Thank you, everyone, for joining us despite your busy schedules. We would now like to begin Toyota Motor Corporation's FY 2022 Second Quarter Financial Results Press Briefing. Starting by introducing our presenters today, Chief Financial Officer, Kenta Kon; Chief Communication Officer, Jun Nagata. We would now like to begin by having our CFO, Mr.

Kon, explain about the financial results..

sales revenues of JPY 30 trillion, operating income of JPY 2,800 billion, income before income taxes of JPY 3,440 billion and net income of JPY 2,490 billion. Next, I would like to explain the factors that impact operating income year-on-year compared to the previous forecast.

The operating income forecast has been revised upward by JPY 300 billion from the previous forecast, taking into account the increase in operating income due to the revision of FX assumptions, reflecting the weaker yen and the decrease in operating income due to the increase in raw material costs.

The factors that will impact operating income compared to the same period of previous fiscal year are as shown in the presentation.

Although we continue to face unpredictable conditions with regard to the stabilization of supply as well as issues such as the sharp rise in raw material costs, we will continue to work towards the future and establish the lessons learned from the COVID-19 crisis. Thank you for your attention..

[Operator Instructions] Mr. Katori from Yomiuri Newspapers, please. [Operator Instructions].

This is Katori speaking from Yomiuri Newspapers. I have 2 questions. First, for this ended first half performance, I would like to hear your assessment and summary. Especially the operating income, maybe there has been some changes, but I do think that it's a record high from the past history.

So for the factors that contributed to that and also for the large vehicle side performing very well, the sales was very well from new car sales, I'd like to hear about the factors that contributed. And especially, I'd like to ask about the production recovery plan. I think you've made a report about what your plans up to November.

But up to December, are you -- I think we hear that you will be operating on the weekend as well, including Saturdays, but still, there is some impact from COVID. So what kind of recovery plan do you have? That's my second question..

Thank you, Mr. Katori, for your questions. So your first question was about the assessment of the ended first half of this term about what were the contributing factors. And your second question was about the production recovery plan after December. That is how I understood your 2 questions.

Am I correct?.

Yes..

So both of those questions will be responded from our CFO, Mr. Kon..

Thank you very much for your question. Regarding the first half second quarter results, the assessments, if we can look at the third page of the presentation material, thank you. This is the summary. And I’d like to make some additional comments on this – in addition to this page.

So as you can see on the very top, globally, production volume has declined globally. That is how we see the first half of this fiscal year.

But in this situation, our dealers, our suppliers, our plants, the plants worldwide, so the gemba or the operations side, they have made great efforts to supply as much cars as possible to the customers without stopping the vehicle plant. If a vehicle plant stops, there will be a huge impact to our suppliers and stakeholders.

Therefore, the people working at the operations side wanted to avoid that situation and made strong efforts. And that has contributed largely to our results. But on the other hand, we are, in fact, having customers wait for the car delivery. So there are many challenges still that we have to work on.

And also for the sales results, even though there was limitations in production, the sales side did not drop so significantly. Compared year-on-year, actually, there was an increase.

And this is because the dealers, they have worked – made efforts to drop their level of inventory, also made efficient sales activities, also been able to work flexibly with the existing inventories. So they have been working hard to capture the sales opportunities, have good communication with the customers to deliver the cars as much as possible.

This was also a huge contributor to the results. And on the other hand, there were some areas that went beyond our underlying strength. And it might be just partially, but the new car sales is tight in supply, and therefore, used car prices have – are now at a high level.

And as a result, the financial businesses, the residual value balance has turned positively. And this is mainly contributed by the high used car price market. And regarding incentives, under the current situation, for all of the OEMs, it’s the same situation, but we have been able to keep the incentives low.

So these kinds of environmental aspects have contributed. This will be beyond our underlying strength. However, for the market fluctuation, the higher commodity price market – higher commodity prices is also a large impacting factor. We are not in a situation where we can hand on these price increases to our customers.

Therefore, cost reduction, fixed cost reduction, also making efforts to enhance the vehicle value, these were the efforts made to recover the negative impact from the market fluctuation. For the cost reduction and fixed cost reduction, there has been huge efforts made company-wide, and this effort is continuing.

Going through COVID, we have – don’t have a feel at the point of this time that we are returning back to the before COVID times. So that will be a positive feeling that I have.

