Toyota Motor Corp

TSE:7203

Earnings Call Analysis

Strong Earnings and Optimistic Forecasts

This quarter, the company delivered impressive financial results, with operating income at JPY 2,559.2 billion, marking a JPY 960 billion increase year-on-year. Sales revenue hit JPY 21,981.6 billion, and net income reached JPY 2,589.4 billion. Positive performance was linked to higher sales volumes, enhanced product appeal in pricing, and a diversified product mix that included a rise in electrified vehicles to 35.3% of sales. Looking forward, they've revised the full-year forecast for operating income upward to JPY 4,500 billion. The interim dividend has been increased to JPY 30 per share, up by JPY 5 from the previous fiscal year, and share repurchases have a maximum limit set at JPY 100 billion. The company forecasts sustained growth with a focus on efficiency improvements and strategic investments, poised to deliver revised full-year sales revenues of JPY 43 trillion and a net income of JPY 3,950 billion.

Robust Financial Performance with Upward Forecast Revision

The company saw a substantial operating income of JPY 2,559.2 billion, attributing its success to meticulous efforts in car sales, harnessing the principle of 'making better cars.' An upward revision for the year's forecast now pegs expected operating income at JPY 4,500 billion, influenced by favorable exchange rates and profit improvement actions.

Influences on Operating Income: Exchange Rates Lead Gains

Profits are likely to be buoyed by foreign exchange tailwinds, anticipated to bolster operating income by JPY 1,180 billion. Simultaneously, cost reduction initiatives could add another JPY 100 billion, while improved sales mix and price revisions, particularly in international markets, are expected to contribute JPY 370 billion. However, rising expenses will likely temper these gains with an expected JPY 110 billion deduction.

Foundation for Sustainable Growth

The CFO highlighted the sturdy financial base fostered by global customer patronage and contributions from diverse stakeholders. The company's resilience lies in a complete, balanced vehicle lineup, a vast global customer base, and the profitability of hybrids. Consistent investments in diverse technology areas, with cautious timing for investments in BEVs and infrastructure considerations, underpin the financial solidity.

Operational Excellence Across the Value Chain

The company is improving its operational efficiency by harnessing digitalization and visualization techniques in manufacturing and logistics, while enhancing the sales process through digital transformation. These measures bolster the ability to meet customer needs swiftly and without waste, reinforcing the company's profound commitment to quality and productivity.

Strategic Investments and Shareholder Returns

Looking forward, the company aims to expand its investment into future technologies, including BEVs, hydrogen, and software, while also raising touchpoints with customers outside traditional verticals. This expansion is poised to transform the enterprise into a mobility company. The commitment to shareholder value is evident in plans to increase dividends, reflecting a focus on enhancing long-term shareholder returns.

Capital Strategy to Ensure Future Competitiveness

The company is executing a strategic capital plan to support its transition into a mobility entity. This includes selling off non-core stocks, forming strategic alliances, and optimizing treasury stock and cash reserves. The goal is to craft a robust corporate structure that secures and boosts competitive advantage in an unpredictable era, ensuring the company's agility and resilience in the face of future industry shifts.

Earnings Call Transcript 2024-Q2

[Unknown Executive]

Good afternoon, ladies and gentlemen. Thank you all for coming. And I'd like to start this 2024, the Financial Results Debriefing Meeting. And I'm [indiscernible] and I'd like to serve as MC for today's session. I really appreciate you for coming.

But first, I would like to introduce Masahiro Yamamoto, the Chief Head of the Accounting Division to report on the financial results over the FY 2024 Second Quarter.

[Masahiro Yamamoto, executive]

We would like to express our heartfelt appreciation to our customers around the world who chose us, as well as the shareholders, dealers and suppliers who support us.

First, let me provide a summary of the second quarter of the fiscal year ending March 2024.

Operating income was [ JPY 2,559.2 billion ]. We are grateful for the support of many stakeholders, including suppliers and production to logistics, sales and services.

In addition, our operating income increased compared to the same period of the previous fiscal year as a result of selling each car with care, and at prices that match the product appeal, we have refined of "making even better cars."

