Toyota Motor Corporation (7203) Earnings Call Transcript & Summary

Thank you everyone for joining us despite your busy schedules. I would like to now begin our New Management Policy and Direction Announcement. I will be your MC today. I am [indiscernible] from the Public Affairs division. Thank you. We would like to start off with a presentation about the new management policy and direction. [Presentation]

Hello, everyone. I'm Koji Sato. Thank you very much for taking time out of your busy schedules to be with us here today. At the start of April, our new management structure has kicked off. I would like to start off today by talking about the management vision of our new structure and the future we are aiming for. Our new management structure's theme is inheritance and evolution. I believe that inheritance means clarifying our unshakable motives and to move into the future. Let's make ever-better cars. This is the most important value we have cultivated over the past 13 years. Talking about cars on the front lines and striving hard to bring smiles to the customers' faces. Toyota values are vision in car manufacturing. We will continue to pursue ever-better cars together with our Chairman, Toyoda, who is a master driver and also known as driver Morizo. Since that is and will continue to be the centerpiece of Toyota, the carmaker that manages by using its products. This is a photo of my first car or Aisha, the beloved car. I have loved cars since I was a child. And by being involved in making cars at Toyota for many years, I learned the joy of car making. I want to share that joy with many colleagues and together with my colleagues, I want to create cars that make our customers smile even more. That is why I want to be a President who keeps on making cars. Another thing I would like to be determined about as President is team management. Car making is a team effort. Together with the 370,000 Toyota associates around the world, our suppliers and our dealers, we all make cars together. I would like to put into practice management that leverages the team power of such a car maker. Today's Toyota has many management members who share the same values, but at the same time, are highly individualistic with unique personalities. In times of rapid environmental changes, such as now, we must play with our roles, not titles, to move across functions and thereby increasing the volume of what we put into practice many times faster. This will be most important. And that is why under the new management structure, we will accelerate the taking on of challenges for the future with the new management style of simultaneously and organically working as a team. From now on, we aim to transform into a mobility company. Toyota's mission is producing happiness for all. We want to protect the beautiful earth and enrich the lives of people around the world. We want to change the minus or negatives first to zero and then further create the value Beyond Zero. That is our aim as a global company. For the car to continue to be a necessary part of society, we need to change the future of the car. For that, there are 2 major themes. The first is carbon neutrality. We are fully committed to achieving carbon neutrality in 2050 over the entire life cycle of our vehicles. When it comes to car manufacturing, we will continue to pursue a variety of options based on a multi-pathway solution to stay close to the future of energy the condition of each region. First, we will thoroughly implement electrification, which we can do immediately to steadily reduce CO2 emissions from where we stand now, we will promote in a practical manner, the popularization of electrified vehicles. We will strengthen sales of hybrid electric vehicles, including in emerging markets and increase the number of plug-in hybrid engine electric vehicle options. We will expand our lineup of battery electric vehicles or BEVs which represent one of the important options over the next several years. At the same time, we are boldly preparing for the future. As one of our efforts, we will do our utmost to develop next-generation BEVs for the era of BEV populization and create new business models. And we will also accelerate projects for the realization of the hydrogen society that lies just beyond. With partners across industries and countries, we will advance the expansion of the realm of using hydrogen by such means -- social implementation in Thailand and Fukushima, the mass production of commercial fuel cell electric vehicles and the development of hydrogen engine technologies in the area of motor sports. For the norm, we will work with the energy industry to develop technologies for carbon-neutral fuels. We will work to promote electrified vehicles and reduce CO2 emissions with leaving no one behind, including in emerging markets. Through this all direction approach, we aim to reduce the average CO2 emissions for vehicles we sell worldwide by 33% by 2030, and by more than 50% by 2035 compared to 2019. We will continue to promote decarbonization globally and steadily towards 2050. Another thing that will change the future of cars is expanding the value of mobility. The cars of the future will become more connected to society as they become more electrified, intelligent and diversified. In addition to moving people's hearts and emotions and physically moving people and goods, we will gather the movements of energy and information and link them together as one through [indiscernible]. By doing so, we will be able to provide seamless mobility experiences that are connected with other forms of mobilities as well as provide new value for cars as part of the social infrastructure. Cars connected to society will also be closely connected to various services that support people's daily lives, such as telecommunications and finance, expanding the circle of new value-added services centered on mobility. Carbon neutrality and the value of mobility. Based on these 2 themes, we have developed our mobility society vision, the Toyota Mobility Concept. Our vision is to evolve the car to be more useful to society based on its essential values, which have been cultivated over a long time, such as safety, security and fun to drive and to realize the mobility society in which everyone can move freely, happily and comfortably. Towards such a future, we will continue our transformation into a mobility company in 3 domains. The first is Mobility 1.0. What we aim for in business is to extend the value of the car by connecting various types of movement. For example, BEVs offered new possibilities as mobility that transports electricity. Collectively serving as an energy grid, BEVs can enhance the energy security of society. That's the kind of role that BEVs can also fulfill and intelligence can evolve cars even further by utilizing information gathered from cars and customers. Our software platform, Arene, holds the key to this new kind of car making, connecting the latest hardware and software will enable cars and various software applications to freely connect. Arene will fulfill an important role as a platform to support this kind of evolution. We will do our utmost to develop a next-generation BEV for 2026 together with Woven by Toyota. What we aim for in the second domain, Mobility 2.0 is to expand mobility into new realms. There are many people for whom we are not able to support mobility yet, such as the [indiscernible] people living in depopulated areas and people in emerging markets in which the car market has yet to mature. New mobility possibilities such as Mobility in the Sky are also expanding. Toyota, in addition to having a full lineup of vehicles has a network of colleagues across industries, including in new forms of mobility such as the e-Palette and the domain of MaaS. Leveraging these strengths, we would like to go beyond our current scope of business to provide greater mobility support to our customers around the world. On Mobility 3.0 is about integration with social systems. Creating mobility ecosystems that tie into energy and transportation systems, logistics as well as the way we live and are integrated with cities and society and the future that realizes well-being. For such, we will proceed with our demonstration experience in Woven City. For example, we will advance our development of a new logistics system, the development of city integrated autonomous mobility and the demonstration of the CO2-free hydrogen supply chain that starts from Woven City as well as a demonstration for expanding the potential of hydrogen use in our daily lives. In addition to these demonstrations that has utilized digital technologies, from 2025, we will accelerate comprehensive demonstrations in real cities leading to social implementation together with our partners. The most important message we want to convey through our Mobility Concept is that mobility lies beyond the future of the call. Cars lies at the center of our transformation into a mobility company. We will be expanding the possibility of cars. And to do so, it is necessary to evolve based on the concepts of best-in-town and ever-better cars, which we have long cultivated. We will change the future of cars based on our products and regions. Next, will be a more detailed explanation from Executive Vice President, Nakajima about our efforts centered on products, followed by explanation by our Executive Vice President, Miyazaki on our region centered efforts. Your turn Mr. Nakajima.

