Toyota Motor Corporation ($7203)

Thank you very much for joining us today, and welcome to Toyota Motor Corporation Fiscal Year 2026 Financial Results Briefing. We'd like to thank you very much for attending despite your busy schedules. I am [ Kazu ] Hashimoto, the moderator of this conference. I'm from Corporate Communications. So I would like to introduce our speakers first: Kenta Kon, President and Chief Executive Officer; Yoichi Miyazaki, Executive Vice President and Chief Financial Officer; and Takanori Azuma, Accounting Group Chief Officer; and from Corporate Communications, Chief Officer, Hiroyuki Ueda. As for our agenda, this conference will begin with presentation by Takanori Azuma and Yoichi Miyazaki to explain the financial results, followed by a brief greeting by our President, Kenta Kon, and then we will have a Q&A session at the very end. So I'd like to hand it over to Takanori Azuma, please.

Hello, ladies and gentlemen, I am Azuma, Accounting Group Chief Officer. We'd like to start by sincerely thanking our customers around the world who love Toyota Cars, our shareholders who support our efforts as well as our dealers and suppliers and all other stakeholders involved. Thank you so very much. I will begin with a summary of the financial results for the fiscal year ended March 26. Operating income for fiscal year '26 amounted to JPY 3.8 trillion. Despite the impact of U.S. tariffs, we were able to secure profits in line with our guidance due to increased vehicle sales volumes and the effects of price revisions underpinned by strong product competitiveness as well as steadily accumulated improvement efforts such as expanded value chain profits. Taking into account the Middle East impacts, we are forecasting operating income for the fiscal year ending March 27 of JPY 3.0 trillion, representing a year-on-year decrease of JPY 800 billion. As a result, we expect operating income to decline for the third consecutive year. We believe this is because our response to changes in the operating environment has been limited to measures that can be implemented in the short term, while progress on business structural transformations from a mid- to long-term perspective remains only partway complete. Therefore, in the current fiscal year, we aim to return to a sustainable growth trajectory. Regarding shareholder returns, the dividend for fiscal year '26 will be JPY 95 per share, an increase of JPY 5 year-on-year. And for fiscal year '27, we plan another increase of JPY 5 for a forecast annual dividend of JPY 100 per share, and we will continue to uphold our policy of stable dividend increases to reward our long-term shareholders. Now I'll explain the details of the results for the fiscal year ended March 26. Consolidated vehicle sales for this fiscal year reached 9,595,000 units or 102.5% year-on-year. Toyota and Lexus vehicle sales totaled 10,477,000 units or 102.0% over the previous percent that is over the previous fiscal year. Thanks to strong demand from customers, mainly in Japan and North America, vehicle sales increased. Sales of electrified vehicles exceeded 5 million units for the first time, primarily driven by ATVs that were well received in regions such as North America and China, while PHEVs and BEVs also posted volume growth. Consolidated financial results were sales revenues of JPY 50,684.9 billion, operating income of JPY 3,766.2 billion, income before income taxes of JPY 5,152.9 billion and net income of JPY 3,848 billion. Now let me explain the factors behind the changes in operating income. Against the backdrop of steady demand centered on hybrids through sales efforts, including increased vehicle sales, price revisions and value chain profits, we absorbed the negative factors such as foreign exchange fluctuations, higher R&D expenses, increased labor costs and materials cost inflation. However, we were not able to fully offset the impact of U.S. tariffs amounting to JPY 1.38 trillion. And as a result, consolidated operating income declined by JPY 1,293 billion year-on-year. Now this slide shows operating income by geographical region. In Japan, operating income decreased due to foreign exchange fluctuations and increases in expenses. In North America, operating income decreased due to the impact of U.S. tariffs and other regions recorded an increase in operating income due to the impact of price revisions. Our Chinese business saw bottom line increases in, one, operating income due to marketing efforts; two, in share of profit of investments by equity method and cost reductions; and number three, in the Financial Services segment with an increase of outstanding loan balances. Now let's talk about the forecast for the current fiscal year ending March 2027. The consolidated vehicle sales forecast has been set at 9.6 million units, which is 100.1% of the previous fiscal year. While Hino Motors is excluded from consolidation from the fiscal year ending March '27, production will go into full swing for models refreshed in the previous fiscal year, such as the RAV 4, resulting in a level comparable to the previous fiscal year. Toyota Lexus vehicle sales are expected to be 10.5 million units or 100.2% of the previous fiscal year. Additionally, hybrid sales should exceed 5 million units for the first time this fiscal year and total electrified vehicle sales approximately 6 million units. Next, on the consolidated financial forecast. The full year foreign exchange rate assumptions are JPY 150 per dollar at JPY 180 per euro. Our guidance for the full year consolidated results, sales revenues of JPY 51 trillion, operating income of JPY 3 trillion, income before taxes of JPY 4,230 trillion and net income of JPY 3 trillion. Now the year-on-year changes in operating income. In the current fiscal year, we will work to absorb increases in labor costs and other expenses through marketing efforts such as price revisions and expansion of value chain profits. However, we do not believe we can fully offset negative JPY 670 billion Middle East impact resulting in the operating income forecast of JPY 3 trillion, down JPY 766.2 billion from the previous fiscal year. Next, let's turn to shareholder returns. Our dividend policy is to increase dividends in a stable and continuous manner in order to reward our long-term shareholders. Despite a decrease in profit for the fiscal year ended March 26, we set the full year dividend of JPY 95, an increase of JPY 5 from the previous year. For the fiscal year ending March '27, while performance is hard to forecast due to impact from the Middle East and other factors, we set the full year dividend forecast at JPY 100, an increase of JPY 5 from the previous year. Regarding share buybacks, we will not set year-end share repurchase limit. Moving forward, taking into account of the stock price levels and other factors, in order to respond as necessary to requests to sell our company shares, we will flexibly implement share repurchases. Next, our CFO, Mr. Miyazaki.

