Nidec Corp

TSE:6594

Earnings Call Transcript 2022-Q3

[Yoichi Orikasa, analyst]

Dear all. Thank you very much for joining Nidec's conference call. I am 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 already in front of you. If not, please download the files on Nidec's home page right now.

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

Now I'd like to introduce today's attendees from Nidec Corporation. Mr. Jun Seki, Representative Director, President and Chief Executive Officer.

[Jun Seki, executive]

Hello, everyone. This is Seki.

[Yoichi Orikasa, analyst]

Mr. Hidetoshi Yokota, Senior Vice President and Chief Financial Officer.

[Hidetoshi Yokota, executive]

Hello, everyone. This is Hidetoshi Yokota.

[Yoichi Orikasa, analyst]

First, Mr. Yokota will make a presentation. After his presentation, we will move to -- move on to our Q&A session, and Mr. Seki and Mr. Yokota will answer your questions.

Mr. Yokota now presents Nidec's Q3 fiscal year 2021 results, future outlook and management strategy. Mr. Yokota, please go ahead.

[Hidetoshi Yokota, executive]

Thank you, Orikasa-san.

Good day, everyone, and welcome to today's conference call. My name is Hidetoshi Yokota, Chief Financial Officer of Nidec. Today, Mr. Jun Seki, Representative Director, President and Chief Executive Officer of Nidec; 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 our forward-looking statement, please see Slide 2 of our presentation material for details.

Now I'm going to review the key figures. Please see Slide 3 for the fiscal year '21 9-month results.

As shown on Slide 4, 9-month net sales stood at record high of JPY 1,407.2 billion, 18.8% higher year-on-year. 9 months operating profit and profit before income tax increased 16.6% year-on-year to JPY 134.6 billion, 19.4% year-on-year to JPY 130.6 billion, respectively. Both stood at record high.

Q3 quarterly net sales increased by 7.2% quarter-on-quarter to now JPY 496.5 billion, marking a record high for 3 consecutive quarters.

Based on these results, we have made an upward revision on year-end dividend forecast by JPY 5, resulting in the period -- projected aggregate annual dividend of JPY 65 per share for fiscal year '21.

On Slide 5 and 6, you have step chart showing the net sales and operating profit year-on-year and quarter-on-quarter, respectively, by [indiscernible] group with exchange-related effect, elimination, construction reform expenses.

As you can see on Slide 6, all of the segments increased their net sales quarter-on-quarter. With regards to operating profit, Appliance, Commercial and Industrial or ACI declined due to increased material costs, however, Small Precision Motors and Automotive increased despite this adverse backdrop.

Machinery declined as the September quarter had a one-off profit decrease related to the acquisition, and electric and optical components and others made an increase.

Please see Slide 10. We are aiming to become #1 automotive hardware manufacturer by anticipating the strong electrification demand boosted by CASE, which means connected autonomous and sharing, and electric.

In the EV traction motor-related business, mass production of E-Axle at the joint venture with Stellantis is expected to start in the second half of fiscal year '22 in addition to those being mass produced in China. We are also receiving new orders from Chinese, European and Japanese OEMs as well as U.S. EV start-ups and newcomers from other industries as the turning point of fiscal year '25 gets closer.

In other motors and auto parts, we have prepared and continue to prepare highly competitive product lineups in ADAS or advanced driver assistance system: powertrain, chassis and body area. With those product group, we are aiming to achieve JPY 1 trillion net sales organically and JPY 300 billion additional net sales through M&As in fiscal year '25 in the Automotive segment.

Please see Slide 11. The Chinese battery EV or battery electric vehicle market, the largest in the world, achieved dramatic growth of over 150%, entering into explosive high growth period. In calendar year 2021, not only domestic sales in China but also export from China to overseas. Overseas countries are progressing quite rapidly and supporting increase of overall shipment.

