Nidec Corp

TSE:6594

Earnings Call Transcript 2022-Q1

[Unknown Analyst]

Dear all, thank you very much for joining Nidec Conference call. I'm [ Taku Miyagawa ] General Manager, Cooperate Division of Mitsubishi UFJ Morgan Stanley Securities. As we kick off the conference, I'd like to ask you to make sure all the materials are already in front of you. If not, please download the files on Nidec's homepage right now. Please note that this call is being recorded and the conference materials will be posted on Nidec's homepage for the coming weeks for investors and analysts who are not be able to join today's call. Now I'd like to introduce today's attendees from Nidec corporation. Mr. Jun Seki, Representative Director, President and Chief Executive Officer; and Mr. Hidetoshi Yokota, Senior Vice President and Chief Financial Officer. First, Mr. Yokota will make a presentation. After his presentation, we will move on to a Q&A session. And Mr. Seki and Mr. Yokota will answer your question.

Mr. Yokota now presents Nidec's Q1 2021 results, future outlook and management strategy. Mr. Yokota, please go ahead.

[Hidetoshi Yokota, executive]

Thank you. Greetings from Kyoto, Japan, to everyone, and welcome to today's conference call hosted by Nidec. I'm Hidetoshi Yokota, CFO of Nidec. Today, Mr. Jun Seki, Representative Director, President and CEO; and myself, will be your main speakers and answer your questions. Joining us also is Mr. Masahiro Nagayasu, General Manager of Nidec's IR team. For the forward-looking statements, please see Slide 2 of our presentation material for details.

Today, we have 2 chapters in the presentation. Now as first chapter, I'm going to review the key figures for fiscal year '21 first quarter. Please see Slide 3 for our Q1 results. Let's move to Page 4. The net sales was record high of JPY 447.5 billion or 32.8% higher year-on-year.

The operating profit made a significant increase of 60.3% year-on-year to JPY 44.6 billion. The first quarter's operating profit ratio was 10% due to enhanced profitability through WPR4 program implemented since FY '20 and also due to sales recovery from FY '22.

On Slide 5 and 6, here are structures showing the net sales and operating profit growth year-on-year and quarter-on-quarter especially by product looks. As you see on Slide 6, appliance, commercial and industrial, or ACI, and machinery are continuously performing, thanks to the growing demand such as compressors or motors for home appliance, HEV and testing machine, et cetera, while net sales and operating profit of small precision motors and automotive products declined due to continuous improvement from new business areas, reduced HDD shipments and impact of semiconductor shortage.

Please turn to Slide 7. In response to the structural change in the HDD market, our small precision motor division is implementing business portfolio transformation, as we explained before. As you see, the graph on the left, the quarterly sales of other small motors in green color has increased quarter-on-quarter, and we are starting to focus on the launch of mass production in new business areas such as mobility, including mini EV, electric motorcycle, electric scooters, electric-assisted bicycle, et cetera, for our mid-term growth. Please see Slide 8. The automotive existing business, which means automotive business, excluding impact of traction motor-related business and Nidec Mobility business is keeping double-digit operating profit ratio for 4 consecutive quarters after bottoming out in the first quarter of FY '20.

Please see Slide 9. The cumulative number of EVs using our E-Axle has reached 161,000 units. In both May and June, the monthly sales volume has exceeded the past peak in December 2019, boosted by recently launched models such as Aion Y by GAC and Geometry A by Geely.

Please see Slide 10. The operating profit ratio of ACI is steadily improving after bottoming out in the fourth quarter of FY '19 and reached 10.5%.

Please see Slide 11. The operating profit ratio of other product groups, which consist of machinery, electric and optical components and others keeps achieving around 15% level after bottoming out in fourth quarter of FY '19. Now we want to move to second chapter of the presentation.

Please see Slide 13. From here, I'm going to explain our new mid-term plan called Vision 2025. Based on the solid foundation period led by the Founder Shigenobu Nagamori, Nidec is going to enter a new era with a new management structure driven by the new CEO Jun Seki. We are aiming for JPY 2 trillion in sales in FY '22, which was originally the target for FY '20 celebrating our 50th anniversary in FY '23, aiming for JPY 4 trillion in net sales in FY '25, which is the final year of Vision 2025 and eventually JPY 10 trillion in sales in FY '30. We keep changing and growing sustainably for 100 years and beyond to be truly a global company.