As for the full year forecast, we have revised the forecast upward from the previous forecast to [ JPY 4,500 billion ] in light of the impact with exchange rate fluctuation as well as our efforts to improve profitability.

The interim dividend will be JPY 30 per share year-on-year, increase of JPY 5, and we plan to proceed with JPY 100 billion as the maximum as for the share repurchases.

We intend to continuously evolve our cycle of growth together with stakeholders aiming to realize mobility society through the business foundation we have built up, and through frontline efforts that maximize the effectiveness of such.

First, let me explain our financial results for the first half ended September 2023, covering 6 months from April to September. Consolidated vehicle sales for the period was up 4,744,000 units, which was 114.1% of consolidated vehicle sales for the same period of the previous fiscal year.

Toyota and Lexus brand vehicle sales was at 5,172,000 units, which is 109.1% of such sales for the same period of the previous fiscal year.

The sales volume increased in all regions also. We increased the sale of electrified vehicles, mainly HEVs, with electrified vehicles constituting 35.3% of sales.

Consolidated financial results for sales revenue of JPY 21,981.6 billion. Operating income, 2,559.2 billion. Income before income taxes of JPY 3,521.5 billion, and net income was JPY 2,589.4 billion. I would like to explain the factors which impacted operating income year-on-year. First, effects of foreign exchange rates increased operating income by JPY 260 billion. Cost reduction efforts decreased operating income by JPY 110 billion due to the impact of soaring materials prices.

Marketing efforts increased operating income by JPY 1,290 billion due to an increase in sales volume, improvement of sales mix and price revisions mainly outside of Japan.

An increase in expenses decreased operating income by JPY 220 billion due to an increase in labor cost and investments in areas such as digitalization.

We also experienced a positive uplift of JPY 197.8 billion, largely due to swap valuation gains and losses.

As a result, including overall impact foreign exchange rates, swap valuation gains and losses and other factors, operating income increased by JPY 960 billion year-on-year.

Let me explain the operating income for each region. Japan increased year-on-year due to strong sales. North America, Europe, Asia and other regions also increased year-on-year, supported by strong sales and price revisions based on product competitiveness.

In the next slide, let me explain about the business in China as well as financial services business. As for business in China, due to steady demand for HEVs, our strength, we are maintaining Toyota and Lexus sales volume.

The operating income consolidated subsidiaries and our share of profit of investment accounted for using the equity method cost decreased year-on-year due to the fluctuation in foreign exchange rates and increase in selling expenses.

Regarding the Financial Services business, operating income, excluding swap valuation gains and losses for the fiscal year decreased year-on-year, largely due to the decrease in our margins.

Let us now move on to the shareholder returns. The interim dividend for the current fiscal year will be JPY 30 per share, an increase of JPY 5 compared to the previous fiscal year.

We will focus more on dividends and aim to increase dividends stably and continuously in order to reward our long-term shareholders. As for share purchases during the current interim period, we will conduct share repurchases flexibly, taking into account our share price levels and so forth with the maximum acquisition limit of JPY 100 billion.

Now let me talk about the outlook for the 2024 fiscal year for both consolidated vehicle sales volume and Toyota and Lexus brand vehicle sales volume. Our previous forecast remains unchanged. For the regional breakdown, while Asia will decrease, reflecting the uncertainty in markets such as China, Thailand and Vietnam, we forecast an increase in North America and other regions where robust market is expected, and in Europe, where we expect a recovery in supply.

Although BEVs will decrease, reflecting the decline in the Chinese market, we expect the total electrification rate of 37.2%. Next, the full year consolidated financial forecast. We have adopted a full year foreign exchange rate assumption of JPY 141 per U.S. dollar, JPY 152 per euro. Based on this, we forecast for the full year consolidated financial performances and revised upwards, resulting in sales revenues of JPY 43 trillion, operating income of JPY 4,500 billion. Income before income taxes of JPY 5,500 billion, and net income of JPY 3,950 billion.