I am Hiroki Nakajima and I will be in charge of Products. As a Chief Engineer, I oversaw the development of the 2 cars pictured here. Working with many colleagues, we faced many challenges and enjoyed many great moves together. I love that kind of car development. At the same time, we made many mistakes. These became flesh and blood, shaping who I am today. The way I looked and approach my work, even [indiscernible] me the nickname Bulldozer. I believe that it is also more important to pay the way forward at a time when the right answers are unknown. With this in mind, I would like to share my thoughts on our product-centered management. Earlier, we heard about the Toyota Mobility Concept. It is centered on enhancing the value of the car, expanding new mobility and freedom of movement and providing new services and energy solutions as part of the social system. I will talk about the 3 approaches that holds the key to realizing this vision, electrification, intelligence and diversification. Let's start with electrification. I want to start by saying that we remain firmly committed to our multi-pathway approach. We will continue to tailor electrification to the needs of customers and individual regions by drawing on the strength and characteristics of these vehicle type. First, battery EVs. We will expand our current lineup by releasing 10 new models by 2026, which would amount to 1.5 million vehicles in sales annually. Apart from that, we also have plans to release next-generation BEVs, entirely different from those of today, BEVs created by carmakers in 2026. This new generation of BEVs will double driving range by using batteries with far greater efficiency, while also offering designs and driving performance to set heart racing. We will also transform manufacturing. During on the strength of our Toyota production system, we will change the way we work to reduce the number of processes by half. This will entail a shift to more efficient lines, including autonomous inspections and unmanned transport powered by connected technology. We will completely transform the landscape for our production plants. We also aim to achieve CO2 carbon neutrality at all of our global plants by 2035. Also, we will overhaul existing supply chains by working with suppliers to procure superior quality products -- quality parts at lower prices. With realize of these transformations, we have created a new specialized units. Working under a single leader interested with full authority, this only one team will handle every function from development to production and business operations. TNGA will make it possible to cut development intensity and in-house investment in half. We will provide the team with comprehensive support through the power of our 10 million strong sales and revenue base. Next, plug-in hybrids. By increasing battery efficiency to extend the EV mode driving range beyond 200 kilometers, we will reposition PHEVs as a practical BEV. We will work hard on developing this as another BEV option. For FCEVs, we will pursue a mass production centered on commercial vehicles. As indicated by the blue line on the left-hand graph, one feature of FCEVs is that the energy source hydrogen is lightweight. So even when traveling longer distances, the vehicle is not as heavy as a battery EV, and this space is required. Refueling is also much quicker. Taking advantage of these strengths, we will work with business operators to promote FCEVs by starting with commercial vehicles such as medium to heavy-duty trucks. Additionally, we have started basic research on hydrogen engines for heavy-duty commercial vehicles last year. For hybrid EVs, we will continue to improve our products with a focus on high-quality and affordable prices. offering electric vehicles that can immediately contribute to carbon neutrality by accounting for local energy conditions and customer ease of use. We are also committed to becoming carbon neutral with few options, not only for new vehicles, but also for vehicles already on the market. Next is Intelligence. I will explain the role of intelligence in the cars themselves, the underlying services and then expanding our connection to society. First, the shift to intelligent cars. This will involve gradually expanding advanced safety technology, multimedia and other constantly evolving feature updates to all of our vehicles. At the same time, alongside advances in the onboard operating, our next-generation battery EVs will enable users to customize ride feel according to their preferences for how the vehicle runs turns and stops. By also loading the vehicle's essential attributes, we will create cars that are more fun to drive in terms of both hardware and software. Next is Intelligence Services. This year, we will begin the public rollout of new services that connect course to cities and infrastructure. For example, logistics systems that use real-time traffic information to this transport efficiency and systems that provide optimal energy management. Partnering with cities and public facilities, we will also expand our battery EV charging network and will provide various services to support people's lives, including serving as part of Energy [indiscernible] to contribute to society. These efforts are already underway at Lexus. Then there is the role of Intelligence to Society. Within city, which we position as our mobility test scores, will serve as a living laboratory for trialing various ways of predicting people, cars and society. For example, in the area of connected logistics services, we will use Woven City to address any issues that come to life through public trials. Before once again implementing these services in society. By repeating this process, we will accelerate the realization of intelligent societies. Finally, we come to the third point, Diversification. I'll talk about our approach to diversification, which goes beyond cars to mobility itself and even the energy sector. Firstly, the diversification of cars will involve expanding our product line, services that utilize connected technology as well as parts, accessories and business collaborations with new partners. Next is the diversification of mobility. For example, we have developed an easy lock system, we're securing wheelchairs with a single motion, utilizing the know-how we have accumulated over many years of developing welfare vehicles. The system will be implemented this year, and we will expand this not only on land but also to the sea and sky. We are committed to ensuring stress-free travel for wheelchair users. We will also expand our efforts to new mobility businesses such as our collaboration with Chibi. Then we have energy diversification. Demonstrations using hydrogen made from water, food lost and other wastes, as well as carbon neutral fuels made from biomass and other resources have already begun in Japan and Thailand. This energy will also be trained in the fields of motor sports. With a view to promoting widespread adoption in society. Today, I've talked about electrification, intelligence and diversification. Through our cars, we aim to create the future by working together with like-minded partners to spread the value of these ideas to all of society. With that, Executive Vice President, Miyazaki, will now explain our vision centered initiatives. Your turn, Mr. Miyazaki.