With regards to the made-in-China high-end BEV landscape on the right-hand side of the slide, the U.S. company, T, is expanding sales through exporting their main product models made in the Shanghai factory to Europe. And the Chinese company, N, has announced to export vehicles to over 25 countries and regions by 2025.

Please see Slide 12. The total sales volume of the 10 EV model using our E-Axles has exceeded around 265,000 units on a cumulative basis as of the end of last December, and the sales volume in calendar year 2021 doubled compared to the previous year. The monthly product -- production is exceeding 20,000 units from last November.

Please see Slide 13. We are going to invest around JPY 300 billion to enable vertical startup to prepare for the EV turning point fiscal year '25. In addition to the 6 factories that are up and running or being built, we are planning a more global production site and we are going to prepare double the production capacity of expected sales volume in fiscal year '25.

Please see Slide 14. The profitability of quarter 3 fiscal year '21 formed a bottom as a result of lost sales due to chip shortage and high raw material price, as illustrated on the right-hand side of the slide.

Please see Slide 15. Paradigm shifts from ICE, or internal conversion engine vehicle, to EV is rapid accelerating in 2-wheel and compact cars as well.

In the mobility area, the electric motorcycle formed mainly in India, China and Asian countries is expected to enter high-growth period driven by environmental measures. We are currently focusing on 2 major markets of India and China and have already started mass production of motors for major customers.

In the mini EV area, we have already received orders from major customers in the Chinese market, and starting mass production from fiscal year '22. We consider this business area as one of the most important growth drivers in small precision motors in Vision 2025.

Please see Slide 16. Nidec's Small Precision Motor division start a shift to mobility in fiscal year '22 with launching multiple project for electric motorcycle and the mini EVs.

As illustrated on the left-hand side of the slide, our motors have been adopted by China's largest electric motorcycle manufacturer, Yadea, for the first time and actual shipment started last September. The annual global market size of motorcycle is estimated at around 60 million units, the largest market being in India, followed by China and Indonesia.

As electrification of motorcycle is progressing, electric motorcycle are expected to become rapidly widespread mainly in these countries and regions.

As shown on the right-hand side of the slide, we are receiving increasing orders from motors used in electric motorcycle and mini EVs that are under 30 kilowatt and eying mass production within fiscal year '22 for around 10 projects.

Please see Slide 17. We are implementing business portfolio transformation amid HDD motor market structural change. The sales of other small motors in quarter 3 has achieved record high as HDD sales declined due to reduced HDD shipment volume.

Please see Slide 18. In ACI, we are executing structural reform in overseas business and looking to enter a new phase of growth. While estimating CAGR of the market at the 3% to 5%, we aim to grow ACI sales to a CAGR of 10% to 11% by creating new demand through solution proposal in markets such as HVAC and [indiscernible] robot where structural change is occurring.

Please see Slide 19. In ACI, we are continuing to aim for 3% operating profit ratio even though profitability improvement slowed down after progressing for 6 consecutive quarters since Q4 fiscal year '19.

Please see Slide 20. In Other Product Groups, operating profit ratio is keeping high level after bottoming out in quarter 4 fiscal year '19.

Please see Slide 21. Nidec's Board of Directors has approved the resolution to purchase the share of OKK Corporation, or OKK, through a third-party allocation of common shares in the meeting of Board of Director held last November, and we have executed a capital alliance agreement with OKK regarding this share purchase.

This share purchase enable a mutual complement of products in the area of machine tool, which is an existing area of Nidec's business. Synergies are expected, especially in such areas, element technology development, manufacturing and sales of our machine tool business by Nidec manufacturing to the corporation, which joined the Nidec Group last August.

By joining Nidec via the share purchase, OKK will make a fresh start as a comprehensive machine tool market maker and enhance its product lineup as well as the sales capability while quickly reinforcing its production capacity as well. After the share purchase, we entered into the further expand Nidec's machine tool business and believe that it can grow globally at a first pace by making necessary investment where they are needed on timely basis. We hope to mutually export our group's and OKK's respective technological capability, brand power and customer base to contribute to the development of the machine tool market on global scale.