I’m sorry to be lengthy – giving you a lengthy answer, but one of the reasons why we did not drop – see a big drop in the sales activities is because the product appeal being enhanced as a foundation of our business, I think that is a large contributor, having a stronger product appeal.

TNGA was led – or started from the initiation – from the President Toyoda’s statements. And those initiatives were taken, product appeal strength and also to set the products in a group or series and families and to achieve ever better cars. And this kind of activity had contributed in this result, I believe.

And for your second question about the production recovery, after December, we do still see much risks there. However, for the production volume, the 9 million that we have announced today for December and January, February, March, if we operate in a full operation, we still see some risk in order to be able to operate fully.

Therefore, it is slightly conservative, this 9 million in volume. But based on our running production situation, including the Saturday operations, since we have customers waiting, as a fact, we will do whatever we can to continue the production. So this will be my answers. I hope I have answered your question..

Thank you, Mr. Katori, for your question. We would like to move to the next question. Mr. Kondo from Asahi Newspapers, please. [Operator Instructions].

My name is Kondo from Asahi Newspapers. Can you hear my voice? Can you hear my voice? Okay..

Yes, we can..

So based upon your financial results, I have a question starting with the sales and operating income and net income. I think it is victory, historical high, and you made a revision, upward revision for the full year. Yes, yen depreciation was one factor, but I see wonderful numbers. And still, the society as a whole is suffering from COVID-19.

And also the auto industry, especially the small suppliers, have to deal with carbon neutrality and also face the challenge of CASE and other new technologies. In other words, they are still struggling to turn around their profit. And I understand your number is based upon those suppliers' numbers.

How do you accept this? And what do you think about returning those profit and also [divisions]? And also your relationship with suppliers, especially with Nippon Steel, the champion negotiation so-called is the negotiation on the steel price every half a year.

And at Nippon Steel, R&D investments and development costs are being the reasons for the negotiation. So what is your measure? And how are you going to deal with this? And what's your thoughts on this? And especially this litigation on this patent and -- you are expected to make a scientific proof on this.

And how are you going -- what is your position on this litigation?.

Mr. Kondo, thank you so much for your question. The first question was about our good performance on this interim financial result. Well, number-wise, and your question was that our numbers were based upon suppliers' numbers and what is our take on this, well, Mr. Kon is going to answer on this.

And with regard to the relation with Nippon Steel, and the first question was on the price negotiation, Nippon Steel is asking for a further price hike and what is our opinion on this. And the second is about this electromagnetic steel, what we think about this. And Nagata, myself, will answer this question later..

Yes. Regarding the first question, I would like to answer, first of all, with regard to relations with suppliers, well, we would like to coexist with our suppliers so that we can reduce cost and enhance the competitiveness together. We would like to enhance competitiveness of suppliers, and we would like to reap the achievements fairly together.

And this would also include our customers. We have not changed this philosophy all along. For example, yes, we do receive comments, like the one we just received, from time to time.

And as I've been involved in the conversation and dialogue with suppliers, for example, we made announcements of reducing our production volume a couple of times, and orders in -- from Toyota has a very high certainty. And on top of that, when there is a production volume decrease, we try to let them know as soon as possible also in detail.

And especially when there's a decline in the production volume, the parts delivered from suppliers would also decrease. So there is some impact. But we also get opinions from suppliers that they don't have much loss from this because we try to reduce the cost by optimizing the quality, and also we try to deal with concerns of suppliers.

And there are several thousands of proposals from suppliers.

When I went to visit one of the supplier the other day, when I heard from them, including many stories they share with us, for example, recently they told us that when Toyota makes some casual comments, for example, these components need to be visible, if we make such a whisper or if we mumble that, then the supplier would use ink that would never disappear to clarify the location of that part, and that could be expensive.

So when our engineer goes to the site to see that ink, the engineer would say, "No, no, you don't have to use this expensive ink, but you can use a marker instead." In such ways, we are trying to enhance the competitiveness together. And as a result, suppliers would have less concerns. Of course, we are still in the middle, so it's never complete.

But we think we are trying hard to carry out these kind of activities together, but the fact that we are still receiving such comments from outside like this one, maybe we need to try harder. So if you could deliver such feedback, then we will stop and rethink and try to improve ourselves further. Please continue to give this guidance.