I'm Yoichi Miyazaki. Up to now, I have spent most of my career, mainly in the over -- overseas sales area. I hope you will remember me as the CFO connected to the regional CEOs. Now from myself, I'd like to talk about the region centered management. Our President, Mr. Sato explained about the Toyota Mobility Concept. And in order to realize that, we need to have a solid business foundation, and it is important to maintain and strengthen the solid business foundation. I'd like to begin with a review of the role that Region Central Management has played and the results it has achieved so far. We have been aiming to become the best-in-town carmaker under the call of let's make ever better cars while carefully responding to the individuality and needs of each region. We have provided high-quality cars one-by-one under the leadership of the regional CEOs based on the Toyota New Global Architecture, or TNGA. As a result, you have increased the sales in growing emerging markets and achieved an exceptionally balanced regional sales mix. In addition, we have been lowering the R&D costs and incentives through the effective implementation of TNGA. And we've leveraged our strengths to improve the products that in a timely manner to meet the needs of each region. And we have made continuous efforts to build up cost reduction working together with our suppliers. And our earning power has grown overwhelmingly compared to the past. And we have evolved our structure to allow us to grow our earnings while investing in the future for further growth. Moreover, together with our employees, shareholders and suppliers, we have built a cycle of growth. In addition, we have actively promoted the introduction of electrifying vehicles. And since the introduction of the first generation pre-use, accumulated total of 22.5 million units have been sold, which is equivalent to CO2 emissions reduction of approximately 7.5 million battery EVs. The lead role was played by the hybrid electric vehicles. We have refined the performance and cost by each successive generation. And today, the cost of hybrid systems has dropped to 1/6 of the original cost, which enable us to generate profit more than that of a gasoline-powered vehicle. In this way, Toyota has enhanced its earning power significantly. And in the meantime, we have invested in the future, growing with stakeholders and reducing CO2 emissions. This is precisely what we have achieved so far through our region centered management, which is based on our efforts to make ever-better cars. We will continue to deepen our region center management and further solidify the business foundation. To do so, the first thing that we must address is to challenge the achievement of carbon neutrality. Carbon knows no borders. And CO2 reduction is an issue that cannot wait. We need to immediately start with what we can do now. Therefore, we need to be attentive to the needs of our customers taking into account the local conditions and the diverse ways of using cars to spread the use of electrified vehicles as quickly as possible and as many as possible. Therefore, together with the enhancement of the battery EV lineup, we will continue to enhance attractiveness and competitiveness of all powertrains, including hybrids and plug-in hybrid vehicles. From here, I will touch upon the battery EVs initiatives in each region. In the developed countries, in parallel with the preparation of the next-generation battles EVs, we will focus on the bZ series with further refined performance to greatly expand our product line. In the U.S., we will start the local production of a 3-row SUV in 2025. This SUV will be equipped with batteries to be produced in North Carolina and the production capacity will be increased. In China, in addition to the bZ 4x and the bZ 3 that we have announced recently, we will launch 2 models of locally developed battery EVs in 2024 that tailors to the local needs. We will also continue to increase the number of models in the following years. Furthermore, in Asia and other emerging markets, we will make sure to respond to the growing demand for battery EVs. To be more specific, by the end of the year, we will start local production with battery EV pickup trucks and we will also launch the compact battery EV model. In the developed countries, the switch to BEVs is moving forward as the market matures. While in the emerging markets, the market is expected to expand due to demand for new and additional vehicles. Toyota with its full lineup and profitable hybrids and plug-in hybrids, plus the increasing demand for battery EVs, we will make sure to meet the wide range of demand globally with its diverse options and we'll continue to be committed for further growth. In summary, for growth in the emerging markets, profitable hybrids will be our focus. And with the value chain of 10 million units, we can also take in a wide range of business opportunities. In addition, we are committed to performing cost reduction by leveraging the strengths of TPS and Kaizen to the fullest extent. As a result, we will further create a future investment capacity for the expansion of battery EV growth in the mobility areas. We will work to establish a strong business foundation whereby carbon neutrality and growth can both be achieved. From here, I'd like to explain what we will be working on to realize the Toyota Mobility Concept. While with the technological innovations of electrification, intelligence and diversification are progressing, we'd like to take on the challenge of contributing to the region and industry from a more expanded perspective. For example, in the United States, the automotive industry is at a critical juncture with people moving away from manufacturing and with structural costs increasing. By combining the craftsman skills that has been honed at the worksites, with intelligence to propose new ways of manufacturing and a new automation with human intelligence process, we believe we can show our gratitude to the U.S. by contributing to preserve manufacturing in this country while solving the country's labor shortage problem. We have also announced on April 3, our collaborations with the Charoen Pokphand or CP Group and the Siam Cement Group in Thailand. This is the start of an implementation that uses electrification and connected technologies to connect vehicles, people and information and utilize mobility as a part of the social infrastructure. Through these initiatives, we will take on the challenge to solve regional problems such as traffic congestion, air pollution and road accidents. We believe that this approach is one way to realize our mobility concept. We will leave no one behind and contribute to the achievement of carbon neutrality and continue to address social issues. This is how we endeavor to advance our transformation toward becoming a mobility company. Our source of further growth is to have people say, Toyota should stay here and continue its endeavors. We should have a good sense of the common values with society and a global way of thinking. And we need to be able to look at our company from an outside perspective. We also need to be able to think flexibly and have a willingness to take on challenges and take positive action. By putting these principles into practice, we can grow as a company and will be further accepted by the local community. I would now like to hand the stage back to President Sato, our captain. Back to you, Mr. Sato.