Please see Slide 14. As you can see in the middle box, we are going to focus on JPY 2 trillion in sales target, again, in FY '22, which was the target for the previous mid-term plan, Vision 2020. In fiscal year '22, we are also aiming to increase the sales and profit per employee by 30% by improving the productivity and achieve over 10% return on investment capital or ROIC.

In the right box for FY '25 likewise JPY 4 trillion net sales, double the sales and profit per employee and to become a top rated ESG company.

Please see Slide 15. In Vision 2025, we are going to tackle both growth strategy including organic plus M&A and efficiency improvement in capital investment. In fiscal year '25, we are aiming to achieve JPY 3 trillion in organic sales and JPY 1 trillion through M&A and for the JPY 3 trillion organic sales we are aiming for 15% operating profit ratio and 15% ROIC for the total company. Please see Slide 16.

In Vision 2025, we are aiming to achieve high growth with aggressive investment in the key growth area. As you see the graph on the right, small precision motors organic growth target is set at JPY 600 billion, while sales from new M&A are expected to be JPY 200 billion. Likewise, Automotive and ACI organic sales are JPY 1 trillion, new M&A of JPY 300 billion, respectively, and other product group organic sales of JPY 400 billion plus new M&A of JPY 200 billion.

Please see Slide 17. In Vision 2025, we will evolve our business model and business areas to accomplish JPY 10 trillion sales. This slide is illustrating the example of EVs and robotics, where as the horizontal line showing business areas goes from device alone, module, system to solution.

The vertical line showing expected market size expands accordingly. From the left bottom to right top, we designed the business expansion with seamless integration.

Page see Slide 18. Nidec is leading the EV growth pillar as a company who triggers the creative disruption and goes beyond the industry tradition. As you see the graph on the right, all new vehicles sold in China will be ecofriendly in 2035, and the European Union has proposed effective ban for new ICE vehicles such as gasoline vehicles, including hybrid ones from 2035.

Based on these strong tailwinds in our favor in the EV market, we have revised -- revised out the sales target volume for our E-Axle in FY '25 from the previously announced 2.5 million to 2.8 million units.

Please see Slide 19. Japanese EV startup ASF has decided to adopt Nidec traction motors and inverters for G050 an EV for delivery that's ASF design. This is the first time that our traction models will be adopted for EVs landing in Japan. ASF is in charge of LMV in collaboration with a major Japanese logistic company, Sagawa Express and its production will be conducted by Chinese automaker, Liuzhou Wuling Automobile Industry under the umbrella of Guangxi Automobile Group based in Guangxi Province, China. This is a brand-new project where the model is designed in Japan in accordance with the Japanese vehicle and load standards but produced overseas.

Please see Slide 20. We are going to set ROIC targets in line with each business unit strategy and conduct improvement activities. We will invest over total JPY 1 trillion, including CapEx and M&A and accelerate growth while aiming to optimize CapEx to sales ratio.

Please see Slide 21. This is one of the important initiative for Vision 2025. We are going to declare carbon neutrality in Scope 1 and Scope 2 by FY '40 and layout Scope 3 supply chain action plan by FY '25. We will reduce our CO2 emissions through extensive introduction of renewable electricity, efficiency boost, shift to low carbon fuels and funding third-party projects to offset unavoidable emissions. This is the end of the presentation material.

Last but not least, on behalf of the entire management team, I would like to thank our customers, business partners, suppliers, for their support and commitment as well as our shareholders. At this time, we would like to open up the call for any questions.

[Unknown Analyst]

Thank you very much, Mr. Yokota. Now, we'd like to turn to the Q&A session. Mr. Seki and Mr. Yokota will be pleased to answer your questions.

[Unknown Analyst]

[Operator Instructions] Our first question today is from James Pulsford from Alma Capital.

[James A. Pulsford, analyst]

Alma Capital, quite right. Thank you very much for your presentation. And congratulations on a very good set of results. I'd like to ask a little bit more if I can about the makeup of profits and what happened within small precision motors.

You commented on your presentation on profits down on prior investments, the customer new products. Can I check is that in -- can you be a bit more specific for that? And that's I assume in other precision motors. And to help me understand what's going on within it. Is it also possible to break down profits between the HDD side and the other precision motor side? And I'm interested to look there as what's happening to the trend in profitability for other precision motors and why?

