Toyota Motor - Q4 2024

Transcript

Moderator (participant)

Ladies and gentlemen, thank you very much for joining us despite your occupied schedules. We would like to start the financial results announcement for the fiscal year ended March 2024. My name is Yurie, of Public Affairs Department. I will be serving as a moderator. First of all, Executive Vice President and Chief Financial Officer Yoichi Miyazaki will explain the overview of the financial results. Miyazaki is my name, CFO at TMC. Thank you very much for getting together for this session today. 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. We will now explain the summary of the financial results for the fiscal year ending March 2024. For many years, we have been committed to product and region-based management.

Thanks to the support and cooperation of many stakeholders, including employees as well as suppliers and dealers, the actual operating income was JPY 5.35 trillion for the fiscal year ended in March 2024. The operating income forecast for the fiscal year ending March 2025 is JPY 4.3 trillion, after a total of JPY 2 trillion in investments for the future, to maintain the profit structure from the previous fiscal year, and to increase attractiveness of the automotive industry as a whole, and to grow together with all stakeholders. Investments over the future of JPY 2 trillion includes JPY 380 billion in investment in human resources and JPY 1.7 trillion in investment in transforming the company into a mobility company.

As for shareholder returns, we will increase the year-end dividend to JPY 45 per share, an increase of 10 JPY compared to the previous year, and set the annual dividend at 75 JPY, totaling over JPY 1 trillion. We set aside JPY 1 trillion as a maximum limit of share repurchases, and we'll cancel 520 million shares, equivalent to JPY 2 trillion worth of treasury shares. Let me explain the summary of our performances for the fiscal year ending March 2024. Consolidated vehicle sales for this fiscal year was at 9,443,000 units, which was 107.0% of consolidated vehicle sales for the previous fiscal year.

Toyota and Lexus vehicle sales were 10 million, three hundred and nine thousand units, which was 107.3% of such sales for the previous fiscal year. Sales volumes increased, except in Japan, which was affected by the suspension of shipments by Daihatsu Motor Company and Toyota Industries Corporation. Also, we increased the sales of electrified vehicles, mainly HEVs, with electrified vehicles constituting 37.4% of total sales. Consolidated financial results were sales revenues of JPY 45 trillion, 95.3 billion, operating income of JPY 5 trillion, 352.9 billion, income before income taxes of JPY 6 trillion, 965 billion, and net income of JPY 4 trillion, 944.9 billion. I would like to explain the factors which impacted operating income year-on-year.

First, the effects of foreign exchange rates increased operating income by JPY 685 billion. Cost reduction efforts outweighed the impact of soaring materials prices, resulting in an increase in operating income of JPY 120 billion. Marketing efforts increased operating income by JPY 2 trillion, due to an increase in sales volume of mainly hybrid vehicles, improvement of sales mix due to strong sales in high-margin vehicles, and price revisions, mainly in North America and Europe. An increase in expenses decreased operating income by JPY 380 billion, due to an increase in labor costs and investments in areas such as digitalization. Other factors increased operating income by JPY 202.9 billion.

As a result, excluding the overall impact of foreign exchange rates, swap valuation gains and losses, and other factors, operating income increased by JPY 1,740 billion year-on-year. By geographical region, operating income increased in many regions. Operating income increased in Japan year-on-year, mainly due to an increase in exported vehicles. North America, Europe, and Asia also saw an increase year-on-year, mainly supported by price revisions based on product competitiveness. Our business in China, as well as our financial services business, which I will describe here, as for our business in China, due to steady demand for HEVs, which is our strength, we have maintained Toyota and Lexus sales volumes.

The operating income of consolidated subsidiaries increased year-over-year, mainly due to marketing efforts, including price revisions, while our share of profit of investments accounted for by the equity method decreased year-over-year, mainly due to an increase in selling expenses. Regarding our financial services business, operating income excluding swap valuation gains and losses for this fiscal year decreased year-over-year, largely due to the decrease in margins.

... Next, I would like to explain shareholders' returns, our dividend policies to increase dividends in a stable and continuous manner in order to reward our long-term shareholders. The year-end dividend for the current fiscal year will be JPY 45 per share, a year-on-year increase of JPY 10 compared to the previous fiscal year. As a result, the total amount of annual dividends is over JPY 1 trillion. For share repurchases, we set aside JPY 1 trillion as the maximum limit of a year-end repurchase to flexible repurchase of shares while considering factors, such as the price level of our common stock, and to respond to requests for the sale of our own shares as needed. In addition, we will retire 520 million shares, equivalent to JPY 2 trillion. Next, I will explain the forecast for the fiscal year ending March 31st, 2025.

The consolidated vehicle sales is expected to be 9,500,000 units, 100.6% over the previous fiscal year. In Japan, we expect a decrease in sales volume, mainly at Daihatsu. In addition, Toyota and Lexus vehicle sales are expected to reach 10,400,000 units, 100.9% of the previous fiscal year. Electrified vehicle sales is expected to be a total of 4,827,000 units, or 46.4% of total sales. Next, let me explain the full year consolidated financial forecast. We have adopted the full year foreign exchange rate assumptions of 145 yen per US dollar and 160 yen per euro.

Based on this, our forecast for the full year consolidated financial performance are: sales revenues of JPY 46 trillion, operating income of JPY 4.3 trillion, income before income taxes of JPY 5.07 trillion, and net income of JPY 3.57 trillion. So let me try to now reflect a little bit. That is to say, we have been advocating to build ever better cars, and then that we have steadily established a strong profit base through product-centered management, including group strategy based on TNGA and regional centered management, which aims to become the number one car store in town that is trusted by customers and the local community.

Furthermore, in promoting electrification, we have been able to strengthen our financial base by investing in BEVs and batteries, while carefully assessing each country's energy business and actual demand. In addition, amidst a difficult environment that continues to push down the profit due to the impact of the coronavirus and the tight squeeze on semiconductors in recent years, we are working hard to transform our methods and create new systems. For example, we introduced the J-SLIM in Japan, reducing the number of parts globally and introducing a supply and demand system using AI. As a result...

So, as a result, the business environment was calm in the fiscal year, different from the past few years, at the fiscal term ending March 31, 2024, our efforts to strengthen our profit structure, which we built over the years, have achieved a great macro result. I'd like to take this opportunity to express my sincere appreciation for the support, which include the customers, shareholders, suppliers, dealers, employees, and local communities. So regarding the outlook for the fiscal year ending March 2025, maintaining the profit structure from the previous fiscal year, we aim to accelerate investment in the future with determination in order to enhance the attractiveness of the automotive industry as a whole and to grow together with all stakeholders.

On this basis, the profit structure will be maintained as in the previous year. So let me supplement this with a graph. The JPY 5.3 trillion in operating income for the fiscal year ended March 2024 included the effects of the curbing selling expenses in response to the favorable market environment, as well as large order backlog, for which we ask for the temporary hard work of the employees and the suppliers. After subtracting that, while maintaining JPY 5 trillion profit structure, the profit, the operating income forecast for the fiscal year ending March 2025 is JPY 4.3 trillion, taking into account investment of JPY 380 billion in human resources, for human resources, and investments for the transformation toward the mobility company.

Investment for transformation into a mobility company is expected to be increased for the proportion of capital expenditure and R&D expenses related to growth areas by JPY 500 billion from the previous fiscal year to JPY 1.7 trillion. Lastly, Toyota alone cannot achieve structural reform of our business from now on, and we will work together with our stakeholders. For that, we would like to use the resources that we have been able to generate, thanks to our many stakeholders, to grow together with our customers, shareholders, suppliers, dealers, employees, and local communities. With this, I would like to conclude my explanation of the financial results. Thank you.