Toyota's to become a mobility company where explain by Mr. Nakajima from the perspective of products and technology. Well, Mr. Miyazaki spoke from the perspective of regional management. No matter how times change, Toyota is a company that manages by way of its products. And we are a company that intends to produce happiness for all by responding to the diversification of its customers and societies around the world. I believe that there is a future mobility society that you can aim for only because it has refined the strength of its full lines worldwide. Efforts based on the Toyota Mobility Concept for realizing future mobility society have already begun such as social implementation project in Thailand. Doing what we can know for the future right away. With this in mind, we will act together with our colleagues. In an uncharted era, I believe that it is action based on strong will and passion that will change the future. The important thing is to, First act. If you stop with the landscape will not change, going beyond the norm and taking on challenges together with our colleagues, the future mobility that is unique to a carmaker and unique to Toyota lies ahead of us as we continue to move in this way. I believe that. Let's change the future of course. This is our theme as we aim to become a mobility component. Based on our unshakable motives, we will take on challenges with strong will and passion. Please look forward to the Toyota from now on. We thank you again for your time today.

We will now like to have the Q&A session. We will be making preparations please hold on. Thank you. We would now like to begin our question-and-answer session. I'd like to invite the speakers on stage. And now I'd like to begin the question-and-answer session. To introduce the speakers. First of all, our President and CEO, Mr. Koji Sato; Executive Vice President, Mr. Hiroki Nakajima; also Executive Vice President Mr. Yoichi Miyazaki. Today, we have participation from the journalists in both the physical venue and also online. Therefore, we'll be receiving questions from both, and we'll start with the physical venue. [Operator Instructions]

We'll start with the women from the forth -- in the fourth row from the front.

Thank you for your presentation. I'm Masatoshi from Nikkan Kogyo Shimbun. You talked about the achievement of Toyota Mobility Concept. That was the topic you talked about. So as you try to aim for that, how do you want to change Toyota? And what is the stage that you can say that you have achieved your transformation into a mobility company? And as you aim to become a mobility company, how is Toyota going to be interacting with society? What would be the relationship with Toyota and the society? One more question, if I may, about the EV business. You talked about the next-generation battery EV dedicated team. When are you going to fund this organization and more of the specifics, please? And you talked about the supply chain too for EV production and those including batteries, plus the conventional automobile businesses, we see that there is the segmentation or separations in the economy? And how are you thinking about your policies for purchasing and production going forward? That will be all for me.

Thank you Ms. Masatoshi for your question. I'll start with your first question. And the second question, Mr. Nakajima, can respond. So Toyota Mobility Concept is what I have introduced today, as Toyota tries to transform into a mobility company, we try to look at -- from 3 dimensions. And our Chairman, Mr. Toyoda, has been repeatedly saying that the automobile industry is in a exchanging transformation in 100 years and a change -- time of change of 100 years, in order for the car industry, cars to be at the center of society. We need to leverage our strength of competency for cars. But -- and also to open up our communication and evolve ourselves into being a part of society, more embedded into society. And to be able to do that, not only for our company, Toyota, we need to have a good collaboration across the industry and more between into different industries and think about the mobility inside of society, when we try to evolve cars, that kind of perspective will become more important. And from that perspective, when we look at our company, Toyota, we first need to acknowledge what our strength is. And plus make the increase in challenges for further innovation. The original source or starting point of us is cars but evolving these cars will be our mission. And what is it that we can do is what we will be thinking with the many colleagues and partners that we have. And we will verify that and do the Kaizen and then take action again. So this cycle will be pushed forward as we move forward into our goal, and that is what I tried to explain in our Toyota Mobility Concept. From an overall perspective, based on this concept, there are so many areas that we still have to discuss and decide on the details. But first of all, I think it is significant that we share the same direction and to make that step forward.

Thank you, Masatoshi-san for your question. For the BEV-dedicated organization and also the relationship with the suppliers going forward. That is how I understood your question. So for myself, I'd like to explain briefly. First of all, about the next-generation battery EV, as I have introduced, the structure, the way that we will make it will be completely different. That is the plan. And if we want to go into a new battery EV dimension. And what the most important thing is to provide excitement to our customers. That is the value we put a lot of importance on and that is the kind of products we want to offer. Up to now, we have the existing type of values and businesses. But first of all, we want to separate the way of thinking in order to come up with a new innovative way of thinking. We have a leader assigned and the organization is now being prepared to be formed. In practical terms, the work has already started inside of the organization. But for the official organization, I think the announcement can be made after the holding week. But you can understand that the work has already been started for this dedicated team. So I hope you have a strong expectation for it. And also for the supply chain. About our relationship with our suppliers. Originally, Toyota is a company that puts importance on co-existence and co-development and co-prosperity with our suppliers. This is the philosophy in building the relationship with suppliers. For example, for battery EVs, with the hybrids, there are these existing suppliers that have acknowledged and built up the know-how, so we can enhance the relationship with these kinds of suppliers, but there will be other suppliers that we will need to create new partnerships with for to procure new type of parts related to the BEVs. So there will be new supplier relationship built also. And on the other hand, for the ICE-related suppliers, that we have been working for long years. Of course, there may have many anxieties toward the future. So for these types of suppliers, we want to have good communication with them so that their suppliers experience and know-how, it can be utilized going forward. And we want to think about from the perspective of the total supply chain, how we can help these suppliers for us to move forward together. So that will be my response. Thank you.

Let us move on to the next question. So in the center aisle 6 from the front, the man -- gentleman on the right-hand side.

My name is [indiscernible] Kazaki, I'm a journalist. Thank you very much for presentation. So inheritance and evolution was the slogan that you talked about. And I have a question about that. I will only ask one question. So I want both Mr. Sato and Nakajima to respond. Akio Toyoda, the former President mentioned many things when new vehicles are launched at the time of previous launch and at the time with a new Crown. As President, what kind of a vehicle do you want to launch as a product? In addition to the function -- of course, it is related to the functionality. But if you focus on the products themselves, Mr. Sato, what is in your mind? What is it that you were going -- you will be inheriting? And what is it that you will be evolving? And what will be the evolution that we will be seeing? And Mr. Nakajima, what is your thoughts on future new products?

