Nidec Corp

TSE:6594

Earnings Call Analysis

Nidec's EV Focus and Appliance Strategy

Nidec emphasized the importance of miniaturization in EVs and criticized the lack of focus on affordable, practical vehicles suitable for daily usage. The company expressed a belief in overcoming social issues through innovation, suggesting future cars could be powered by solar energy and calling for a shift towards producing cheaper and more efficient vehicles. Despite facing criticism for extensive R&D expenditure, Nidec remains passionate about delivering convenient products and solving societal challenges. The company also hinted at robust financials, citing an order for a costly mega-sized motor slated for a profitable venture in Qatar's LNG fields, which is expected to bolster profits significantly.

Record-Breaking Sales and Profit Increases with Unchanged Forecasts

The company started on a robust financial footing with record high net sales of JPY 1.16 trillion. Notably, both the operating profit, which increased by 21.1%, and the profit attributable to owners, which saw a rise of 22.4% to JPY 106.1 billion, exhibited healthy growth.

Price Increase Strategies and Achievement of Sales Targets

Despite some delays, the company completed a critical pricing strategy overhaul by the end of September. This recalibration aims to meet a substantial sales target of JPY 360 billion in total, a goal the company anticipates achieving.

Diversification and Competitive Positioning in International Markets

The company has retooled its business strategy to reduce its reliance on China by diversifying interests into markets such as Japan, the United States, and Europe. Amid a competitive environment focused more on price than performance, the company has managed to gather many inquiries from these regions, suggesting a recovery and competitive edge as it avoids direct price wars in China.

Striving for Elevated Operating Profit Ratios

A central part of the company's financial aspirations is achieving an operating profit ratio of 15%. This ambitious target is supported by strategies including better unit pricing, avoiding deficits, and a prohibition against discounting products due to their superior performance, thus securing a healthy profit.

Operational Efficiency and Margins

The company has prioritized operational efficiency, evident from the introduction of rationalized motors and products like brushless motors which are becoming a reality. It has set a goal to increase its margin in the appliance and commercial industrial segments from 18% to about 19%, with a long-term view of reaching and exceeding a 20% profitability mark.

Investments and Manufacturing Diversification

Recognizing the risks tied to concentrating operations in a single country, the company is diversifying its manufacturing footprint with significant investments planned for India, the United States, Mexico, and Vietnam. This approach is designed to spread out production bases globally to mitigate future risks.

Earnings Call Transcript 2024-Q2

[Operator]

Now it's time for us to start the presentation on Nidec Corporation's financial results for the first half of fiscal year 2023. [Operator Instructions] .

The company's financial results are as follows: Mr. Shigenobu Nagamori, Representative Director, Chairman and Chief Executive Officer. Mr. Hiroshi Kobe, Representative Director, President and Chief Operating Officer; Mr. Mitsuya Kishida. Executive Vice President and Executive General Manager of [ AMC ] business unit; Mr. Akinobu Samura, Senior Vice President and Chief Financial Officer. Mr. Masahiro Nagayasu, General Manager of Investor Relations and CS, our promotion department.

That is all. In today's presentation, these executives represent the Nidec Corporation, will provide outlook and details of the company's financial results for the first half of fiscal 2023. After that, floor will be open for questions. conference is planned to last until 11:30.

Thank you.

[Unknown Executive]

Thank you very much for gathering at this conference. Desipite your busy schedule. I am Kobe, the President of the company. Mr. Samura, will present our company's financial performance in detail for the first fiscal year 2023. and Mr. Nagamori will explain the details of the company's performance. Then we will be opening up for questions for us to be able to answer.

Now Mr. Samura please start your presentation. This is Samura speaking. I would like to give you a brief outline of our performance for that brief period. If you take a look at the slide 3, First half net sales stood at a record high of [ JPY 1.16 JPY 0.7 billion ]. Operating profit was -- is increased 21.1% and operating profit ratio was 10.0%. The first of operating before income taxes increased 22.8% to [ JPY 144.4 billion ] and profit attributable to owners of the parent increased 22.4% to [ JPY 106.1 billion ]. When it comes to sales and all the operating related ratio were all record high. And now here this time, sales and other operating-related videos. Were record as well. But the annual forecast remains unchanged. That is all for me.

Now I would like to give you the the details of our financial performance for the first half of this fiscal year. Please take a look at Slide 4 of the document for [ main ] business categories compared with Q4 of 2022. We hit the bottom there. And in [ Q1 and Q2 ] of this fiscal year, we made a recovery. When it comes to this particular business segment, we increased our prices was delayed. And this process was almost completed by the end of September. On a quarterly basis, we made a JPY profit JPY 10 billion approximately. That's the type of structure of this small [ press ] multi business. When it comes to the sales, [ yes to ] [ JPY 360 billion ] in total. That's the target we need to go back to. And we are expecting to achieve that goal.

There are some new products in this area. We like to grow this business with these new emerging products. When regards to automotive business, I believe this is one of the most paid attention to areas. We have business strategy in place. We have changed it First of all, we have focused on certain countries China, we have deeply dependent upon the country so far. But now we have diverse our interest to Japan, the United States and Europe, we have receiving many inquiries from these regions and countries. Recovery is the most important task that we have quite a few companies that are in deficit in comparison with us. The competition over products performance is not there yet. We are competing over prices in China. And these competitors are in deficit cost [indiscernible]. While competing with us such a price-based competition is not something we are used to. It's not necessarily maybe healthy. We have been in a competition and sometimes some customers -- some competitors are enjoying 5% profit others even more or less. We need recognize values about our companies with each other, and that's the type of the competition we should be in. We launched a [ Gen1 ] in the past. They are at the breakeven point.