Thank you very much. Continuing on, Koji Sato, President of the company, will give you the explanation.

I'm Koji Sato. In announcing these financial results, I would like to express our company's sincere gratitude to its Toyota, Lexus, and GR customers, as well as to all other stakeholders for their support. In the previous fiscal year, our diverse product lineup enabled us to provide our customers with many cars. We believe that this achievement is the result of years of determined product-centered management and the building up of our business foundation. Based on this business foundation, we intend to draw up further growth strategies for sustainable growth. To that end, we will continue to focus on giving concrete form to our vision of transforming into a mobility company in this fiscal year. This means helping create a mobility-based society by increasing the added value of cars, with the aim of building a new industrial structure.

To achieve that, we will take on the challenge together with many colleagues, with a sense of mission. We believe that the key to this transformation is increasing the mobility of energy and data. In other words, looking toward a future supported by electricity and hydrogen, we believe that cars should serve as a medium to transport energy and contribute to creating a society centered on renewable energy. Also, we aim to further enrich people's lives with mobility value created through data. This fiscal year's key themes in working toward that future are the materialization of Multi-Pathway solutions and the creation of a foundation for software-defined vehicles done in the Toyota way that will realize diverse mobility values for our customers. Over the past year, we have been advancing toward embracing battery EVs, which were our missing piece.

Our challenge to create a new vehicle architecture is progressing due to technological advances in aerodynamics and heat management, as well as the development of compact and lightweight powertrains and other major components. These elemental technologies can be applied in the future to the development of plug-in hybrid vehicles and others, leading to a diverse Multi-Pathway lineup of vehicles. Regarding hydrogen, we have accelerated the creation of foundations for commercialization in various regions. In addition to developing and implementing hydrogen mobility in the commercial domain, we're also providing fuel cell systems for various applications, such as trains, ships, and generators, and pursuing initiatives in producing and storing hydrogen. Going forward, we would like to accelerate the social implementation of hydrogen mobility, including infrastructure, together with our partners, especially in Europe, China, and North America, where hydrogen consumption is particularly high.

Further, we will continue to work with determination on the future of the internal combustion engine. Even in a future in which energy centers on electricity and hydrogen, we will plan to continue actively advancing next-generation engines, with an eye toward using e-fuel and other liquid fuels. To realize a software-defined vehicle the Toyota way, we have spent the past year focusing on developing our Arene own vehicle operating system and building foundations for software. Moving forward, we aim to increase our efforts to evolve mobility that utilizes generative AI, including automated driving, and we plan to expand AI-related investments. Also, to further develop a foundation for software-defined vehicles, we plan to establish strategic partnership beyond the automotive industry, including an infrastructure and apps and services closely related to daily life. Even as we pursue these initiatives, our unwavering core is being a car maker.

We will change the future of cars. Meeting this challenge requires a foundation for solid car making. In that sense, our top priority for future growth is to strengthen our work foundation by facing head-on the issues of irregularities at member companies of our corporate group, and Toyota's lack of reserve capacity. Therefore, this fiscal year, we will determinedly devote the money and time needed to strengthen our work foundation... Desiring to create today how we will work ten years from now, we will strive to generate reserve capacity to ensure thorough safety and quality, and firmly endeavor to develop a skilled workforce by improving individual skills based on job descriptions.

This fiscal year, in addition to our JPY 1.7 trillion investment in growth areas, we plan to dedicate JPY 380 billion to such investment in human resources, to strengthen our work foundation, and to change how we work together with our suppliers and dealers. I have shared with you our thoughts and priority themes for the current fiscal year. The most important thing is execution. We will take on the challenge of achieving a mobility-based society together with many partners, while responding to issues and changes that come to light only after we have first decided what to do, and have shared, started doing it. We would greatly appreciate your support and understanding.

Thank you very much. This is going to be followed by Q&A session. Please give us a while before the stage is set for the Q&A session, with the layout being changed. Thank you. We would like to start the Q&A session. Those respondents from TMC, please come up to the stage. First of all, let me introduce who are on the stage. Koji Sato, Chief Executive Officer. Yoichi Miyazaki, Chief Financial Officer, Executive Vice President. Masahiro Yamamoto, Chief Officer for Accounting Department... Accounting Group. Please take seats. So, I will open this Q&A session. First, I'd like to receive questions who are present in the venue. If you have a question, please raise your hand so that the microphone can be brought to you. And please state the affiliation and your name before asking a question.

We would like to receive questions as many people as possible. We would like to ask you to limit yourselves to two questions per person. So please start the question. Person seated in the second row from the front, please. ... Chunichi Newspaper, Sugito is my name. Thank you very much for this opportunity today. My question is addressed to President Sato. The announced, the financial results announced today, and also the forecast for the next fiscal year, how have you assessed that? Last fiscal year, you made a record high, both operating income and revenue, and this fiscal year as well, you achieved the record high levels. What are the factors contributing to that, and what is the background contributing to that? What is your assessment of that as president?

Thank you for your question. First of all, on the previous fiscal year, in terms of the actual results of that fiscal year, first and foremost, producing and manufacturing cars and delivering them to customers, just to be able to do that is really something that we fully appreciate and feel very grateful for. Looking back at the past year, once again, the very fundamental foundation of the business, and to be able to work on that, is deeply appreciated by myself. In terms of the actual results, it's a result of those activities. The fact that we were able to manufacture those cars, being able to deliver that, is the background of that, and also was supported by serious efforts made by many stakeholders from many different aspects. Not just single person working the hardest, from the planning, development, manufacturing, sales, and marketing.

In many different departments, people made efforts in many different ways, and that contributed to the actual results we were able to announce today. For the current fiscal year, in a sense, this business and corporate foundation we have today, and-

...On that, for us to be able to achieve properly the sustainable results, we'll consider the most important priority to consolidate and strengthen the business foundation. To be more concrete, to be able to generate such a profit, what was in the background was a very strong supply chain, and the 5.5 million colleagues in this industry supported us. So to protect that supply chain foundation is something that we really have to squarely work on. For us to achieve sustainable growth, to protect and defend the supply chain with a strong determination, we'll make investment for that purpose, to be able to protect that.

From the perspective of strengthening business foundation within the company and also within the group, there may have been areas in which reserve capacity was depleted, and therefore, the fundamental action should be enabled. That is to say, we need to have some reserve capabilities so that, we can address ourselves to the structural reform, which we should be able to do, that we will spend money for that purpose as well. And to do so will lead to the sustainable, growth over long term. So that's the actual results and the out, projection for the next fiscal year. That's how I feel about it right now. Thank you very much. Let me move on to the next question. You talked about strengthening the business foundation, and it's related to that. You talked about investment, to human resources, substantial amount. From your perspective, Mr.

President, concretely speaking, including supply chain and various gemba, what are the challenges, and what are the issues that led you to make investments, and how are you going to improve or rectify that situation? First of all, with respect to the strengthening the business foundation, naturally, needless to say, the operation of the work we are engaged in right now, on the current assumption, we've been able to enhance the efficiency. But those improvement in enhancing efficiency, some requires a review and revision. So to change the way we work fundamentally and also generate... We do not have the reserve capacity that enables us to change the necessary found structure. For us to achieve sustainable growth over many years, we need to review many aspects of our business fundamentally.

