Nidec Corp

TSE:6594

Earnings Call Transcript 2021-Q3

[Yoichi Orikasa, analyst]

Good morning, good afternoon and good evening. Thank you very much for joining the Nidec's Q3 Fiscal Year 2020 Conference Call. I'm Yoichi Orikasa, General Manager, Kyoto branch 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 ready in front of you. If not, please download the files on Nidec's homes page at this moment.

Please note, this call is being recorded, and the conference material will be posted on the company's home page for the coming week for investors and analysts who are not able to join today's call.

Now I would like to introduce today's attendees from Nidec Corporation. Mr. Jun Seki, Representative Director, President and Chief Operating Officer; and Akira Sato, First Senior Vice President and Chief Performance Officer. First, Mr. Sato will make a presentation. After his presentation, we will move on to our Q&A session and Mr. Seki and Sato will answer your questions.

Mr. Sato now presents Nidec's Q3 fiscal year 2020 results, future outlook and management strategy. Mr. Sato, please go ahead.

[Akira Sato, executive]

Thank you very much, Mr. Orikasa. Good day, ladies and gentlemen. Welcome to today's conference call. My name is Akira Sato. Mr. Jun Seki 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 statement, please see Slide #2 of our presentation material for details. Now, I will debut the key figures. Please see Slide #3 for fiscal year 2020 9-month results.

As shown on Slide #4, 9-month net sales stood at record high, JPY 1,185 billion, 2.2% higher year-on-year. The 9-month operating profit increase 24.0% year-on-year to JPY 115.5 billion. The December quarter's net sales increased 4.4% quarter-on-quarter to JPY 433.2 billion, marking a record high for 2 consecutive quarters. The operating profit for the same period increased 12% quarter-on-quarter to JPY 46.4 billion due to increased sales and the contributions from comprehensive improvement on cost structure and optimization of fixed cost through the WPR4 program. Based on these results, we have made an upward revision to the full year fiscal year 2020 fiscal -- financial forecast.

On Slide #5 and 6, you have structures showing the net sales and operating profit year-on-year and quarter-on-quarter, respectively, by product groups with exchange rate effect, eliminations and structural reform expenses. As you see the lower chart on Slide #6, automotive, appliance, commercial and industrial, or ACI, and machinery segment have been the main drivers for the Q-on-Q profit increase in the December quarter.

Please see Slide #7. As you see on the right-hand side, the free cash flow keeps increasing from the June to December quarter through continued efforts to improve cash conversion cycle, or CCC, and we have achieved record high operating cash flow and free cash flow on the December quarter.

Please see Slide #8. Based on December quarter's results, we have made an upward revision to the year -- fiscal year 2020 financial forecast, which is the second time this fiscal year following the previous quarter.

Please see Slide #11. Due to the net sales recovery and the contribution of the WPR4 program, the quarterly operating profit ratio is on its way to steady improvement after forming the bottom in the March quarter of fiscal year 2019 and has recovered to 10.7% in the December quarter, while achieving record high net sales for 2 consecutive quarters.

Please see Slide #12. Green transformation is triggering innovations in the auto industry, which is similar to those in the TV and camera industries that occurred in the past. The industrial structure goes from local vertical integration to global horizontal specialization, the product design from integral architecture to modular architecture. In the automotive industry as well, we are seeing shift for more complicated and expensive internal combustion engine, or ICE, vehicle to simpler and cheaper electric vehicles, or EVs, which makes cost competitiveness even more important.

Please see Slide #13. We are foreseeing that growth we experienced for over 30 years in the hard disk drive industry is going to happen in auto industry triggered by electric vehicle development. As you see on the left-hand side of this slide, the hard disk drive market has been growing significantly based on technological innovations related to motors, magnetic heads, media, et cetera. Now in the EV market, as you see on the right-hand side, rapid growth is expected following the turning point year of 2025, and we need to prepare for mass production. For this purpose, we are aiming to construct in-house production for inverters and gears while preparing more assembly line and also aiming to pursue the cost competitive advantage of mass production.

Please see Slide #14. The total number of 6 EV models using our E-Axle, which is traction motor system for EVs, has exceeded 100,000 units on a cumulative basis as of the end of December last year, and the sales volume in the December quarter increased 25% year-on-year.