[Masahiro Nagayasu, executive]

So James, maybe your voice is a little bit difficult to hear. Would you just -- very sorry, just on the point.

[James A. Pulsford, analyst]

So do you want me -- would you like me to repeat the whole question?

[Masahiro Nagayasu, executive]

No, no. Just key question that you made.

[James A. Pulsford, analyst]

A key point. Okay. I'm after for precision small motors. So if you can help me understand...

[Masahiro Nagayasu, executive]

Yes. Which motor?

[James A. Pulsford, analyst]

Small precision motor.

[Masahiro Nagayasu, executive]

Small precision motor. Okay.

[Hidetoshi Yokota, executive]

The investment that we are making for the future, what kind of specific area? That's what the first question, correct?

[James A. Pulsford, analyst]

It's the -- why profits went down? So the prior investment for customer new products. That's point one. If you could explain that? And then point is really looking at the -- if you could give me a breakdown of profitability between the HDD side and the other precision motor side and comment on that, please?

[Masahiro Nagayasu, executive]

Okay. So you have the slide and Slide #7 Then we are showing you there past 8, 9 quarters of results. Then those are divided into the small precision motor in the blue and the green and the non-HDD motors. There also, we show you what the OP margin of the segment. So clearly, as you see in the past 9 quarters the top line is coming down, even say at most upfront or coming down, and then the open margin front.

So as you hear that we are looking at the growth of the top line in our Vision 2025 even from there to 2030. So thereby, we need some top line growth in this segment. So thereby, we decided to focus on the new market, which is the mobility market and mini EV market and 5G smartphone market and the other e-commerce robotics market. So with a new focus in the new market, we are planning to increase our top line, then after that, basically with the profit. So this is the basically strategy in this small precision motor. Then the number of the small precision motor is in Slide #16, okay? So the fiscal year 2020, we reported the top line on this small precision motor segment JPY 443.6 billion, 443.6. Then with the focus of the new market, we are going to grow organically up to JPY 600 billion at minimum then in order to adding some new scheme or new M&A, we are looking at JPY 800 billion top line in 2025.

So you might be asking what kind of M&A. Then clearly, if we are getting -- coming into the new market, then there are several maybe function that we need to calculate that market. Then we were looking at an opportunity in these areas as well as the -- expanding its top line is a key strategy at this moment for 2025. So in order to for this -- in order to achieve this, maybe we are going to utilization our key technology, but also we may get the support from the other company in the form of the merger and acquisition. James, is that fine?

[James A. Pulsford, analyst]

Yes. That's interesting. And I note so your -- the products -- some of the products you're targeting are very similar to the -- well, I mean, one of them is actually in the automotive area, a mini EV that must -- I mean if you look at your products in the automotive side, they must be just a one step down. It's interesting you choose to put the mini EV side and also in mobility, you choose to put it here rather than in automotive. Wouldn't it make more sense to have it in there?

[Masahiro Nagayasu, executive]

Okay. The key point is the wattage is completely different. So when we're talking about the mini EV then we are looking at up to 30 kilowatts, where E-Axle or traction motor is so far, we have been looking at 50 kilowatt. So from 30 to 50, there is some borderline between the motor developed by our auto people and the motor developed by the small precision motor. Then for the other motor in this chart, if you're looking at the Slide #7, the mobility, for example, e-bicycle, e-bicycle is something like 400, 600 watt and the e-scooter, 400, 600, 1 kilowatt, 1.2 kilowatt, 1.8 kilowatt in that type of range. And the electric motorcycle up to a 1 kilowatt, 2 kilowatt, 3 kilowatt, 3.5 kilowatt and 4 kilowatt in that range is the motorcycle.

So clearly, in the small precision motor area, the wattage is small. The difference is -- also the other difference is the mini EV market and mobility market, the time line is much shorter than the normal so-called the EV production lines. In the EV product line, well, maybe from the contract to the sales of mass production, 1.5 years minimum.

Okay? But in the case of mini EV or mobility, the time line is much shorter, and that's going to be more similar to the small precision motor. So thereby, we -- at this moment, we are planning to do these markets by the small precision people. James, is that fine?