I'd like to explain the factors that we believe will impact operating income. First, we expect the effects of foreign exchange rates will increase operating income by JPY 1,180 billion. Cost reduction efforts will increase operating income by JPY 100 billion. We expect marketing efforts will increase operating income by JPY 370 billion due to an improvement in sales mix as well as price revision, especially outside of Japan. Increase in expenses will decrease operating income by JPY 110 billion.

The factors that we expect will impact operating income compared to the same period of the previous fiscal year are as shown. Thank you very much.

[Unknown Analyst]

Now, we would like to introduce the Executive Vice President and CFO; Mr. Yoichi Miyazaki, who will tell us about our growth strategy of the company that we aim at. Next speaker is Mr. Miyazaki.

[Yoichi Miyazaki, executive]

Thank you very much. I'm Miyazaki, the CFO. Regarding our financial results, of course, Yamamoto has already explained. However, our profit structure is steadily improving. We believe that the foundation for such a singular growth has been laid, thanks to our customers around the world who chose us, as well as our shareholders, dealers and suppliers and all other stakeholders who support us.

Once again, I would like to express my deepest gratitude. We intend to further strengthen this foundation with our many stakeholders who support and sustain us from a medium- to long-term perspective from the past present and into the future. Today, I would like to talk about the kind of growth we aim to achieve. First, let me talk about the characteristics of our business foundation.

Our business has 3 characteristics. First, we have a full lineup of vehicles worldwide in the balanced regional representation. Second, we have a global customer base of more than 100 million units. And third, we offer hybrids, which provide both CO2 emission reduction and profitability. These characteristics lead to the stabilization of our earning power, which is less susceptible to the effects of fluctuations in the economic and market environment in each country. And that the major point is the careful timing of our investment decisions, a comprehensive assessment of investment in BEVs and batteries, while considering the energy situation in infrastructure of each country, the evolution of technology and changes in actual customer demand has enabled us to achieve a strong financial foundation, upon which we can promote investment for the future.

This financial foundation has been made even more successful by steady continuous improvement activities of our suppliers in those on the frontlines of manufacturing and logistics, as well as our dealers. On the frontlines of manufacturing, we are working to improve quality and productivity by accumulating second-by-second improvement, reducing the burden on workers through digitalization and visualization, visualizing the skills of our skilled craft people.

On the frontline, the logistics meet shortage of truck drivers and ships, we have been making improvements by drawing on wisdom of related companies. As a result, in power distribution, we have simplified routes and increased loading capacity. And in finished car logistics, we have reduced vacant space rates by jointly transporting vehicles with other companies on the front lines of sales, we are utilizing digital transformation to build a system that links production, transport and sales to provide customers with accurate delivery date information and to deliver vehicles quickly and without waste.

We intend to continuously evolve our cycle of growing together with stakeholders. Through the business foundation we have built based on making ever-better cars initiative. And through inbound or frontline efforts that maximize the effectiveness, including the efforts of related parties, we will continue striving to deliver ever-better cars that meet the needs of our customers in each region, develop new customers in emerging markets and further strengthen our unique and solid business foundation.

We also plan to expand and strengthen our investment in the future, including in BEVs, hydrogen, software and energy, and increase touch points with our customers and alliance partners beyond the automotive industry with a total package. That should lead to the expansion of our business domain towards becoming a mobility company and the transformation of our corporate group's business structure.

Next is investment for the future. At our technical and manufacturing or monozukuri workshops, we have shown you our technologies and skills that have been accumulated over the years. We don't just wake up to find yourself in the future. The future is made up of the steady accumulation of day-to-day activities of today.

To leave many options open for the future, our engineering efforts will drive investment in various advanced areas, and we plan to actively sow the seeds for the future by combining manufacturing techniques with digital and innovative technologies. And for key investments in mass production, we plan to determine investment timing based on the technologies and skills we have honed from a long-term perspective, while closely watching market trends. When it comes to shareholder returns, we aim to continue to increase dividends to reward long-term shareholders.