Please see Slide #15, the profitability of automotive existing business, which is excluding impact of the traction motor-related business and Nidec Mobility business from auto business has recovered to double-digit operating profit ratio and is keeping the upward momentum after the decline in December quarter of fiscal year 2018 in the wake of Chinese economic slowdown and bottoming out in the June quarter of fiscal year 2020 caused by COVID-19.

Slide #19 -- sorry, please see Slide #16. Both net sales and operating profit ratio of ACI are steadily improving from June to the December quarter due to the WPR4 program. ACI is currently undergoing a comprehensive review of its cost structure, and it is ready to improve operating profit ratio by optimizing outsourcing costs, labor costs and fixed costs.

Please see Slide #17. Sales of other small precision motors have hit record high in the December quarter due to the new stay-home demand. We are seeing further growth of our business at brushless DC motors, which are used almost everywhere in such applications as home appliance, living room, sanitary/water supply, kitchen, smartphones, PCs, gaming consoles and printers.

Please see Slide #18. Ultra thin and ultra small fan motor, FDB or UFF, which is used mainly for PC application, is keeping high level of shipment of over 5 million units for 3 consecutive quarters and is firmly supporting the demand for work from home.

Lastly, on behalf of the entire management team, we like to thank our customers, partners, suppliers for their support and commitment as well as our shareholders.

At this time, we would like to open up the call for questions. Thank you for your attention.

[Yoichi Orikasa, analyst]

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

Our first question today is James Pulsford from Alma Capital.

[James A. Pulsford, analyst]

I'd like to ask, if I may, about your precision small size motor area, where clearly, your 1/2 of it, the other precision motors, performed very strongly, but the HDD side was weaker or in sales turns weaker. And could I just make sure I understand first what's happening within the HDD side? And volumes, I think, were about 41.3 million for the quarter. So that's a very sharp fall, but ASP rose. Could you comment on what happened within that in terms of mix? So if you have, for example, near line volumes in ASP and enterprise volumes and if you could comment on your changes in share in the different areas you have there, that would be very helpful to understand what's happening within HDD, please.

[Masahiro Nagayasu, executive]

Okay. This is Masahiro Nagayasu speaking. So clearly, the volume dropped. Our shipment volume in September quarter was 63.2 million, and this December quarter number is 41.3 million. And this is mainly because one customer did not order our motor for the full quarter, December quarter. So that means the change of the mix as well the change of the pricing, and clearly, as you may be calculated, the ASP rose from $7.02 in September quarter to this December quarter $7.46. So overall, we see the higher ASP, but the lower volume only because we could not get the order from a particular customer. Is that fine?

[James A. Pulsford, analyst]

Yes. So in terms of the volume fall, was it much greater for commodity items, and so for near line and enterprise, it's much less? I mean, so without, of course, again, too much detail, do you have the volume figures for those? That would be helpful if you do.

[Masahiro Nagayasu, executive]

In terms of the so-called revenue share of [soluble] area, meaning a 2.5-inch high end and [near line] was a 54.5% in September quarter. But this December quarter, that rose for -- that number rose to 64.0%. So clearly, the 2.5-inch number is down, but not as much as 2.5%, 3.5%. And URI number is also down, but not as much as the 3.5%, 2.5%. So overall, the product mix improved, thereby, the share of those server area spindle motor rose from 54.5% to 64%. Is that fine, James?

[James A. Pulsford, analyst]

Okay. that's fine. And just a follow-up. Obviously, you're a little constrained in what you can say. But in this particular quarter, you received no orders at all from what has hitherto been a main customer. You can't predict the future, but it's possible. Do you think it's quite possible that you will not receive further orders from that customer going forward is quite possible? Would you agree with that statement?

[Masahiro Nagayasu, executive]

Well, number one that we are not forecasting the -- a number, as you know. So it's our policy that we are not talking about the future number. But as we say maybe the previous quarter that we are not expecting any sales to that customer during the March quarter. So there are no sales in the December quarters, there will be no sales in the March quarter for that particular customer. Okay?

[James A. Pulsford, analyst]

I understand. I'm sorry, just -- so I don't take too much of your time for other people. But in terms of the other precision motor side, where you saw a sharp bounce in sales from there. Were there any particular areas that you would highlight? And other than that you have fan motors, DC motors, heat sinks. In terms of the strong recovery in -- or strong growth in sales, could you comment in a little more detail about what drove that?