Currently, we have not accepting orders for Gen-1 products even though they do come to us. Basically, we elected chief operating profit ratio target of 15%, 15%. And we like to compete with other companies to be able to generate at least [ 15% -- 15% ] operating profit ratio. I cannot give you any names at this moment about in Japan, there are some OEM manufacturers. We are going to receive orders from an OEM manufacturer in the country. Instead of having many inexpensive products orders, and we have had productive product in capacity with such a system in place, we won't be able to foresee future. Therefore, we decided to decline in offers in expansion products, we would like to secure profit first. We'll actively forecast generating profit. Starting next April, we're going to have NEP in Europe to be consolidated into our Nidec Group's performance. I'd like to give you figures in detail lighter in this conference. In addition, we have Japan, U.S. new customers compared with the current business partners, we have better unit prices. And we shouldn't generate any more deficit while we try to increase our production in order to continue to win going forward in the business. When it comes to performance, we are specialized to motor manufacturer compared with other competitors' performance, product wise, our products excels. Our products excel them. We are not going to discount our products anymore. Because when it comes to components that we use, we're going to use some of the components that are manufactured in China, it is okay according to our customers, [indiscernible] continue to use China made a component, but we need to make some changes for that too. And local production, local consumption is very important in China. When it comes to Japanese customers, they want us to produce components in Japan. So when it will produce those components for the customers in Japan. When it comes to United States, American customers, we will produce our components of products in Mexico. It doesn't may not be right now, but in the future, we like to able to achieve the operating profit ratio of 15%. That's type of operating profit ratio that we need in order to avoid a generating deficit. We like to avoid negotiation for lower prices when it comes to our products. It has been 50 years since I founded this company. It has not been really profitable to be in such type of price reduction type business. We have never tried to reduce our [ motors ] prices. And all those competitors had to [ withdraw ] from the business. Because of that, we have been able profitability. Performance has not been so much of the focus, but the price has been people's focus. In such a market, we try to reduce our price to the best end possible, we still needed to make money. If we cannot make money shouldn't be in such a business. Fortunately, we have some customers, having giving us inquiries, orders. And we have negotiated with our Chinese customers to decide on appropriate level of prices for us to sell our components to our customers. that's the direction we're going into. We are selling Gen 2 and [ Gen 3 ] prices. We're going to reduce the prices of these new emerging products that we will make sure to secure a healthy profit. We will review all the designs and everything else in our products. The performance will not be decline, but this is a very new market. At this moment, it is not wise for us try to reduce our price components and the product prices.

In the end, in all cases, we became we have become the world's leading manufacturers and the details of this area will be explained by our Executive Vice President in this area. When it comes to appliance commercial or industrial products. I have produced Emerson's businesses in 3 -- on 3 different occasions. We have launched [indiscernible] when it comes to people and others and top executives are there. We have a new business unit called ASM and MOEN. Both of these business units are under my operation about [ 5 ] to 10 years or so. And they all know due [ understanding ] policy. And they have launched many new products, and they are [indiscernible] a very good profitability. They are making sure to achieve at least 15% -- 15% of [indiscernible] their management is very stable. And their profitability in Q1 and Q2 some seasonalities.

Still, the profitability is going towards 15%, 15%. When it comes to Slide 24, this is very important for our future profitability. When it comes to large industrial motors here. This is part of the infrastructure business in the United States and other places. And many parts of the infrastructure is being reflect with new ones for the next 10 to 15 years. And these were rationally building 50 years in the next time for replacement. On the other hand, we have some strict issues, [ trust issues ] such as [indiscernible] efficiencies is in question.

And in Slide 24 is the market, JPY 2.5 trillion, and that's the size of the market industrial motors and others included in this market. Over the past years, have research in this area. This is one of the most best areas that we are very purely best at. We have [ rationalized ] motors, and we have induction motors. high efficiency motors are here and they are now [ brushless ] already. Now finally, my ideal is coming to reality. High-performance motors. Now they are here. It has taken a long time, they are here. And we -- [ Sinais ] is brand that we have for this product. But 2 years ago or so, this was introduced into the market. In the United States, technology for innovation is already taking place has received 3 major technological innovation awards in the United States already.

And you can see the performance related to the differences between conventional and [indiscernible] commercial models in this one. And this is [indiscernible] smaller than the commercial ones, as you can see, among other features. This area has had only 3% per year when it comes to [indiscernible], it's now up to 18%, you got [ 20 ] for or in a small circle here.

And you will see the market environment here. Nidec has #4 in market share. up until now. Now with [ Sina ] motors being launched, I think we have been able to take away shares from our competitors all at once. And in FY [ '30, ] the market size is expected to grow to about JPY 5 trillion, and we believe that we will be able to take more than half of that market share. The 18% today will increase to about 19% in margin. So the profitability of appliance and Commercial Industrial segment is increasing and becoming stable. And this is -- we're looking at on a long-term basis as well. The induction motor market is for the -- they still have a very large size motors. The [ tesla ] motor is using induction motor. And this is the conventional induction model. So they're not using a very highly efficient motor. But was the technological innovation, I think we will be able to capture #1 over [indiscernible] market share in the world. And I think our profitability will exceed 20%. And it's already implemented in the market. So that is why with products that are actually monopolizing some of the markets in the United States, we are able to see further growth in this segment for appliance, commercial and industrial, and we will also enhance our profitability.

The motor industry like I said for example, in the Infrastructure segment they use a lot of large motors. But there's a lot of energy, electricity consumption here. And with the size, there's so much difference in the market for induction motor in the world will change quite significantly. So for a [ Airlines ] and commercial, especially for Industrial, I think the profitability structure would change quite significantly for the Industrial segment. So induction motor used to be cheap and because it's easy to build, and they thought it was good, but because efficiency is so bad. And so in terms of CO2 it's not compatible. So that is why the specification is changing. So there's really no choice they are no longer able to enter the market unless you have that [ IEE ] specification standard.