This was my answer to the first question..

Mr. Kondo, regarding the second question with regards to the relations with Nippon Steel, starting with the price negotiation, as you know and this year, price hike was in the conversation. It is not limited to Nippon Steel, but in the steel industry as a whole, there will be significant investment in carbon-neutral aspect.

And we are also struggling with the hike of material cost. And we, honestly, understand their circumstance at Nippon Steel. And on the other hand, as you may also be aware, we are in the B2C business. In other words, we deliver the complete product, which is car, to customers.

In other words, even when there are price hikes, it is difficult for us to transfer those hikes directly into the consumers. That’s the nature of our industry. So as was explained, we have to sincerely steadily reduce costs one by one.

In other words, with regards to price negotiation, both sides need to explain each other’s circumstance and understand each other and then continue to sincerely negotiate how we can set the price. And regarding the electromagnetic steel, it is, yes, a litigation right now.

But there are 5.5 million people in this industry, and then we pursue to achieve carbon neutrality in the auto industry. Therefore, we have to try making this effort steadily and sincerely. And regarding the litigation, I have to say that because this is a pending case, I have to refrain from making any further comments. That is all from myself..

Thank you very much, Mr. Kondo. We'd like to move on to the next question. From NHK, [Taruno-san], please. [Operator Instructions].

Excuse me.

Can you hear me now?.

Yes, I can hear you..

So first of all, regarding the sales volume, you have reviewed the forecast. And can you explain about the factor why we have done the review? And hearing the results, it seems that it is improving, but your explanation was that in substance, it is a downward revision. So you are looking at this at a very -- that it is a tough result forecast.

So can you explain also why you're looking it from -- as a tough forecast?.

I think you have one question. So this, the reason and also how -- the way of concept of this reviewing of the sale and production volume and also for the, in substance, downward revision, why are we having this kind of a tough understanding of the forecast, the reasons is what you've asked..

Yes..

So Mr. Kon will respond..

Thank you for your question. Regarding the review of our sales volume, so on this slide on the screen, you can see the initial – first initial forecast term, it was 8.7 million for the consolidated sales, which has been dropped to 150,000 this time with the most – latest forecast. And we’ve had some opportunities to explain this up to this day.

But there are some situation where we had to drop our production plan volume from our initial plan due to certain reasons. And I might be repeating myself, but first of all, there’s the – in Southeast Asia mainly, COVID-19 has had impacts. And therefore, the local production plants had to be shut down, and the parts supply had limitations.

And also, there were some impacts from semiconductor issues. Malaysia, Vietnam, there were parts supply shortages that there were some months that had a drop in production because of these impacts. So one – the review – a reason of this review will be impact from those factors.

And also about the downward revision that we are interpreting the forecast in a very tough perspective, to explain that, for the first half results, for example, compared with last year and 2 years ago, we do understand that it is a large increase in operating income.

And again, repeating myself, this is really because of the strong efforts by the dealers, the suppliers and also the people working in Toyota. There were strong efforts made so that they can deliver the customers the vehicles as much as possible, as early as possible.

And all of these efforts has beared – has been combined to come up with these results. However, in these results, there are some areas – there are some reasons or factors that was a contribution from the – something outside of our own strengths. So we are looking at that neutrally.

And for the full year forecast, it is actually, in numbers, an upward revision. But we focus on the areas outside of the ForEx event – effect, and we focus on those non-ForEx impacts to make improvements in the profit as much as possible. So that is how we explained outside as well.

And when we focus on these non-ForEx impacts, we do see multiple challenges that we have to face. So as much as possible, we’re going to make efforts to recover and overcome these challenges to improve as much as possible. So that effort will continue. That will be my explanation for your question.

Did I answer your question?.

Mr. [Taruno], thank you very much..

Yes, understood..

So from Wall Street Journal, Mr. Sean. [Operator Instructions].

All right.

Can you hear me?.

Yes, we can hear you..

Great.

So I was hoping to get a little more insight into your outlook for the remainder of the year and on next year in terms of when you think sales volumes will fully rebound, basically when the industry will get back to normal, what's your outlook on that, and what are the biggest challenges to achieving that? And then secondly, I'm wondering if you could talk about shortages beyond semiconductor.

So we've seen some news recently about shortages with magnesium and other parts.