[Masahiro Nagayasu, executive]

So in terms of the non-HDD motor, small precision motor is something that you are asking?

[James A. Pulsford, analyst]

Yes, correct. Non-HDD. Yes.

[Masahiro Nagayasu, executive]

Also, maybe we are showing you the Slide #17, where those motors are used. So particularly, we see a motor for the home appliances is very, very strong. And thereby, we were talking about the home appliance, living room, sanitary, kitchen, whatever. Also, we are seeing very strong demand continue in the IT area, such as a smartphone and PC. And also for December quarter, still the gaming consoles has been a very -- quite a good demand. And all those would help to achieve the record high subs of the non-HDD small precision motors as you see in Slide #17.

[James A. Pulsford, analyst]

Okay. Okay. And do you think this very strong -- because, obviously, for this quarter, we're in a -- naturally in a period of very strong demand recovery in areas like autos and also in IT. Have you seen a -- do you think -- is this largely reflecting this very strong cyclical upturn or is there a change in -- a significant change that's happened in the short term looking at the share between brushless and brush motors?

[Masahiro Nagayasu, executive]

No. At this moment, we cannot say how long this very strong demand continues. It could be cyclical. It could be more permanent. But so far, we have seen very strong demand in the home appliances as well as IT. And also server demand has been somewhat weak in September and December, but we are seeing some signs that is coming back. So seasonally, March quarter would be somewhat weak quarter that we understand. But what's going to happen from a next June quarter is something that we have to see. Is that fine?

[James A. Pulsford, analyst]

Great. That's fine. And very last, I apologize, very last question. Just to understand the profitability, which was stable overall within that area. For the hard disk drive area, was there any change in profitability? Could you comment on that, please, for Q3?

[Masahiro Nagayasu, executive]

Okay. We are making public that the op margin for the hard disk drive for the December quarter was something like 31.8%,[indiscernible] number number is 37.4%. So those are the number for HDD precision motor business for a December quarter. Clearly, those numbers are higher than a previous September quarter. Okay?

[Yoichi Orikasa, analyst]

Our next question is from Zach Inoue of MUFG Securities.

[Zach Inoue, analyst]

First of all, congratulations on your very strong results. Two-part question from me. This is on your EV traction motors. Slide 14, very helpful, always. You mentioned about the Chinese automakers' inquiries for orders. But can you provide more color regarding order increase coming from the Chinese EV automakers? My second question is regarding to -- your EV traction motor production capacity plan. If you can give us a little more clarity or remind us about your production capacity plans going into 2025 and maybe 2030, that will be great.

[Shigenobu Nagamori, executive]

Thank you, Zach. This is Shig speaking. First, about -- a first -- what was the first question, traction motors? Sorry, Zach, can you repeat it again, your first questions?

[Zach Inoue, analyst]

Sir, yes, order inquiries coming from the Chinese EV automakers? Previously, you mentioned you still have…

[Shigenobu Nagamori, executive]

Thank you. Thank you for reminding. First, up to Q2 financial announcement, we keep telling the trading OEM is keep increasing. Like it was 16 and then increased to 22. But we had a lot -- we received a lot of complain from OEMs. They don't want us to mention because area by area maybe investors and analysts may lead them because of some characteristics. So from this time, please allow us not to mention about number of new OEMs into our business. Instead, in this quarter from October, November, December for 3 months, we received 15 new projects. It's not decided, but at least a request to studies. Usually, quarterly, we have 5 to 6. So this 15 is more than double. So it's really representing our awareness based on our result is getting more together with acceleration of EV from Europe and China, particularly, this is expanding to Japan and U.S. Of course, this 15 has a lot of Chinese business. Please -- and as I mentioned in the beginning, please allow not to tell you too much details.

And then for your second question about the capacity preparations. While we are having many new projects from customers, we still don't want to change JPY 2.5 million target for 2025. Because we are seeing probably after '25, volume will accelerate. But for the preparation stage, from now to '25, I think our customer volume is some are very reliable, but some are not. So we don't want to be too much optimistic, but at least JPY 2.5 million is our plan. And then we will be ready to produce JPY 2.5 million or over by that time. And then to do that, what we are making effort is in-house parts and in-house equipment. For example, wiring machines or dies or measurement machines, and then for the components in maybe gears and the inverters, because we believe after '25, volume will accelerate all of a sudden.