Last but not least, on behalf of the entire management team, we would 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.

[Yoichi Orikasa, analyst]

Thank you very much, Mr. Yokota. Now, we'd like to turn to the Q&A session. Senior management of Nidec are really pleased to answer your questions. [Operator Instructions]

Okay. Our first question today is from Alma Capital, James Pulsford. James, please go ahead.

[James A. Pulsford, analyst]

Can I ask about the -- a little bit more detail about the margin decline in ACI? And also in your materials, it was different, but on a reported basis in auto, its margins also slipped a little bit. I'm aware that costs, raw material costs, perhaps shipping costs have gone up. But if you could perhaps break that down a little bit.

And also comment on what you're trying to do to offset that and the degree to which you may be able to recover that in pricing for some of the products, but perhaps not other ones? And so we get a better feel for what we think is likely to happen over the next 6 months in that area.

[Hidetoshi Yokota, executive]

Okay. This is Yokota speaking. Let me respond to the question for the material cost and maybe shipping cost, James.

For the shipping costs, yes, we are impacted, especially the shipment cost in the vessel between China and U.S. or China and Europe. We estimated the impact to ACI in quarter 3 is roughly [ 10 ] [indiscernible] and maybe automotive for [ 5 ] [indiscernible]. Those are the impact of vessel cost increase.

For the material market -- material price increase, this happens mainly in magnetic steel price increase in this period, even though the price increase is still continuous trend from last quarter or last, last quarter. But this time, Q3, we try to offset this price increase by asking customers to absorb the impact by increasing the price. But we have -- it took a little bit longer than expected and we cannot absorb the cost completely, so that's why. Normally, we say 1% impact still remains after the old negotiations with customers. But this time, Q3, estimated 2% remain because of the delay in the negotiation with the customer. Especially the magnetic steel is, typically, there is no purchase contract like other copper or aluminum, those are normally we have a surcharge contract with customers. But steel and magnetic steel, there is no surcharge contract, so that's why it's a negotiation basis.

The reason why -- maybe you know very well in the situation, but magnetic steel, especially in the Europe area, older steel manufacturer, old capacity is almost occupied by European automotive OEM due to increase in the -- spike in the EV production. So that's why high-end magnetic steel is already occupied and all the steel makers shift their production to high-end side.

So therefore, the ACI, we normally use regular magnetic steel, and the capacity of those steel is quite limited due to the shift in the steel manufacturer. So that's why our purchase price increased and hit by -- mainly in the ACI area.

Of course, we use magnetic steel in the automotive area as well, but ACI is mostly impacted by magnetic steel impact.

So let's say, all entire Nidec, this time, the material cost spike is roughly 60 [indiscernible], 70 [indiscernible], that is the impact. So which is almost double the regular quarter due to the delay in the price negotiation with customer.

And we -- also, I got to answer the last question. How do we see the market? Of course, we don't have a crystal ball in the market price. But at this point, for quarter 4 this trend is still there. For example, there is no solution for the capacity enhancement in steel manufacturer in Europe.

China situation is a level eased, so that we see a little bit of stability in the steel price or magnetic steel price in China. But the steel -- the European, the type of situation continues, so we still need to fight against this price increase.

And other commodity, it depends. Some is still high price and some start declining, but some climbing again. So it's a bit difficult for us to foresee, but we expected Q4 is still going to the same pressure than Q3. That's a general assumption for us.

[James A. Pulsford, analyst]

That's great. And just as a follow-up, in terms of these price increases shipping raw materials, things you've got coming through, what proportion of those -- obviously, there may be a lag of sort of 3 months or even sort of longer, but what proportion of those do you think is it realistic for you to pass on to your customers? Or is there a proportion of that, maybe the half or 1/3, that you won't be able to pass on, and you will have to sort of find through internal cost savings and rationalization?