[James A. Pulsford, analyst]

It is fine. Can I just ask, you've spoken before on previous calls about the exciting developments in China with the micro EV or very small EV market in China and the success. One company, in particular, has the potential for that market. Is that in this 30-kilowatt range? Or is that -- will that stay within auto? Could you just explain to me where those -- that potential market fit? Is it here or on the other side?

[Jun Seki, executive]

James, this is Seki speaking. Thank you for your questions, and then thank you for your very, very good memory. Exact name of that small EV is Hongguang mini produced by Shanghai GM Wuling. And then that motor size is 20 kilowatts.

And again on top of Nagaya's explanation from Nagayasu, actually, as the CEO of these companies, I don't care so much. If you -- precision motor take care of this range or automotive section take care of this range. But as a matter of fact, automotive group already run out their resources because too many order takings from current automotive companies.

Actually, total range is exceeding 40. And then of course, at Nidec, we don't want to loose this opportunity for smaller EV side. And then concurrently precision motor division lots of sales. They have very good resources, engineers and then some facilities. So discussion between Nagamori-san and myself, we decided -- let's put this into precision motor area. That's on the simple decisions.

So we won't be very flexible. Once -- precision motor has many other business, while automotive has settled down. We may shift this business into automotive area again. But at this moment, our decision is this 30 kilowatt, 20 kilowatt motor into precision motors.

[James A. Pulsford, analyst]

Okay. That's very clear. And just -- I know it's less interesting, but is it possible that just before I sort of stop, please let me know on -- for the HDD side, I've got couple of things. One, what was the operating margin of just the HDD business, which is obviously sort of separate to precision? And also, you give some industry figures for shipments, HDD shipments, I think. But do you have your own company shipment figures? And any comment on the ASP or change in mix that you can give us?

[Masahiro Nagayasu, executive]

So we say roughly 30% at this point on the spindle motor business.

[James A. Pulsford, analyst]

30%.

[Masahiro Nagayasu, executive]

Yes. So we have been reporting roughly 30% in maybe 2 or 3 quarters already in a row.

[James A. Pulsford, analyst]

Yes. They've not changed in Q1, yes.

[Masahiro Nagayasu, executive]

So the key is the mix is shifting to a more high capacity one revenue line, and those are really a high margin. Then numbers that -- so-called the product mix is going to be shifting to a more higher capacity, maybe we can keep a good margin in there. Okay?

[James A. Pulsford, analyst]

That's great. And what were your volumes in Q1, please?

[Masahiro Nagayasu, executive]

Yes. The total volume of the market is maybe at this point in the front. Now within that front, probably as you can see Slide #7 then the [Technical Difficulty]

[James A. Pulsford, analyst]

Okay. The market volume is 60% and then what the group volume was, please.

[Masahiro Nagayasu, executive]

The market, at this point, we say in terms of the product mix. As I said, near line is increasing but 3.5, 2.5 is coming down, right? But overall, we say the market for this 2021 is roughly flat or slightly down from the previous year. That's what we are looking.

[James A. Pulsford, analyst]

No. I understand. So I haven't been very clear is my question, obviously. I can understand market shipments of 64 million units in the first quarter. For Nidec shipment, I know they're very high value added, what were Nidec shipments, please?

[Masahiro Nagayasu, executive]

Okay. So maybe you were talking about the market number is 64 million, but our number is roughly, say, 31 million this quarter.

[James A. Pulsford, analyst]

It's 31 million.

[Masahiro Nagayasu, executive]

So for this quarter, clearly, we had to limit that we are not a majority of market. But that is going to be affected by a lot of the investor questions. And as you understand there is a streamline of the decision makers and [Technical Difficulty]

so we saw a huge change and so-called transaction or trading relationship. Thereby, we do have some so-called inventory issues, which happened in September and the -- September quarter last year for us. If you're looking at Slide #7, we have shown you a huge increase of our sales in Q2 last year. But Q1 this year, clearly, Nidec has a similar situation.

So thereby, they increased there, we decreased, very simple mathematics.

[James A. Pulsford, analyst]

I understand. Your strategy here, it's fixed. It's about making money not about share. Good. Okay. Well, look, I'd probably better to let someone else ask you questions, but thank you very much.