And then if we are relying on those too much outside, we can't get the speed and then also price from parts and components and equipment will be very expensive. So we want to control those. So now our target is 1/3 of price against outside and 1/3 of lead time from outside. Of course, this is very aggressive, but we are confident to achieve this. And that's what we are preparing. And then because of -- thanks to shorter lead times, we don't have to make too much early decisions because our lead time is short. So those are what we are doing. But as you know, we already have 2 plants. It's already started, one in Pinghu and other one is Guangzhou. And then next year, we have a second line in Pinghu. And then we are planning for fourth and fifth. So that's -- and then, of course, in Europe, we have a firm plant to produce traction motors for one customer. So that's ongoing. Is that clear answer to you, Zach?

[Zach Inoue, analyst]

Yes. Very clear.

[Yoichi Orikasa, analyst]

Our next question is from [ Ramzi Nilam ] of [ FIG Street ].

[Unknown Analyst]

First of all, congratulations on the great closure. It's really impressive. So one of my first question is on WPR4 program. So I understand in first half of the year, you saved almost JPY 10 billion in each quarter. Can you highlight a few things what you achieved in Q3 in terms of how much you saved cost in the areas? And also, what would be the focus and scope of this program going forward?

[Akira Sato, executive]

The effect of the WPR4 in December quarter might be the -- JPY 15 billion. It's up to solve the JPY 10 billion in the September quarter mainly due to the procurement cost reduction because the market is soft at this point. Maybe we are seeing some kind of uptrend of the low material. But December quarter, we materialized that kind of procurement cost reduction. And also the -- reducing the fixed cost, that's another driver to create some positive effect. So for instance, in Europe of ACI, that we allow disruption, integrating the factory. So that we -- by doing so, we can reduce the fixed cost in European operation. That's why ACI's operating profit margin is coming up to above 10%. Is that fine?

[Unknown Analyst]

Yes. I have one more question to follow-up on James' question on HDD. So can you -- is it possible to mention the market share in the month of December for Nidec?

[Akira Sato, executive]

What market share?

[Unknown Analyst]

HDD, hard disk drive motors market share?

[Akira Sato, executive]

Hard disk drive, okay. Yes. So at this point, we see the shipment of the quarter was estimated by Techno Systems Research 67, then we shipped 41, then you can calculate.

[Unknown Analyst]

Yes, yes. That's it. And a question on R&D. So I think for 9 months, the R&D was around JPY 49 billion or you can call it, JPY 50 billion, which was roughly around 58% of your full year guidance. So is that R&D under spent so far? We can expect a lot of R&D coming in Q4? Or like what's happening in R&D area?

[Akira Sato, executive]

You mean the total R&D or any particular business?

[Unknown Analyst]

Yes. Total R&D. And if possible, if you can give some numbers on EV-related business, that would be great.

[Akira Sato, executive]

So yes, R&D. At this point, we are keeping the R&D cost spending for fiscal year 2020, which is -- sorry, one minute.

[Unknown Analyst]

I think your full year guidance is JPY 85 billion.

[Akira Sato, executive]

JPY 85 billion of R&D in fiscal year 2020. So we keep this number. So in March quarter maybe we are going to spend a little bit more. So at this point, maybe we are reducing the R&D cost -- try to reduce R&D costs. For instance, the in-sourcing, some testing in the R&D. So we invested kind of a motor bench, which is the machine for testing. That's one way to reduce the R&D cost. So those efforts are contributing to reducing the R&D cost, but we're still keeping the JPY 85 billion of R&D cost in fiscal year 2020.

[Jun Seki, executive]

Let me add.

[Unknown Analyst]

Yes, sure, please.

[Shigenobu Nagamori, executive]

This is not a straight answer to your questions, but we successfully reducing while making efficiency better R&D for 3 areas. One is testing cost of traction motors. We invested a lot of test bench into China, and now it's started earlier than our plans. So traction motor testing costs to outside is extremely high. And then thanks for head plan of this internal test bench, so we are saving from that area. And the second, we have a platform concept introduced into the traction motors. So originally, we estimated very high R&D cost for peak differentiations. But time by time, we're successfully reducing differentiation level for product by product. That's reducing. And then last, this is nothing from us, but many customer is postponing many new products influenced by COVID-19. So this is not good since. We want to have those order arrear, but nothing we can do. They are postponing. So that making a natural reduction. So those are main drivers we have less R&D spending.