Yes, I am Miyazaki, CFO. As Accounting Group Chief Officer Azuma mentioned earlier, the business environment remains extremely uncertain. Against this backdrop, we achieved operating income of JPY 3.8 trillion for the fiscal year ended March 26 and have announced operating income outlook of JPY 3 trillion for fiscal year '27. We would like to express our sincere gratitude for the day-to-day efforts of our employees as well as the continued support of many stakeholders, including dealers and suppliers. Looking ahead, we intend to move forward with confidence together with such stakeholders. On the other hand, we expect operating income to decline for the third consecutive fiscal year in fiscal '27. I take this very seriously in my capacity as CFO. This reflects the fact that amid the rapid changes in the business environment, the scope of the responses and measures we took have been largely limited to what can be implemented in the short term, resulting in slower progress in business structural transformation that should be performed from a mid- to long-term perspective and slower pace of slowing seeds for future growth. This shows the factors contributing to changes in operating income over a 3-year period from the actual results for the fiscal year '24 through fiscal year '27. We offset rising material costs and comprehensive investments aimed at future growth with improvement efforts such as cost reductions and the expansion of value chain profit, enabling us to maintain an earnings power of JPY 5 trillion. However, due to major business environment changes like U.S. tariffs and the situation in the Middle East, we have yet to offset these impacts. Now I'd like to talk about how we will overcome this challenge and how we will once again return to a sustainable growth trajectory. Our initiatives have 2 main pillars. One is making ever better cars. The other is transforming into a mobility company. Making ever better cars is being advanced by an overwhelming expansion in model lineup through 5 brands led by Centuri and by the multiplication of our ability to generate income. On the other hand, transform into a mobility company is being pursued with the following key elements: further expansion of existing value chain revenue, provision of new mobility across land, sea and air and robotics, leveraging connected as well as SDV technologies. So let me walk you through these key points. First, let me talk about earning power in ever better car making. As we expand our 5 brand lineup, what becomes increasingly important is our ability to produce vehicles properly and deliver them reliably to customers. And the key to this lies in the maximum utilization of production capacity, specifically by capturing the effects of initiatives such as Area 35, we will fully utilize existing factory space and capacity, while at the same time, proceeding with previously announced capacity expansion, including new plants in line with actual demand. In addition, to further enhance earnings power, we will proceed in parallel with initiatives such as enhancing capacity for HEV batteries and units in line with the generational evolution, globally reorganizing our production models, further accelerating localization of procurement and pursuing cost reduction by addressing costs beginning at the source, including the reconstruction of parts scenarios. By advancing these initiatives, we aim to maximize the contribution margin per unit for each model at the time of model change. Next, I'd like to explain how we will link our transformation into a mobility company to mid- to long-term business structure reform. Revenue from our existing value chain has been growing at a rate of approximately JPY 150 billion per year over the past few years. And going forward, we hope to maintain this current pace of growth by increasing the number of units in operation and expanding initiatives to other regions and countries. Moreover, we will add these as new initiatives, new mobility across land, sea and air and robotics, leveraging connected and SDV technologies. And by doing so, we aim to achieve further revenue growth. So I would like to now explain Toyota's approach to robotics. Through collaboration between people and robots, Toyota aims to improve productivity and create a more comfortable working environment while also contributing to improvements in quality of life and address the challenges of an aging society. Within Toyota, across the globe, we have production plants producing 10 million vehicles annually, skilled workers that are capable of helping robots grow as partners and the Toyota production system rooted in production floors. So based on this, we will evolve our robots and by having robots contribute their skills back to people, we can look to a future for both people and robots to grow as partners. changing the landscape of production plants. Toyota's strength in robot development lies precisely in the fusion of manufacturing and intelligent systems, and we believe through the Toyota Group, it is able to support manufacturing reform in Japan. Now by steadily executing on what I have explained today from a mid- to long-term perspective, we will work to improve our breakeven volume while at the same time advancing toward an ROE of 20%. Until now, we have increased shareholder returns as a business structure with high earnings volatility, primarily driven by the new vehicle business. Going forward, by transforming to a business structure that more reliably secures stable growth through the expansion of value chain businesses and nurturing new business domains, we aim to create a greater capacity to provide shareholders with stable and continuous dividend increases. At the same time, through optimizing our capital structure, we would like to aim for an ROE of 20%. With that, I would like to conclude my remarks and sincerely ask for your continued support. Thank you.