[Unknown Analyst]

Our next question is from Ramsai Neelam from State Street Global Advisors.

[Ramsai Neelam, analyst]

Congratulations on the great quarter and all the best, Vision 2025. My first question is on chip shortage. So it seems to have an impact on automotive and also small precision motor segment. Can you give some color on maybe, if possible, try to quantify the impact of semiconductor shortage in Q1? And what is your outlook going forward in this quarter?

[Jun Seki, executive]

Ramsai, this is Seki speaking. Shortage is occurring in not only semiconductors, but also plastics and the magnetic steels and copper and the other standard steel. Therefore, it's very difficult to say, damaged by semiconductor alone. But overall, I think price increase requirement was about 5% of our total revenues. So let's say, our total revenue in Q1 was 4,400. So 4,400. So 5%, therefore, it's along with the 200, there was impact. And then, of course, we cannot absorb all. So first, we made our cost reductions. Our direct labor costs to other expense. And then second, we request our supplier to wait for this increase. And then third, we negotiated our customers to share this increase with our price and damage.

And then finally, we managed within the 1% damage -- integrated damage from all, not only semiconductor, steel, copper, plastics. So it was therefore, 40 open damage that we are seeing. And then that is like a financial review.

And then we have a volume shortage from customers. So for automotive variants, lastly, 120 open sales is lost because customers -- no, end user won't purchase vehicle but our customers cannot build the vehicle. And then we can build our components but because our customers cannot build their vehicles, we cannot deliver. There was some of -- represented the confines impact, if it's okay for you.

[Ramsai Neelam, analyst]

Yes, that's great. Like and any...

[Jun Seki, executive]

The forecast in Q2 and Q3. We don't know. We have our assumptions, but we don't want -- that really happens and then we are checking day by day. It's a bit unpredictable. Overall, tendency is May was really bottom. It's a very, very heavy rains. And in June, still very heavy rains, but better than May. And July, it's raining very severely but better than June and May.

And then probably, it's a little better in August again. And then I'm predicting from September onwards, probably much better than now, but not our factory meets market demand. Probably, the other recovery happened in the end of Q3 to Q4. That we are taking.

[Ramsai Neelam, analyst]

Okay. And my next question is on E-Axle 2025 target. It's good to see that your target improved from 2 million units to 2.8 million units. Can you give some color on the recent inquiries for your E-Axle and how the trend has been? And also, if I can ask a question on the pricing of E-Axle. I believe it is around $1,200 previously. So do you see any -- I mean, can you give some color on the price trends or any competitive pricing there?

[Jun Seki, executive]

Okay. You have a very, very good memories. I don't want to disclose this information to outside, but Ramsai -- investor side is okay. But don't put this information onto your website, okay? I trust you. The other order we already got is about 1.9 million, okay? And then I ask you with high probability we are seeing is around 180 -- sorry, 1.8 million, another 1.8 million -- sorry, maybe I said you wrong. The other order we got is 1.9 million. And then very high probability is 1.8 million. But we compressed that high probability half. So I add up 0.9 million into 2 point -- 1.9 million that makes 2.8 million. Okay?

And then price wise, you're right, $1,200 for 150 kilowatts. And then overall market tendency is supposed to be less priced than that. Actually, market is moving high product side so -- performance is same, definitely, price is going down because market is returning more power and more torque, actually price stays same. That is situation. That happened for high power motor, such as 150 kilowatts and 200 kilowatts. I think 70 kilowatt or 50-kilowatt motor, which we have a lot of product yet. But I think that is probably going down further. And then we talked about the 20 kilowatt and 30 kilowatt. That is also -- has a very soft decline for this one. But we are sure we can make profit. And then our profitability become clear in '23. And on price, we sought out all accumulated negative profit in '25.

[Ramsai Neelam, analyst]

That's great. Just to follow up on that. On the cost side, I remember earlier, for example, I think it's a 150-kilowatt motor costs around $1,000 to produce. For example, inverter costs $700 and gas cost $200 and motors cost $100 and you aim to reduce the cost of production there by achieving the operating margins. So may I know any update on that front? I mean what's the progress on cost reduction, of course, you're doing M&As and doing some arrangements. But is there any change in the -- your targets to reduce, especially inverters engaged by 50%, I think. Can you give us some color on the cost side as well?