Finally, here is our capital strategy. Our transformation into a mobility company requires a muscular balance sheet, while selling strategic stocks that have declining significance to our holdings and conducting home and away activities within our corporate group. We have been building alliances to accelerate our transformation. By continuing to reduce our number of strategic shares, reviewing growth, group's cross shareholdings and utilizing more effectively treasury stock and cash on hand, we aim to build the optimal structure as a mobility company and maintain and improve our competitiveness.

In summary, to realize a cycle of growing with our stakeholders, we will continue striving to strengthen our earning power accelerate investment for the future, utilize more effectively our accumulated assets and create a new structure as a mobility company to gain a competitive edge. Precisely because this is an age in which it is hard to predict the future, we have to work together with your support and encouragement to create the future of mobility.

To this end, we would like to use the results we have been able to generate, thanks to our many stakeholders as a source of growth, together with our customers, shareholders, suppliers, employees and local communities.

If you do not act, we will not be able to carve out a future for ourselves. We hope that you will continue to look forward to what Toyota will achieve and support us in the future. Thank you very much for your attention today.

[Unknown Executive]

Thank you very much. We would like to entertain questions.

So please wait for a few minutes until we prepare for them. Thank you.

[Unknown Executive]

Now we would like to start the question-and-answer session. So the people who be responding to the questions, please come up to the stage.

I'd like to introduce the speakers today. The Executive Vice President and Chief Financial Officer, Yoichi Miyazaki; Chief Officer and the Chief Communication Officer, Jun Nagata; and Masahiro Yamamoto, Chief Officer of the Accounting Group.

So please excuse us to be seated. So the speakers will be seated as well. Now we'd like to entertain the questions so from the floor as well from online participants. So we'd like to have a separate session.

The first is the question to entertain from the people in this room. Those of you who have a question, please raise your hand and speak to the microphone. And we'd like to give chance to as many people as possible. So please refrain from asking more than 2 questions. So 2 questions per person, please, and thanks for understanding.

And the person in the middle row please.

[Unknown Analyst]

Inagaki of [indiscernible]. Thank you very much for this opportunity. So about this outlook of this full year, JPY 1.18 trillion is a good figure. But the JPY 141 to the dollar, that is the current depreciation of Yen is still ongoing. So what about the outlook on the foreign exchange rate? Do you think that will further be adjusted upward?

And the second question is related to this foreign exchange rate. Yen is weak, and which is actually pushing up this raw material expense. So that's a negative factor of the weak Yen. How do you perceive that, the negative impact on behalf of TMC because the exporting of the companies tend to enjoy the benefit of this weak Yen. However, what is the optimal level of the foreign exchange rate? How do you perceive that?

[Masahiro Yamamoto, executive]

Thank you very much for your question. Well, as to this fluctuating foreign exchange rate and what is our assumption in our company, like automatically that we just based upon the past results. And then the future assumption is based upon that. So in the remaining 6 months, JPY 140 to the dollar is the current assumption. So that is the level of this assumption. However, and to the fluctuating exchange rates, what is the impact upon the company? Well, Yen is weak, Yen is good or bad is not the issue. But foreign exchange rates. I think the stability is something we want to happen. That's something we appreciate, stable exchange rates.

TMC in another country in Japan, we would like to produce the automotive industry, and we'd like to continue to produce here in Japan. In the past, the [indiscernible] year was so hot, and then the great East Japan earthquakes, during that difficult time, rather than shifting the plants to overseas, we continue to be creative in employment by building the plants and continuing operation to continue to the local and regional communities in Japan.

So we have a strong basis here in Japan. That means that when we export vehicles from Japan, of course, in the current phase of the weak Yen, there is the effect, then it might push up the income and the revenue. When you look at the overall supply chain. The Yen is weak might be positive or it could be negative in some other regions. So it does depend upon which region you are talking about.

So what we want is a more stable, the fluctuation of this exchange rate to rebuild this production plant and take a deep root in that community, and we cannot quickly shift the production sites easily. That's my answer.

[Unknown Executive]

Next question, please. Yes, I see a hand in the first row.