Now let me introduce to you, Mr. Kon

Hello. I am Kenta Kon. I would like to share my thoughts on Toyota's management philosophy. Since I came on board as an appointed President in April, I have visited many gembas, including development certification plant, suppliers and dealers. There, I saw many colleagues of ours who are working tirelessly to build ever better cars. There, I've seen firsthand our ability to develop talent, our culture of continuous improvement Kaizen in pursuit of TPS, penetration of problem-solving methodologies, online participation by all and motivation for getting things done with a clear sense of ownership. All of these observations represent Toyota's remarkable Gemba capabilities. Still, there are many challenges. I feel there is still significant room for improvement in our administrative operations. If we further examine where our abilities truly lie, we move beyond just managing the Gemba and instead get directly involved in support operations. Instead of just managing numbers on paper, we can take part in reducing costs at Gemba. We can shift from work -- administrative work to work that create value. It is all about returning to the starting point of Toyota, Toyota production system. The strength of manufacturing lies in having both products in Gemba. The production line speed is an indicator for product sales. Abnormality stops the line, break things and cause the effects. Challenges never stop coming and no 2 days are ever the same. Unless we solve the problem right in front of us, we cannot deliver cars to our customers. There's no place to hide in Gemba. And that precisely is what motivates us to improve the situation, drawing out wisdom and ingenuity and cultivating individuals capable of critical thinking. I believe it is my role to create such an environment and continuously send skilled talent into it. Our 17 years under Akio Toyoda and Sato-san as Presidents was a period during which we were guided by the motto, "Let's make ever better cars, " adopted product and regional centered management and established our foundation as a global full lineup automotive manufacturer. As a result, we can now aim for both carbon neutrality and freedom of movement for all. I will increase the number of people who can build ever better cars. And that is the engine for Toyota's sustainable growth, and that is my mission. Although I'm a nervous driver, sometimes receive driving instructions from our evaluation drivers. Brakes are there to help you go fast. Without good braking, you can't stop step on the accelerator. Actually, that's what Akio-san told me at the time. To me, to accelerate means not letting up on our growth investments and seeing them through the end, a global flow lineup, a multi-pathway, a hydrogen society, AI and robotics and woven city -- all of these are important, and we have colleagues who are working tirelessly in Gemba to develop so to turn them into reality. With so many technologies and new players emerging these days, we are in an era without clear-cut answers. That's precisely why my role is to encourage colleagues to take on challenges without fear of failure. Looking back, when Akio-san became President in 2009, our company had just fallen into the red due to the global financial crisis. We are facing a critical juncture that really threatened our own very existence. At the time, I was an assistant to Akio-san. He said, being in the red means I cannot let anyone take on new challenges. I witnessed Akio-san regularly making hard decisions that sometimes saddened the people, decisions to abandon various undertakings. I have never forgotten that. I have always been committed to sustainable growth, believing that even rapid growth would highly inconvenience many people if we were to reverse suddenly. It is precisely because we have found -- we have this foundation that even the current situation, where environment is becoming increasingly uncertain, we can remain determined to implement reform and continue taking steps toward our future growth. Our automotive industry is broad-based. It is indispensable. We have to be Toyota all the time. We have to remain strong, and we must endeavor to have many people see Toyota's growth as a good thing. We will grow sustainably together with our 5.5 million colleagues across Japan and with our stakeholders worldwide. I believe that is the kind of Toyota management required. While visiting various work sites in Gembach, many people approached me and taught me a lot. cherishing colleagues who speak their minds in this way, I will strive so that they will be able to say to me, you've made a decision and you've taken responsibility. While cherishing opportunities for many colleagues to take on new challenges, all of our members will strive in unison to realize a Toyota in which both the company and its people can continue to grow. I would greatly appreciate your continued support.

Thank you. Now we'd like to take questions from the floor. [Operator Instructions] Yes, Asahi paper, Kondo-san, please.

Yes. This is Kondo from Asahi Newspaper. Can you hear me?

Yes, we hear you fine.

Now a question to President Kon. And I would like you to present us your impression on the financial results. Now Kon-san, you -- what is -- I believe that you have shown that increasing breakeven volume is a challenge. And under the Trump tariffs, you were able to record very good operating income. So based on these challenges, if you could give us your overall impression of the financial results for fiscal year '26. As for the forecast for 2027, I believe that you have forecast a decline in your operating profits due to the Middle East situation. And I think it's very difficult to foresee into the future. So on what assumptions did you set the forecast for 2027? What were your assumptions? And although this may be from a short-term perspective, from here, what sort of measures -- concrete measures do you intend to take to improve the operating profit or the financial results from here on?

Thank you, Kondo-san, for those questions. Regarding the first question, I, Kon, would like to present my overall impressions. As for our forecast for this fiscal year, fiscal year '27, Azuma will respond to that question, if that's okay. Now as for my impressions for the past fiscal year, fiscal year '26, as was mentioned in the presentations by Miyazaki and Azuma, despite the very major changes in environment, we were able to generate a profit of JPY 3.8 trillion. And of course, the financial results is actually the financial results for Toyota Motor Corporation for this year, but it's actually an accumulation of many years of efforts and not only efforts by Toyota Motors, but by many, many different stakeholders and collaborations, co-working with all of these stakeholders, that's the accumulated results. So the fact that we were able to generate such good results, I think we owe a very deep appreciation to all of our stakeholders as well as all of the past colleagues. And we did not have to apply brakes, sudden brakes on our growth strategy despite the environment. So I really thank our predecessors for this. But as you mentioned, for the breakeven volume, we are not able to apply the brakes on the increase in the breakeven volume, as you indicated. But like in the -- during the Lehman shock, the number has not exceeded 8 million, like during the Lehman shock. But still, it's quite the truth that it is on an increasing trend. So as mentioned in the presentation, I believe that we are able to do things that we had to do in the short term. And these initiatives have only begun this term. So we will continue with these initiatives over the next 11 months. As for the medium- to long-term initiatives, we have just embarked on them. And last fiscal year and this fiscal year, of course, many have not actually generated results. But if we continue steadfastly on these initiatives, I'm sure they'll begin to generate impact. Therefore, as for my overall impression, I believe that we are able to step on the accelerator because we are in a situation where we can continue with our growth investments. So rather than applying the brakes fully, we will remove waste one by one and one by one, we will restructure the business. So I think that's the situation we are in now.

Regarding the second question about the Middle East situation and the assumptions for the forecast, this is Azama to reply to that question. It's largely divided into 2. One is the reduction in sales volume, and that has -- we have forecasted JPY 270 billion impact. And this is because the lead time to the Middle East will, of course, become longer. So once we have this on the assumption that if this situation continues over 1 year, that's half of the actual impact that we forecast. The other would be about JPY 400 billion in inflated materials costs, and this is based on the levels of material costs as of March. And if this high inflated level were to continue over 1 year, then that would lead to these forecast. For example, fuel and transportation costs as well as paint used for painting and materials used for painting, all of these are factored in to -- and the forecast is based on the assumption that this works to continue for 1 year. Of course, these are just forecasts. So we are thinking of, for example, relocating or redirecting these products to other destinations and other customers in order to alleviate the impact. I'm sorry, maybe I may have been upside down because my camera was upside down. Sorry for that.

Let us move on to the next question. [ Tokomitso-san ] from Kyoto Press.