[Jun Seki, executive]

Ramsai, thank you. I think that this figure is too sensitive even to investors. So I cannot clearly disclose, but we are meeting our original plan. We have another balance, which is semiconductors, magnetic steels, plastic increase, which is very -- impacting very heavily.

So again, same stories. We are requesting further cost reduction to in-house teams. And then we are requesting packing teams to control this price increase. And we are requesting customers to share this price and cost increase. So that's remain on top of our plan to cost reduction.

[Ramsai Neelam, analyst]

That's great. Maybe my final question on your JV plan that seems really exciting. Can you give your JV plan with Foxconn. So what is the real value add you're expecting in the long run on the JV you're planning to have from 2022, if I'm not wrong? Can you give some more color on the JV, please?

[Jun Seki, executive]

Ramsai, if you promise me, you don't put this into your minutes or something. I can go very straight. You don't put this in your Internet or website, yes?

[Ramsai Neelam, analyst]

Yes. I think this teleconference will be published somewhere. I'm not sure.

[Jun Seki, executive]

If this will be published, I have to be very public comment. Our main customer are automotive makers, okay, particularly currently, most of the Chinese players approaching us, and they are a very good customer. This is a straight answer to your question. But they are very good customers because they don't hesitate to outsource motor. But also, their lead time from order price to SOP is very short, okay? For example, if we get the order from a standard automotive player from Europe or Japan, and usually it takes minimum 2.5 years, maximum 3.5 years.

If July '21, if we take order right now, it's sometimes January '25, that is SOP. So during that period, we're just spending our money. We can get the money back. Chinese customer is very attractive because their returning show is, let's take the order this July, this year now and then their SOP is generally like Q3, quarter 3 of next year.

So it's a very quick return. That's one of the reasons we love Chinese customer. But then we have a -- therefore, like a standard customer type. They stick in in-house at this moment. And it's like a type of a Chinese customer, they don't care to outsource. They come to us, very big. In between is like joint JVs. JV with Grandis and JV with Guangzhou Motors. They don't want to be this hub of vehicle to completely outside, but they don't want to spend too much money for this one. So they request us to come and then share investment and development cost instead the exclusively releasing their demand to us. So it's win and win, okay?

And then for -- while we have been expanding those business, we are seeing newcomer such as Foxconn. And then ASF, Yokota-san mentioned, those are new type. And then for us, any type is okay as long as they use motors. It's nothing special. They need 150-kilowatt motor or 100-kilowatt motors or 70-kilowatt motors, we can offer. And then meaning of JV with Foxconn is a bit different because the reason from Grandis or reason from Guangzhou Motors is digitalization while sharing the investment and development costs. For Foxconn, I think they need a strong know-how, not only from motor side, but also many other key components of vehicles.

So I just -- I don't have any clue but I guess, they have a similar JV with other key component players, okay? And then, therefore, attractiveness from us to them is clear. We are very reliable, experienced motor company. And then attractiveness from them to us is, I would say, high potential. We don't know if they can do or not, but they have many third-party customers who want to build the EV by themselves. Okay? Because of the confidentiality agreement, I cannot tell you clearly, but many famous companies wants to build their own EVs.

So we don't know if this really happen or not, but I don't want to lose these opportunities. So that's why we agree to go deep dive for another 6 months. And then our agreement is if we agreed for our point, we make a final contract in December this year. That's the content of JV. I mean, study -- agreement of the study at this moment.

[Unknown Analyst]

Our next question is from Ms. Yunli Liu from Ninety One.

[Yunli Liu, analyst]

Actually, my question just got asked, it's about the JV with Hon Hai and Foxtron but I have another question on e-scooters. Right now, I'm aware that there's a regulatory-driven replacement demand in China right now. I'm wondering what's your customers in terms of e-scooters and e-bikes, et cetera? And if you could give us the rough ballpark of your market share, if that's possible.

[Jun Seki, executive]

Okay. I don't know if you know or not, but in China, most of the motorbike is already driven by motor. It's very different from like Indonesia or India. Most of the Southeast Asia country has a huge volume of motorcycles, but it's still driven by engines. But China, it's, let's say, 90%, 95% of motorbike is driven by motors. Okay?

And then I think current motor -- most of the current motor is not so efficient. And then the placement -- incentive for replacement is to accelerate efficient motors.