Basically, what are you seeing on the horizon? What are the things that you're looking out for that could possibly affect your recovery?.

Thank you very much for your question, Sean. First of all, your question was about the timing of our recovery in the remaining year and also the overall industry's recovery and what are the challenges to achieve that. This is the first question. And the second question is that now semiconductors are in shortage, and it is being focused.

But other than semiconductors, is there any concern and any shortage? Then we would like to -- you would like us to make a comment on this. Mr. Kon is going to answer both questions..

Thank you so much for your question. Starting with the first one, in the remaining period of fiscal year, the timing for us to completely recover, it is difficult to make anything certain. Of course, risk is becoming significantly smaller. However, we’re not in a stage to say that the risk is zero. I don’t think the situation allows us to say that yet.

And for semiconductors, well, there are many factors, many things, games – and the other component, demand has – the demand has sort of stopped. So the supply-and-demand balance has stabilized. But on the other hand, the semiconductors are different from the type to type, so we have to be very cautious in looking at it.

So in December, in January, I cannot say that it will recover to the past. I cannot say that there is no risk in reducing the production. However, in comparison to the past level, even though there are some risk of production decrease, it is going to recover quite a bit. And that is the situation.

And as for the overall industry, I cannot say anything certain about the industry. But for the challenge, the supply of the components, if it is solved, then the OEM challenges will be solved all of a sudden.

And in that sense, the energy and the material costs, we hope that those prices would not be hiked so rapidly, and we have to also secure those materials. And that is the challenge that we are facing at the industry. Other than the semiconductor, there is nothing that is critical at the moment.

Due to the energy shortage, some magnesium, yes, we are hearing that there are some shortage. However, we do not think that is a critical issue at the moment, and that’s not what we hear at the moment..

Thank you, Sean-san, for your question. We'd like to move on to the next question. Shiraki-san from Reuters, please. [Operator Instructions].

I'm Shiraki from Reuters, and I have 2 questions as well. So in your consolidated sales forecast, the electrified vehicles volume is my question. Also, compared with the initial forecast, there has been a slight decrease.

And I might be taking it in a selfish way, but here, is it purely about the sales trend impact? Or is it because of the semiconductor crunch and the material price hike? Because of such a high level of material prices now, does it mean that price pressure is more on the electrified vehicles related to the inventory management issue that you said before? Maybe are you focusing on selling more of the conventional gasoline vehicles? Will that be a background to this revision? Gasoline price hikes is another trend that we're seeing in the market.

And so of course, from an environmental perspective, I thought that electrified vehicles will have a higher ratio. But why is it that you dropped the ratio there, too? And next question is about not related to the performance, but in the -- under Mr.

Kishida's administration, there is a topic discussed about to review the disclosure from companies and to reduce the frequency from every quarter. And from the press, there are some concerns.

But from the PR side or functions inside the company, also for the investments toward -- making future investments towards human resource development and other business plans, some people say that quarterly disclosure will be too much frequent.

So Toyota being a global company, what are your thoughts regarding this quarterly disclosure? And in Europe, there are some reviews that are being discussed.

But if you have any ideas about what will be an appropriate way to review the quarterly announcement, can you share with us?.

Thank you, Shiraki-san, for your questions. The first is for the electrified vehicles volume, it has been downward revised from the previous forecast. So the reasons is what you want to hear. And the second question is about the disclosure announcement of the quarterly results.

There is a discussion about reviewing this frequency and what does Toyota think about this topic. And so that -- both of it will be responded by Mr. Kon..

Thank you for your questions. Starting with the electrified vehicle ratio, as you have pointed out, slightly the ratio has dropped. But there is no significant factor to this, such as a global common factor. That is not the case.

For electrified vehicles and, for example, China, China is not included in the consolidated sales volume, but hybrid accounts for about 20% last year in China. And this year, it has increased up to around 30% electrified vehicles in China.

And therefore, globally, it doesn't mean that we see a reduction in the ratio of electrified vehicles in the global market. So our understanding of this change is that this is not a significant change -- difference..

No, it's not about the ratio, but I wanted to hear about the volume -- actual volume.

Well, so is that the same reason as well?.

Yes. For the forecast, we first see that -- a drop of 150,000 from -- revised downward from our initial forecast. And it's not that we intentionally drop only the electrified vehicles, honestly speaking.