And we are actually meeting all the way up to #5 [ IEE ]. So the situation is changing quite significantly. In such as improved sales, but also better profitability. And this is a very large change that we're seeing in the motor segment. And also this area, we're implementing new products like -- for example, the flying cars from 2026, we're expecting to launch this and we have already placed order for the first manufacturer. This is that [ JPY 250 million ]. I think this will come down to about JPY 2 million in the future. And also in terms of investment in this area. In India, there's a very large plant. So I think there's a lot of contraction to have compensation in one particular country or region will pause a lot of risk in the future. So [indiscernible] if you continue to be a company with a great dependency on particular countries, and that's actually problematic. So we are looking at Vietnam. So the main state will be in India and also the United States, Mexico, so there will be large investments in those regions, countries. That's the direction. So in the world, we want to spread out our production basis. And if this -- we're also seeing customers that want to have the -- have manufacturing basis in certain areas.

So the idle plants we're utilizing in Japan because customers want to have it built in Japan, and there's a request from customers asking for collaboration. So they are about about 3 plants, which we are actually trying to resume in Japan. So we can see a lot of different types of risks in the future. But the company needs to make sure that we're able to deal with these risks. So whether it be a manufacturing basis or whether it be the sales spaces, we need to make sure we scrutinize so that we can mitigate risks in terms of manufacturing and sales. So this will be different from the way we have done in the past.

And next is machinery. Now we're -- this is affected by global trends. But we actually advanced into machinery tool. This most recent case will be [indiscernible] actually did a tender offer to this company. And we're almost done with this. But most of the large machinery tools have already been included in our lineup, including live. And there's a little bit that we're still missing in our lineup, but we will try to add on to that with that. And then we have a company called like, "[ OKK ], this used to be a company that wasn't looking at large losses. But I think Mitsubishi had acquired this -- I'm sorry, we have [ acquired ] this company, and we have been able to make a lot of profit like 18% [indiscernible] as well.

So we think that we can rebuild this company in the short term and generate large profit in as for process machines, we have been doing it from before, but we're beginning to see increased demand, especially EV motors are very large and therefore, uses a lot of press machines. So this is in the machinery automation business unit. But so we're looking at best machines and also reduce the skiers and the [ robot ] business performance is doing so well right now. So it's not as good. But the lines before and after the press process, we have acquired it with M&A. So we have been able to enjoy great competitiveness. So I would say the greatest challenge we face today is even for auto the traction motor other motor businesses aside from traction motor is also doing well. It's starting to recover. So brake motors, power steering, they are also performing quite nicely, and we're beginning to see [ net ] profit generated and also and traction motor. This is about running. We need to make sure that our strategy doesn't go wrong here. And of course, in my past, my track record, I have never backed out of anything like this, especially at a degree like this.

Whenever I started, I want to make sure I finish it strong. Of course, we have to adapt to the market and there's a way we need to compete according to what the market environment is at that point in time. But if we do that, we can be strong. So for auto, I want to say [indiscernible] said that this year, as for traction motor, we are expecting to lose about JPY 15 billion on an annual basis. We already generated that amount. On an overall basis. So JPY 15 billion by the end of this fiscal year in March, we will develop different types of models. So we are looking at a loss of about JPY 15 billion again. We are estimating that. But with that, it doesn't mean that overall [ AMC ] business will be loss at making. That's not the [indiscernible] because we have the brake motors and other types of motors from conventional business, which is generating profits. So I think we should be able to offset that loss of JPY 15 billion. And also another major change next year is that this year, we were expecting to be profitable in traction models. But unfortunately, we are looking at a conservatively loss of JPY 15 billion but next fiscal year. NPE will be consolidated.

So my Vice President will explain a little bit more about what would happen to this.

[Unknown Executive]

So my name is Kishida, and I'm responsible for the automotive products business. If you go back to Page 18. As we had explained earlier, at this point in time with regards to the China business, we're seeing a rapid price disruption. And so we are intentionally trying to restrict orders so that we can be more profitable, especially our joint venture partner like NPE and [ Hans ], we want to make sure that we will accelerate our orders from our partners. That's our policy. And if you look at the current number today, how solid are they? So as of today, the firm orders, we have revised it to the firm order numbers. And going forward, we will do the same. We will be very severe with our forecasting, and we will engage in order taking from that. In 2025, that's the time in which the market is slowed. And we still have time for that. So how are we going to really finalize a strategy for that? I think that's really critical. So from 2024, NPE's number will be added to our consolidation. So we're looking at and JPY 1.55 million then this will go to [ JPY 2 million, JPY 4 million ] and our target is to achieve JPY 10 million. So there's no change with our target, but we want to make sure that we're profitable in the China business and accelerate order taking in Europe. And as for Japan, we want to make sure that we're able to increase business in Japan as well.

So that's our target for '24 - '25. So if you could turn to Page 19. So on a monetary basis, this is how it looks. And when it's [indiscernible]. So from 2023 to '25. As for traction business, we're looking at flat. We have that 2024 for fiscal year and will be consolidated into our group [indiscernible] we have going to achieve JPY 500 million, currently JPY 387.2 billion is in our target. And we're going to do our sending our models into these vehicles. We would like to expand our sales based on the sales of these models into these vehicles. And there are some reasons that is aware this forecast is coming true. But when it comes to China where price competition is extremely tough. What we need to do is we need to focus on production productivity, work productivity. In and onward, we're going to have a new joint venture with a new partner, supply of components to Europe is something we're going to launch as well. Part of this green section on this slide. And external sales of the components. And that's another chance in business we would like to make [ armature ]. This battle is just -- has just begun. We are just a starting point of additional battle. [indiscernible] reiterate. And we have investment in research and development.