And then for these areas, we have newcomers because current market is dominated by Chinese players. But we already found that we can -- we have enough capability to build our motor with the same price as them with much better reliability, durabilities. So that's why current top player of this electric motorbike is agreed to source us. Actually, our SOP, start of production for first product is in September this year, 2 months from now, okay?

And then -- so answer to your question, probably this is a very good opportunity for us to increase our sales. But we have to -- confident, I mean, take market share from our competitors because we don't have enough market share right now, okay? So replacement and the increased demand is good. But before that, we have to take much share from our competitor that is current situation. Of course, it's same logic for a power assistance bicycles and others.

[Yunli Liu, analyst]

So is it possible to name any specific e-scooter customer?

[Jun Seki, executive]

Sorry.

[Yunli Liu, analyst]

Or high possibility?

[Jun Seki, executive]

This announced by our customer. We can talk, but we cannot announce by our side first, but one of the top players.

[Unknown Analyst]

Our next question is from Mr. [indiscernible]

[Unknown Analyst]

My first question is around the JPY 1 trillion of CapEx and M&A spend guidance that you've given over the next 5 years.

I wondered if you could either let us in on how that was calculated or break it down by CapEx and M&A. I'm just trying to square it with the target for JPY 1 trillion in inorganic sales increase and also with the quite considerable CapEx requirements of your E-Axle business.

[Jun Seki, executive]

Thank you. Most of the case for M&A side, we can save our investment because they already have the capacity and facilities. And then if we know M&A, we have to do it by ourselves, and then we have to invest. So those are pretty much in line and almost same figures. So let's say, we purchased JPY 50 billion company. And then we have almost JPY 50 billion asset. So we don't have to invest. So depending on what size M&A we do, currently, we can tell you roughly it's 50-50. So JPY 0.5 trillion for our own investment, JPY 0.5 trillion for M&A.

If we have a very good items, or company to purchase, even JPY 3.5 trillion, we do, okay? And then to maintain that flexibility, what we have to do is we have to procure our equipment as low as possible, okay? And then one of the solution for that is in-house machine tool builders.

So as I already explained at the previous session or previous, previous sessions, we're developing our winding builders by -- internally. We are building testing equipment for E-Axles by ourselves. And it's very famous, our stamping machine is our own. And then on top, we merged, acquired Mitsubishi Heavy Industry Machine Tool divisions. It's not clearly closed yet. But I don't think it's too far from today. It's probably a very short period. And then since they are already inside, we can purchase at very, very reasonable price.

Of course, on top of that, we have a very strong know-how to make our cost slimmer. So let's say, we can purchase their equipment, 50% from their previous price and that is the strength. So JPY 0.5 trillion for investment, JPY 0.5 trillion for M&A is just very last but flexible balance to increase that flexibility. We are continuing to put the effort or capital investment reductions. And that's effectively happening. Okay?

[Unknown Analyst]

So can we assume that your M&A targets are -- I mean, this is very rough, but based on JPY 0.5 trillion spend for JPY 1 trillion in sales, there are unlikely to be either high growth or high-margin businesses that you are targeting to purchase. Is that a fair assumption based on what you've just said?

[Jun Seki, executive]

It is, yes and no. If you go to Page 16, segment by segment, target is actually different. We are already large. So we used to purchase like JPY 10 million companies, but now we can go very high if we want. And automotive sector is the one probably we should go very large one. For me like small precision and then other product, probably we still have to stay a very small one. And then it's small, but still very profitable, I mean delicious for us. So segment by segment, actually, we cannot make a general comment. It's different. But we have a target.

[Unknown Analyst]

Okay. That's very clear. And just if I may, on a slightly different topic. I'm interested in the emphasis of the per employee KPIs or sales per employee and OP per employee that you've put up there alongside return on invested capital. Could you explain a bit what made you settle on these as the most appropriate KPIs? And also, if I may, as a follow-up, whether or not you've said anything really planned on headcount?