The structural reform of the automotive manufacturing cannot be achieved by just changing different functions from the upstream to downstream, for example, DX. If that is considered in certain aspects, it just results in improvement in that particular area. But data, starting from upstream to downstream and marketing and sales, end to end, to achieve that, we will be able to change the way in which we are doing business, and we need to have some reserve capacity, which we are lacking right now, for us to be able to engage in those fundamental reform and change. So to create the situation in gemba, for us to be able to take up such a challenge, we would like to make very proactive efforts for the future sustainable growth. Thank you very much.

The next question, please. The person in the right side, the row, at the corner, please.

Yeah, Nihon Keizai Shimbun. Thank you. I have a question to, two questions to Sato, CEO, about supply chain, that you are going to return back to them, including to the suppliers, the human capital, human resource investment over JPY 338 billion. But anyway, what is the specific way to support suppliers and others? That is, you would like a sort of support their labor cost? That is, JPY 380 billion, including that labor expense as well for the support of the suppliers.

Thank you for your question. Basic principle is, as you said, the suppliers would have the incurred labor cost, equivalent part, portion should be reflected in our price for them. So that is, when we procure products from them, that's our consideration. So that has been taken into account in this particular plan.

Specifically, do you have any other initiatives and activities like return back to the supply chain and people there, your principal there? Like DX, digitalization support is one way. Toyota will give an order to those suppliers based upon the past system that has been given to them in that way. But the way the data is transmitted or order is given to them, when the demand-supply fluctuation is so quick, that the more flexible change of the product supply necessary, more manual work is done to convey this kind of message. But for to that kind of manual work, we will give additional support. Digitalization can be promoted even for the suppliers, so it will be a continuous flow of digitalization, so the workload of the suppliers will be lowered because of this new support. It's one of the supports.

Another most important factor is the field in the gemba. In order to upgrade their productivity, their gemba activity should be supported by us by sweating together. So to what extent they could have some waste or practice where we detect together with them and help them to solve those problems in the gemba. So Toyota will help the suppliers to do kaizen improvement. We assist them to change the way they do, then their workload and burden will be lowered. Then eventually, the unnecessary costs and ex- will be lowered. So that is gemba improvement, digitalization activities, and then labor cost support in our procurement practice. These are the package of deals to try to support. The second part of the question is to strengthen your foundation.

As you mentioned, that there's some priority is that the money and time will be spent for that purpose. But specifically, what are the specific initiatives you are thinking about? And to strengthen your foundation, the production volume and then the development period required, and productivity might be impacted and changed. So how do you strike a balance between the productivity pursuit versus the strengthening the basic foundation... Thank you for your question. About the strengthening of foundation, it should be looked at in the long-term perspective, because annual growth and this more annual space, the growth is our aim. So that high efficiency is that enables our current operation.

Just because of the high efficiency, we couldn't change our system fundamentally, in a way, because inherently, conventionally, because the vehicle structure consisted of a system and the component system, and then, and all those different functions were assembled together as a vehicle. But currently, what we like to build is a new way of mobility. Toward this new, the mobility, it, it should cover the both different, disciplines, or some of unprecedented new work will be required increasingly. So to... We have to have enough time, but we can't take enough time to do these things.

Taking that into account, our existing work volume should be, be lowered, reduced for the time being, and that is a project, the burden should be adjusted, and each workload at each function and place, that, the manager and the workers should, talk about. And then, we should question whether this particular work is necessary or not, and we might need to maybe stop certain work. Something that the design department should do, or sometimes the experiment department should do this and that. Job description should be rethought and rewritten, and fundamentally. Then, what we are doing every day, is this really proper work, according to this new definition? Are we doing it properly and efficiently? And another activity is every day, about 30 minutes, each person's work should be spent for the future own growth.

Every day, 30 minutes per capita. Not just be occupied and finishing the work every day, the duty, but rather, as a professional, to grow in the future, is this 30 minutes should be dedicated to think about the career promotion and skill. Eventually, it will improve the quality of the product. Currently, it's a highly sophisticated development, and lots of rework is necessary. But in taking into account this rework, we set the standard lead time for the R&D. But basic functions should be fully standardized. Job description has to be fully defined. Then rework will be minimized or reduced. And then it seems like on the surface that your efficiency is going down, but it's not the case, because in total, the overall efficiency should be enhanced.

So the current premise of the current work should not be just a binding, binding condition at all. You have to re-look at this, fundamentally, what your work is and the definition, in order to eventually boost the productivity efficiency, especially money-wise. Of course, Miyazaki-san will explain about that monetary aspect.

Thank you. Yes. As was mentioned earlier, how best we can enhance the efficiency of the work, that may be the best way of describing that. Eliminating waste and enhance efficiency overall, the network. And to do that, we would like to make an active investment. Amounts and numbers I introduced to you already earlier, but if anything, vis-à-vis suppliers, and also as far as we are concerned, going down to the lower tier, we would like to discuss those details. Otherwise, the attractiveness of the overall automotive industry cannot be enhanced, in my view. And if we are successful in doing so, that will lead to the higher productivity. The people will stay in the company, and also it will result in net work for work done. Internally, within TMC, as Mr.

Sato mentioned earlier, the time used for teaching others was lacking that time, and therefore, that, caused the reduction in efficiency or sometimes, go about at the, done. And so it might appear as if it is the time wasted, but, by spending time, spending enough time for that, we would like to make efforts so that it will result in enhanced, efficiency. Earlier, I mentioned that a JPY 320 billion investment for future growth and JPY 380 billion for human resources. But as I mentioned in my presentation, as far as the amount is concerned, the resources given to us will be used for the purpose of further investment, so that working together, we would like to create the attractive automotive industry.

For that purpose, we would like to spend such financial resources and money. Thank you very much.

Operator (participant)

All right, at the front row, person in the pink shirt.

Hans of Automotive News. Thank you very much. May I ask a question in English, please?

Speaker 4

I'd like to ask two questions about the situation with sales and of hybrids and the North American market's importance. The first one is about hybrids. Has hybrids reached a turning point in public acceptance now? It used to be an alternative kind of powertrain. Now, I'm wondering if it's now seen as the first choice among Toyota buyers, and that the ICE, the traditional gasoline engine, is maybe seen as a second choice now. Has it flipped finally for Toyota, where that the hybrids have become mainstream, in your opinion? Also, regarding the North American market, that seems to be a very stronghold for not only Toyota, but Japanese automakers in general.

I'm wondering how much more importance you put on the U.S. now, given the instability of other big markets such as, China or Southeast Asia, especially as Chinese automakers export more from China?

Koji Sato (CEO)

[Foreign language]

Moderator (participant)

Thank you very much for asking those questions, Hans. Allow me to explain and also make some additional comments with respect to hybrid vehicles. Earlier, I used some slides to explain the situation. In fiscal year ending in April 2023 and 2024... 2025, the electric vehicles increased by 1 million, and of that, 900,000 units were hybrid vehicles. The major reason which the increase was achieved, North America was at the top, followed by Japan, China. Those are the ranking where the areas in which hybrid sales increased. In North America right now, roughly speaking, or at the dealer levels, the days inventory is 15 days. That's the inventory days, 15 days. But as far as hybrid vehicles are concerned, it's between 5-8 days.

So it continues that hybrid vehicles are selling extremely well in North American market. And major factors in the background is most of the models of a Toyota have the hybrid versions added to that in the lineup. And at the same time, you mentioned that hybrid used to be the alternative choice, but is it going to be the mainstay powertrain? As we have been constantly said, for Toyota, the enemy, what we need to address is the carbon. For us, to achieve carbon neutrality, we have been trying to sell hybrid vehicles. And since the introduction of Prius, that permeated quite well in the North American or US market, it has been recognized as a main player.