Please go back to Slide 17, Generation 3 or Gen 3. We have Gen 1 and Gen 2 in place, we are doing our business with these models, Gen 1 and Gen 2. It's about [ 70%, and 30% ], respectively, in our business -- automotive business. Next year, we like to launch Gen 3, in the market. This is not really our random target of entering into business. This is in automotive manufacturing plan with GSE or partner. Here, you can see the [indiscernible] model [indiscernible] is what we're going to start our business with. [indiscernible] includes the 3 major components in [indiscernible] and gear. We have IPS in code tenet and PTC heater is also in [ code tenet ]. We have these are all heat resource related component these will be part of our inverter. That's how it's called [ JPY 71 million ]. ECU will be included in it. This is how we like to slash our cost as much as possible. As has been explained by Mr. Nagamori, we will produce and complete all the business in China in China, for China in China. So this is a very important point 35% of materials are for inverters, we need to reduce the cost for that. When it comes to our customers they are requesting us to use semiconductors produced in China for their products.

So we have found the partners for that, so that we can develop in [indiscernible] in China. So that we can produce Gen 3 products in China with these in [indiscernible]. Net part of our additional research and development investment for this fiscal year. Net part our profit and loss statement. That's one thing that I wanted to add, and that is all for me. Thank you. I would like to open the floor for questions, if that's okay.Thank you very much. Now I'd like to open the floor for questions and answers. [Operator Instructions] Does anyone have any questions on for?

[Daiki Takayama, analyst]

This is Takayama Goldman Sachs. My question is regarding China's [ Exor ] strategy has been changed, I believe. When it comes to Gen 3, with the Chinese market is going to remain unchanged. Are you going to continue to have a price competition? Do you have any risk for any changes ultimate form that you have in mind when it comes to these products that are used in China? What is the ultimate form going to be for these products that I'd like to ask you a question. question to Mr. Nagamori on stage.

[Shigenobu Nagamori, executive]

When it comes to the traction motor strategy that we have as a company.If we take a look back, we have made some mistakes. I'm not going to say anything about the people who are no longer with us. But back then, them wanted to take everything in his power to make decisions on the automotive business of Nidec. And delighting the responsibility was my mistake motors, our company is [ Nora's ] leading manufacturer motor manufacturer. We have processed new companies. Inverter is the critical component. We have made a major mistake in the inverter strategy. We have made some components from China. We have companies from Europe we wanted to use those products in these regions in the country. We were performance forecast. If you [indiscernible] these components is 25% profitability for [indiscernible] 15% invert, 25% to 30% in deficit that's the inverter. So it is clear that where we had a mistake in our strategy. It is not right to purchase other components to assemble these components into one invert and that's not really meaningful. I'm talking about the Chinese market here. For Chinese customers, we should use or the China-made component [indiscernible], can be reduced to a lower price like [ CNY 1200 ]. That's how much you can [indiscernible] price in China. By using China made component. And we were given a permission to use China made components for our Chinese customers. There are some quality issues, but even if they happen that going to be a problem for motor. Those are the problems with inventors, not with motors.

We have a very invert manufacturer that is very reliable. And we decided to outsource the production of this inverter production. And they are -- their products are very [ inexpensive ]. We need to be a competitive. We need to use competitive components in China. And that's how by switching the strategies like that we can increase our profitability. Inverter has a loss of 25% to 30%. Any [ renminbi ], the price was [ CNY 2,000 ] but the additional costs are associated with such a problem. So far, when it comes to inverter business, we are yet be capable enough to be able to produce inverters on our own. We cannot rely on ourselves to make everything, including all the invertor components and invertor itself. In regards to Japanese customers and the European customer situation is different. They are practicing our products at a higher price than they do in China. When it comes to NPE next fiscal year, sales are expected to be JPY 250 billion, including currency exchange rate changes. NPE does not say it is okay for us to use China-made companies for inverters. We can expect 5% to 8% operating profit ratio from the [indiscernible] NPE joint venture. And as the goal the threshold that has been set between us and and the price reduction aggressive rent exist in our European customers. They are willing to pay a price despite some problems that we face. Same thing can be said about Japanese customers. People understand what products are suitable for them and what products are not suitable for them. So when it comes to performance, some customers are making [ work ] used to make these products on their own. But they were now -- are now attracted to use our products because our products seem to be a bit of quality than theirs.

It is not wise to do a loss-making business. performance has to be considered in a right way and price has to be set probably based on the performance. That's the type of customers that we are looking for. Still, the Chinese market is expected to grow even larger than it is now. There are quite a few Chinese companies there in China. In some of these companies are withdrawing from the market. numbers are rapidly increasing. We need to be very selective in choosing our customers so that we can increase our overall profitability. For some period, I believe it is okay to be deficit but a long time deficit is not duly a business that should be [indiscernible]. That's not part of our Nidec policy. At least, we have many customers. In 2025 or so 2025 will be a critical point in my opinion. And then there is -- some customers are coming to us because their production was not really right. When it comes to 2025 after critical turning part. The first step is to secure a very healthy profitability. When it comes to posturing unit and brake motors, we have been in this business over the past 20 years.

And among the manufacturers that are supplying these components quite a few companies had to recall their products from the market due to some problems, but that's not the case with has never happened to us at Nidec. We are reliable and our customers are not aggressive in price reduction on us when it comes to these customers. And we clearly state that we cannot do business with certain customers at the certain price range, if that range is not acceptable to us, we are making products to make the car [indiscernible]. Traction motors is the unit that make the car. With for the car to be able to make very good turns deficit generating deficit the cost that is not really good at all.

Sometimes you have an increase in production productivity or volume over the past 3 months or so. We need to secure profit so that we can -- it is not roll my concern about receiving being subject to criticism in the investors conference like this one. We need to see a profit. I'm not really answering your question at all, I believe, but that's what I want to say here. response to your question.

When it comes to [indiscernible] referred to says 8% a number here on the slide doesn't cover that much. What is the secured amount of money or profit and sales for [indiscernible]. And these are all in yen in Japanese Yen. [ EUR 120, EUR 130 ] . EUR is currently [ JPY 150 ] [indiscernible]. That's the difference because in the current exchange rate. Can you answer ask the question [indiscernible].