So it's just that looking at when we revise the most -- latest sales volume forecast, we have revised also in same ratio as in the same way the electrified vehicles. So this is not something that is just focused on electrified vehicles changes.

And is it okay? Did I answer correctly? Was there any -- did I make any misleading comments?.

No, I'm fine. I understand now..

Thank you. So for your second question about the quarterly performance announcement, for right now, I do not fully – I’m not fully aware of what kind of discussions in detail is happening. But when I talk to investors and stakeholders, it needs to be something that will be beneficial for the stakeholders and investors.

That is the way I look at the quarterly results announcement. A company, as a going concern always, well, rather than every 3 months, we are thinking about 10 years in the future, 20 years in the future as we operate our business. I think that’s a common way that a company operates.

And in the meantime, of course, we will have to – it’s very important to make the most appropriate and timely announcements and reports. And for key matters, for very important matters, we don’t have – we should not wait 3 months and we should make those kinds of reports and announcements of key matters in a timely way and appropriate time.

But if the quarterly results should be announced, we have to think about – it will – may cause that the ups and downs as seen in every quarter may be in sync with the ups and downs of the company value. So if it is understood in that way, probably it will not be so positive to make a quarterly report.

Therefore, together with those financial disclosures, we think that it’s important to have media like Toyota Times, our own media like Toyota Times to be able to disclose the way of thinking of Toyota, the philosophy of Toyota, what’s happening in Toyota.

We think we are trying to use the most of these own media to explain about what is happening within Toyota, and I think this is quite important for us. So that will be my answer to your question..

Thank you, Ms. Shiraki. We'd like to take the next question. From Nikkan Kogyo Shimbun, Ms. [Masatoshi], please..

This is [Masatoshi] from Nikkan Kogyo. Can you hear me? Regarding the first half results, so minus JPY 30 billion for the cost reduction efforts, and I think this was impacted by the material cost increase.

So together with the cost reduction benefit, can you give me the breakdown? And also concerned with the period from January to September, the raw material price, did you change your opinion and position on this? And that's the first question.

And second question is that this situation -- under this situation, what kind of extra room do you have to gain back those benefits? And what are the measures that you're going to take?.

Thank you very much for your question, Ms. [Masatoshi]. The first question was about the impact of the cost reduction and the breakdown of that. And also your question was about the hike of the material price. And the second question was about whether or not there is any more opportunity to recover the profit. Mr. Kon is going to answer this..

Thank you so much for your question. In the first half, so minus JPY 30 billion breakdown, so the so-called pure cost reduction excluding the market is about JPY 300 billion per year being the target for us, and because this is half year, which will be JPY 150 billion. And we were a little short of this target as a result of the pure cost reduction.

Conversely speaking, the other than that was the market fluctuation, a little less than JPY 100 billion. We were short of this target, unfortunately. This is the cost reduction benefit, and the remainder is the market. In the second half – one moment, please.

In the second half, compared with the first half, the impact is going to be larger a little bit. On year-on-year basis, the cost reduction will be minus JPY 345 billion, on Page 18, that is, 18. The annual cost reduction is JPY 300 billion, and we are also a little short of this target.

In other words and conversely speaking, remainder is the market fluctuation, but a little more than JPY 200 billion is the cost reduction, and the remainder is the market impact. In other words, net-net, the second half is going to be – suffer a little tougher than the first half.

And our measures to strengthen our profitability, well, on this point, as much as possible, the FX fluctuation should be eliminated as much as possible. In other words, we would like to turn this number more positively by excluding those FX impacts.

That is the numerical aspect, but there is no major measure which can turn around the number by JPY 100 million all of the sudden. It’s in the unit of several thousand or several tens of thousands, the accumulation of small benefits.

And we will continue with those series of more methods, and also value chain, including the supplies and used cars and connected car business software, we would like to further improve the profitability of those areas. And by doing so, we would like to improve our profitability higher, more than JPY 2,800 billion..

Thank you so much, [Masatoshi-san]. It is now the scheduled time. However, we'd like to take a last question. From Toyo Keizai, Kigawa-san please. [Operator Instructions].

Can you hear me?.

I think your microphone....

Can you hear me?.

Yes, we can hear you now..