I am [indiscernible] from Kyoto Press. I have 2 questions. About the fiscal year that has just ended. Kondo-san asked you about the operating income, more than JPY 50 trillion for the domestic sales. Sorry, I've received the chat that I am not being heard. But now JPY 50 trillion for the -- over JPY 50 trillion for the very first time. What is your reflections on that? Of course, your hybrid vehicles are performing well, but there are other factors -- these provide us with that insight. Number two, multi-pathway strategy of yours. You have been focusing on that for some time. Yesterday, Nexa's EV 3-row passenger seat vehicles was announced. Under Mr. Kon's managerial philosophy, what will be your policies on BEVs?

This is Miyazaki. I would like to respond to the first question about the previous year's results. Well, actually, JPY 50 trillion is not the number that we have been aiming at as we do our operations each day. we consider how we may be able to deliver successfully our cars to our customers. And together with our stakeholders, we have taken a very solid step in just doing so, and it's just the result of doing that. As Amos mentioned earlier, the overall sales volume is increasing. And many -- a large part of that certainly is hybrid vehicles. It is very true, as you mentioned. We have put efforts into hybrid vehicles, of course, and our dealership efforts have been combined to achieve these results. We will continue to offer products that our customers will choose. And together with our stakeholders, we will continue to deliver such valuable products. Thank you very much for your questions about policies and thinking about bands. As I mentioned earlier in my presentation, we continue to pursue carbon neutrology. At the same time, we will remain a global full lineup automotive mass production manufacturer. So to our mass consumers, we will deliver our cars together with the convenience that such mobility provides. That will remain our mission. The question is what sort of markets out there. It is very difficult if not impossible, to predict the markets going forward, but we will continue listening to our customers to understand the different markets, different countries, different regions. There are differences in market requirements and demands. We will always listen to what these customers want in those different regions. And we reflect such input into our product development. That's what we have done in the past, and that's what we will continue to do. Whatever the cars that our customers want, we would like to deliver. If our customers want BEVs, we will deliver them good bets and that we will remain the fundamental part of our strategy. Our multipathway strategy is the ideal for offering our customers what they want to have. Pursuing such an ideal is a must that we have to continue because that's our mission at Toyota. Actually, we are in a fortunate position to be able to do so. Thank you for your questions.

Going on to the next question. From Nissan Auto News. Kisan, please? We will switch over to you. So if you see yourself on the screen, please start with your question. So please wait a moment.

This is Guy from Nikkan Auto News. Can you hear me?

Yes, we hear you.

The sales of electrified vehicles is about 6 million units. And this will exceed 50% of your total lineup for the first time, and this is mainly hybrids, I believe. But so the electrified vehicles and sales increases where do you intend to strengthen in order to increase the sales of electrified vehicles. And the other point is about earnings power that Misakian talked about, in particular, the value chain and the new mobility, these 2 areas, how do you intend to enhance earnings because the new mobility is a new area. So I think there will be some birth pains to begin with. So how do you intend to link these pains to actual earnings?

Yes, thank you. So I would like to respond to both questions. session. originally, you have asked when are you going to reach 5 million units. We've received that question all along from you. And my view was we wanted to achieve this $5 million sooner than we did. And from our customers, especially in Japan, we still have many customers waiting for the delivery of their cars. So 50% is a statistical number, but we would like to continue to deliver reliably in 2 areas of demand. And we have a full lineup we have for hybrid for almost all of our models. So we would like to enhance ever better car making in order to enhance our hybrid line. And so we wanted to create a production system and a delivery system that can keep pace with that demand that comes first. And as I said earlier, as the basis of earnings power, we want to utilize to the fullest our current production capacity, and we will prepare with that in mind for electrified vehicles as well. And the value chain and new mobility, how are we going to enhance that to lead to earnings power. Well, for value chain profits. We began that effort in full year just before or after COVID-19 because until then, we tended to focus only on new cars. But after COVID-19, we decided that one of the strengths that we have is the units in operation, and we wanted to utilize or leverage that strength new activities. So globally, we are not engaged in such value chain activities at all uniform levels all across the world, but we would like to cross-deploy these efforts, and we believe that by doing so, we'll be able to maintain a growth of JPY 1.5 billion per year. Now your question is then what does new mobility mean? Well, we want to test as many possibilities as possible. And as President Kon said earlier, we would not like to release the accelerator, but we will move the waste so as to make the acceleration more effective and to find which mobility areas will be most effective in increasing our earnings power. And so both ground lands, air and robotics, this will be the new areas of mobility that we mostly most likely focus our efforts on going forward.

Let us move on to the next question. Komarom -- you please wait until the screen is switched to yourself. Thank you for your patience.

Thank you. I am Crama from Yomiuri Daily. Am I being heard?

Loud and clear.

Thank you very much I would like to ask you about the forecast for this fiscal year. A major market or U.S., Japan, Europe and China. How do you forecast your business environment respectively. And another question, which is about the tariffs imposed by the U.S. It is not factored in into your changes in the performance, but JPY 1.38 trillion is what you expect out of this -- are there any efforts to avoid such impacts going forward?

Thank you very much for your questions. I would like to respond to the first question about our forecast of different markets. To begin with, fiscal year '26 as we just began our new fiscal year. As we look at the first 3 months, the U.S., Japan and Europe, all of them [indiscernible] have remained rather stable in terms of our business performance. The U.S. market remains healthy for us in the Japanese market, although there have been some changes in the tax situations in March, has been some delays in registration. Not much impact has been held. And we have seen solid demand in Europe as well and plus China, the same situation. But at -- we have seen some midterm changes in all of these markets. We will not take a while size fit all type of an approach where we address different markets. As we assume different numbers in those different markets, macroeconomic situations really tell us that we have to be vigilant. But as we see the backlog of orders the number of vehicles that our customers are waiting. The first thing we have to achieve to deliver the cars to our customers. So we will have to continue keeping balance in the 2. Low inventory situation continues. Our customers continue to wait. Therefore, we do have room even if the situation rapidly changes in the market. So we will be able to respond.