In addition, hybrid is the synonymous for low fuel consumption, and also the acceleration performance, the ride comfort, and overall performance of hybrid has improved. So it has become an extremely attractive vehicle. It has those appeals. That's the situation of hybrid right now. About your second question, that is to say, the importance of North American market, as we have been saying over the years, under the leadership of a CEO for the region, we have the members who give the highest priority to their activities, and that's how we are conducting business. So to us, all the regions of the world have carried the highest priority, and on that, we are trying to strike a good balance in conducting our business, and those are the approaches we take in doing our business.

In that, as far as Asia is concerned, unfair concerns of vehicles imported from China, as of today, the Asian market, our market share in Asian markets have been maintained and kept. If anything, in Thailand, right now, our market share has improved. Temporarily, in Thailand, for example, there has been period in which the battery EV increased, but right now it has been evolving quite stably, and therefore, together with our lineup and also the network of dealership, we are working very hard to deliver our vehicles to the customers as quickly as possible. Thank you.

Operator (participant)

... Thank you very much. Another person? The person by the corridor.

Nagaya of TV Tokyo. I have a question to Mr. Sato, the President. My first question is that now, that it is something this determined and willed, this the plateau. But for the mid- to long-term growth of Toyota for the future, how do you like to use this time? JPY 380 billion will be spent for this investment for human resource is huge. Is this going to end just for this fiscal term, or are you going to continue this human capital or human resource investment afterwards as well? Thank you for your question. Yes, it is a particular plateau that we implement just with will determination. We need this type of plateau for the long-term future growth, so it's a necessary period.

Actually, we are so stretched with our activities, and we have to strengthen our foundation. Otherwise, we would not be ready to smoothly challenge a new area. As I said in the presentation, we will head toward becoming a mobility company, transformation. Lots of new projects need to be tackled with, but what is the origin? We are the car maker, so we have to build a solid, good, safe, and comfortable, and a good car. So the good car making is a grand premise of all the activity. With that satisfied, then we'll be allowed to challenge brand-new areas. So our basic function, basic function has to be secured. We have to spend money and people to do that. So what is the basis of the growth?

Of course, we have to be able to do all the basic required function properly, then we'll strengthen our foundation. This new investment for human resources, I think we need to continue to a certain extent. However, as I said, that the basic function must be secured. We have to eliminate the wasteful practice as well, at the same time. And then, meantime, we will create the like, TPS, that the wasteful practice should be visualized. All the process should be visualized, and then the before and after your process, you know what the other people are doing. What? Then your own function, your process can be improved and changed. So we like to do that.

And finally, it will eventually lead to the overall increase of the productivity, so that, including the suppliers, a major investment will be made for the investment, the suppliers as well. Based upon, based upon that investment, we will further strengthen our foundation. Eventually, it will lead to a higher productivity, and we need that investment for a certain period of time, but the improvement we've made steadily, one after another. So it's not a continuous fixed amount of investment. It's not like that. Thank you very much. The second part of my question is that about EV, because your hybrid products are doing well, and in many markets, people are re-evaluating the meaning of a EV. Based upon your multi-pathway strategy, the hybrid is doing so well.

Do you, you know, intend to maybe revise your plan for EV development and strategy? Thank you for your question. Yes. In the new setup, and after I became a president, I've been telling the same message: we maintain this multi-pathway strategy. We will change-- not change it, we maintain it. What we have to do is that for the sake of customers, we need to look at the actual demand of the customers and respond to their demand, and we should be prepared to do that. So therefore, there are many descriptions toward the battery EV. There are people with different perspectives. Basically, our pace, our stance, our position has not been changed. We like to offer necessary multiple the options to the place where people need it, as I said.

So there are the basic standard, the units that we are thinking about, which is the basic units. But eventually, the supply chain should be built to be able to supply that. So time schedule should be clear, clarified, and volume should be clarified. Together with the suppliers, we should be prepared in advance. So it's like the pace note or the basic preparation. So if there's a change, times, a change, that we will flexibly change according to the changing times, and then we'd like to optimize this timing of the investment. In other words, my predecessor, Akio Toyoda, was the president. He had a strong belief.

At that time, five years ago, battery EV, some people said, criticized that, "Oh, you are behind battery EV." But he had the courage to say, the chairman Toyoda said, "We maintain the policy of multi-pathway," and we maintain the policy. Because of that, now the technology has advanced and battery EV we should build has become more visible, and which are the priority investment area is now clear. When is a better optimal timing of investment? So we can now manage to control the timing of the investment. So because of our strong belief and our steady policy, our multi-pathway concept is still maintained, and we would like to continue to work based upon that.

Moderator (participant)

Thank you very much. Now, at the center row, the person with his or her hand high up. Yes?

Yomiuri Newspaper. Mizuno is my name. Thank you for the opportunity. I have two questions to President Sato. My question also relates to BEVs.

... in the financial result material, for the new fiscal year, that is to say, in the sales projection, the BEVs unit. In the previous year, it is 117,000 units, and for this year, it says 171,000, so increase by 46,000 units. How should I interpret that change or increase?

Thank you very much for your question. In terms of the sales projection for the current fiscal year, it, to a certain extent, the actual demand is assessed very conservatively. I hope you interpret that in that light. Vis-à-vis BEVs, the infrastructure necessary for that, the conditions for that are not in place, and the value added introduced by BEVs are not adequate from the perspective of customers, in my view. And therefore, the mobility installed with the electrified major components has been increasing in demand, so we will solidly respond to that demand, and that is reflected in the numbers you have mentioned. In the phase following 2026, the situation might change, so aiming at that period, we would like to make sure that we are ready to provide BEVs in Toyota way.

Let me move on to the second question. Earlier, you mentioned that SDV... When you talked about SDV, and you said SDV in the Toyota way, created in Toyota way. In terms of investment for the current fiscal year, it seems that you are dedicating a lot of efforts for SDVs. Concretely speaking, how do you intend to proceed with the investment for research and development? What is the current situation of Woven City? Could you enlighten us on the Woven City situation as well, please? Thank you for your question. First of all, the SDVs created and developed in Toyota way, we are the car maker, and therefore, in order to enhance the value added of the vehicles, the software-defined vehicle will be developed.

As the value of a mobility is continued to supply, but not just people and cargo, but data and energy can be also transported. So it will serve as a medium for that. And when we are in that sort of period, the vehicles could be more integrated, with social systems overall, and we need to show that in a concrete form. Unfortunately, thus far, the vehicles focusing on ICEs, the electric energy was very difficult to be used in that. So focusing on battery EVs or maybe PHEVs or hybrid as well, the vehicles installed with electrified, major components, we will keep in our vision the usage of electric power, energy, and that enables easier use of data management.

And in the world in which data management is facilitated, the collaboration with infrastructure or including autonomous driving, AI, which could be your partner, it could be supporting you. And if that is done, vis-à-vis mobility, and when you're faced with mobility, the value provided by that will change. The application services could be added to the value generated by the vehicle, so the environment to be developed to that extent, and also the foundation of the onboard platform is now being prepared. As we do that, various value added could be connected to open platform. So not limiting ourselves to the world of vehicles and automobiles, but in the broader world, the vehicles could be connected to other aspects of the world. So one by one, in a concrete form, we would like to show what we have in mind to the world.

With respect to Woven City, the digital twin is playing an important role. We experiment in the laboratory a form of a mobility, so the interface with society and vehicles, and where energy is added to that, what sort of value added can be created? Working together with many partners, we will validate that. SDVs, what sort of role, active role can it play, will be verified in the Woven City, and we are now in the preparatory stage. So that's the current status of the Woven City.