[Hidetoshi Yokota, executive]

Yes. Lastly, nobody. We try to absorb or put in the price then try to absorb 60% to 70% or even more out of our total material post increase.

So roughly, every quarter, the low figure for the material cost hike, let's say, like 4% against the turnover. So that -- we try to absorb 3% by asking material supplier to absorb [ swallow it ], or we do some technical arrangement as [indiscernible] or ask customer to increase the price by absorb.

So let me say, 3% out of 4% to be absorbed. But this time, Q3, we couldn't absorb 3%, let's say, 2% only, so the 2% remain.

That time lag is -- it depends on the material. But in short -- short one is like one quarter, within one quarter. But very long one is maybe half a year. It depends on the customer, depending on our share in the market and the relationship with the customer. So there is some range to cure the price absorption on those periods.

[James A. Pulsford, analyst]

Yeah. But if you say you normally would internally absorb 60% to 70%, so you would take the 60% to 70% of the hit. In this environment where the increase is rather large, do you still expect to have to internally absorb 60% to 70% and the price increase will cover just 30% to 40%. Will that be -- is that the plan? Is that just the [indiscernible]?

[Hidetoshi Yokota, executive]

James, maybe let me precisely state it.

So 60% to 70%, this is a combination of internal effort and price transfer. So still, the remaining piece to be absorbed in next quarter or our further negotiation with customers.

[James A. Pulsford, analyst]

Okay. But of the -- sorry, of the -- in terms of price transfer to -- well, it's your suppliers, but the price has gone up. So what percentage -- how much of the increase would you expect normally to pass on to customers? And what do you expect to be the case on this occasion when the increase is rather large?

[Hidetoshi Yokota, executive]

Could you...

[Jun Seki, executive]

Yokota-san, let me reply. Thank you, James, this is Seki speaking. To answer that, can we go Page 19?

[James A. Pulsford, analyst]

Yes.

[Jun Seki, executive]

Yes. You know, left-hand side is sales and the right-hand side is profit. We're talking about the sales. And then [ Bruba ] is a total Appliance, Commercial and the Industry under Nidec, and the green one is more like [indiscernible]. And then both have the same tendencies, keep increasing.

But while sales is increasing, reality was it was a bit difficult to tell a customer we want to increase price. We concentrate to supply more. And then also, our profit is deteriorated by increase of materials. We have more revenues. And because we have more revenues, fixed cost percentage go down and then we can expect to offset some. At least, the total profit amount is more. That was -- happened from like Q2 last fiscal year to like Q2 this fiscal year.

And then actual damage getting bigger and bigger than Q3 because, maybe, we have a December Christmas period. And also, we believe we feel saturation from like a fridge or air conditionings, so sales is -- sales came down.

Then we decided to tell customers, now we need the compensations. That was the realities.

And then even when we say Q3, November -- up to October till beginning of November, it was still active. And then we started negotiating with customers, but it was soft. We see clear downtrend from end of November till December, so we became very aggressive attitude to customers.

And then finally, we fully negotiated with most customers, let's say, 95% of customer by the end of December or beginning of January. So that was the impact.

If we go back to Page 6. Page 6, this is Q2 versus Q3. Upper side is sales, lower side is profit. You see obvious impact in the middle, Appliance, Commercial, Industrial. This is caused by that delay, okay?

But as I said, we finally negotiated fully, and then this will come back in Q4. Unless we have an extra, extra increase, and then we may have to push that out to Q1. It may change, but at least this big deficit we created in Q3, that was already concluded, and we will [ see in ] Q4.

Then go back to your questions. Usually, this type of material increase doesn't last long. Sometimes, let's say, 6 months, sometimes even just 1 quarter. And then we have enough savings to absorb.

This magnetic steel increase started from almost 1.5 year ago and then it's keep increasing with almost no stop. So general answer to your question, we definitely absorb at least 50% because our savings is getting less and less because this continued long. So from now on, probably, we have to request customers to offset this increase. Very much, that will continue. And then our forecast is this magnetic steel increase will not stop until like '23, '24, so discussion may become very harsh with customers, but we also have to protect our profit. At least we can't lose money to sell, so that's what we are seeing.