Thank you. This is Azuma. I would like to respond to your second question. The impact of tariff JPY 1.38 trillion is factored in, just like we did last year. we may revisit this, of course, together with our suppliers. We will work toward the betterment. Last year, we shouldered a large part of that at Toyota. But together with our suppliers, we have to work together to reduce cost in all fronts, not only the tariff impacts. So that's the important part of it. We will work together with our suppliers. We do not know whether the impact will be felt this year. But local production, local procurement will be further pursued going forward in different regions in the markets. So those are the focus points of our efforts going forward. Thank you for your questions.

Going on to the next question now from Bloor. I will switch over to your team. So if you see your face on the screen, please start. Please wait a moment.

This is India Bloomberg. I have 2 questions. President Kon. This question I believe you talked about reducing the breakeven of volume as point when you assume presence. And in your presentation, I believe you talked about increasing the earnings power. So I think there's some overlap in that. But or the reduction of your breakeven volume, what sort of initiatives steps do you intend to take? And also, if you have a specific target regarding to what level you want to decrease your volume breakeven volume. Now on I believe that because you came from the accounting department, there's a very much expectation on improvement of ROE from the market. So how much are you committed to the ROE improvement and also you have set a target of 20% ROEs. And when do you intend to achieve that target? What's your schedule?

Yes, thank you very much. First of all, about the earnings power and reducing the breakeven volume Main his presentation talked about enhancing earnings power through business structure transformation. And I believe that herein lies the majority of the steps and initiatives we intend to take. Then the our hybrid customers have been waiting a long time to receive delivery, so we must deliver to these customers reliably. That's the first thing we must achieve because we are a manufacturer. That's our biggest mission. For reorganizing our production model I myself believe that this will, of course, include a review of the model mix as well as the numbers. production numbers. But as we pursue along the line of multi pathway, that naturally increase the number of models, but that means that there will be an increase in the number of parts and a number of specifications which will make things even more complex for customers. So I believe that if we can review that complexity that would have a major impact. It's inclusive of that, we would like to reduce costs. And up to now, we have been with our suppliers and dealers, we've been creating a strong foundation. Now we'd like to link that to productivity increases. I think the time is right to do that. And so we're communicating with them on that. Of course, there are many areas where we have not been able to established strong foundation for some suppliers actually that to -- so we would like to continue with the efforts in areas which have -- where we have complete these efforts, we would like to review each challenge so that we can continue to reduce costs. And as a result, I believe an accumulation of that would lead to the decline in breakeven volume. As for the target breakeven volume, there's no specific numerical target that we want to achieve because that is not the target objective in itself. The objective is to restructure our revenue future mix. And that would be -- I think that would lead to the creation of the mix structure that would help us to achieve that goal. As for the ROE, 20%, as I mentioned in the presentation, we have not published any time line or target date for achieving this 20%, but we would like to engage in discontinuous growth so as to achieve that ROE target. And as Masaki said earlier, value chain profits and also new mobility through these efforts, we want to enhance our operating margin. As for capital, our revenue structure once it shifts to value chain and new mobility, then of course, we will be able to lighten our capital structure to match that shift, and that's within sight as well. But of course, this capital is something we receive from our shareholders, so we have to listen to the shareholders' forces. But having done that, we would like to aim towards that flag of 20% and take many initiatives to achieve that goal.

This is Yamamoto speaking. Am I being heard loud and clear. Please start. Thank you. Earlier, the earning power is mentioned a number of times. Now the cars should be profitable. That's what it means, I thought. But then when Acesa before Acuson, were the President, there was a thinking of selling volume of cars and which has deteriorated. It caused the deteriorated quality of products and product power. But now you're focusing on enhancing product power. Now building Eve bite cars and building stronger earning power. Are there anything that you will endeavor to achieve in order to hit both of them achieve both of those initiatives.

Well, thank you for your questions. As I mentioned earlier, we do not pursue any numbers. We pursue individual customers each individual customer satisfaction so that they will be satisfied with our cars, and they will continue to select Toyota. So for those 5 brands, we define roles, different roles for those vehicles. And along with that line, we continue building Everett cars and deliver those customers. On the other hand, since we are a business, you have to really respond to our customers' demand, especially those customers who are still waiting for the hybrid cars. Hybrid cars evolve and a part of our technological innovation is to reduce cost as hybrid performance increases, customers may be willing to pay something additional for the enhanced performance. So cost reduction and ever-better cars should be combined along the way. As Kasha mentioned earlier, there are multiple processes that are involved in making cars. We will continue to deliver affordable cars, good quality and affordable, and if ever better cars certainly will entail a wide range of lineups of our products. you mentioned there was a time when we only pursued the volumes, we will never go back to that, and each of our employees understand that we will continue to value and cherish smiles on the every phase of our customers. That's what we mean by ever-better cars. Thank you.

Kon-san earlier mentioned, you have to have a good breaking in order to accelerate making is also used to turn your vehicles. I hope you'll be able to turn to a better direction [indiscernible] Thank you very much.

Moving on to the next question now.

Syama from Nikkei. Can you hear me?

Yes, we hear you.

Thank you. Regarding the forecast for this fiscal year, I have a question. The dollar-yen exchange rate. Can you share me? Can you hear my voice?

No, we hear you fine.

Yes. Sorry. the dollar-yen exchange rate, your assumption was JPY 150 to the dollar. Currently, it's 15 million to JPY 15. So I think you have set your assumptions at a relatively high yen rate. So what are the assumptions for calculating this exchange rate assumption? And the second question is a softer question, Sensor. The question is to you. If I could ask about your thoughts about car building. Now I think that recently, you're beginning to see results on the for example, Costa and winning at the RC, so building better cars through the development of people and good cars. So you have developed good cars as well as good integers. But for this to become a business and an earnings source. I think that you need to develop cars that can earn money. Now I think that Constant declared yourself as a car guy, I believe. So what sort of cars do you want to build? And what sort of cars do you think will be required by society going forward?