Mr. [indiscernible], thank you very much for your question, inheritance and evolution. What is my understanding of this was the question. What we have to inherit or hand down is the philosophy of car making at Toyota. Let's make ever better cars. So there is no end to producing good cars. And the definition of good cars is not just one. But to as many people as possible, safe, secure and joy for riding is what we want to provide. That starting point is something we'll continue to pursue. And with the society diversifying, the preferences of the customers are diversifying as well. So we focus on mass production. So rather than pushing a specific value to our customers. We want to provide diverse solutions to diverse needs. And we cherish mass production, and that will not change. Then what is going to evolve? The answer is we have to pursue further in and the value of cars. The basics of cars -- or the basic value of cars will have to be maintained. But at the same time, so 80% of the time, cars are not being driven. So the frequency of use or the experience value of cars is still limited at the moment. So new value add will have to be created to expand the potential of cars. The value of cars will be changing. So we want to accumulate additional values to the cars. And that is how we need to evolve from. So enhancing value add in the future and maintaining the essential value of cars, Putting these together, we define as evolution.

Thank you very much, Mr. Kazaki. The powertrain can be EV, hybrid or gasoline or diesel engine. Regardless of that, for the customers, the most important point is fun to drive and being able to realize themselves through cars. So in order to realize that, we will continue to focus on mass production to respond to the needs of each customer. We -- We intended to only have hardware. So within that limit, thought about how to produce appealing vehicles. However, in the future, as was mentioned in the presentation, always for vehicles and applications will have to be integrated. So the hardware may be the same. But for each and every one of the customers, they can -- it may -- it will become easier to provide a special vehicle for each customer. For example, President Sato, as he mentioned in the -- has been looking for AE av6. And -- but in the case of Toyota, we have many so-called long selling cars. Some of them may not be available anymore on the general market. However, if you utilize software technology, for example, with new battery EVs, the right feel of vehicle that you used to drive may be reproduced. So the connection of people and cars can continue into the future. The software plus hardware car manufacturing is what makes me excited. We will continue to pursue that path. So please continue to support us.

And we'll go on to the next question. The second row from the front, the person in the gray suit.

I'm [indiscernible] from [indiscernible] adviser. I have 2 questions. And my first question will be regarding the development of battery EVs. And next will be about your new structure. The first battery EV question is that at the beginning of this week, on the third of April at the new members entrance ceremony, I think you have sent some words to the new freshmen, which means that make challenges, not being afraid of failures, learn from the failure to grow and nurture yourself. I think that was the message that you have communicated to the new members of TMC. So in order to learn from your failures, you have to acknowledge that you have made a failure. And Mr. Nakajima said that in the past, you have experienced a lot of failures and that has helped you to grow yourself. And thinking about that, I do understand about your -- what you're seeing as multi pathway, but you have not provided a strong BEV strategy, and that is why it was not your policy or it was not convincing. But toward 2026, you're now preparing the BEV strategy as well. In the cars BEV development, what has been the largest learnings? In other words, what was the largest failure that you experienced? And why was it -- what was the trigger to recognize that failure and to make it your learning? I have a lot of expectations that you will be recovered from the past position and -- past position and make yourself stronger. So that's my perspective in asking that question. Going on to my second question about the new management structure. This management structure, I think, one of the characteristic is that the average age has dropped significantly. However, operating officers other than President, there is the -- also Chairman and the Vice Chairman will be included. And you said you're going to have a team management. And the 2 EVPs that are providing -- are leading in this -- the operations side, you are not a representative director. And I think -- why is that? In the latter part of the slide, you talked about having the flexible ideas and having the spirit of challenge is important. If that is the case, I think it should be that your management structure should be thought of in a more flexible way.

[indiscernible], thank you for your questions. So I'd like to start by responding to your questions. Regarding the development for our battery EVs, what was the failures in our learnings was your first question. Not only failure but I think there are things that we understand when we actually do it and try it. So through the BC 4x development, there has been a lot of know-hows that we were able to gain up to now for the car industry. We have been accumulating a lot of know-how to make cars. And that has been very important. But on the other hand, there are many things that we'll have to change from the conventional style. So there's both sides. And in order for us to not make cars a commodity, we'll have to make sure that we will be able to make cars that are good quality cars that will not change in the BEV age as well and that should be taken on -- passed on too. So there were many things that we learned in the development of BEV 4x. But the things that we need to do more kaizen or improvement on -- I think I can sum it up in 2. Looking at the car itself. Needless to say, up to now, we've been working on making improvements for the ICE engine. That was a big factor in making the -- improving the performance of the engine. But of course, battery EV, so the efficiency improvement of engines will not be applicable in a certain sense, in order to enhance the performance of the car, that kind of sensibility will -- of how we develop this will be more important. The sensibility will become more important. So we have to focus on that point and start from there. And recognizing that point, there has been a lot of improvement for us, learning for us for like the aerodynamics, also the vibration, the sound, the noise, those kind of performance factors, and also drivability will be another one. And for batteries as well, battery management, at the same time. The current management -- our current management, we also needs to be looked into deeper. That's our understanding and those concepts will be where we'll start to review our architecture in creating the new platforms. And our second big learning was that restructuring, looking at the whole business structure needs to be done. Looking at just the car alone and if we make the battery EV just by the -- looking at the car, that's not enough. We need to look at the supply chain that surrounds the car, also about how we manufacture things. And including the sales network, we need to look from the whole process and to make sure that the structural reforms will be done so that it will meet the needs of a battery EVs. So in the BV trial -- BV project, there were many rooms for improvement that we have identified. I think there's areas that we can grow further. So those areas that we have identified, we are going to focus on to make the improvements towards the mass production age, but we also have the kaizen culture in our company and the BV series that has been launched to the market. We don't -- we're not going to keep it as it is as we have in our presentation, the units -- powertrain units and also the control side will be -- has been improved every day. And so when we look at the -- and talk about the platform, we tend to talk about the framework, the body structure. But the component side, even in the current platform, the kaizen or improvement that has been going on. And we're not going to stop this. It will be continued we will be leveraging on this kaizen strength and kaizen culture that we have in a proactive way. So that the BV 4x performance improvement is going to be worked on in an aggressive way. That's all for myself. If you want to add.

I think the 100% response was given. So I only have one point to add. From the perspective of failure. Well, I guess, we have to first understand what a failure is. It means that the needs of the customers and what our expectation value has a gap. I think this is a failure. So we have to use it -- use these products at the gemba and then confirm the expectations and needs of the customers to see if we are in sync. This is not just for the battery EVs, but it will be the same for the other types of vehicles. And this kind of development culture needs to be passed on to the younger generations, and that will always be on our mind. I hope you can understand that point.