But meanwhile, we know this is not sustainable. And then now I'm giving a pressure to our engineers to choose alternative materials or reduce quantity of these magnetic steels or manufacturing engineering can increase OKK rate from one plate. Usually to have a large motor core from one plate, 55% to 60% remain, 40% to 45% going to scrap. Of course, we get the money to scrap those, but not the original price.

So now I'm requesting them to increase this OKK rate from current 55% to 60% to like 70% to 75%. That will help a lot.

So end of the day, not only magnetic steel, but also magnetic itself, coppers, aluminums.

Technology will define cost competitiveness. So that's where -- that is the area we historically won. So this time, again, we're pushing engineering to save these situations.

So to story short, we want to go parallels. One, more price negotiations with customers as long as this keeps increasing; and then two, more technology to reduce quantity or increase OKK rate. That's where we are going to boast. This already continues very long. That is very much paved.

[Yoichi Orikasa, analyst]

James, thank you very much. [Operator Instructions] Now our next question is from Mark Yim of GAMCO.

[Mark Yim, analyst]

I just want to follow up on the previous question about magnetic steel. Just to confirm, this is mainly an issue in your European operations? Or is it pretty much company-wide, the same effect?

[Jun Seki, executive]

Thank you, Mark. Let me reply from Seki.

It's global, actually, but particularly from Europe. Two reasons, okay?

It's highly related with electrifications. Electrification is accelerating, but particularly 2 major markets, one is Europe and one in China. If we look at the North America and Japan and other market, it's not aggressive as Europe and China's. And then Europe electrification ratio, including [indiscernible] hybrid, December sales is already reached more than 20% among new car sales. Original forecast was around 10% by the end of '21, so almost double. Very much accelerated.

And then obviously, traction motor is rushed and then naturally, it required high quantity of magnetic steels. That's one of the reasons.

But [indiscernible] is OEM in Europe want to go more for '22 and '23, and then they did -- start reserving magnetic steel for next year and after next year. That makes it difficult for appliance applications or industrial application to get the magnetic steel because automotive OEM is dominating those.

And then, of course, for steel companies, high sales with better profit is better. And then I think automotive application requires a very long process to make it thin -- thinner, and then a good price and a good profit for them than appliance application or industry application. That's happening in Europe.

Then China is supposed to be same, but China has a little more steel capacity than Europe against the demand. So that's what Yokota-san explained. It's similar, but the capacity supply point of view, China has a little more room than Europe, okay.

Overall, because of that demand -- intensive demand in Europe and China's, globally, this magnetic steel is showing a shortage, but it's coming from Europe. That is the background.

[Mark Yim, analyst]

Just are you expanding your suppliers of magnetic steel or looking into, I don't know, investment in that area yourself over the long term?

[Jun Seki, executive]

We have several actions for this. But obviously, we are not going to have a steel mill by ourselves. We cannot control that.

But one, because globally, China has a little more room for adjustment, we decided to have a huge import from China to Europe for appliance applications and industrial applications. Of course, that cost a lot, but because the European cost is already very high, even paying logistic costs and the import duties imported from China are almost similar or a little less. So we deserved up to FY '22, we need to continue this for probably '23 and '24. That's first one.

And second one, this has not been fully decided yet. But generally speaking, automotive application is thinner than industrial applications. For example, one plate thickness for automotive, particularly traction motor, is, let's say, 0.25 millimeter to 0.27 millimeters. While industrial application is, let's say, 0.35 to 0.40. This thickness is created by times of loadings. That means the automotive industry application need more loading times, yeah.

And then because steel mill only making application for automotive side, very difficult for industry and appliance to get it, their standard thickness. So what we are studying, it may be become expensive, supply is more important. So they start studying if we can use automotive industry application for appliance and industries.