[Ikeda Mio, analyst]

Ikeda from Sankei Newspaper. Now, I'd like to ask you about the Chinese market for the second half of the year. What is your outlook for the market? In the first half, the production level was rather low. And the sales level was maintained from the previous year, as I understand. But after the second half of the year and onwards, what will be the competitive landscape? And what would be your sales projections?

And the related question to that would be about your BEVs sales forecast, 200,000 vehicles was the original plan. Now you've reduced that amount in your new forecast. Is it because the demand for BEVs has declined? Or is it because of Toyota's product plans, something specific to Toyota itself rather than the market?

So these 2 questions related to the Chinese market. That's the first part of my question. The second is the hybrid, including PHEV are growing in your business. Earlier, Toyota's hybrid has garnered the same profitability as ICE vehicles. Now in terms of the plug-in hybrid vehicles, is the profitability on par with the ICE vehicles? The profitability of BEV is the second question of mine.

[Yoichi Miyazaki, executive]

Thank you very much for your questions. In terms of the Chinese market, I'd like to respond. First of all, as for the market itself, BEVs market is growing, centering around domestic OEMs. And Ikeda-san has mentioned, we are maintaining our share of the market and remains stable. As Yamamoto mentioned earlier, the very strong intensive discount competition has begun, especially in the area of BEVs. Under such circumstances, local OEMs in China, as well as incumbent OEMs are competing very fiercely in terms of prices. Therefore, the discount rate had started.

We plan to maintain our share of the market. And currently, we are maintaining it, and going forward, that would remain our assumption going forward in our business in China. Our BEVs, as has been mentioned, is the area we have downgraded our forecast, but then our hybrid vehicles are expected to increase. So the total number of vehicles that we can sell in the market will remain. And that is one of the ways of avoiding the price competition.

So BEV units are declining, why? Well, because of the fierce price competition is one factor. Actually, in the eyes of the customers, they have more choices and options, bZ4X and other Toyota vehicles still have room for improvement. And that's the message we are receiving from the market.

We are talking about cars. We improve our models periodically. And therefore, going forward, we will continue to do so, responding to what the market tells us. As for the second point, I'd like to ask Yamamoto-san to respond.

[Masahiro Yamamoto, executive]

Thank you very much for your question. But the profitability of [indiscernible] hybrid, which is on par with hybrid vehicles.

[Unknown Executive]

Next is the person wearing a white jacket around the middle row, please?

[Unknown Analyst]

[indiscernible] of TV Tokyo. I have 2 parts of questions. First about this strategy and policy-based shareholding. Mr. Miyazaki mentioned that you had reduced the cross holding, and you would like to revise that with even within the group companies. But you refer to that now, at this time. What is the time scale that you would like to further revise or reduce the holding of the cross holding of those policy related share?

The second is idea on this pay raise. Different companies in the latter part of the half of this year they would like to raise this labor cost and then they will have additional spending for that. But what is the policies? And what is this cost related to the labor cost of the some of these suppliers and others? What do you think of that?

[Yoichi Miyazaki, executive]

Well, as to the policy and strategy related cost holding of shares, during the previous quarter, the announcement of this financial results, I already mentioned our philosophy and concept on that. And you really urged that we should be more clear about that the shareholding. After the end of the first quarter, the announcement that we gave you our idea. And this time, again, including even the group cross shareholding that we touched upon this policy on this shareholding.

And the graph I showed you also shows is the first -- we have done some of the measures and implemented measures. Our thought is unchanged. The [indiscernible] is no longer any significance of cross holding the share and so on. We revise it, we might make that last money and then we will be the financial resources was investing in the other new areas.

We will switch the asset mix and then we find the new partners. We will invest in new areas. That is why we'd like to revise the cross-holding of share. As to this group shareholding of -- we applied the same cost. Optimal business within the group. We'd like to achieve that optimal active business and information, the structure should be revised accordingly. And together with other companies, we are implementing this home and away concept. And when our lineup is changing, we would like to really promote the concept in the future as well.