Thank you. The third row and the second line from the Kihara of NewsPicks, and I have a question to Mr. Sato. It's a relevant question to earlier question about hybrid versus BEV. Recently, HEV, the growth is so markedly, so the next year's outlook is that almost 1 million units additional outlook. And today, you mentioned, and continuously you said, mid to long term, the electricity and the hydrogen are the most promising energy source for the future. But my question is a timetable, because it's so difficult to forecast the future. But as of now, the hybrid demand trend is increasing, but after which point, how long will this continue, this increasing demand? That's my first question.

Thank you for your question. It's a difficult question to answer, because forecasting future is quite impossible. But there are many ways you get a feel of it, that, automobile OEMs standalone cannot change the future, because, energy environment is different. National government and administration, and many other relevant institutions, we have to build a new environment for the new energy. For example, hydrogen-wise, automotive sector, the hydrogen use is currently only 10% of the total hydrogen use. In steel industry or the electricity, power generators, and we have to collaborate. Use of the amount of the hydrogen for each region should be increased, otherwise, low-cost hydrogen cannot be supplied. What is a low-cost hydrogen?

If that's become feasible, the secondary energy, energy, in other words, e-fuel, is likely to be produced with ease in a hybrid or HEV vehicles, ICEs. But still, it's almost like a zero-emission vehicle. Realistically, CO2 emission has to be lowered by that kind of effort. The current infrastructure and asset should be utilized, and then, for sure, you can reduce CO2 emissions. So that is very important approach, too. It's not a... They are not the material existing standalone, but they are all linked and connected with each other. Therefore, in that sense, you have to build a partnership with different companies and institutions and many others. We are working very hard. And then hydrogen, electricity, and so-called renewable energy, they should protect the global environment, and then we should try to enable this kind of future world as soon as possible.

So we have to keep acting. That's my frank view. It's not a direct answer to your question. However, we are positively working with our utmost effort. That's something we are doing. Thank you for your question. My second part question about BEV. Earlier, SUV and so on, that the Toyota's values are further created. Now, when you look at the market, the market is decelerating. On the other hand, the manufacturers move, for example, in Japan, in the U.S., and Europe, there are different OEMs in the last three years have are launching the quite the priority products one after another in upcoming three years. So what is the major priority product for you as a new value you offer?

So you said you are going to build a foundation and then create a reserve capacity, but the business structure itself is changing, meantime, to build this new, strong foundation. So I would like to hear your message. What is the most important value, the priority, and what is the automobile BEV? That's my question. Thank you. There are two angles or perspectives I can answer. First is the business structure change, and this is a trigger point for that. The electricity unit without the ICE, that kind of a structure of the vehicle is totally different from the conventional vehicle structure. In other words, in a way, the vehicle architecture itself should be totally changed, but it's a big chance for us to change it. We had a conventional engine, but that's now missing.

If during the collision, the engine would not collide or collapse. That empty space without engine, the vehicle architecture can be totally changed. The bonnet hood height is determined by the engine space. Without engine, bonnet hood can be lowered, so better visibility for the drivers. It's very important for drivers to have a good view. So basic function and performance of vehicle can be changed, and the structural components will be changed, so the building, assembly, and the plant activity will be totally changed. The conventional production method is no longer valid. Because we changed the architecture, a new thing can be created. The first thing is that it will. It's a trigger to lead to a structural change. That is a battery with the one function for us.

The second point of response is that the components and of the vehicle will be changed. The car design totally will be changed in a different design and shape. During the Mobility Show last fall, we have shown you some of the examples. If when you get on the car, a totally different view can be enjoyed, different feel of driving can be enjoyed. That kind of new vehicle can be created. We are the car maker. The riding the car should be enjoyable. That is a value, regardless of the electric vehicle or the ICE. And so the many changes can be done with a new possibility. So battery EV has all the potential. It's not just simply the lower the carbon emission. It's not because of that.

The car itself, the existence, will be totally changed and become more attractive, and this is a chance. As a vehicle, the mobility means that we can change and create something new, so that the total structural change can be possible. So those are two perspectives we like to treasure. Thank you very much.

Operator (participant)

Thank you very much. At this juncture, I would like to entertain questions from those participants on the web, online. So those of you who would like to ask a question, please click on the Raise Hand button or part, and we'll... Speak out your name and please turn on your microphone and video camera when your name is called.

Moderator (participant)

Now, Inajima-san, Inajima-san, I will switch the screen, so if you see yourself on the screen, please start asking a question.

Inajima of Bloomberg, can you hear me?

Yes, we can hear you.

Thank you very much. I would like to ask about the share repurchase. For one of the reasons, you said that to respond to the request coming from your company shareholders, to sell your shares, could you share with us the details, not just the group companies, but also the strategically held equities by financial institutions? They might want to sell your shares, and that is included. But in terms of the actual magnitude, what is your assessment of that magnitude? And from a medium and long-term perspective, with the... You already announced your policy vis-à-vis cross-shareholding among group companies, but in terms of cross-shareholding, including some financial institution shareholders, from a long-term perspective, are you also willing to unwind those shareholdings? Could you respond to those questions? Thank you for your question. Allow me to respond to that question.

In terms of the share repurchase, as you correctly pointed out, right now, many... Well, not just Toyota, but many corporations are trying to switch that or replace that with actual, actual assets, so to speak. And the proceeds, generated by, share sales could be used for the investment for next, growth, and we will be promoting with, various shareholders. I would like to refrain from, mentioning any specific names, so those are the activities we have been pursuing for many years. And the impact, potential impact on that market could become quite significant from time to time. For shareholders and stakeholders, those transactions should not negatively affect them, the stakeholders and shareholders, and therefore, using the share repurchase, we would like to receive those Toyota shares released by the current shareholders.

For that purpose, we set aside those repurchase program to that end. Including the group company shares and also strategically held shares, the basic approach or principle remains unchanged. That is to say, we will rebalance those with active or lively assets. Thus far, with various companies within the group, and historically speaking, the financial support or the mergers in many different forms, those cross-shareholding size increased, and with those shares cross-held, without saving any area as sacrosanct, we will transform them into the actual meaningful shareholding.

Thank you very much.

One other question. In November this year, the presidential election, depending upon the outcome of that, the U.S. policy might change. There is such a risk, and on that particular risk, the automotive industry or the Toyota, what are the potential impact on the automotive industry as well as Toyota? What sort of preparations have you made in Indiana plant in relation to battery EVs? You announced some substantial investment, but preparing for such potential change in the U.S. policy, is there cases where you might be postponing some investments or accelerating that, including those potential? Could you respond to that question, please? Thank you for your question. First of all, as I mentioned at the very outset, in each region and in each country, for the smiles and happiness of customers, we place highest priority to our customers' smiles and happiness.

The political trends, the economic trends, which is in the background, we are carefully watching that as we do business. But first and foremost, what we do is to become the best-in-town company, so that we can have the solid, a trusting relationship with our customers in any community in which we are allowed to operate. So in that sense, in line with the situations prevailing, we would like to make necessary adjustment, and by doing so, in terms of our relationship with different companies, if some particular attention is required, we would make actions in line with those adjustments.

Operator (participant)

Thank you. Thank you, Mr. Inajima. We'd like to entertain the next question. Inajima, please. So we'll switch the screen. When your image is on the screen, please start to ask a question.