[Unknown Analyst]

So if I can ask, is that R&D saving is one of the contributors in upward revision in your earnings?

[Akira Sato, executive]

[Foreign Language] No, no, I don't think so. The upward revision coming through mainly the more sales than expected and also the, as I mentioned before, WPR4 effect that's creating more positive index in our focus. Yes, that's why we made the upward revision by JPY 15 billion in operating profit in fiscal year 2020.

[Yoichi Orikasa, analyst]

[Operator Instructions] The next question is from Mark Yim of GAMCO.

[Mark Yim, analyst]

My question follows several other questions that were asked on Slide 14 for the E-Axle. This is the monthly bar chart. But Nagayasu san, when you said that you're planning by 2025 to produce -- is that 2.5 million per year of these traction motor products. Compared to the current situation where there are 100,000 cumulative. Is that the correct way to read this?

[Masahiro Nagayasu, executive]

Thank you, Mark Yim. Indeed, we are receiving those orders. So next year is more than double and then '24, 1 million and then '25, it's reaching -- at this moment, it's precisely around 2.3 million. But of course, we are expecting additional order on top of that. Actually, this is a good reference on Page 14. As we can see, quarter-wise, it's better than last year by 25%. As you can see, volume flow from each model are quite small. Actually, I don't want to criticize for customers, but contract volume from each color are much bigger than this. So if we stack up on the contract volumes, this is almost triple from this result. So based on that, we are complexing customers' volume for forecasting '25. So if apple-to-apple, we also -- we think it keeps 2.5 million. But last time, no complex, customers order 25 million. And this time, we have complex things, x0.8 or x0.7 depending on customers and the market. So it's much bigger. But I think our current forecast is much more realistic. But the straight answer to your questions, those we are receiving from order and then with our completion resumes, so 2.5 million will come.

[Mark Yim, analyst]

Okay. I mean, that is quite a ramp-up. But obviously, what you're saying in terms of demand profiles and stuff would make that possible. Can you just tell me, just roughly, we're looking at a monthly chart here with 6 models and the Aion S is by far the biggest? When can we start to see more models and more colors joining these monthly charts? Would that be towards the end of this calendar year we'll really start to see things ramp-up in terms of more models and more volume in your opinion?

[Akira Sato, executive]

Sorry, Mark Yim, I couldn't catch your question, clearly. Can you repeat it again?

[Mark Yim, analyst]

Yes. Just a very simple, just qualitative question. On Page 14, when you look at the bar charts, you have 6 models there. And gradually, you see more models being added to the sales figures. When can we just qualitatively start to see more colors added to these bars? I mean more models coming on. I appreciate your previous statement that you can't really reveal what OEMs are asking you. I know the secretive. But can you just give us a quality to feel? Is it going to be towards the end of this calendar year or sometime in 2022 that these numbers really start to be visible in these sales?

[Shigenobu Nagamori, executive]

Volume increase coming from expansion of the order. And then I think even it stays small from each part, I think it's increased. If we go back Page 13, okay, we are splitting 3 areas and then up to '25, we say this is introduction periods, lot of hesitation from both OEMs and customers mainly because battery is high because battery price is high, EV is expensive than hybrid, that's a reality, okay? We are seeing battery price coming down. And then also, we are seeing customer, not all of the customers, but some of the customers is trying to compromise autonomy distance. So at this moment, all OEMs preparing a big capacity of batteries such as 60 kilowatt and 80 kilowatt, while unit price in battery is very high. But the battery is coming down. And some customers say, I'm okay to drive only 300 kilometers because he has second car or he's not going to long travel because of his age as such.

So if it's like a JPY 10 per watt and then he compromises like a 20 kilowatt, suddenly, EV become much cheaper than hybrid. That's what we are seeing. And then we are setting like '25 is a break point, it's going to accelerate. So from that point, probably, even we have a same order, each color, each order become much bigger. That's what you're seeing. So this period, we need to be very patient while we're having inefficiency develop moving an order, but volume may stay same because we have a lot of or competitors. Competitors cannot stay with this situation. And then we are very welcome competitor to escape or early move from this area. Only stronger state is treatment. That's what you are seeing.