Then instead efficiency become little higher. So let's say, while we usually use 150, we may be able to reduce to 135 with thinner magnetic steel. That we are studying. But now automotive is dominating, and therefore, minor users such as the industry applications or appliance application may have to follow automotive standards. That are we studying.

Probably, we have many other choice. And then way of adjustment, we have to squeeze out to survive.

[Mark Yim, analyst]

Okay. I'm sorry, just one more question. This is about your acquisition of OKK. Can you explain the background of that? I know you have exposure to machine tools and you've made M&A in that area like with Mitsubishi. Why OKK, and what is your long-term plan for machine tools?

[Jun Seki, executive]

Okay. Maybe I go first and then maybe Nagayasu-san or Yokota-san, you can add several comment later.

First, we believe electrification from automotive side will grow very rapidly, and then we are very strong to build the motors. But we are not so strong for gear.

When you are thinking a gear for manual transmissions and then gear for electric -- EVs, it's very different. So [ functionally ] to say, transfer notation power to [indiscernible], yes. But as you have experienced before, manual transmission vehicle is very fun to drive. Same time, very noisy, yes, and no one cares when a manual transmission is noisy with a sound from engine, too. Yes.

But once stand into EVs, very quiet. At least no combustion sounds, so sound from gear become very noisy. Actually, same or much less noise and vibrations than manual transmission. But because entire sound and vibration become smaller, that sound from gear become outstanding.

Then to control this, we need a very precise machining and grinding for gear, and then we hired many experts from gear areas, but we finally found that best way is acquire the best-quality machine builders. That was Mitsubishi Heavy Industry Machine Tool division, and now they are in our hand. And then sometimes, we found that to complete this machining area, we need not only for gear machining or gear grinding, but also standard machining centers.

Then we also found that this segment, way of competition is very soft. So usually, they have a standard price depending on brand, sales power. They have like a plus minus 10% price gap. Because -- and then many of time, they have a trading company to reach final users. And then because of those structure of commercial and business, they are ranking from #1 to #10, has no change for 40 years. Very, very soft to competitions.

So our Chairman, Mr. Nagamori, determined, let's go into this segment. It's not difficult to get the wins. So while we had the machine tool, which used to be a part of the Mitsubishi Heavy Industry, we decided to find good machining center builders.

And then OKK has a very good to engineerings and then history and then asset, but their business was terrible. They had a huge negative profit for -- from '20 and possibly '21. So therefore, it's not expensive to purchase. So that was the background we bought.

And also this combination, machine tool and OKK also help a lot to make a reducer for robot as well. And then this is also another one, we believe extend very much from the future or future there.

So while we're making the instructions, our idea is expanding. Probably, we need this company, we need this company. This company will help a lot to sell in China or U.S.A. So we will extend this idea further, and then Mr. Nagamori is very energized to make this machine tool division bigger than needed.

But to go back to your first question. Original background, and it's still background, but not to sell outside, but to help internal business such as motor for EV or reducer for robot, that is background. Potentially, we can expand this to very strong.

Nagayasu-san, Yokota-san, if you have any additional comment?

[Hidetoshi Yokota, executive]

Yes. Just to add just simple explanation to -- on top of Mr. Seki explained. Nidec machine tool, its lineup is for more like larger size of machining center. Of course, one of the benefit that we get is gearing technology, but their product line is mainly on the high end.

On the other hand, OKK is very good at midsized or small-sized machining center. If we really try to be successful in the machining business, we need a product lineup because we have to access all of the potential customers in everywhere. We cannot compete only one product in a very, very wide range of product competition. So that's why OKK is very essential to add such a variety of lineup on top of Nidec machine tool, which is very good at large-sized machining center. So this is also one of the biggest motivation for us to pursue OKK.

[Yoichi Orikasa, analyst]

Mark, thank you very much. We have a few more minutes to accommodate some questions, and there seems to be a new question from Zach Inoue of MUFG Securities America.