Moderator (participant)

Thank you. I'm Inagaki of Financial Times. So you've been talking about this, strengthen your foundation for the upcoming one year. But globally, the situation is getting quite severe, especially competitive environment is getting severe, and you prepare for that too. So JPY 1.7 trillion will be invested for the growth area, including AI and EV, and then, and hydrogen, and many other new areas, I understand. However, in China, competitive environment is getting worse. It's getting speedy, and new technology introduction is accelerated, and in flexibility-wise, that the situation is getting very difficult for all the OEMs. So to that kind of a change, are you getting ready for that? How your investment for growth will impact on that kind of competitive and other changing environment?

My second question is that earlier, you talked about the possible influence by the U.S., presidential election, not just the result of the election, but in the U.S. and EU, the China, the Chinese-made vehicles are imported one after another, and then there's a move to raise the tariff against the Chinese vehicles. And globally, there's a new trend of raising the tariff. Is that a risk factor that you are analyzing as well? Thanks. Thank you for your question. About the first question, JPY 1.7 trillion investment for the future, and, of course, the competitive environment is changing, and we should get ready for that. Frankly speaking, to compare with China, in a certain area, we are behind them markedly. That's a fact, and we have to admit that. However, we are trying to supply vehicles which make customers happy.

As a Japan-based automobile company, we have to compete based upon that. So there's a certain, distance, and then we have to keep that, and then we should not really shrink that difference. So the how can we really achieve, enable ourselves to go through the game change so that, this JPY 1.7 trillion will be allocated according to those, optimal selection in terms of the, the region and then the sectors? So in which timing that we get the higher probability of winning, because the, our size of the investment as well as the content will be briefed to you later on, and the progress state will be reported to you as well. In addition, we have over 100 million vehicles that the customers are already operating our vehicle. That's our strength.

In the past, we said that we just supply the vehicle. Afterwards, as the time goes by, our relation, contact with the customer got diluted. But in the future, we make use of that future investment, we can maintain and strengthen and prolong our, our contact and relation with the customers. So we will transform ourselves to a mobility company. We gain a new competitive edge, and a new business structure change will be achieved by that kind of extension. So that's how we intend to spend our money for future. The second part of your question. In the U.S. and E.U., Chinese-made vehicles are imported, and they are trying to raise tariff, possibly against Chinese vehicles. As you pointed out, depending upon the political move, different options and valuation might likely to happen.

So in that sense, as I've been saying, for us, for each region, we have these regional CEOs, and then we have a contacting and networking, of the PR, and then, we will collect information as much as possible, and then, we will be ready in advance to deal with the change or potential change, and to pass the quick decision, the optimal decision to deal with the situation. That's my answer. Thank you very much.

Speaker 3

[Foreign language]

Operator (participant)

Thank you very much. Now, thank you very much for those participants online for asking questions. So I would like to come back to the venue to entertain questions. So on this row, the person in white shirt, please.

Moderator (participant)

Journalist Momota is my name. Thank you for the opportunity. My question is to Mr. Sato and Mr. Miyazaki. Transformation into mobility company, you talked about the investment to that end, and as a new value, you talked about the strategic partnership relating to SDVs or partnership in energy field, you mentioned. But on that basis, the existing business foundation, that is to say, the UIOs and the profit structure, and also including the number of units, there may be the discussion on the optimization of cars and vehicles in the society overall. You talked about the strengthening of a business foundation looking toward ten years from now, and this might lead to the sales activities, but toward the major change and transformation of the business, what are you going to do specifically? Just share your image or what you envision to do that, please.

Koji Sato (CEO)

[Foreign language]

Moderator (participant)

Thank you, Mr. Momota. Toward the transformation toward mobility company, what we have in mind is something as follows: This requires a major reform of the business structure itself. In a sense, the automotive industry thus far has been the-

… labor-intensive industry and enhancing productivity, to achieve certain growth, and produce most efficiently the hardware, selling them. And for our business is more or less focused on new cars and new car sales, and expanded that. And that business model assumed the continued increase in the unit of sales, resulting in the increase in business size. That was a basic assumption. But as you correctly pointed out, when creating, trying to create the society, which is based upon sustainability, the large volume of manufacturing and, large amount consumption is no longer sustainable. So when we consider it, for the automotive industry to be able to transform itself into a mobility company, to promote structural change is absolutely necessary. And what we have to do to that end is to create reliably the value chain.

Not just relying on value of hardware, the new cars, but rather starting from the hardware, but on the further downstream, new values need to be created and generated, and those newly created values should be monetized. Unless the business structure is based upon that, we will not be able to transform and change from the business model based upon increase in volume. So SDVs that we are focusing now holds the key to realize that, in my view. And therefore, in order to encourage such reform of business structure, we will conduct various changes. And on the part of value chain, the area in which the value is actually created, the creator may not be just automotive industry. There are many of service providers creating those new services, and mobility should be able to incorporate those service providers.

When there is certain service provider, for mobility to be able to join hands with them, to be facilitated by the environment conducive to that, is very important. So this software foundation streamlining, and also the Arene, our OS platform, and also the environment that enables the incorporating the open architecture applications, would have to be facilitated by the fundamental reform of the business structure. So the way in which the partnership is created is a very open structure, where the mobility is accepted as a partner. And with that, we will enhance the value added of the automotive industry as a whole. That's how we envision the future situation. Thank you very much. Thank you. The person in the central row, the fourth line, please.

Yokoyama of Toyo Keizai. I have two questions. The first question is about regional activity, as you mentioned, China. I like to hear the details about your outlook on China. Mr. Miyazaki, you said there's the price war, and then the competition is very severe. In the last three months, what happened in terms of profitability? The data was that China is struggling. Could you please give us some more details on China? What about North America? During the fourth quarter, the red deficit in the fourth quarter in North America, could you please explain more about that, as well as this fiscal term's outlook? That's my first question.

Koji Sato (CEO)

[Foreign language]

Moderator (participant)

Thank you for your question. About the Chinese market, I explained during the last meeting as well. Price competition is getting worse every day. That's my understanding. As to the units concerned, in the last fiscal term, it surpassed the previous year. As to this fiscal year, yes, it's a positive, we will go beyond the previous year. But still, the price competition is getting worse, more fierce. That's the one, severe fact. And battery EV is a focus, and there's oversupply in Chinese market, from my standpoint. We should try not to get involved in that, competition is a key point. Of course, naturally, locally, to do our business, the plant needs to be operated, right? But network has to be maintained, otherwise, the business feasibility will be undermined, in the future.

So a certain volume has to be produced. That has to be maintained. To do that, the pure price competition should not be something we should get involved. Our model should be outside that frame, so the network should be maintained, so that we should be ready to deal with the price situation, and then we should be ready for the future. So in that sense, for a while... I wonder if I should say this word or not. Mr. Sato didn't give me allow. But we have to endure through this difficult year for upcoming a few years. After the endurance, after several years, we will face a maybe a new game change, because we have a more attractive products, including battery EV.

So currently in China, yes, PHEV is increasing as well, and we should be ready to launch the good products during the endurance period, so that we will achieve the better growth after that period. As to your question on the fourth quarter in North America, what you said is true. So the parts suppliers and we, the capacity utilization problem was an issue, and we could not produce as much as possible. That was a fourth quarter problem. And the shifting, the cost incurred at one time, that was North American problem. But up until the third quarter, the situation was different from the past. The cost reduction activity was successfully done by one team, united efforts.

Product appeal was appreciated, and at that timing, we had a good communication with the dealers, and price improvement was also achieved. So in North America, profit making structure was improved properly, I think. For this upcoming fiscal year, then even North, in North America, competitive OEMs, the inventory level is getting restored to a certain extent. There, the sales promotion expense is now being increased as well. So we have to defeat them and have good competition, so we take into account that potential increase of budget. We should wisely spend the promotion money. So in this North America, we like to make sure we achieve profitability.