[Unknown Executive]

This is Kishida Kista speaking. I'd like to answer the question. [indiscernible] please measure to write the currency I'm talking about in terms of Euro. [ 8% -- 7% to 8% can be security that it]. Another last question. In FY [ '25 ], you said JPY 4 trillion, organic JPY 3 trillion. So without conversion of the China strategy you're thinking, if not here, maybe somewhere else, so you have it all built up. But whether it be or machinery tool. But can you tell me a bigger picture how to drive to that number, which would compose what. Well, so we have ASM large motors. So this will become a very big pillar for us going forward. I talked about the sales size it's written here, but -- it's a very large market already. infrastructure, it takes like 20, 30 years to change.

So I know that we can expect large sales. And also as you can see from the market size, the -- we have the 10% market share, and this increases to 55%, then the profitability also. Even if it's conservatively looking 20% in the profit margin, that's still a very large amount. But having said that, not that many companies that do large moderates. So we will leverage M&A and this will become a very large and stable business for us, which we want to continue to grow. And application is [ 5 range ]. So up until now, they said because it was bad efficiency, maybe there's thermal issues. And so they had all these problems, but if you have something with a great performance, then we will have expanded application. And -- this is a small market. It's not a small market. It's actually trillions of yen in the market size. And we had taken a decade to develop this but we will have a new brand named [ Sina ], that's the brand name. And we will market this around the world. And I know that this will sell well in Japan as well.

We would like to take other questions. From Mitsubishi Morgan Stanley.

[Unknown Attendee]

I want to ask this question to you. With regards to automotive, you talked about specific strategy on Gen 3. Now focusing on customers and you talked about [indiscernible] -- so next fiscal year, are you planning to introduce from June? Is it substantially like mostly [indiscernible]? Or would it be concentrated on high-end cars -- could you be a little bit more -- give us more color? And also, you talked about JPY 15 billion in losses. Is this JPY 15 billion in just all R&D, anything else in there?

[Unknown Executive]

Well then let me answer that question. So first of all, in June 2024, that's our target. At the beginning, will be 135 kilowatts. That will be the first Gen. It used to be 100 kilowatt. But actually, we're seeing better performance. So we're aiming for 135-kilowatt for luxury cars, so high-end cars that are planned. And at after that, within GAG, [indiscernible] group, we have received a lot of inquiry. So we will go -- start with [indiscernible] now high-end existing quantity automobile group, and we will produced at the joint venture basis, and we will supply that. So that's not where we want to start with. So we will begin with the 135 kilowatt, but we have 70 kilowatts as well.

Now -- at this point in time, from GAG, we have a safe orders from them. Side Francis, GAG, they have an [ ICE ] engine group company. And they are building hybrids. So as a hybrid motor, they're inquiring us about motors. And within the affiliates, there are domestic companies as well. So we're starting dialogue with them as well. So we should be able to disclose them when the appropriate timing comes, and we will do so. And the second point about the JPY 15 billion this year, this is a very large downward revision. And we do feel the responsibility for that. However, we talked about how there's a rapid price decline. And as Mr. [ Tan ] Nagamori said we. We think -- this is a surprise decline of destruction, then we will be defeated in this competition. So even if there's a price decline, there's not much history of that being recovered. So the price was declining. There's -- every generation with the department of the new generations, we will need to accommodate this decline in prices that's an environment we need to compete in.

So Gen 3, we'll be able to accommodate that decline in prices, and that is why we're adding on the R&D cost in order to accommodate. And last year, we had JPY 30 billion in losses this year. Even on our own, we are generating about JPY 1 billion in losses. And we are adding on R&D cost. So that is why we will be booking JPY 15 billion in losses for this fiscal year. So this is organic plus R&D in JPY 10 billion or so. So this is a natural cost increase. Is this because of inverter in China development? Is that very big inverter? Yes. And other than that, we're trying to accelerate some of the developments as well. What we call it as inverters, it's not just the control type but also because we're implementing [indiscernible], we have this new [indiscernible]. This is a new type of control circuit for [indiscernible]. So we are also looking for partners, and we want to be trying to accelerate that process, so we can complete this by this fiscal year. Net mobility, which [ Amaron ] has not talked about. We are specializing in converters. They specialize in converters, and we want to collaborate with them, and we want to do joint research as one Nidec. And then in terms of inverter, one of the challenges is that the of electronic components that we will be using and being able to deal with the pricing price issues, you have to be able to have a certain level of volume. Otherwise, you will not be able to keep the cost -- the price -- so going scale is important. And so for example, there's a power source manufacturer in China, and they use a lot of components.

So maybe we can [indiscernible] to them. That would be price-wise, maybe decreasing 30%, 40% or so. So as long as we're not booking losses with inverter, then we're able to make profit from motors and gears. So we need to also polish up on our inverter technology in the meantime. But if you look at the companies in the West and if you look at the semiconductors and manufacturers in Japan, to be honest, I mean, they can't really lower the prices. That just doesn't become cheap. So in order to compete against this price competition, we have to buy from someone who actually produce the cheapest price. So in a [indiscernible] we can, we will do so. But with regards to chips, you can't immediately produces in [indiscernible]. So up until now, we have tried to produce everything in-house. But in order to go to producing chips. At this situation, the investment about is quite large. So we may need to leverage the power third party. It's completely different. We say the manufacturers is when we say [ 2,000, they say 1200 ]. So that is why what happens is that we all end up with components from China. So Chinese companies do purchase it from us. But -- with regards to the Japanese companies and the European companies, maybe they think it's a little too early stage. So we have to separate it by customers. Also from one development. If you need to make a drastic change, I basically tell them not to do anything like that. You have built the base and you modify slightly and have someone else purchase it because otherwise, you can't make a completely new development every time. Because right now, even nothing is [ for launch ] and still be expensive. So -- in order to -- we don't know if that company could survive. So we have to basically cut business with unprofitable customers. just because we want orders, we don't have to do like -- take orders from everyone. And this is because the management was coming from outside the company, and that is why they used to think that way, but we need to eliminate that kind of thing have to be profitable in our order taking.