Answering the question about timing, when we will implement that. Well, the when the need rises, we will immediately implement that needed action. That's our thought. And therefore, it's not something for the sake of this particular cause, but we have the basic concept that when the need arises, quickly, we will implement our action. That's what we'd like to do. As to the second question, Nagata will respond.

[Jun Nagata, executive]

As to this thought on the salary hike or pay raise. So as Miyazaki also touched upon that at the beginning. For the stakeholders, we've been building a cost together with other stakeholders. Our message is because that we like to create the future together. Automobile is something that we work together and build together.

So the first question is our concept on the pay rates within TMC. Of course, naturally, that our employees and we are their partner, so that for this term to the next fiscal term, the inflation is taken and other factors pushing up the living cost. So they have worked so hard and then we, of course, appreciate their hard work. Taking all those stuff into account, we like to really have a good talk with the employees. Once a year, we have a spring [ label feasible ]. That's not all. Every month, we have a dialogue with the labor union members to try improve the situation. And another improvement, and one after another, we improve. So taking that into account, the pay raise level will be considered to next year.

As for the second question, about how do we respond to that, with regard to the suppliers, employees because the raw materials and all these things, the costs increased due to the weak Yen, I think this procurement became so expensive, especially raw materials, electricity supply, as the pay rate related area. Since last year, we have taken that into account. And then we paid accordingly to the suppliers. And we will maintain that stance at the policy this fiscal time. So that to the people around the -- our stakeholders and suppliers, we will pay them accordingly.

And then how should we push that up for the Tier 2 and other suppliers. So eventually, our message will be conveyed to all the suppliers, including Tier 1 to the rest.

[Yoichi Miyazaki, executive]

I have added to about this specific question. Just additional comments. In my presentation, we talked about a shortage of truck drivers and logistics and transportation is the issue. So in that sense, of course, for the logistics costs, this is area we want the improvement, and we will extend the cooperation as to the transportation costs. We are negotiating with the logistics company to raise the fee so that the effect should be the increased reward for the truck drivers. So that's something we're talking with the logistics and transportation company. So we hope that we will really pay accordingly.

[Unknown Executive]

Next question, please. The fourth row alongside the aisle, please.

[Tsuyoshi Inajima, analyst]

Inajima from Bloomberg. EV exports from China is something that I'd like to ask about. In addition to that, would that have impact to Southeastern Toyota businesses? What is the immediate situation and new outlook going forward?

And also higher interest rate, will that have any impact to your procurement as well as sales? Once again, the immediate situation and the outlook, I would like to ask. Do you have any responses to those developments?

[Yoichi Miyazaki, executive]

I'd like to respond to the first question of yours. The BEV exports from China was the question, and how that would impact our operations in Southeast Asia. Now BEV exports from China is increasing, and we have confirmed that with that. Thailand and other countries have seen batteries becoming a certain industry segment.

Now, for the future outlook, most probably, Chinese BEVs and other OEMs will continue to strengthen their exports or expand their operations overseas. That's something we have to expect. What do we do about it? Well, I'm sure you all know, it's not that we don't have the battery EV lineups. The question is when we actually introduced them and launch them as products. I cannot be too specific, but from Japan to Southeast Asia, and the Chinese exports have different levels of tariffs in different countries.

At what timing we consider local production or which timing we start exporting Japan to Southeast Asia, our BEVs, we really have to be watchful of the market situation as well as the competitive landscape going forward.

[Masahiro Yamamoto, executive]

Thank you for your question. In terms of the higher interest rates, especially in the area of sales and financing services, I believe, you are very right, especially in the United States. Interest rates are being raised. And in terms of procurement, the margin of profit is declining. But the financing business of ours is not really losing steam, which is still stable because of the residual value that is the cost or the value of the used car remains very strong. Overall, the used cars have maintained a higher price point. So what we hear from the market is the power of the products, which maintains the residual value of the used cars contributing to profitability.

So that's the value of coming up with powerful products, and that certainly has a positive impact to the profitability.