And going on to your second question about the new management structure, about the representative directors. And first of all, for the representative directors, so this will be something that will be determined and resolved at the shareholders' meeting. So that will be a topic for the shareholders' meeting. First of all, for our new management structure starting from April 1, the main purpose or main goal is to accelerate the speed of management. And more than 10 years, the former President, the current Chairman, Mr. Toyoda, has led this management for more than 10 years, and we were standing very close by to learn from him. And also, there's a lot of the management members and the new team that knows the gemba, the work site very well, the front lines very well. And at the same time, we need to, with that understanding, take various initiatives, move various initiatives forward to move forward in a quick way. And that is why we have formed this new management team and implemented from April 1. Of course, they are limits in what only us management team can do, the 8 members. So it's not just about the 8 members of the new management team, but the chief officers of each functions and there's various leaders of the organization throughout Toyota, so with all of the leaders, you want to have a amoeba type of management implemented with our organization going forward.

Let us move on to the next question. The person at the very front on the far left.

My name is Hans from Automotive News. Can I ask my question in English? Yes, thank you for your presentation today. I'd like to ask if you could explain a little bit more about your EV strategy to 2026. It seems to be an aggressive ramp-up from where you are today. I think you sold about 26,000 BEVs globally last year, and now you want to sell 1.5 million, if I'm not mistaken, in 2026. Can you talk about what kind of investment you need to do to get to that 1.5 million in just that short year -- in 3 years' time? How many plants might be making the BEVs globally? What kind of battery capacity you might need to get there? What kind of changes you need in the global manufacturing footprint? Also just to confirm, is that faster than your original scheduled rollout? Is that a step up? Are you -- and why do you think that there's a need to improve or speed up the rollout?

Thank you very much for the question. So in random order, I would like to answer the questions. So the 3.5 million was a number that we announced before. And since then, we've always been preparing for battery EVs. So it's not that all of a sudden, we accelerate our plan. So it is as scheduled. We've been proceeding as scheduled, and we gave you specific numbers today. Now on what is new. As we heard in the previous question, a full-scale battery EV will be put on the market in 2026, which is a new challenge. But towards 1.5 million, we have been proceeding as scheduled steadily. We take a multi-pathway approach hybrid and PHEV are the only -- not the only vehicles, including BEVs, we will be expanding the options, and we've been preparing for that. So at what timing should we announce? To you, it might have seen that we came in late. However, for us, it was just a matter of what is the appropriate timing to disclose information. That is why the announcement was made today. So in producing 1.5 million, if there is no battery we cannot produce BEVs. So the biggest pacesetters would be the batteries. So in terms of investments, investments to prepare batteries would be one of the most important in creating BEVs. For battery preparation, conventional models are hybrid models compared to those. The cost will be overwhelmingly high. So as Mr. Nakajima mentioned, how to improve our productivity and at the same time, reduce cost is something that we've been verifying very closely up to now. For the plants, in the future, we might have to think about battery-only plants, but including the buildings. What is the best way to prepare? How can we enhance the competitiveness investor? We are in the final stages of identifying that. So the battery EV plants will be changing so that it will be a plant worthy of saying that it is a battery EV specific plant.

Now in the center aisle, close to the center aisle. Sixth person from the front.

My name is [ Shimashita ]. Thank you very much for this opportunity today. And the mobility company, I think we are now vaguely seeing the framework of your concept. So it was a very good presentation. I have 2 questions. First about products. You talked about intelligence of the multimedia update, was talked about utilization applications and also EV was mentioned. But you didn't talk so much about digitalization. For example, for the current cars' navigation systems and infotainment is not so highly evaluated from your rivals. CS points show that there are more of the fun -- the emphasis on these areas. Fun to drive probably should put a little more weight on this infotainment and the in-car kind of entertainment. And Nakajima-san. I'm not saying that you're not looking into those areas, but do you have anything to that we can share about the plans for digitalization, maybe a new organization or a new system that you're thinking about to fulfill this area? That's my first question. My second question is for the region-based management. You said you want to contribute to the region-based issues. And as a mobility company, I think that is very important and that can be emphasized greatly. But on the other hand, that would be very difficult to make feasible as a business. But you need to make it feasible as a business and connect it into your profitability. So not just making ever better cars, I don't know if you're going to be consistent to sell it to society or not. But how specifically are you going to make this contribution to society connected to your business, what is the vision that you have? So those would be my 2 questions.

Thank you, Shimashita-san, for your questions. First question, I'd like to respond. For what you have pointed out, including infotainment, against the competitors, maybe Toyota will be behind. And as we reorganize our development structure, how is it that we're going to work on this? I think that is your first question. And regarding infotainment, as you said, Shimashita-san, based on regions, there are differences that we see. And as I mentioned earlier, we want to hear the voices of the regions, and we are careful in listening to those voices. And when we look from the global perspective, we won't able to solve all issues from the headquarters anymore. It's impossible. For example, the way the infotainment is developing in China will be much advanced in other regions. That's our understanding. And so for example, for each of the regions, we have the R&D centers. So we -- probably we should enhance the R&D centers in each region so that more closer to the customers in each region, the products can be developed locally, more closer to the customers. And being able to do that will be our strength. So that direction should be further promoted and accelerated. It's not that we are -- we do not have any challenges of infotainment. That's not what I'm trying to say. We do have that understanding that it is one of the challenges that we have to take on, and we will be receiving the voices and hearing advices in order to push this forward.