[Zach Inoue, analyst]

I have some questions on your production capacity for your E-Axle. First of all, congratulations on reaching 20,000 mile production last month. And on the Slide 13, I know you have the capacity to increase to 6 million units in FY '24. And so, rough calculation, that's about 500,000 units per month. That's 25x greater than the last month.

So my 2 questions for me. One, based on your current customer inquiries, what is your expected or estimated orders for E-Axle in FY '24? And my second question is, when do you think the orders from non-Chinese auto companies will start to kick in?

[Jun Seki, executive]

Thank you, Zach. This is Seki speaking, let me explain.

First, if you are on Page 13, please look at the graph on right-hand side. Blue bar is the capacity that you're seeing, and then green portion is actual -- current forecast of production volumes. So 3.5 million in '25, okay?

And then we are not showing this green for '24, '23, '22. Your question was '24, but in '22, we are seeing about 1 million, and then we are expecting a very linear increase from '22 to '23, '24 and '25.

So first answer to your question, '24, probably around 2.8 million to 2.7 million. And then -- 3.5 million was the number we announced at the last financial announcement in October. Actually, this 3.8 million already increased to -- 3.5 million already increased to 3.8 million, by 300,000.

So after discussion with Mr. Nagamori, and then we stopped to announce this volume increase because time by time, it's not so impactful. So instead, probably, we announced this volume increase by every half year, yes, so we don't explain this time. But probably in April, we explain.

But time by time, this volume will increase. And then -- that's why we are aiming double of capacities because one day, this prepared capacity will be fulfilled and even customer want us to supply it, we have no room.

And then we know 25% is a breaking point. It looks a very steep car, but for us, this is still slow. After 25%, speed of the increase for electrification will be even more accelerated. Therefore, we need spare capacity to absorb all of those opportunities. So that's we are aiming and then we set this as a strategy.

And this strategy is not the first one. We had a very huge success for hard disk drive by the exact same strategies. Prepared capacity for us and the demand come next. Actually, because we had capacity, demand came. If we didn't capacity, everybody were slow and we are one of them, and then we probably had to share those demand with our competitors. So to repeat that success again, we have this success, okay?

And then second questions, European customers. I don't know if your question is excluding Stellantis, but we have Stellantis. Therefore, our delivery to them start from this Q2 -- coming Q2, '22 Q2, yes, so that's first one. And then, I don't know we should really count Stellantis as one, but we supply to Peugeot, Citroen and Fiat and Opus. And then now we are discussing with Chrysler as part of Stellantis, and then that will come.

And then apart from Stellantis, 2 things I would like to explain. I cannot mention the real name, but last time, we explained type -- customer-type ABCs. A is stick to be in-house and then C is non-stick, they automatically outsource. And B is like a hybrid, joint ventures. Stellantis is therefore type B. But we are talking about this type A customer. Actually, we don't see clear type C customer in Europe. They're either type A or Bs. And then type A customer started drifting to type A dash. A dash means, they stick for final assembly, but they are abandoning to assemble motor itself or inverter itself or gear itself. They purchase motor, inverter and gear set from outside and then they keep final assembly in their plant. And then they probably stick to the in-house traction model. But anyway, we start receiving RFQ for motors and inverters for those. Therefore, after Stellantis, I think those parts business coming into the European side.

And another one is I explained this partially last time as well, but because most of European OEM treating EV as a core business, I think as they put aside hybrid business, so hybrid business becoming a non-core business from them. And then they used to build a hybrid motor at in-house or at least like [ TLM ] suppliers. Those shifting to us. So we are receiving a lot of order of hybrid.

Hybrid is bridging technologies, but it won't disappear for another 10 years at least. It will not be increased, but I think as long as it continues at least 5 years or 6 years, we can absorb it and we can get the profit for those. So we are receiving many hybrid motor, hybrid inverter in Europe.

Is that good answering to your questions, Zach?