[Jun Seki, executive]

Thank you. I'm very happy to have this question. Actually, I wanted to have this question. Let me introduce where we have passed, okay? At landing FY '20, our sales is JPY 1.6 trillion. And then we have 120,000 employees globally, okay? We had many employees but we have reasons. Nidec is very cost-competitive companies. There are many reasons, but one of the technical reason for that is we have very high vertical integrations. Many part supplier is just assembling, okay? Maximum via machining but they don't cast, they don't press. Of course, many of them don't produce die or winding machines or some machinery equipment, assemble equipment by themselves. But we do. That's why we are very cost competitive.

But at same time that brings more employees than standard company, okay? One of the point is -- If we're going to go JPY 10 trillion, which is 6x from 20s, do we really have over nearly 1 million employees. Can say, of course, not. We can't -- we cannot maintain those. So what I conduct is while we are keeping cost competitiveness, we've done this is very high vertical integration, but we have to make more efficiency for not only direct labor, but also indirect labor. So of course, typical solutions for indirect labor is digitalization. We still have a very much manual work. And also because of a complicated organization, probably we are doing some unnecessary work, whilst therefore we are screening more simplification in the organization. Those solutions for more productivity from the indirect side. And for direct side, standard introduce more automation, okay? Nidec -- many of Nidec plants are located in cost-competitive countries such as Thailand, Vietnam and then China and then Mexico and in East Europe. And then when we introduced our facility in there, originally, labor cost was very low.

So we -- and at the same time, we didn't know if very good sales happened. So for the introduction, we were very careful not to invest too much. So we skipped and removed automation -- investment for automation.

So naturally, we have many people. Then 10 years and 20 years from now, and almost no exceptions, cost-competitive country increased their standard labor cost. So still competitive compared with the U.S. or Europe and Japan, but not competitive as like 10 years, 20 years ago. So now I decided whenever we go as a new plant, we introduced higher automation from the beginning with no hesitation. So lately, we announced that we are installing a new facility in Serbia, so I am requesting lead of Serbia in our company to introduce very high capability, high automation machine. That will help this productivity improvement.

Okay? So when we're reaching the JPY 10 trillion hopefully, we have around only 400,000 employees, not 1 million. Does that answer your question?

[Unknown Analyst]

Yes, that's perfect.

[Unknown Analyst]

We have only a few more minutes and the next will be the final question. Mr. Ramsai Neelam from State Street Growth Advisors, again.

[Ramsai Neelam, analyst]

So just referring to page in the presentation. So when we compare Vision 2020 and Vision 2025, vision 2020 somewhat lacks some -- I mean, unable to reach the target precisely. So what is different when we compare vision -- I mean, what is the difference in strategy when we compare Vision 2025 and Vision 2020? What is -- can you give us some color around that to achieve Vision 2025?

[Jun Seki, executive]

Thank you, Ramsai. This is a key question I anticipated. Vision 2020 took so long time because Nagamori didn't have Seki. Now he has Seki. He was only the leader leading this company, but we can share leadership. That means our DNAs, micromanagement, micromanagement. Complete micromanagement by just Nagamori was impossible. That was the main reason it stuck, okay? So now we share micromanagement from Nagamori side and Seki side. And then it's proving 2020, very successful. It's much more better growth than '18 and '19.

So now while we are doing micromanagement, also, I bring the many people. And then those people are very professional to how should I say, prepare for future growth. Not too much excitement for current performance but for futures. So those are main difference. And then, of course, as today's presentation showing, I think we can't disclose everything because we have a competitor and then we have a stakeholders. And then we can -- if we're showing too much, too precise what we are going to do, that makes our activity difficult so -- but we have a very detailed plan to achieve. So for example, like the vehicle side, as I said, it's a long lead time anyway. Then we have a very good visibility up to '24. This show many big automotive-related company working for '25, but I think it's pretty much close to what I won't, okay? So we have more management or management capability ability and actually, results and visibility is telling us this is very much a practical growth.

Sorry, again, I cannot tell you too much precise.

[Ramsai Neelam, analyst]

Yes, yes, I got your point. Yes.

[Unknown Analyst]

Okay. Thank you very much, Ramsai. Now we'd like to conclude the conference call. I'd like to appreciate for your participation. Should you have any further questions, please don't hesitate to contact Nidec Corporation or U.S. sales representative at Mitsubishi UFJ Morgan Stanley Securities. Again, thank you for joining the conference call. And you may now disconnect.

[Masahiro Nagayasu, executive]

Thank you.

[Jun Seki, executive]

Thank you very much.