Thank you very much. My second question about hybrid vehicles. Miyazaki-san, during the first meeting, 5 million units was something as a yardstick for sales, and you are almost reaching that 5 million. And if the units goes up, profitability should further improve, I understand. You make more, and then you achieve more profitability. About the hybrid profitability compare... It was equivalent to ICE or in the North American models, there was maybe better. But anyway, do you have any profitability updated information?

Koji Sato (CEO)

Thank you for your question. Thanks to the customer support and appreciation, hybrid vehicles' price has been improved at a high level, profitability-wise. It's almost equivalent to ICE or even better than ICE in terms of profitability. If the units further goes up, simply put, the profitability should be improved substantially. That's my current understanding.

Thank you very much.

Operator (participant)

May I move on to the next question? All right, at the center, in the front row. Second person from the left.

Moderator (participant)

Thank you very much. Ikeda Naoto is my name. Mr. Sato, when you took office as president, you said the inheritance and evolution, and this time you made a very high financial result. So what you have inherited, that is, to make ever better cars, and also with the TNGA increase in profit margin and also the cost reduction. So both of those benefits played in the financial results this year. So in a sense, this is the inheritance from Mr. Akio Toyoda. When it comes to evolution, you explained many factors relating to evolution, and it seems that it is really all-inclusive, saying that implement all those in a well-balanced manner. But as far as you're concerned, what are the areas that you would like to focus most?

What sort of company would you like Toyota to become in the future?

Thank you, Mr. Ikeda, for your question. When I took office, I talked about inheritance and also evolution, and the financial result of the ... we have announced today, it reflects that. The profit of an automotive company is the accumulation of year after year of activities. In the previous year, if you look at the financial result of the previous year and compare that with the year before that, while enduring major change in the environmental change, but a steady growth was achieved, and that is to say, the accumulated efforts of strengthening the business foundation resulted in those actual results. What remains unchanged is focusing on gemba and also face squarely with the product and product appeals. Those factors will not change going forward in our mind. As a carmaker myself, I would like to focus on those without wavering from them.

Driving or riding in Toyota cars that feel safe and feel secure, and also enjoy the great pleasure, that's the sort of car I would like to continue making going forward. Now, in that, with respect to evolution, the value created and generated by vehicles will continue to expand going in future. Cars, even if you own them, the actual time in operation is maybe 10% or even less, 5%, so the remaining 95% of the time, the cars are not fully utilized. So our efforts to enhance the value added offered by cars, by riding more on the cars, the attractiveness of cars can be enhanced, and that is what is needed for the future. What we envision as a vehicle, and also the sort of vehicles the younger generation keep in their mind, they're not exactly the same.

Therefore, by drawing out the actual vision of those vehicles that the younger generation might have, to put actual shape to that is something that I would like to do. As a carmaker, I would like to take up that change, and I'd like to realize the new-

... the shape of a new car, and at the same time, a certain ecosystem is needed. That is to say, vehicles still has many negative impacts or negative factors. Minimizing those negative aspect is something that we have to do as our societal mission. To reduce traffic accidents down to zero is one of that, and also, our efforts to reduce emission is one of that, the congestion, another aspect. So to eliminate, minimize the negative aspect of the vehicles is continuing to be made, and also to have the ecosystem that achieves renewable energy circulation. So even if the vehicles exist, we need to change the environment conditions so that the vehicles will be a positive factor, the beneficial factor in that.

So we are continuing to be the car maker and, but in the area surrounding vehicles, we would like to capture those new values and address ourselves to any negative aspect is the new talent that we will take up. Thank you. So many people are raising their hands, and time is running short, so we'd like to have just two more persons to ask a question. In the central row, maybe the third line, please. Inagaki of Asahi Newspaper. I have a question to... Two questions to Mr. Sato, CEO. The first question is about hybrid boom. On the other, BEV market, globally, is decelerating, slowing down. How do you look at this current situation? Is it a surprise for you, or you assumed that will happen? And what is your future outlook, or the, what will happen to BEV market in the future?

That's my first question. Thank you for your question. As has been mentioned, that the actual demand of the customers, their need is most important to promote the transition to electric vehicle, and of course, be ready with a product in advance. So our pace has not been changed or affected at all. According to different speed and changing environment, we will perceive that, but there's no big change for us. But anyway, maybe there was excessive hype expectation on BEV, that some people just overemphasize BEV. But actual use, ease of use for the customers or how the customers will utilize BEVs, maybe reality was not really understood. And then, of course, the renewable energy should be promoted first to achieve carbon neutrality. This is one of the means to achieve that.

Then the excess speed or to accelerate transition that will force us to miss something, meantime, lose something. So maybe we face a bit of a turning point because of that. But what about the future outlook of the market? Well, infrastructure has to be prepared, energy environment has to be prepared, and to the customers, added value by electric vehicle should be offered to them. So it's all up to those elements to really decide the speed. So we cannot say the exact timetable when this will happen and that. But for us, 2026, to the electric vehicles that we have announced certain scenario, so we are always prepared in advance. And actual demand in the market will be affected by the environment at that time, so we are always ready according to our own pace.

My second question is relevant question. As you mentioned, the 2026, 1.5 million units, and then, 3.5 million in 2030. But anyway, for in China, the price competition is getting fierce, as Miyazaki-san mentioned. But price competition should not be something we should get involved in. So the Chinese BEV market is changing itself. 1.5 million or 3.5 million units, the, that, the figure might be revised. Is that likely to be revised? Yes. 1.5 million, the meaning of that, the figure we mentioned is, as follows: That battery EV and how we perceive that, of course, the car architecture will be changed by that, and business structure will be changed by that trigger. The way the automobile should be, will be, changed.

So in the short term, can we- we cannot implement that overnight. A supply chain, entire supply chain should be looked at. We have to be prepared. And many partners and we have to work together to face the same timing, the schedule. So time access, the outlook, as well as the volume outlook, should be also prepared together with them. Otherwise, you don't know what to prepare at which timing. So all those have to be taken into account as a yardstick. So 2026 or 2030, we gave that kind of estimates. But can we really expect the actual demand at that time? It's another story. 1.5 million units worth of battery can be produced and supplied, or can we purchase the, enough batteries, or can we have a structural reform and realize that huge pr- production capacity?

So those are all considered in coming up with the estimates. So whether we can sell or not is another story. So please understand those numbers with that kind of a context. And lately, in China, yes, price competition got fierce, very fierce, and we fully understand the competitive market in China.

... Not just us, but the event, there is a practical, the electric vehicle, the PHEV demand is going up for now. It's like a different variation battery EV. So taking that, that PHEV as another option, we should think of the overall, demand and the market, as Miyazaki-san mentioned. Excessive price competition should never be the one that we should get involved in. We should try to avoid that competition in our initiative, so that we would like to maintain our, our principle and policy. So in that sense, BEV 1.5 million units estimates will still be maintained as a basis? 1.5 million still will be maintained, or as you mentioned, PHEV will be maybe included in that the 1.5 million units you mentioned?

PHEV can be included, yes, in 1.5 million, because the ICE will be evolving new. So it's not just a range extender of a hybrid, but it's a battery EV which is added with a type of ICE. It's that kind of a concept. So that kind of PHEV is a part of the attributes of battery EV, I think, and we can include that in that 1.5 million.

Operator (participant)

Thank you very much. Thank you for asking so many questions. The next one will be the final question. The person in the front row, please.