[Unknown Attendee]

My second question then with regards to induction motors, you've mentioned about application being wide, and I can see that there's a lot of potential -- and you said that you talked about Tesla into automotive, can you actually have this application in automotive?

[Unknown Executive]

Yes, for induction motors everything the induction models percentage is about 60% in industrial. So we have this very large market share, but we have not been able to converted because induction models are cheap. So customers first cars were using -- adopting induction motors. But efficiency is bad for induction model. So that is why Tesla going brushless motors like that. But that's not necessarily with an efficiency improvement like this with [indiscernible]. They were switched to induction motors. I mean that's a possibility. And of course, already starting with experiments in this. So depending on the application I think that 50 kilowatt, 30-kilowatt in smaller cars, they are chip. So induction motor doesn't use madness.

Just [indiscernible] you have parts or it moves. So -- and with this much of our efficiency improvement, I think is quite innovative. It's bit dramatic. And the market implementation has started. And with Amanda -- the reason why the profitabilities are improving is because of these. They have contributed. So they're still yet to take off, but it's coming. And [ MOAN ] has already taking I think we declared that the sales will double by 2025, I think I think I wrote somewhere in the document here, but Page 25. So application is expanding at the bottom left corner, 2025 -- and say Page 25 is a very large, enormous motor. This -- if the efficiency difference, they will be able to cut down on CO2 quite significantly as well. We have never produced anything as big as in Japan.

I think there's only 1 or 2 global players able to do this. And we're going to make the one of those [ main ] factories in India, which is a huge campus. It's a huge investment for us. Makes Sarah [ Mortara ] manufacturing factory here in it. Thank you very much for your explanation. Thank you. Any other questions?

[Unknown Attendee]

And this is here or [indiscernible] newspaper. First, I'd like to ask you about Gen 3 products. It says in June plan is target is for next June. Are you going to set a target for Chinese customers? You have talked about the Japanese OEM manufacturers as well in your presentation, but are you going to first target the Chinese customers?

[Unknown Executive]

When it comes to next year, Chinese customers are already fixed, they are official. When it comes to Japanese domestic customers, we need to contact we have already doing that. We are already doing that this year. If these businesses come to Gen 3 will be more product and more successful as a business. whether it be China or any other overseas businesses, traction motor business scale as a whole when it comes to Japanese they are going to launch their vehicles from now and for that, the large-scale components traction motors are required. But as the changes continue, there will be a restriction of height, and there will be a request on strengthen making the motor small from Japanese domestic and European customers, and they are targeting 2027, 2028, and they will be giving us those requests to us as far as we can predict. So compared with Gen 2, Gen 3, products are much better. That's all for me. And plus, there are quite a few major changes happening in China. They are -- they have started exporting their products, not just automotive. But other products as well. they're exporting them. Of course, price are very strictly restricted. But there are some products that they would like to -- for which they would like to use Japanese products. According to our our customers. For products to be exported. Japanese products are preferred when it comes to fans, for example, they like to have a high efficiency plans in order to avoid exported related problems. So it is not the cheaper the better for Chinese customers, but this is as a result of growing intestine competition. Those vast companies such as those in Europe, not in the United States, but when it comes to Southeast Asian countries. For exports, they have specifications for exports. And products have to be in of all the specifications by exports. We need to think about it very carefully about what models that we should use for each of these individual countries and regions.

There has been one person bragged about everything about our business. The person is now growing. Now we have a very much more serious person in charge of this business. He is not going to be very optimistic about we need to be able to use figures to convince everyone. We have many customers existing and visiting our research and development facilities. Good products have to be regarded as such. The price doesn't have to a point of contention or discussion. That's not something that I like very much. And some customers are very strict about making a payment. [indiscernible] was not really willing to pay us. Some customers are not really willing to keep the deadlines. With we have a [indiscernible] very nice, very, very great company. They are export oriented, and they are trying to establish a factory in Thailand, and they would like to partner up with us in Thailand, outside of China. Such companies are not really [ broadly ] metal. Now 300 companies used to be in the market, but now the 200 of them are going in the Chinese automotive market, EV market. only 100 remaining in the Chinese market.

Now we are learning about how to -- how to survive in this business in China. And as a result, our the sales are down, our sales may be down, but if you want to -- if you define about this result, please make sure to sell your shares, of course, there will be no problem.

And our next question is about your talking about your companies going back to Japanese market from overseas market and appliance and home appliance and industrial have any ongoing cases. This is concerning our customers, so I cannot disclose so much, but we have many companies returning back to the Japanese market from overseas. Due to various reasons. We have our factories 2 of us, 2 of them, in fact, 2 of these factors are under [indiscernible]. They would like to use Japanese products when it comes to our customers for these products. There are quite a few issues like [ Polyflow ] issues. We're not really expect on that. And that's the type of trend and yen is being depreciated. So it is okay. Make sense business-wise to produce products in Japan instead of overseas. And have made -- they are making those decisions back coming back to Japan based on concerning those risks and the European American customers are requesting us to make our components in Mexico in exchange under the cornerstone that we will be their single-source supplier. When it comes to India, there are quite a few of the Chinese manufacturers over there.

In Thailand as well, the Chinese manufacturers are -- that are doing business the country such phenomena are occurring here and there. As far as we are concerned, we have been making investment in China in significant, and we are making a very stable profitability and doing a very stable profitability in China. Some things happen or may occur will take place in some places in the world. We need to make sure to avoid distractive to us by thinking ahead.

