customers is something that we will continue to pursue. And as a result, we will make efforts so that as a result, our business will grow.

Operator

Let me add one point from my side. Our product competitiveness or The products or the market in China is changing very quickly. As we mentioned at the Shanghai Motor Show, In a timely manner, we need to provide vehicles that would be loved by Chinese customers. And therefore, we have development results in China, and we're trying to localize development in China so that we can develop at a place that is close to the customer and catch up with the demands of the customers in the Chinese market.

Speaker 1

Thank you, Yamanesa. I have two questions. Both have to do with battery EVs. The first question is to Executive Vice You just explained about the BB and how you view the Chinese market for BB. So could you be more specific?

Speaker 1

You went to the Shanghai Motor Show. And I think from the viewpoint of Genchi Genbutsu going to the site to see the facts. What is your impression of the Chinese market shift to electrified vehicles? And as Toyota, What do you think is you're lacking in terms of product development? What do you have to change in order to address the Chinese market?

Speaker 1

So could you be specific about this? Second question is to President Sato. The battery EV interim objective of Target of 1,500,000 yen was announced last month. And you said that you'll be injecting 3,000,000,000,000 yen in R and D So in order to achieve your goals, what specifically do you intend to do within the extent possible to disclose. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Thank you, Meta san.

Speaker 1

So going on to the first question first. As you said, when we went to the Shanghai Motor Show, frankly, I was totally amazed, especially the electrification of battery EV It was progressing very rapidly, not only that, but that's already taken for granted and that differentiation and And competition over differentiating through adding intelligence was much faster than we expected. And as I said, Chinese customers How to timely deliver on their needs, for example, infotainment, digital cockpit, cockpit development. It will take too long if we were to develop in Japan. So that's why we want to accelerate localization.

Speaker 1

Also, we wanted to gain the cooperation of the local suppliers in speeding up our endeavors. Thank you. Regarding the second question, 1,500,000 units is not a target per se, but it's a base volume, a criteria that we want to work toward. And as I said, not only Toyota, but many suppliers, many dealers will be all cooperating to make the shift toward battery EV. So we have to set the pace and show the pace to the others.

Speaker 1

So that's our viewpoint. And I guess that backdrop, as I said earlier, We must, 1st of all, create a firm lineup of products. And immediately, we already have Several models of battery EVs launched in the market, and we have received a lot of feedback from the market. And so We want to improve our marketing power and market our product development power in an agile manner. That's critical.

Speaker 1

At cruising range and the charging time necessary, there are voices requiring improvements there. So we want to speed up of the efforts to improve the marketing power of our products. Also, we want to engage in speedy Toyota like Kaizen and entice as many people as possible to want to ride Toyota BEVs. States will be the central market. So not only Toyota alone, but we want to collaborate with our partners

Operator

results

Speaker 1

to respond to with a good full lineup to respond to customers' needs and also to provide and develop products that have a Toyota like appeal and specific attractiveness to customers.

Operator

Thank you very much to Mr. Umeda. My name is Narabe from the Asahi Shimbun. I have two questions. The first question is about a soaring material costs.

Operator

Results of parts prices and supporting Suppliers is something that you are doing, including paying for utility charges. Results. Duo Tech can only directly support the primary suppliers, but you have for secondary or Tier 3 suppliers. What is the current status at these Tier 2 or 3 suppliers? At the moment, 51,000,000 The impact of soaring material prices, we understand.

Operator

So how much support ask. And my second topic is related to what Mr. Sato mentioned at the outset, which is about Daihatsu. In the automobile industry, you have the suppliers and you have the dealers. So many people are involved in the industry.

Operator

And these people working together is part of a strength of the industry. And that may have turned into pressure like not being able to change the plans. And that some people say that, that may be the root cause of this problem. Mr. Sato, you mentioned the development environment possibly being a problem, and you also You talked about creating an environment in which you can speak your mind.

Operator

And you also talked about making an environment where people can freely talk. So about you are about to identify the recalls, but what is your current stance on governance and corporate culture? Thank you very much for your question. Your first question was about soaring material costs. So with the suppliers, we've had close communication.

Operator

We talk directly with Tier 1 suppliers. And if you look at the numbers, changing the sales price and adjustment of approach. Costs is something that you can see from the numbers. And If you look at Tier 2 and Tier 3 suppliers, many people have different opinions, and we are still on our way to further improvement. But Our intent is to protect the supply chain so that we can overcome the current rough times.

Operator

So we want to continue dialogue with the suppliers and continue the initiatives that we are undertaking. And another point is about this fiscal year. Overall, the general material prices have started to stabilize and some for some of the materials, the prices have started to come down. But in particular, if you look at utility charges in Japan. Over the past year, it has continued to increase.