[Mark Yim, analyst]

Okay. That clarifies it a lot. My next question is small motor demand firmness as demand for these motors, as you mentioned, moves to total washlets and washer dryers and all that stuff. Is this uptick partly due to the stay-at-home situation changing your long-term CapEx plans for the HDD -- for the small motor area?

[Akira Sato, executive]

No, no. At this point, that's not changed. Because hard disk drive business is already cash hard business. That's why we do not plan to invest money to that business. On the other hand, other precision motors, maybe demand is very high. That's why we are now planning to invest a little bit more to increase the production capacity in those appliance areas. So -- but the total capital expenditure is around JPY 120 billion at this point for fiscal year 2020. So that we do not have any plan to increase the capital expenditure for increasing the production capacity for those areas at this time.

[Shigenobu Nagamori, executive]

This is Shig speaking. The demand may have started possible stay at home but what we are seeing is, world becoming much more sensitive against decarbonizations, CO2 reductions. So everybody are very sensitive to have a much more efficient energy spending. And then obviously, our brushless motor are very efficient for every aspect. It's a bit expensive than brushing motors, but much more friendly for environment. So even small product to large product, we are sharing customer needs more efficient ones. That's really developing our sales. So may start with stay home, but we believe this is more sustainable.

[Mark Yim, analyst]

And do you think your current capacity level is sufficient to meet this future demand?

[Shigenobu Nagamori, executive]

Future demand?

[Mark Yim, analyst]

Yes. As more people, as you mentioned, switched to brushless because of the energy efficiency plus the near-term situation with the work at home.

[Shigenobu Nagamori, executive]

I cannot say by when, how much? Our overall, brushless motor share is still 30%, 35%, right? So we have a 65%, 70% room to expand.

[Mark Yim, analyst]

Okay. Yes. Understood. I'm sorry, I will just ask one more question. I'm taking a lot of your time, so I apologize. On this presentation on the very cover, you put a picture of what looks like a compressor from Embraco. Can you tell us why you chose to put that picture there? And just -- are you seeing a big uptick in demand because of cold chain demand globally for these types of products?

[Shigenobu Nagamori, executive]

Will you say your question more slowly because the quality of the voice is not so good?

[Mark Yim, analyst]

I'm sorry. Yes, on the presentation packet that we have, on the first page, you put a picture of what looks like a compressor, right, from Embraco. Can you tell us why you did that? And is there indeed a big surge in demand for cold chain investment globally that you're seeing through Embraco sales?

[Akira Sato, executive]

The face page is -- this picture is compressor for refrigerator. And as you know, we acquired Embraco the -- 2019 and increasing the production capacity and demand is very, very much strong at this point. That's why we are spending money to increase the production capacity because the -- maybe the more efficient the compressor or refrigerator is needed in the marketplace because we are now the -- people are staying home, and we need more efficient refrigerator. That's why the demand is getting stronger and spot in -- for those kind of compressor for refrigerator.

[Shigenobu Nagamori, executive]

Again, Shig speaking. It's fact demand of compressor is very high. We don't have enough capacity. Volume -- sales volume is as we can make and then we don't know any reasons. We guess this is caused by stay home. People need a lot of capacity to keep because they don't want to go out. So actually, both for [indiscernible] use and home use, compressor is drying clearly. Then maybe because of this COVID-19 and then if COVID-19 becomes stable, compressor demand may go back. Therefore, we don't want to invest too much is -- although it's flying, but we are doing minimal investment and maximum effectiveness of the capacity increase, that's a limit at this moment.

[Yoichi Orikasa, analyst]

Our next question will be coming from, again, additional questions from [Ramzi].

[Unknown Analyst]

It's just a quick one. Just looking at the guidance. So previous year guidance on PBT and net income, the gap between PBT and net income is around JPY 31,000. But with the revised guidance, the gap has actually shrunk to JPY 31,000 to JPY 30,000 in spite the rise in PBT. So is there any tax effect? Or can you explain, is there any something we have to observe out there?