So I'll go on to about solving the social issues and how it will be feasible as a business for your second question. Probably I should try to give you a good image. For example, we have Industrial Park. And in this Industrial Park, there will be employees working in the companies there, so commuting there. There might be people using shuttle buses. There might be people using their own cars, there will be various ways to commute. And people using the shuttle buses may have the smartphones that can register, which bus you want to ride, then that carbon-neutral bus can come to pick you up and then take you to the industrial park to your company. And so commuting will be -- that will be the commuting style for those kinds of people. And then if those people with their own cars, if you drive to your own company, then if there's people who have a carbon-neutral vehicle, they can use a parking space that's close the company building and using the renewable fuels, maybe we can show -- I have a system that shows which area is open. And of course, because it's industrial park, including hydrogen, creating and transporting and storing and using energy can be all done in this park. For example, in this industrial part, there might be the ambulances and also the fire for cars. So in many ways, our carbon-neutral vehicles can be utilized and our technologies can be utilized in this area. So that is the kind of system that we can create with the current technologies that we have. So if we have a unit, first of all, like an industrial park, then that unit can be as a model can be applied to other areas like ports, for example. So that is the kind of demonstration we're trying to do to create these basic units models, first of all. And then as a system, we'll be able to design the system and to sell it as a model and apply it as an infrastructure. So that is the way of thinking and that is the approach that we are taking.

The person on the far left, the man in the sixth row sitting in front of a camera. Sorry, a woman, I'm sorry.

From TV Tokyo. My name is [ Akiko Sasaki ]. Thank you very much for your presentation. As mobility company, what direction you are pursuing is something that I understood very well. Globally, we are seeing the spread of EVs. The United States and China is ahead of others. And in this environment, what is the positioning of Toyota now, Mr. Sato? And in order to win in the global market, what is necessary? And Europe seems to have changed direction, which has been pursuing in EV. And it seems it's a representation of the state of the auto industry, but you have an omnidirectional strategy. What does that mean for Toyota?

First, what I want to say is that the enemy is carbon. How to reduce CO2 emissions is most important. As I mentioned in my presentation, we are a global company and as such global CO2 reduction will have to be achieved. Realistic approach is necessary, and we have to achieve the 2050 target by starting with what we can do now. So using that as an assumption, if you look at the global state of the market, renewable energy is spreading and infrastructure is being developed and the demand of the customers is rising in some regions. On the other hand, there are regions in which that is not happening. So the environment is very diverse, which is a reality. We should not look away from that. As Toyota is a global company, we need to take an omnidirectional multi-pathway approach so that we leave no one behind. We think that is important as we establish our business strategy. Now if you look at the energy conversion efficiency, the electricity as an energy is very useful. So as was mentioned, development of battery EVs and launch of these is something that we are very proactive about now. What we are seeing has not changed. However, specific facts about EV have not been provided sufficiently in the past. And taking that into consideration, we decided to talk to you today about what we have been doing up to now. So the enemy is carbon, and we have to reduce CO2 emissions. So how practically can we realize that? We will continue to focus on that, and we'll continue to focus on the needs and situations of the region. Your second point was about carbon-neutral fuel or e-fuel, a decision by the EU Commission, I believe. The question was how do I see it? So providing diverse options is necessary but taking into consideration the current social environment or industrial structure, I think they are starting to take a realistic approach. But on the other hand, the process of producing e-fuel still has its challenges. And energy conversion efficiency, if you think about that, there are still many technical challenges that have to be overcome. Carbon-neutral fuel is now an option, which I see as a realistic choice. But in order to make this a real option, we have to work with the energy industry and the auto industry to develop technology. So as such, we will not waver, and we -- with unshakeable motives, we will take up the challenge and make sure that this can become a real option. So we'll continue to do development towards that end.

Next person. The left side row. The person in the middle. The second man from the central row, please?

I am from [indiscernible] is my name. And from President Sato, you have explained about you're going to change together with your colleagues and your team. And president told that when he was president, he has been creating the friends and partners and colleagues within and outside the company. And you talked about also the collaborations with the Thai companies and once again, with the domestic Japanese OEMs, EVs, you have been working on many initiatives. For your new management structure strategy, I think you mainly focused about inside of Toyota. But during the -- under President Toyoda, are you going to -- there has been a certain direction in thinking about alliances. Are you going to change that? Or what is the direction regarding alliances for the new management structure? And also in the past, you have repeatedly talked about working together with the suppliers to make cars toward the future. In the February press conference, you talked about Arene having the dealers also work together in this initiative. And in the new initiatives, people in the distribution area, what will be the changes that they will be seeing if you can be a little more specific in that part?

So I think I'd like to start the first question about alliances with our partners, the way that we will be working with our alliance partners. Since we've made our announcement of this new management structure, we have been communicating already with our existing partners. Including the new top management, we've tried to have a face-to-face meeting to discuss about our future endeavors that there will be no significant change, and we will continue to work together. So actually, the response would be that from the times under President Toyoda and under the new President, the alliance and the trust that we have built and that kind of a bond, the relationship with these alliance partners will have no change. In addition, going forward, of course, as it was mentioned earlier, the concept the way of thinking is that carbon is our energy -- an enemy -- carbon is the enemy -- and if there are the like-minded partners in the further endeavors into the future, we will be very much happy to work together with those new partners so that we can contribute for the environment. So we want to be flexible and have a broad perspective in thinking about our alliance strategy going forward.

If I can make some additional comments, when we talk about creating partners, there was a big role that Chairman, Toyoda has played. Now being appointed President and as a leader of the 370,000 members in Toyota, I will be the leader. And -- but Chairman Toyoda has been creating the foundation to create synergy for the whole group. That was the leadership that he has exerted and the having -- taking action proactively, we want to create new networks with new partners. That will be the source -- the driving source for -- driving force for Toyota going forward. And so we want to further expand and explore the possibilities of new alliances and also new activities. And also for the collaboration within the automobile industry, our operation officer team will be focused on that. And moreover, we're not going to be just looking into Japan, but beyond Japan to various countries too.. We want to think out of the box. I think out of our existing concepts, we are going to depend on the leadership of Chairman Toyoda also continuously.

And regarding your second question, I would like to make some comments about Arene, how if there will be an impact in the distribution side and the dealers. And for us, dealers are a very important asset. They are able to have direct communication with the end users, the customer. And that's valuable information for us. That's the feedback that we can receive. So that most important weapon that we have. So we have to enhance that relationship with our dealers. But in addition to that, on the software side, there's a lot of development and advancement on the cars. But we need to think in combination with the hardware. And I think a carmaker can combine the both side strengths and offer to the dealers and work together with the dealers. So the new area will be the software side, and then we can add new sites to the hardware side, combine that and provide new value to the customers. This is what we want to do together with the dealers.