Operator

And this year, it still stays at a high level. So we need to continue to talk with the suppliers on that factor. So TMC in addition to TMC and suppliers, the JAMA or the automobile industry as a whole will have to tackle this together and all actually are trying to tackle this together. Your second question was about the Daihatsu issue. Let me talk about some things that I have in mind.

Operator

So with regards to this And this irregularity itself should never have happened, but it did happen, which means that there should be a root cause. So how to identify the root cause and eliminate that root cause is something that we have to tackle. Blaming this on somebody is not the solution. We are in the auto industry, and there are rules in the and we are manufacturing cars in this industry. And there shouldn't be anybody who due a misconduct intentionally, but there was, which means that there should be some environmental factors.

Operator

So the subject vehicles, they are used by customers and we have to make sure that we do not cause any inconvenience to the customers. So we need to clarify what happened. And As a first step, we need to identify that. And also, we need to explain to the relevant parties. And we have to explain we have already explained that to relevant parties and started to take initiatives to make sure that this does not happen again.

Operator

And there is something that we think is important. The cause of issues like these is not a specific person. There was a mechanism or environment that forced result. And we need to go to the Genba, results, repeat discussions and to make sure that people talk their minds to us. We need to continue dialogue, and we need to put ourselves in their shoes and think and understand why this happened.

Operator

The current situation will have to be accurately communicated to many people. We need to do away with the concerns, and we need to secure a psychological safety. As I mentioned at the outset, Chairman Toyota went to Thailand, which is a producing country and the main market of the target vehicle. So Mr. Toyoda went to Thailand and met many stakeholders face to face and talk to them.

Operator

Mr. Nagata was with Mr. Toyoda at that time. So what is the thinking of Toyota in facing this issue will be discussed by Mr. Nagata.

Operator

Thank you very much. My name is Nagata. The day before yesterday, which was Monday, with Chairman, We I went to Thailand to explain. Basically, results. Yaris A TIV is produced in Thailand and exports are made.

Operator

And Thailand is a large volume market for Yaris A TIV. So basically, we knew that The vehicle was safe. So we wanted to communicate the fact that the vehicle is safe to the customers and stakeholders. As Mr. Sato mentioned at the outset, what we thought was important was that At Tata, as a gateway factory is producing the vehicle.

Operator

And with Daihatsu, we have a development site, which is TDEM. So the TDEM members, many of them are from Daihatsu. So the people producing the vehicle and the TDEM members were all concerned and had anxiety about what was really happening. So what is happening and the fact that the vehicle is safe and as Mr. Sato mentioned, and try to identify the root cause until it is known and countermeasures are taken.

Operator

That cycle is repeated at Toyota. And Toyota is a company where people can freely speak their minds. That was to be communicated to people in Thailand. The people producing the vehicles, the TDEM developers, dealers, We wanted to communicate that this to these stakeholders. So as you mentioned, the for the group governance, we want to make sure that we have a culture where You can freely speak your mind.

Operator

And we need to use Genchi Genbutsu to identify the root cause. That is something that I learned anew at Thailand. So we will collaborate with other group companies in tackling this issue. Thank you.

Speaker 1

Thank you very much. We'd now like to receive questions from those reporters who are now online or participating online. So we would like to take this time to entertain questions online, Bloomberg's Inajima san from Bloomberg. We will switch This is Inashima from Bloomberg. I have two questions as well.

Speaker 1

One is about dividends and share purchase. Regarding dividend, you will conduct Increase dividend stably and continuously. And as for share repurchase, co debt repurchases in a flexible manner focusing on our share price levels. So how do you intend to do this for share repurchases? When you think talk about share levels, would it be one times PBR?

Speaker 1

Would that be one of the factors for a share buyback? Or do you have some other criteria internally? And when that internal threshold is falls short, then you will, for example, reduce the share repurchase volumes. Also, second is Sato President Sato talked about the mobility show and that you show a concept car of the BEV at that show. And so the next generation BEV concept cars, which you intend to launch in 2026, Yes.

Speaker 1

Regarding the dividend and share repurchase, as we explained, our major policy is to reset our approach to both, and that's what we have conveyed to you earlier. As we said earlier, up to now, In terms of dividend, we had a criteria of consolidated payout ratio of 30% as a policy. But of those shareholders. What would please our shareholders? How can we contribute more to our shareholders?

Speaker 1

We had that sort of a discussion internally, and so we decided to increase dividend stably and continuously as a new revised policy. And as a result, regarding share repurchases. Of course, this will depend on share price levels, but the major policy is, As we have been saying all along, to be flexible in our approach. And so we will make judgments on the absolute value of share repurchase flexibly. But Our major revised policy is to focus more on dividends rather than share repurchases.