So let me reply to the first question regarding the exchange rate assumptions. Well, normally, we quite mechanically take the monthly average that is the monthly average of the month before the beginning of this term. without any other additional factors. But for this month, as you know, there has been many fluctuations, including the Middle East situation. So for this year, we have decided to take the 6-month average rather than 1 month average as the exchange rate assumption, that's why we arrived at the number of JPY 150 to the dollar. So this is something that's different from past years. The practice has changed because this is a very highly fluctuating year. Through Motorsports, I believe developing cars through motor sports is the initial philosophy of Toyota, and we would like to continue that polos. When it comes to car making, I perhaps don't have any experience -- direct experience, but with the limited resources and limited and the extreme specifications required. The cars are trained and you'll be able to see defects that will not appear during mass production. So I think that motorsports that can really refine your efforts to build good cars, and that's absolutely necessary for car making, good car making. And as a result, in the world of professional motor sports, Toyota is getting results, which is something wonderful. But of course, if we want to turn this into a business case just because there's a good opportunity, you can't just throw money and investment on that opportunity because within some restrictions within limited capacity, have to use your ingenuity, I think, to make the best investment and I think it's the same for motor sports. We will continue investment in motor sports, but it will not be unlimited blue sky investment to automotive space racing or case racing and all others have their respective capacity. So they have to also use their ingenuity and that would lead to better development capabilities and the development of our better talent -- so your [indiscernible] that car had in half the U.S. brand in Europe and the base car model has been highly appreciated by customers. On the other hand, Carola is building its brand in North America. So the brand and also, the strength of the car, which was trained and honed in motorsports. I think will be required to gain the customers' assessment and appreciation over many years. So this is going to be a long journey, and we would like to sustain our efforts towards that long term. Given my role, I think, is to give a very good solid support to that effort. Thank you.

Thank you very much, Jamsa. Automotive News, Hans.

I have a couple of questions about the U.S. market, in particular. I see that North America has had an operating -- a regional operating loss for many quarters in this current year. Can you explain a little bit the background of why that is a regional operating loss? I guess it's because -- or partly due to tariffs, but can you get to a place where you can eventually fully absorb the tariffs and have a normal profitable business in North America. When do you think that can happen and how do you get there? And related to tariffs, I'd like to ask about Chinese cars in the U.S. market. There's lots of concern among many carmakers that if Chinese automakers are allowed to sell their cars in the United States that the legacy makers can't compete in the U.S. market against them. Do you think that there is a need to put up barriers to keep the Chinese out to give the legacy automakers, time and space to improve their products against Chinese low-cost Chinese automakers.

Now first of all, about our business in the U.S. market, as you mentioned, quite rightly, as a region, we continue to struggle over the past couple of years. There are 2 background factors. Number one, TNGA shift that we have seen in the past, Corona was the starting point. And then into trucks, the truck platforms in revisited as well. As we did sell, electrification also had to be taken into consideration. So investment in the U.S. multiplied over the past couple of years. So that's an important part of our business structure. So currently, we see our profitability structure, led by such investment and then that challenge is compounded by tariff. Our business structure in North America, therefore, continues to be very challenging, and that is reflected in the financial results year. What really will do going forward? As I mentioned earlier, we have to make sure we solidify our earning power there as well based on building ever-better cars. So as you see on the slide, these are the initiatives that we will implement solidly going forward. So that will be my response to your first question. Is it being translated simultaneously? I hope so. Now let me go on to the second question. our basic thought is that, well, actually, in the past, Toyota used to be a new emerging manufacturer, especially for the big 3 incumbents in the U.S., led by GM, there is incumbents. Well, actually, Toyota learned from those incumbents and that's what got here -- got us here. Now what we have to ensure is that competition gives delight to the customers through better technologies and innovations, making cars more affordable and close to them. And that we healthy situation. Therefore, we have to have a level playing field where we can have a fair competition and different OEMs compete fairly with each other to offer ever better products to our customers, leading to even better societies going forward. To that end, we will continue to hone our capabilities to be able to effectively do so. And during the course, there will be different challenges to which we will continue to adjust our strategies.

If I could ask one follow-up to your question. or to your answer, without tariffs do Chinese entrants into the markets like Europe or the United States or Canada, are they playing on a level playing field without tariffs somebody on that train.

Well, actually, I'm not in the position of being able to guess what the Chinese manufacturers are thinking I can only speak for ourselves. In Asia, for example, we see many emerging manufacturers. Now local production working together with local suppliers is something that we do so that we can contribute to the local economies. So that's what we do too. there are cars which are made in China not locally produced, they may not be a contribution to the economy of the market we will solidly remain in the position of being able to contribute to the local market and local economy in that manner. I hope I answered your question.

Next question from June to newspaper at Susan.

This is Asami from Chunichi Newspaper. Can you share me speak you I have 2 questions to Christian on -- it was be when you sum presence said your role, and you mentioned the name of [indiscernible] and regarding stats, you said that he will not exert any money to wait for things, but he did make a very ambitious investments for the future. Now we asked about your business structure transformation earlier. So as [indiscernible] would be waste for Toyota today? What would be the investment that's necessary for the future for Toyota? And second question is about your relations with the suppliers. And here, Taisisida said that it will be a relationship of coexistence and cost but not one of Reliance. And I guess that it's necessary to enhance your supply chain because of the very tough environment. So what is the ideal relationship in your mind with the suppliers? And how do you intend to achieve that ideal relationship with suppliers?