That's all things we can do. We are in the business in 46 countries around the world if we are dependent upon certain we will cause a significant damage or problem to our customers. We should avoid the situation at all costs. If customers are requesting us to make products in Japan, we will try to do that right away. And we like to be a single-source supplier with all vendor for that. That's what I -- that's what I -- what we say in the negotiations with such customers as far as Nidec is concerned, has become 50 years old this year. We have been doing reforms on wages, for example, salaries. We need to make sure that we are competitive enough in comparison with other companies salary, et cetera, et cetera. And we need to make work life reform as well as I've stated already. [indiscernible] not the case anymore. We need to make sure to generate a very sound healthy profit in any business we do. In India, for example, this is going to be investment like production of large motors we are transporting our technologies from overseas to India business fourth or fifth factor is that we're going to construct. We want to make a large-scale investment in India. We may be having some shortage of battery,energy platforms is growing rapidly.

And as you can see from these figures, we have a joint venture for battery production business. We we have already a supply chain for that business. There are quite areas that could potentially grow in the future. We're now going to be dependent upon traction motor only. You may think that the our share price decrease because of the traction motor. But we need to make investment where necessary. And we grow after generating profit. When it comes to [indiscernible] -- they used to be having a very low operating profit ratio of 2% or even 3% has taken time for us tests a very good management system. We have franchised a very good company. We made a lot of reforms. And I believe they will make one of our contributions. We started our company with this small [ promoter ] business. We have been highly dependent upon how [indiscernible] but now we have new businesses emerging. We are going make a focus and to fill the business that will take time still. We have been receiving many inquiries. I believe this business as well is going to make a very good contributions to us.

And what [indiscernible] modules as well. Micro processor a thermal heating production we're going to be huge. [ Fonsi ] will be not enough to call down these devices. This is a very expensive system, several million yen. We have been receiving a lot of inquiries for that as well. This is a very highly efficient and profitable business for us. half we go, we will be a motor manufacturer, and we will the world's leading motor manufacturer, we will be unbeatable in that regard. And all the -- our products we have installed with the motor-related component, we are going to be #1 -- continue to be #1 in this area.

We're going to have high efficiency induction motors as part of our business portfolio. This is innovative revolutionary products that we have embedded, we developed successfully. And this similar months multiple wonderful prices awards. And we have been receiving prices complement from around the or and customers are liking this product is ranked #4. And we believe he will occupy at the first rank place a 50% share is not going to be a dream in the future. This is something we are making other companies cannot. We are not dependent upon products that other companies can make easily. We are not going to be in a price reduction war with other companies when making such easily copyable. [ AI ] products. We're not going to do that. Thank you. Any other questions from any on the floor?

[Manabu Akizuki, analyst]

This is Akizuki of Nomura Securities. I have 2 questions for you. My first question goes to you. When it comes to automotive motor, you have purchased many companies you have purchased overseas. How do you manage these companies be the best or ideal way of managing these companies. And you are joining you joined the net from the outside. How would you evaluate the way Nidec manages its overseas business basis? That's my first question.

[Unknown Executive]

Thank you very much for your question. I myself have spent a year last year, at one of the subsidiaries that we have purchased. I will spend some time [ shootout ] in Germany until I returned to Japan recently. When it comes to Nidec is full of challenges as a company. In my previous [indiscernible], I was in Germany for a long time. challenging spirit is shared, the strength to take on challenges that's the best thing that we have compared with other companies. When it comes to regions, by region type of management, we're not doing that, and we have grown this far without doing that. I believe that's part of this as [indiscernible] excess strength. You usually go overseas to establish regional businesses as part of the business network One thing that suppressed me is that in Europe, for example there is not really an organization to manage the entire business basis in Europe. It is all of the individual basis. That's one thing. And another -- that's one area of improvement, I believe -- and -- in any case, in the last 2 years, it seems as of actually the 2 years is 10 years, but -- it's always been exciting, and there's a lot of new things 1 after another. I mean there are deepness in the challenges, but the target -- the goal that they're aiming for high, and it's very motivating. I'm not sure if I'm able to communicate that very well, but that's my honest feeling.

[Manabu Akizuki, analyst]

My second is for Chairman Nagamori. Your induction motor business, I think it's related and smaller actually. But relates motor, it's taken 10 years. I mean don't say that easily. I mean we did apply the principle, but we can we have spent more time and more development costs for that in [indiscernible] motor.

But when you acquired the Emerson's business, the reductions motor technology was extremely important. And because of asset it was, you were not able to [indiscernible]. So the question was, what kind of development did you do in order to make it smaller?

[Shigenobu Nagamori, executive]

Well, we did build an R&D center in Taiwan. And Taiwan is quite known for motor researches as well. And also in U.S., we have our engineers, they work together. And what I say is a reduction motor records no magnets. The vibration is strong. So large noise production model. We used to just build a washing machine, but because it was too noisy, it was not good. So reduction motor has a slip and it doesn't sink. So there's some drop out for that. And induction motor itself is bad in efficiency. So we need to have efficient -- highly efficient synchronize and a very little vibration. That's sort of the themes, the challenges that we have been working on over many years. And if you really are interested in details, you can actually look at our patent documents.

I can go and talk about this for [indiscernible]. It's an amazing model. So based on that, our strategy is to really increase your share based on that. Is it M&A? Is it partnership? I think industrial motor is very much dependent on the relationship with the customers. Even if you have a good product, very difficult to generate ourselves right away. Well, U.S. Americas, it's really a regulator. America has been quite a [indiscernible] in that and same with Europe. So it's not just efficiency and if the government, if the country supports it, the regulation supports it, then I think we'll be able to increase sales. But if the regulation is not so concerned about efficiency or CO2, then maybe we will not be able to increase the sales. So -- but I think it's -- we have content age where technology really makes a difference. Thank you. So we would like to take other questions. The person in the blue necktie.

[Unknown Attendee]

My name is [ Niko ] from Citigroup Securities. So I have one question about E-Axle. So you have developed Gen 3 and you're seeking for further cost reductions and acceleration in your spending more in R&D, so that was out of the need. So ahead of that in Gen 4 and Gen 5 -- have you seen any changes in your strategies from before. So you talked about any development going forward will be the modification for Gen 3. So what is your projections in development for Gen 4, Gen 5 and years after that.