Speaker 1

Anything to add? We will look at the share price levels in our share repurchases. Share price levels currently Not a satisfactory level at all for us. The PB, it's of course below in terms of PBR, and we also are not satisfied with this, and we take this very seriously. So to prove this, for example, PBR can be divided into PBR and ROE.

Speaker 1

And as so ROE as Sato san said, This mobility concept or electrification and adding intelligence and more functionality, how can we more specifically and provide this to customers of this vision. I think that we must focus on developing and delivering costs that satisfy people's expectations. As for ROE, this is rather detailed, results. Of course, we have achieved this ROE with some intention intentionally, for example, in finance or inventory. And this automobile industry, We have to defend this industry.

Speaker 1

And when we experienced various natural disasters, then we had to have on hand finance, which could sustain our business operations for the next 6 months. So that's a rule. And also, last year, semiconductors results, which means that we have to hold a certain level of inventory to do that. So the entire automotive industry has to work together and right together. And I believe that part of the ROE numbers include this intentional measure.

Speaker 1

So we are not at all satisfied with the results. So we would like to continue to make improvements against these numbers. Thank you. Let me try to respond to the second question in Hashimasawa. The next generation battery EV, would we be showing them in the 26 mobility show?

Speaker 1

The answer is yes. Rather than explaining words, we thought it was much better to have you see the concept models and give us Your feedback, so we decided to showcase it at the mobility show. As was released today, the new organization called the Bev Factory, Kato san will be the head of this. Kato san was developing battery EVs in China previously. And let me show share with you his comment.

Speaker 1

He said that he wants to change the future of cars with these next generation BVs. When he talks about the future, of course, he's talking about the future of cars, both the form both in form as well as The adding of intelligence to cars. And the second point would be factories. That is to change the future of the production factories. So we will have a wholesale change of the manufacturing process.

Speaker 1

Also, the change our change of work, The way we work must also be revised in a large manner toward the future. And as you know, within the group, we have woven by Toyota and various other venture companies, we have a lot of our connections with Toyota Ventures, etcetera. So we will continue aggressive results. So with various partners and various friends and colleagues, we within the canvas of next year's At BV, we want to consider how we can change the future vision and change the way we work. And so This is, of course, Kato san's personal views, but I do hope that you will watch see the showcase of our new concept with remodels in the fall mobility show.

Speaker 1

So please look forward to that.

Operator

We will take another question online from Wall Street Junior, Mr. River Davis.

Speaker 3

Hello. This is River Davis from The Wall Street Journal. Thank you very much for taking my question. I wanted to ask 2 follow-up questions. The first is on the China market.

Speaker 3

We heard a lot From auto executives coming back to Japan about how they felt there was a lot of competition that they realized is happening in China and that they needed to find their own unique strategy of remaining relevant. And Miyazaki san, you spoke about the strength of Hybrids in China, do you feel like this is a unique kind of weapon for Toyota in that market going forward? And my second question is on EVs and profitability. Last month, you spoke a lot about kind of how great profit margins are on hybrid vehicles at the moment. So as you're looking towards the 2026 EV target, the 2030 EV sales target, how do you prioritize maximizing profitability versus

Operator

results. This is Miyazaki speaking. I will be responding to your first question. Something that I would like to talk about. As Mr.

Operator

Nakajima mentioned, what we saw at the Motor Show was something that we were surprised with. For China. From global perspective, just like the United States, battery they are Moving quickly to battery EVs. So for China, we I want to prepare a solid battery EV strategy. Then the question is, including Chinese mix.

Operator

How are we going to compete in BEVs? First, we need to identify the needs of the Chinese customers and supply of vehicles that are very much like a car manufacturer's vehicle. So that is how we intend to prepare for the Chinese market. Of course, the preferences of the Chinese customers and America and European preferences may be different, but China has its own unique characteristics. We will study those so that we can enhance our competitiveness in the market.

Operator

We are taking a multi pathway approach. And China is a very large market, and we are going to provide various products. And one thing that we have to strengthen for the Chinese market results. This is Sato speaking, and let me add something. And as Mr.

Operator

Miyazaki mentioned, in the Chinese market, battery EVs are moving very quickly. So for the Chinese market battery EVs at TMC will make its utmost efforts. But Also, on the other hand, there is solid demand for hybrid vehicles in China. Battery EV demand is more or less new demand. So your part of your question was hybrid.