[Akira Sato, executive]

[Foreign Language] Are you talking about the gap between the profit before tax and adjusted net income? Is that gap that you are talking about?

[Unknown Analyst]

Yes. Yes. So the gap has shrunk with the increase with the revised estimate even though there is an increase in PBT. So is there any tax effect we are talking about?

[Akira Sato, executive]

Yes. It is -- we try to improve the global effective tax rate. As you recognize that effective tax rate is expected at 20% in updated forecast at this point.

[Yoichi Orikasa, analyst]

We have only a few more minutes. And the next question is from Harry Waight of BMO Global Asset Management.

[Harry Waight, analyst]

Congratulations on the results. Just a quick question about your Slide 13, the traction motor vision slide. When you talk about 10 million units by 2030, could you just let me know if you have a rough estimate of what that -- what market share you're imagining you would have in that year? Is that like a 25% market share or 50% market share of all of the E-Axle being sold? Or do you not have that kind of modeling?

[Shigenobu Nagamori, executive]

Thanks, Harry. We're expecting 30% to 35% market share at this moment. But Harry, we are seeing a very different view since last year September, October. It's called Shanghai GM Wuling Hongguang Mini. That's extremely cheap EVs. It's only $4,000 or $4,200 EVs. It's small, but it's really four wheels and then 85 newtons. They made a compromise for drives. It's only 10-kilowatt batteries. Therefore, officially, it's 120-kilometer drives. Maybe the other base is 80 -- 70, 80 kilometers. But after they launched, next month, they sold 20,000. And in November and December, they reached 30,000 to 35,000. That's Shanghai Wuling can make. They already increased one line to adapt to this market demand, and then it's not enough. So they are now quickly adapting one more line. So capacity become 50,000 per month, which is 600,000 per year. And then still, I think the demand is much more. So this is really proving if EV launched cheaper than gasolines, it's really fine. And then usually lowest-priced vehicle was around $8,000. And then many people love to purchase a car, but their income didn't reach the purchase, and now it's lower. And then many people actually do that in China is they'll improve to purchase this car.

And then we believe this will be expanded entire China and possibly like India, Africa, Latin Americas. So by that time, TIV concept is completely changed. So current people segment will stay with like 80 million to 90 million. On top, we're expecting maybe 100 million to 200 million new demand may come because of this cheap segment. So with that, we, of course, challenge that area too. But we have to say this green line is based on current structure of big queries. And then future, it may not. And I just wanted to transparent to you that new segment may come, and then we may have to lead [indiscernible]. But straight answer to your question is…

[Harry Waight, analyst]

That makes sense. And could I ask one very quick follow-up, please? Just given Tesla's reputation for vertical integration and given how valuable and important a part an E-Axle is within an electric vehicle, do you model or imagine in the future that they will be a significant customer of yours? Or do you think that they're likely to remain kind of -- would look to have this product manufactured in-house?

[Shigenobu Nagamori, executive]

Vertical integration, you mean, is like Page 12.

[Harry Waight, analyst]

Yes. Yes, exactly. Just thinking about how much Tesla likes to do everything and make as much as possible internally rather than outsourcing. I wonder whether…

[Shigenobu Nagamori, executive]

Okay. Okay. That's your question about vertical integration. Yes. Parts by parts, equipment by equipment, we have to split to 2. One is a very popular, everybody can do and then it's same equipment as like engine transmissions like diecasting machines, typical, okay? While engine and transmission abandoned volumes and traction motor housing may be call it produce. So that's not a lasting point. But meanwhile, like winding machines or die for core, those are very special. So for special area, we very congested because Page 13 and after '25, it's accelerating. So that we really have to introduce as like in-house, we believe. And then we have to split those. And in the future, once demand is stabilized, we don't have to keep those. We may believe we may keep. It's depending on cost and profitabilities. So those are what we are thinking.

[Yoichi Orikasa, analyst]

And thank you very much for your active participation, our all participants. Now we would like to conclude the conference call. I'd like to appreciate for your active participation. Should you have any further questions, please do not hesitate to contact Nidec Corporation or your favorite representatives at Mitsubishi UFJ Morgan Stanley Securities. Again, thank you very much for joining the conference call, and you may now disconnect. Thank you very much.

[Shigenobu Nagamori, executive]

Thank you, everyone. Thank you.