[Unknown Executive]

So EV, I think one of the greatest effects of EV is [indiscernible] talk about CO2. But I think it's the miniaturization. The cars have been able to make it smaller. So the cars I think this is why we see the greatest benefit. It is the [indiscernible] cars -- and you talked about running about 500, 600 kilometers, just one field on charging. And no one goes takes many trucks that we in [ Tokyo ] like that. So about 10 years ago, I used to tell the floor shop worker, what is it that you want the most? And he said, mobile phone what he said. So now today, people say, "I want a car, I want a car. But there's not that many cheap cars especially the OEMs don't want to solve these cheap cars. So it's 30-kilowatt or 20-kilowatt perhaps. I think those will be above JPY 500,000, maybe almost JPY 1 million. If we're able to launch that kind of a car, then the more will become more convenient.

But if we produce cars like that, OEMs will not be profitable. So that is why it's the large cars. Now you have to have lots of batteries to run a big large car. But a day-to-day car runs on only about 20, 30 kilometers per day. I don't think any really car would go anywhere from 100 kilometers or beyond. It's just like committing to work. So that's , but they don't launch these types of cars. I think they should be putting more emphasis on that. And finally, we're beginning to see [ 17 ] kilowatt. But the car is still expensive. So I don't think you can sell it like that at that price. You have to offer cheaper cars. That's what I've been saying. So the cars are manufacturing [ CAGRs ], and there will be new cars. So the Tesla is making money from big cars. And that's why they're profitable. Now smaller cars, people say it's not profitable. But actually, a car was a 30-kilowatt 40 kilowatt, maybe you don't need to have an automated door. A car that runs is sufficient. And solar power there's a lot of sunlight -- a lot of cars could run with just solar power. So why is it that we don't go in that direction. Car companies and don't want to compete with the customers. That's what they say. They have 600 kilometers, 700 (sec) [ kilometers ]. It costs JPY 4 million, JPY 5 million, if it's any high end, it's like JPY 10 million. But that's not the main objective of EV. The objective is in the past, when it was a cold day, moms would have to -- how much the close of your children and taht was the a lot of labor. So that is why washing machines were developed. So company should not be focused on just profitability, but they have to solve social issues. So they need to offer solutions.

That's why they need to put more emphasis in -- so they say, can we do hybrid Japan next year, I'm sure the average temperature in the summer will exceed 40 degrees -- so who are going to solve those issues. But if I say that people resist and sometimes our share prices go down. So I shouldn't be talking about this too much, but that's my passion for this company. And I think we have been able to develop a lot of convenient products. For example, if you look at PCs, the reason why it's thin is because hard to discuss enter. And if you don't make the motor then you will not be able to produce these tier harder drive. So in the last decade or we have struggled. We have not necessarily been all successful. And I think if we are able to build something even smaller than we can improve efficiency, then they -- and we have finally been able to develop a brushless motor. But now maybe with the cheap motor efficient motors, we will no longer need brushless motors we're able to generate 90% to 95%. [ Versus ] motor is like 90% or so. But the price is different because the cheaper ones don't require circuits. So if we're able to develop the kind of products, we will be able to see even a more convenient society. So induction motor, same thing with the current efficiency, induction motors are no good. The efficiency is only about 70%. But if we can achieve an efficiency of 92% or 93%. I think it would achieve 95% or 96%, we're able to continue with the development improvements. And it will be innovative now that you're not too familiar with motors. I'm a motor person. I have loved motors all my life. But with such a low efficiency, I know that you will not be able to sell. So that is why wisdom is like that, you have new ideas one after another, and you're able to achieve a certain goal. And I know that this is a huge development that would help us generate a very large profit. But of course, you have to see our financial results. I can't have to make sure that I'm just -- but it's already been demonstrated with all these awards that we have won. So -- maybe we have one more question. On the short term, who's asking a question? Excuse me, [ Neon ] Citigroup.

[Unknown Analyst]

One more question, this is more of a short-term question. But ASM, you're seeing improvement and MOEN is driving that. In addition to that, the conventional appliances, I think you're achieving a greater growth. So what about overseas in Japan with regards to apply since -- and what about the market environment?

[Unknown Executive]

So appliance is not very good right now during COVID, everyone purchase refrigerators. And so the component that's used in the refrigerators like compressors are no longer doing good today. But in coated that period was strange in the sense that I was wondering why refrigerators so much. So I think this is -- we will begin to see normalization eventually. But mutualization, that sort of technology needs to be leveraged more and more. everyone if they buy these large refrigerators, it takes up a lot of space. It's noisy. And so they will look for smaller refrigerators. So that's why you have to make the motors smaller and that's why we need to do more R&D.

And I work so much in R&D. And I'm wondering why we get so criticized for this and our share prices don't reflect that. But what we do, I know it will be it eventually. So we will begin to see these new areas one after another. So for example, I'm joint to introduce is at the very beginning of the cover page. This is -- this is ultra large motor -- can you explain this. This motor is in Qatar LNG field is where it is used. And this is a new electric motor speed ultra-size megawatt speed motor. It is a very expensive product. Several hundred million yen is its price. This is the type of products that we are receiving the orders for [indiscernible] has been gas turbines that they used would generate a lot of CO2.

The motor is installed in these new products. [ CO2 ] is not really emits for the green revolution, Qatar's LNG is oilfield is where it's going to be used. Now still, they're extracting LNG. And therefore, this is a very profitable business. such applications are every area emerging in larger numbers in the world. And this is about the [ JPY 5 billion ] per unit and about 50% profitability. Not many companies can produce these type survey equipment. These other companies are -- have to be subject to price reduction competition. And this is the area -- one of the areas we need to grow even further. Thank you.

It is time for us to finish this meeting. Regarding Nidec Cooperation financial results for the first half of fiscal year 2023. Thank you very much, everyone, for your attendance today. despite your busy schedule. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]