Operator

Will hybrid be at TMC's Advantage. So the demand structure is different between HVs and BEVs, and so we would like to tackle both results and try to be competitive in both.

Speaker 1

Yao from Nihong Keisai Shimbun. I have 2 questions again. First question, The various auto OEMs are shifting toward battery EVs. In the case of Toyota, you have Your strength is in hybrid cars. But going forward, what do you intend to results going forward regarding BVs.

Speaker 1

And the second question overlaps a bit with the first one. So your The balance between investment and profitability from the battery EVs. The various auto OEMs are saying That BEV Investment is becoming a burden on their profitability. And you said that You will aim for JPY 4,000,000,000,000 in BEV Investment by 2,030, and you mentioned this in 2021. So have you updated these numbers?

Speaker 1

Also, Toyota's EV business, you'll be investing first without recouping the profit. So how do you intend to secure the funds for investment? Thank you. Let me reply to the first question. 2nd one will be handled by Nias Exa.

Speaker 1

So our approach to battery EV, we have been communicating about all along that Toyota We'd like to strongly focus on battery EVs going forward. However, the renewed message from me is that Our ultimate goal is to achieve carbon neutrality and to results or to change mobility in the future. So the customers' demands are diverting becoming diverse. And so the Automotive Industry's needs are diversifying. We want to apply to those diversified needs.

Speaker 1

And we also want to respond to changes in energy needs and enhance the value of cars and change the future of cars. And we believe that, that those are very important initiatives to have people We expect more from vehicles, not only that powertrains are replaced with electricity, electric of our planes, and that changes the cost structures of cars. That alone will not be enough to create a vision of a sustainable industry for automobiles. So we have we can't lose sight of the ultimate goal. So we will focus on battery lease as one solution, but our goal is to change the future of cars.

Speaker 1

And with this strong result, we want to Let me answer to the second question. JPY 4,000,000,000,000 of investment in BEV It was, of course, announced by our company as a base volume, but our current criteria is toward 1,500,000 in 2026, maybe 2,500,000,000 yen investment will be necessary. Also toward the year 2030, in order we have set a volume base volume of 3,500,000. But when we update this, perhaps this will require about a JPY 5,000,000,000,000 investment as a base value or base volume. So I guess as backdrop, how do we intend to finance this investment?

Speaker 1

Well, as I said earlier, Up to now, we have been engaged in cost reduction efforts as well as marketing efforts. And by reinforcing our relationship with customers, we have been increasing our earnings power, and we have shown an outlook of 3,000,000,000,000 yen in earnings power this year. And in order to achieve this absolute goal value. The profit structure that we aim for is one that can generate new room for investment And through that, we can finance future investments, including investments in EVs. But battery EVs, As Nakajima san has mentioned all along, also we have to reduce cost in battery EV development as well.

Speaker 1

But this is a challenge, yet a challenge. We have no prospects for this. So what we can do is to further promote the cost reduction of profitability despite the headwinds. So through these efforts, we want to finance our investment or generate enough funds for investment. May I?

Speaker 1

You talked about 5,000,000,000,000 yen in investment. You would that be counting from this year, this Fiscal year? Yes, from this fiscal year. Thank you. Thank you very much.

Operator

Thank you very much for the many questions. Because of time limitations, let us take the 2 last in the center. Thank you very much. My name is Goro Okazaki, a motor journalist. Since COVID.

Operator

Supply was in shortage. The more you produce, If you look at the results of your rivals, they have raised their price significantly and their operating margins were very high in many cases. And if you look at the numbers of Toyota, on the other hand, You may not have been that aggressive in raising your prices. If I'm wrong, please correct me. But What is your exit strategy?

Operator

One time, there was a at one time, there will be a time when supply will be higher than demand and products won't be selling that easy. So you might have been suppressing the amount of price hikes taking that results into consideration. That was what I thought. So when supply goes up, result. What is the exit strategy that TMC has in mind?

Operator

Thank you very much for your question. So in a sense, supply was in shortage. And with regards to raising prices,

Speaker 1

Ultimately,

Operator

We think mass production is extremely important. So high quality products are being delivered to customers at affordable prices so that we can see smiles on the faces of the customers. That is at the basis of our management strategy. In the short term, things were very difficult. So rather than taking the route of raising prices, we took a longer term perspective.

Operator

We needed to maintain the average step of trust with our customers. So first, we focused on making efforts ourselves. In the past 14 years of Mr. Toyota's, presidentship, We've had a Corolla, Crown and other long seller names. We have many products that are loved by the customers over the years.

Operator

So prices because of economic conditions. That will not lead to long term relationship of trust with the customers. But of course, we have to look at the economic environment and improve our profitability. So in the case of Crown, rather than just looking at a single Crown model, We need to pursue efficiency and improve the appeal of the product and competitiveness of the product and add value to the product. That is what we have been focusing on.