I have a question about the -- your future plan about how you promote electrification. 2030, 200-gigawatt plant operation capacity is what you explained to secure, and bZ4X was what we have announced. And in 2025, you're going to have a North American plant established and make an investment by Toyota alone.

And in the meantime, what happens in the world is electrification momentum, strong gains -- becoming stronger. And also, you'll need a lot of investment. You need to have efficiency in your investment.

But once again, how are you going to be taking initiatives toward electrification promotion?.

Thank you, Mr. Kigawa, for your question. This question myself, Nagata, would respond to. Regarding electrification, we receive a lot of questions, and we have repeatedly responded that basically, it is about how we are going to reduce CO2 as quickly as possible starting now.

And what Toyota has been saying is that regarding electrification, we are going to become a department store of electrified vehicles, which, in other words, means that we’re going to have a full lineup of electrified vehicles so that we can deliver it to various regions and markets, customers all around the world, and have our customers choose what they want to use.

That’s what we have been saying is our approach. And for each region, especially the energy situation that will be supplied there and also the fuel situation is completely different. Therefore, in Europe, there’s a lot of renewables. So battery Evs will be good.

But in other regions, there should be other options that will be most appropriate for them and to have the consumers, users select it. So this has always been our approach. And for what you have mentioned, Mr.

Kigawa, regarding battery Evs, we also think that for both quantity and cost, if the renewable energy is reduced further in terms of cost and have more supply, then the battery Evs will be a very good potential CO2 reduction vehicle, a very good solution.

And as you have mentioned, the batteries, Toyota is going to make JPY 1.5 trillion investment to build that foundation for supply. And also within United – America, we’re going to make until 2030 the battery plants – making investments of JPY 380 billion.

And for – until 2025, the battery EV investments and lineup, we have committed to 15 models to be prepared in that timing. And then we have bZ4X, the batteries EV – EV-specified lineup we have announced, so batteries and battery Evs, both of it. To other – it doesn’t – compared with other OEMs, I don’t think we are inferior.

I think we are preparing ourselves to be competitive in the competition with other OEMs regarding batteries and battery Evs. So we will be steadily promoting this approach and plan. However, up to now, we have been saying many things. But at the end, battery Evs, you need to have the clean energy as the base.

If you have clean energy as the premise, then – as a precondition, then it will be very effective. But unfortunately, in Japan, with our energy situation, rather than battery Evs, the plug-in hybrids and the other electrified vehicles meet our conditions. It will reduce the CO2 emissions in Japan, and also, it will be also easy to buy the product.

And then that will also contribute to reducing the CO2 emission in this region. So this is also what we have been saying. And also in order to promote electrification, having the options, a wide variety of options of electrification is what we want to do. And that means the full lineup of electrified vehicles in Toyota terms.

So in order to prepare this full lineup, we will be working on various technical innovations so that Japan’s 5.5 million employment related to this industry can be protected. This is another message that we have been saying. But very unfortunately – so we are going to do a lot of electrified vehicle projects.

But what is happening now, that will be a question that we have been asked. And unfortunately, some people are saying that Toyota is a promoter of hybrid and is against the promoting battery Evs. Unfortunately, that is how we are talked about. But – so I’m feeling a struggle of – it’s very difficult to communicate what we’re trying to do.

So that is also a fact, feeling that our message is not really conveyed. And so how we have people – how we communicate this, how we can receive the understanding that Toyota is very serious in promoting the battery EV, this is something that we still have to consider and plan. And that is a struggle that I have right now regarding how to communicate.

So I very much appreciate the advice and comments from the media, too, so that we can think about how we will be able to better communicate. I’m sorry, I received – I’m giving you back a question receiving a question, but I hope that we can work together in that communication side.

Well, then about the battery Evs, how you explained that, especially the communication to consumers, you said a little earlier that you are well positioned to compete with the other OEMs. And probably the way that you expressed this should be changed. I think I need your advice on that.

Well, we always talk about we’re going to show media it’s better to have a more concrete lineup of battery Evs more clearly and show it to the present consumer. But we’ll now be putting our heads together to think strong – to think about what is the best way of expression in communicating our intention for the electrification promotion..

Thank you very much, Mr. Kigawa. And with that, we'd like to end our financial results briefing. Thank you very much for joining us despite your busy schedule. We would like to end our press briefing here. Thank you..