Yes. Thank you misses investment towards the future of what would be the future investment. I would like to respond to that question first. Well, as I said earlier, mobility is something that's absolutely necessary for people and society of or the far future, and it's something we have to because mobility can really change people's lives, not only their lives, but also change their heart and for example, their motions being able to see things that they've seen for the first time to beat people they meet for the first time. And for that, I think mobility plays an extremely important role to provide such delight to people. So mobility will continue to become absolutely necessary for people and society. And so my image of future investment is something to achieve that sort of mobility and that's what we are investing in today. The other part of your question had to do with waste and in terms of will be the types of work that is not value-added work. That is work that does not generate true value add. And so I guess, removing waste is to exhaustively move such nonvalue-added work, but nobody is doing work that they think is waste for -- so what is value-added work? What is the sort of task, the work or activities that are absolutely necessary for Toyota. That has to be defined, I believe, very and that is the role of the management to do. And in any workplace, any work site, I think the same holds true. So that is the sort of waste that I would like to remark. As for our relationship with suppliers, through our meetings with various suppliers and from the [indiscernible] , they call Toyota either colleagues or Patriot. And in order to make sure that they continue to call us colleagues or Patriots, we as an OEM believe that we must not flee from our end users who are the most district customers for us and deliver good cars to them. And I believe that, that would be the first condition that must be met for us to be regarded as colleagues or co-patriots -- by our suppliers. And if we can do that, then we are not worthy of being called co patriot. And for the suppliers, our toughest they are, they must continue to become our toughest customers. And if you wanted to deliver really good cars to our customers, we have to make some demand -- very demanding conditions on the suppliers, but that is not for Toyota. It's for the sake of our customers, the end users of our cars. And if that's necessary, then we will -- we will be determined to make demanding demands of the suppliers. But when things really come to hit. When really things come to a critical situation, then we will work together with the suppliers and coordinate with the suppliers and maybe if necessary support our suppliers. And I think we want to continue to play that sort of a role vis-a-vis our suppliers as well. And that, I think, will achieve the goal of Taizo Ishida, who say that it's coexistence and co-prosperity and not just overreliance on each other.

Let us move on Nike. Please wait until we switch the screen to yourself. There seems to be some problems with the collections. We'll come back to you later. [indiscernible] When you see yourself on the screen, please start your questions. Thank you.

In your presentations, robotics was mentioned as a part of your earning power enhancement initiatives, robotics are being forecasted as physical AI, multiple layers. I robotics, semiconductors are involved, which part of that robotics, are you focusing on to enhance your earnings power? Now in this physical AI arena, autonomous vehicles as well as robotics will be the 2 major markets. Now Toyota has are OS in platform Will there be some common development for robotics as well? Or will robotics be something totally separate? Will you remain captive for Toyota as well alone? Or do you also see outside of Toyota markets globally.

[indiscernible] thank you very much for your questions Actually, you are far ahead of us, Tanigawa. Well, actually, are something that we continue to pursue and explore autonomous driving enables various types of automation. Let's take a look at the plant, for example, when we receive components in a plant, something unloaded from the trucks can be automatically conveyed. But then as we look at the groups, lifts are automated and other machines can also be automated as well. We have lots of opportunities. As we think of that, as you mentioned, the physical may be able to enable autonomous driving. And as I mentioned in my presentation, Toyota really has lots of different types of different games with different areas of expertise which can be combined to build robotics, which can be used in different fronts. And robots will learn expert crosses skills and be able to teach other robots after that learning. So we can dream big, as a matter of fact. Currently, we are discussing and exploring different opportunities, and we will continue to do so to realize something tangible going forward. What sort of technological pillars we will have going forward has not really been defined, but you can teach us so that we'll be able to solidly develop our AI and robotics capabilities. Thank you very much.

Thank you. Tesla, for example, have terra apps. So they're into semiconductors as well. How about Toyota? It is too early to discuss that publicly.

Thank you. Tania Thank you. Moving on to the next question. We'll switch over the screen, so please start your question when you see yourself on the screen.

Terasaki from Bear. Can you hear me? I have 2 questions. First question to President Kon. After you assume the President, this is the first financial results briefing. And for us, to us and out of the blue change of precedent and not it's not been half a year yet. And at the outset, you said that your outlook has changed because you visited many work sites. If you could more detail your feelings and maybe things that were unexpected after you became President, I think you found to be different from your expectations, et cetera. Second question, I want to ask about your products and next year's products, BEV could be 246%. That is 600,000 sales volume that is your forecast. And BV around the world has reached a plateau. Many people say, so compared to the global sales, I believe this may be a bit conservative. But still, you intend to increase your sales volume by close to 2.5x. So where would you be able to sell how many of these BEVs to the extent you can divulge such numbers? So these 2 questions, please.

Yes. Thank you for your questions. Well, yes, I did visit many work sites. And your question was, if I found things to be rather unexpected of my expectations well, I don't know if it's off my expectations or not, but I have found that many people candidly say many things to me, and that was my very candid impression. And there are many things that were being improved. And frankly speaking, there are many concerns and there are some people who said that they're so frustrated, they sometimes fall into 2 years. I listened to these statements. And I talked about the value-added work earlier, but not 1 of these colleagues thinks that what they're doing is wasteful, but they're frustrated that, that is not leading to value-added work and they're also frustrated that they cannot deliver cars to customers as the customers expect. Then I felt very strongly that frustration or their desire earnings. And that was my very frank candid impression after making rounds of the work sites.

This is Miyazaki to respond to your second question. Thank you for that question. Well, up to now I think that -- so we were told you're only selling this much in many cases, but [indiscernible] said you're going to sell so much. That's a big surprise, but from what we had initially expected, it is true that we were able to adjust the actual sales numbers to the actual demand. And in areas that were BEV will grow, 1 would be China, also Europe and North America. These 3 regions are areas where which will cover the growth in the battery EV because China is a mainstream market to begin with for battery EVs and now we have been telling you that we'll be developing cars that can sell in that market and products are actually working there, and that's why we have grown the sales volume and plan to do so. As for Europe, there are costs that we jointly with Suzuki. And so we have we see delivery of these cars. And so for Europe, we do have plans to introduce our own battery , so there will be growth. And for North America, as we pursue the full lineup approach, our share of battery is will increase as well. So in China and the developed countries, our plan is to grow the BEV business. Thank you.