Operator

So increase the basic strength and improve the appeal of the products. That is what we mean by product centered management. And that will lead over the long term to establish a relationship of trust between TMC and its customers. But when we enhance value add, Of course, we need to consider prices that are commensurate with that value. So we need to strike a balance.

Operator

So we will stick to our basic management strategy. That is how we are taking this approach. Thank you very much. In terms of profit, you seem to be struggling very much in North America, if you look at the numbers. If you look at news reports, soaring material crisis did Your exit strategy was not to immediately raise prices, but what will be your future exit strategy?

Operator

Thank you for the question. For North America, producing cars and delivering cars is something that we were struggling with. So speeding up recovery of production is number 1. And if you look at the labor environment in North America, results. We need to undertake improvement initiatives so that we are very strong in manufacturing At North American Factories, we need to create a corporate foundation of a Strong manufacturing for North America.

Operator

The market we need to have a dialogue with the market, with the customers to propose an appropriate price. That would be the order in which we tackle things. Thank you very much.

Speaker 1

Thank you, Kosaki san. So due to the interest of time, this will have to be the final question. Tan Ga from Invest Car Watch. I have two questions as well. Your sales have improved, and I think this is primarily due to the increased vehicle sales.

Speaker 1

Results. I believe so. What were some of the measures you took? And second question, I think that you had a backlog of close to 2,000,000 units at one time that was announced. So could you talk about the current backlogs currently in Japan and overseas?

Speaker 1

And when would these long delivery dates be reduced to normal delivery dates? Thank you, Tani, Kawasan. Now with dealers' communication with the longer delivery dates, I think that really differed depending on the region. And Japanese dealers, They do have longer delivery dates to start with. So what they did was to At least tell the customers when they can expect the delivery because I think the biggest Stress or frustration for customers would be not to know the steps of the delivery process.

Speaker 1

So we had to provide information to them. And the dealers also were required to respond to their questions. So that's the basis of communication. And in the United States, they sell from their inventory. So Because of this process, what cars best match the news of the customers and our best selling?

Speaker 1

If they can get that information from customers. And so the North American companies have grabbed that number, and they can allocate from the location of the inventories in the dealers and then deliver to the customers. And through these efforts, this time this term, we were able to cope with issues relating to customer delivery dates. As for Japan, Due to the types of semiconductors required, we are having our Japanese customers wait longer. And So as was explained at the very outset, semiconductor shortage is, of course, being alleviated gradually.

Speaker 1

So we hope that we will be able to improve our communication regarding delivery dates with the customers. I hope you'll keep watch on improvements going forward. How about backlog numbers? May I talk about backlog? Through the longer delivery dates, our learning or our lessons was that the factory production site and the people in the distributorship and the dealers and the suppliers, We all were unified.

Speaker 1

We became 1 team. That was the biggest benefit. And so we were able to share our own pains and headaches. And then we were able to talk about what each person can do or each member can do to improve the situation for others. And in Japan, the backlog, the orders received as of the end of April those customers who request delivery by the end of April, we were not able to deliver on 10% of those 800,000 units.

Speaker 1

So we are asking the dealers to ask the customers when they want the delivery date by. So we will manufacture to the needs of customers who are in a hurry. We're now finally able to enter that sort of process. And in the United States, in the past, the cars were all showcased in large dealerships, and the customer can pick and choose and then drive home with a car. But a dealer had to, of course, bear the interest rate because of this.

Speaker 1

But because of the longer delivery dates today From Japan or the U. S. Factory, while the car is being transported to the dealership, Other cars are already being sold during its transportation. So we're able to deliver cars fresh off of production line in a sense without inventory. So as I said at the outset, we became one unified team.

Speaker 1

And as a result, we came up with many new ideas, fresh ideas and many ingenious ideas, which had helped us to alleviate the longer delivery dates. So we want to to continue with improvement at this pace so that the customers, suppliers and the dealers, they can all enjoy delivering even better products to our customers. So we want to further improve on these kinds of processes. So we ask for your support. So you said domestically, it's 800,000 units Backlogs, how about overseas?

Speaker 1

Well, overseas, the definition of backlog is different by region. So if I try to give you a number, It could lead to some misconceptions. It could be misleading. I'm sorry. So I hope that you will use the domestic number.

Operator

Thank you, over the Q and A session. With this, we conclude the financial results meeting. Those on the stage, please stand up. Off the stage. Thank you very much.

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Earnings Conference Call
Toyota Motor Q4 2023
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