[Yoichi Orikasa, analyst]

We still have a few more minutes and welcome your questions. [Operator Instructions] Okay. The next question is again from Mark Yim of GAMCO and this will be today's final question.

[Mark Yim, analyst]

Yes. I know this is a difficult topic to discuss, but do you have any comments on the Bloomberg article that appeared on Monday about Chairman Nagamori and President Seki?

[Jun Seki, executive]

Thank you, Mark. What I can tell is we don't have any gap between the Nagamori's reasons or Miss (sic) [ Mr. ] Nagamori's philosophy and my way. Almost 0 gap, even 1 millimeter. So we are -- I'm fully aligning, and personally, I respect him a lot. And then he is very severe, and then he is my master. It's a very natural master, who trained his people to be very strong. So I think time by time, he's sometimes very harsh to meet more output. And then, I'm okay. He is not doing me any wrong, so we are fully aligning.

First of all, I don't know why Bloomberg made that as article because Bloomberg is Tier 1 media. And then I think content has many misreadings of our relationships and then company philosophies.

So a straight answer to your questions, I think there are no worries. We are still fully aligning. And then at this moment, I request him to take care of every job in Japan. And then while we need a quick turnaround from automotive divisions, key is turn around the operation in Germany and operation in Mexicos. So I'm fully spending my time in Germany and Mexicos. Actually, I'm attending this meeting from Germany, yes. And then last week, I was in the Mexicos. So he accepted me to spend more time in this Europe and Mexicos.

So maybe because I am so absent in Japan, people may feel it may be strange, but everything under agreement between Nagamori and myself, no misalignment. That's what I want to explain.

[Mark Yim, analyst]

Okay. Just what's the issue in Mexico?

[Jun Seki, executive]

It's same. It's automotive business, and then we have very slow operations in terms of overall efficiencies and [ scrap rate ] and people's trainings and qualities and inventories. While we have a very strong Nidec position in Japan and China, Southeast Asia, it's a bit slow to transfer to Europe and then Mexico. And then I'm re-trained my peoples and enhancement of business and then build basic strengths as manufacturers, that's what we are doing. And the Mexico is one of operations.

[Yoichi Orikasa, analyst]

Now we'd like to conclude the conference call. I'd like to appreciate for your participation. Should you have any further questions, please do not hesitate to contact Nidec Corporation or your sales presentative at Mitsubishi UFJ Morgan Stanley Securities. Again, thank you.

[Jun Seki, executive]

Orikasa-san, sorry, before we are fully closing, let me make final remarks.

As Yokota-san explained, our Q3 accumulated sales reaching JPY 1.4 trillion. And then Q3 sales itself is like JPY 0.5 trillion. We updated our sales target last time to be JPY 1.9 trillion, now it's become very positive.

And then -- also in July, we announced Vision 2025 to be JPY 4 trillion in '25. And very fast milestones, I committed JPY 2 trillion by '22, which is another JPY 0.1 trillion if we land JPY 1.9 trillion this year. So JPY 2 trillion is very reachable.

And then as we explained through the electrification and robot, we have a lot of source for further growth. And of course, M&A, particularly machine to build ideas, it's very active.

So we will make a committed growth for next year -- this year and next year, and then we will be approaching what we targeted in Vision 2025.

So thanks for your support, but at this moment, we have difficulty of material price and material supply. It's a very small thing. If we look at 2 years' period or 3 years' period, important point is we have enough strength to grow and then a firm strategy to execute. So we will be there, and then we will not betray your expectations. That's final demand for me.

Sorry, Orikasa-san.

[Yoichi Orikasa, analyst]

Mr. Seki, thank you very much for your closing remark. Again, I'd like to thank you for joining the conference call, and you may now disconnect.

[Jun Seki, executive]

Thank you, everyone. See you next time. Bye-bye.

[Yoichi Orikasa, analyst]

Thank you.

[Hidetoshi Yokota, executive]

Thank you.