Moderator (participant)

TBS Umeda is my name. I would also like to ask two questions addressed to Mr. Sato. The first question is as follows, and this follows on from the previous question. It's on the battery EVs. And in your explanation earlier, the situation of infrastructure development is one of the factors, and because of that, the battery EV sales seems to be marking time, so to speak. There has been some slowing down in the speed at which it's been spreading. But at the same time, the high price of a BEV price is one of the hurdles for customers, and as you develop battery EVs in 2026, the affordable battery EV, you said, will be introduced and launched.

But the battery prices and the price of the vehicle itself, once they are reduced to a lower level, do you think that the slowdown could be changed and the marking time we see today may change? Thank you for your question. Now, what can improve the demand is something very difficult for me to respond to or answer. The price, the price range is one of the hurdles for higher demand, I think is something that I can imagine quite well, and therefore, the continued efforts will be made to make prices more affordable. Especially in the case of battery EVs, because of the structure of the vehicle itself, and starting from that basis, the battery itself accounts for a large percentage of overall cost and price.

So the reducing battery vehicle cost means reducing battery cost itself significantly, and that's a very important factor. Therefore, we are trying to develop batteries in-house or manufacture those batteries in-house, and we've been making multifaceted efforts to that end. Of course, sometimes we'll just receive supply, and including our efforts of in-house production development, we will enhance the productivity further, and those need to proceed on the synergistic manner. I may be repeating myself, but the fact that we've been able to make those efforts is attributable to what our chairman, Akio Toyoda, did. That is to say, he constantly said that we are following Multi-Pathway strategy. Because of that, we are now ready to address ourselves to the battery EV.

We seriously and properly studied what we should be doing for preparing battery EVs, and with those assumptions, we are trying to determine that when we are to make investment, and we are also thinking about customers' demand in our own way, so that we'll be ready with the ability to produce the necessary volume. Now, what will be the price that will enable the demand improvement? It's very difficult for us to answer. This was in the case of hybrid as they spread widely, and with technology being enhanced, the vehicles becomes more and more profitable. So we would like to make efforts to that end as quickly as possible. So it's not a clear-cut answer to your question, but, price is one of the factors, without doubt. You're right in making that point. The very last question relates to Forex, foreign exchange rates.

For the operating income exceeded JPY 5 trillion, and one of the factors was of the impact of the foreign exchange rates. But at the same time, the... As the yen depreciates further, the suppliers will find the business environment very tough, and so you are supporting or making investment to support suppliers, among others. What is your assessment and view of the current level of, foreign exchange rate, and in terms of a support of suppliers and, returning some profit for their benefit, could you share your thoughts, with us on that point? Thank you for your question. With respect to the assumptions for Forex rate, and that is included in the, profitability assumptions, it is done quite mechanistically without any subjective factors.

So based upon the most recent results, at this time, in the case of dollar, assumption is ¥145 to the dollar. The automotive industry, including suppliers, are based upon global business. Of course, our home country is very important, Japan is very important, and we establish facilities and plans, and we set ourselves, take root in that. In working with the community, we do business, and that's a long-term business. Of course, markets change from time to time, but with those structures, we continue to compete, and that's been done year after year in the industry, and that will be continued into the future as well.

Mr. Sato, in terms of support to suppliers, could you share your thoughts with us?

I, as I mentioned earlier, the automotive industry has a broad supporting industries. In a sense, together with 5.5 million people working for this industry, we achieved our own growth, and therefore, we consider include them in our own thinking. But in the lower tiers, deeper tiers, among each company, trying to make efforts, these major structural change may be very difficult to implement. So vis-à-vis such industrial structure, we have to pay due attention to that. To create the strategy to grow together with the 5.5 million people working for that is our mission and responsibility. When I talk about this, you might say that you are talking about just protecting the existing industrial structure, and oftentimes, ask that, but that's not the case.

Just work together to achieve the transformation on the reform is what I'm talking about. As I mentioned earlier, unless we enhance productivity of automotive industry by leaps and bounds, simply relying on the volume, that sort of, industrial structure is no longer sustainable, and therefore, change that business structure itself is something that we need to do together with 5.5 people working for this industry. I'm not saying that the existing structure is okay. I'm saying, working with 5.5, million people, let's achieve, change. Unless the supply chain overall is engaged in such change, the industry can not be viable, not just through the working alone. And that's why, we are saying that let's work together to change the future. So vis-à-vis suppliers and dealers, we have decided on this support through our, spending and invest...

making investment money.

Thank you.

Thank you very much.

Thank you very much. Many people raised hands. I would like to entertain one more additional question to conclude the session. One last question. The person in the second row, please. I have a question. Your investment to dealers. In the SDV, you mentioned AI is emphasized. The generative AI has become a big one to change the society, especially in the last one year. How Toyota will deal with this generative AI? Are you going to create a service AI, or do you invest uniquely to the AI data center? And my second question is, it's related to AI, but the semiconductor strategy, if you have any changes, in Kumamoto at just, the second plant where you're investing.

You are also investing there, but do you have any change in your semiconductor strategy when we look at those investment practices?

Thank you for your question. Generative AI and our thought on AI, and about the semiconductor strategy will be responded by Mr. Miyazaki.

So first of all, AI, there are different ways that the automotive industry is integrating AI, like quality check, the decision and the inspection is done by AI, and many other, control, or like, operation and recognition and other areas. Even the turning and running the vehicles, AI is already being used, especially mentioned that the generative AI will bring about the huge, the barrier to cause a game change. So generative AI, one thing, it can change is that the autonomous vehicle quality will be upgraded by AI. The safer and more comfortable vehicle and secure vehicles will be achieved by AI, and that's something we should apply AI. And generative AI has advantage.

That is to say, for customers, they're expected, the level, and then through the proposal, that, the knowledge can be gained by, a generative AI. In other words, the SDV will offer new values, and then the generative AI will be a key function, to really, do that, offer the value. When you apply that to mobility, what is important consideration is that this, you have to have this computation resources and capability has been secured. Otherwise, you cannot quickly respond to that, because offered service depends on that service, speed, so that you have to have a computation resources and telecommunications should be established with security. Those are two aspects which are essential.

Of course, not just TMC, but many other partners will work together to try to build those, this kind of a new, the platform. So generative AI, as I mentioned, is where we prioritize and make investment in this generative AI.

Thank you for your question about semiconductor strategy.

...The shortage of semiconductor was a time we recognized. We were focused on tier one, and then we depended on tier one to do communication with that, all the network. We reflected upon that. After that, we tried to have a more direct dialogue with these, semiconductor companies, and we have more direct communication. And one of the examples is, Chairman Toyoda, and then TMC have a good relation. Because of that, the new relation, recently we invested in Kumamoto recently, so that's our background. Sato already mentioned, in the future, autonomous driving will become very important. High performance semiconductor is crucial for automobiles. So in that sense, the 14nm to the more high level of the semiconductor needs to be supplied and produced stably.

So that kind of good relation should be built with the different semiconductor suppliers, and we'd like to further enhance this relationship so that the Renesas, in addition to Renesas, TMC, TMC, and our relationship needs to be further strengthened. And with other semiconductor companies, we'd like to build a good, solid relationship. So about the investment value, the same as before? Yes, there are no additional investment in semiconductor. The number I presented today, it does not include additional new investment. Thank you very much. So, we are behind the schedule, but this concludes all the question and answer session. So this concludes the financial results presentation on FY2024. So that the speakers now stand up, please. So again, thank you very much for your time to attend this conference today.