Due to limitation of the time, we will take questions for 2 more people. Today, we have many -- we see many hands raised in this venue. So we will continue to take questions from this venue. The person in the fourth row from the front, maybe second from the aisle.

My name is [indiscernible] from NHK. So you are transforming into a mobility company. I have 2 questions about that. First, the auto industry is very competitive in a matter of life or death. But through transformation into a mobility company, do you think Toyota can survive? What is your thinking, Mr. Sato? And the second question is the transformation into a mobility company. So how the suppliers work or in some cases, the auto industry itself may have to change. So on that point, Mr. Sato as a person leading the transformation, what is your determination towards transformation?

Thank you very much for that question. First, the current status of the auto industry is a life or death situation, very competitive. Yes, we agree with that view. But on the other hand, in the auto industry, there are still many more possibilities. Whether we can take action in both actions towards structural reform is important. The pathway is not to have a close loop of the auto industry. Structural reform of industry itself and additional value of vehicles through integration society. That is what I discussed in my presentation. The auto industry is moving out of the traditional industry structure and regain energy towards the future and tying up with others will be a key or the only way for the auto industry to have hope towards the future. So that the auto industry can be an appealing industry. I don't know which answer is correct, but we will make the necessary efforts to change things that have to change. That is all.

The person in the very front in the middle, the third seat from the left, please.

[indiscernible] News. The U.S. IRA, the Inflation Reduction Act is what I want to ask about. Now looking at the current situation, the CBUs that is being imported from other countries will be not the target of this IRA, but you have a lot of volumes exported. And how are you going to -- what are the measures that you're going to take related to IRA? The North American local production, if you're going to increase the production to deal with that, then it means that there will be some impact on the domestic production in Japan plant operation and also employment. So is there any impact that you foresee?

Thank you for your question. First of all, in many locations, we have a production operation. Japan is one. And including suppliers, there is the employment and supply chain that we have to protect. Of course, in each region that we operate in, we will continue the investment for the employment in all of the regions that we operate in. That is our mission. And in that sense, in each of the locations, we will be looking at the demand there. And flexibly, we have to change the cars that we manufacture. That will be our main policy. And regarding the United States, of course, for the Inflation Reduction Act, IRA, if there is a demand coming up, we will produce cars locally and I've introduced some of the examples today in my presentation. And if we see further demand building up then we will consider on increasing further the local production. But if you look at major markets like United States, the current demand, for hybrid plug-in hybrids, it will be -- there will probably be a shift to the battery EVs going forward, there will be a stronger shift from now. That's a tendency. If that's the case for us in the local production volume that we have, the capacity that we have, first of all, the priority will be to shift -- change the contents of the local production. And if there is further demand more than the capacity we have in the operation, then we may consider on the other measures. That is a step will be considering.

We -- we still see many hands, so we will take one last question. The person on the far right, second row.

My name is [indiscernible] Yamamoto, a freelance writer. The first question is for President Sato. Today's announcement is about changing the future of Toyota. You talked about many points. And what is the #1 message that you wanted to convey to us or what you wanted us to convey to your leadership? And the second question is a softer question. So you had a new team management structure. But of course, each operating officer has its own characteristics. So Mr. Sato, you love making cars you mentioned. But what about the other operating officers, how do they like cars or what is -- how do they see cars?

Thank you very much, Mr. Yamamoto. Yes, we conveyed to you many messages today. But the #1 message that I wanted to convey to you today is to change the future of cars. So in order to realize the mobility society, we want to transform ourselves into a mobility company. And to that end, we've implemented various measures. We are a carmaker and our starting point is cars. That is the type of company we are. Car lovers, and we like the appeal of cars, and we want to enhance the value -- added value of cars so that the value add is in line with society. It's not something that somebody else will do for us. And there is no right answer. We have to make efforts ourselves, go through a trial and error and take up the challenge. Only then we will be able to find that future. By changing the future with our own determination, we'll probably change the auto industry and also lead to realization of a mobility society. With this in mind, I want to manage the company. And -- we have -- I want to bring together the strength and capabilities of the 370,000 employees of Toyota. So if the -- question is what is the #1 message. The message is let's change the future of cars. Now for the other operating officers, what kind of a car lover are they? Maybe we can ask each one of the 2 gentlemen here.

Thank you very much. As I mentioned in my presentation, I love developing cars. So in my own room, there are many packaged diagrams. And -- if this part is changed, we may be able to see a car that we've never seen before. In battery EVs, if the barriers are placed here, what kind of performance can you realize? I love thinking about those things. So I hope the young people will also go through that experience and come to love making cars and developing cars as well. And those cars, I believe will touch the hearts of customers as well.

By delivering cars, the customers will be happy. I think there are many car lovers around me who thinks that is important. The new President, Mr. Sato is a car lover, but Mr. Nakajima and myself. If you create a good team, we have to convey the value of that car and make sure that the customers are happy. And we will work with the recent COOs to do that. I think we have a car lover team like that.

So that is the official answer. But I think behind Mr. Yamamoto's question is a more private aspect. Like what kind of cars do we like? So if you can run a feature, we're very, very grateful. There was a ceremony for the newcomers. How can we welcome these new people? And that is what we thought about the cars that we love ourselves that we drive ourselves is what we exhibited to welcome the newcomers. And Akio Toyoda as Chairman, as Master Driver, as Morizo has its own cars, and we exhibited our own cars that we love. 10, 20 years ago, probably there would have been a display of mini crowns. But this time, from trucks to sports cars, there were diverse cars being displayed and not one was the same as another. And looking at that, I came to realize that we are really a full lineup company. And the diverse needs itself is reflected in the type of cars that we drive. So each and every one of us has our own way of loving cars. So that's the type of company we are. So out of that diversity comes innovation, I believe. So the diversity of how we love cars needs to flexibility of Toyota in the environment in Toyota where innovation easily comes. So I hope you run a feature story on side of the company. Thank you very much.

Thank you very much to Mr. Yamamoto. And thank you very much for the many questions that we received. It is now time. So we would like to close the Q&A session, and we will have a photo session now, so to the people on the stage, please come over.