Thank you, Serasa. We are getting to close to the closing time. So last 2 people to ask questions. Mike Jason, please.

I am a from Nike. Am I being clear? I have 2 questions. Number one, about 30th side, your forecast for the volume. Production, 10 million for the year. [indiscernible] is about 100,000 increase from the previous year. And your sales, I believe, is increasing as well. Now if there was no Mid-East crisis, do you expect the numbers would have been larger. The second question about 29th slide, R&D and CapEx, JPY 1.6 trillion in R&D. Is this the record high and what it means is that you will continue stepping on the accelerator in investment? Is it reflecting your comment? And what do you do in R&D, software, any cutting-edge technologies? And then in CapEx, CapEx seems to be lower than the previous year. Why? Because I think you're planning on building a new plant.

Thank you for your questions. This is Azuma speaking. I would like to respond to your questions. About the volumes, you're very right. As I mentioned, we do have some impact from Middle East, and that's factored in. So these numbers would have been greater if there were no Middle East crisis. So you're right in there. About 500,000 to 600,000 is the number for our exports to MidEast and about half of that will be reduced. Your second question about our R&D and CapEx. R&D is a record high. You're right. I had him a listener. Our R&D expenses are increasing year-on-year. over the past several years. Starting 2 years ago, certification issues that we had to respond. We are spending money for the right way of working. So that's a part of our investment. When that is done, the R&D expenditures may plateau, but it is true. It remains record high, as you mentioned. As for CapEx, in the fourth quarter, you mentioned in our previous briefing, third quarter and fourth quarter, you saw lower profit level. Therefore, starting in fourth quarter, CapEx, especially for bad increased. So for the next -- for the -- for going forward, CapEx is also likely to become more stable. But from the last quarter, we started investing in CapEx. Actually, we do not have any clear cut forecast for the following quarters. But anything that we invested in CapEx, depreciation cost is likely to go up. So we have to continuously revisit our fixed cost. Now in R&D, what are you investing in other than certification like [indiscernible] City or software investment for a and investment for future are the 2 directions for our future investment. Now for future, we have BEVs, hydrogen, Woven City, related investment, autonomous driving as well. So these are the areas where we expect to see some R&D investment increasing. So those are the areas where we make investment in addition to investment in people. And this is something that we expect to continue. Thank you very much.

Final question. So we'll switch over to you.

Kawaguchi from Nikkan Kogyo Newspaper. Can you hear me? I have 2 questions as your forecast for the 27, your, I think, forecast is JPY 51 trillion. And hybrid, you foresee an increase in sales volume, I believe. But on the other hand, as [indiscernible] said, you have to reliably deliver the products to customers and I think that dilapidated factory and the need for maintenance report factories was mentioned during the spring labor offensive. So in the medium to medium term, I think that you are taking various measures. But how do you intend to deliver to customers? How do you intend to build a reliable structure for production? If you could talk about your policies for 2027 for that? And the second question, this has to do with international competitiveness. The across the supply chain, you are delivering some cost reduction efforts, I think, which will be very important. But -- and I think you've been doing this for many years. So against this external environment, how do you intend to speed up or accelerate these initiatives because the radio supply chain work because you're such a [indiscernible] the biggest contractor. What are your views of improving the supply chain? Thank you very much.

As you said, how to produce and deliver reliably to customers is a key question. And during the labor management negotiations, we talked about the reality of the work side and how we should communicate our roles to the people at the worksite, and there's been cash. And I think that understanding -- mutual understanding has deepened and stopping the production line will have a major impact on customers. We agreed on this. and we wanted to correct the situation from here. So the management went to the worksite and listened to the issues at the work site in order to improve the situation. And domestically, for example, we have a very broad lineup. But there are some models where there is some restrictions on taking of orders some models where we could not take orders, and there's been some vacuum and one would be the minivan and the small compact cars I think are witnessing such difficulty. And the fact if we cannot produce these kinds of cars, they will not be able to achieve our cause of delivering to all customers. So for family cars and compact cars, we want to make sure that we can produce these cars for customers. And so we have prioritized these models. For mini fans, due to hard work by colleagues and the cooperation from our suppliers, our delivery time is becoming shorter. And so what remains is the packet cars -- compact cars are, for example, manufactured in Tokura. And so regarding the logistics routes, we're having to received the cooperation of many stakeholders. And there are many issues that remain. But this year, we want to commit ourselves to centralize our focused our efforts on that. And now against that backdrop, how to engage in the cost reduction activities across the supply chain. As was indicated earlier, inflation and the Middle East impact will increase our costs inevitably. And we must make various efforts to alleviate the impact. But the first is not to manufacture ways to fold or redundant parts. We must go back to such basic. So Area 35 is an activity that we are actually promoting for this and suppliers give us information such as well, this part is not selling well, do you really need to manufacture it. And also, we will go to the suppliers, visit the suppliers. And although they're very hesitant to say this, and if it's products to deliver to Toyota, even with just the small scratch, we hesitate to deliver the part to Toyota, they say, and so we will listen to their voices, and we can give them assurance that they can deliver such part to us scratch is very small. So we would like to steadfastly engage in cost reduction activities from the perspective of the customers. Now [indiscernible] talked about our relationship with suppliers earlier and we will not be able to finance a as car if you're lacking even just one part. So we would like to work with the suppliers to improve quality and also to reduce costs. So we ask for your continued support and guidance towards -- thank you.

Thank you, Kaisa. Now then we would like to conclude the session. Thank you very much for participating despite your very busy schedules today. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]