[Unknown Executive]

Person in the second row from the back.

[Unknown Analyst]

My name is [ Shiroka ]. Will there be any change to the investment practice because the first is that in this financial related to cash seems to be accumulated a lot in your company. 6 months ago, at the press conference, you said that the share price was a bit down, so that you mentioned about the shareholders. But as of now, share prices went up to a high level. But of course, it's not something you would determine by your company. I'm aware, but the share price is high. The shareholders are really expecting the further growth in your company. And then so, the more investment means the more return, and the shareholder price is so high.

So maybe capital cost, funding cost is going down for your company, I recognized. So you have abundant cash, and it might be spent as a dividend payout to the shareholders. But maybe shareholders really expect the companies to grow further. Maybe you can invest that into R&D? That is for the sake of the future, is it likely you invest more for R&D and other future projects?

[Yoichi Miyazaki, executive]

In this interim announcement figure, our feeling on that is something I'd like to touch about because in your presentation, I have also tried to convey you this message. But in this announcement of the financial results, of course, the people who protested the model and then allot them, we should really appreciate the users so that the number really refers that we should really express our gratitude. There are lots customers who are waiting for our vehicle.

As soon as possible, we like to deliver the vehicles. Therefore, the suppliers and the manufacturing plants and the logistics company people and others are working hard to deliver it as soon as possible, dealers as well. So I'd like to take this opportunity to thank all the stakeholders because of the hard work, we finally achieved this good number this time. As a result, and in vision, in each of the offices and the frontline fields, these partners are supported by the local community residents and other stakeholders. So it's all thanks to all these people who contributed to these numbers.

I cannot really think of the better word. But anyway, these earnings, the profits are not to be used for our own sake. But rather, we'd like to spend it to transform the Japanese automotive industry. How can we create for a new mobility business here in Japan and so on. So that's where we'd like to make further investment so that we can return this to the society at large. So one company alone cannot change the future of automobile, multiple companies and we should form a partnership. And we like to actively invest in new areas. So that how can it change, transform the future of automobile business, something we'd like to explore.

And the result of these efforts, we'd like to further strengthen our earnings power. As I said, again I would like to return the benefit back to the stakeholders, and with their support, we'd like to go up this next step. So we'd like to steadily turn this good cycle. That's something we'd like to do. That is the basis of our foundation. And then we decide on where to invest further. We have to really sow different plants, and work on seeds needed is not yet clear.

We will plan to see -- sow the seeds in many places, explore different profitabilities. And then we might create a new species of plants and so forth. That's something we'd like to try.

[Unknown Analyst]

Another question is that the domestic production. Foreign exchange rates are likely to really change, it fluctuates much. But 10 years ago or so, Yen used to be strong. So the domestic employment and suppliers had to be protected and then -- as a mother plant. In the short term, it's not really a positive situation, but you still endured through the difficulty. But now the foreign exchange rate has changed. So clearly, you have a high quality and producing changes makes it the most competitive situation for you. To continue to bring change, Japan is the most competitive. What do you think of the competitive edge of the domestic production?

[Jun Nagata, executive]

Thank you for your question. As to the competitive edge, or before that, talking about competition goes to 3 million units of the domestic production level has been maintained for a long time because TMC or the even trend we had on production company because we were the company born in Japan, we've been a Japanese company. And we were in the Japanese society, and to the nation of Japan.

How can we continue to make contribution to people in Japan? That is an important mission several -- about dozen years ago. The great earthquake occurred in Tohoku and then yen was so strong. There were 6 hardships we suffered, and then lots of plants that are moved to overseas. So after that aftermath of that earthquake, we created the East Japan Toyota models, and we wanted to contribute to this local community Tohoku by automotive production.

So we did something, reverse the trend as compared to other parties. But now East Japan, in Tohoku, we believe that we have made a contribution to Tohoku region, and we still do. And we would like to maintain the policy, 3 million units to be -- continue to be producing in Japan.

In terms of the numbers, of course, the JAMA is also relevant to hear. But anyway, as you're aware that in Japan, the JPY 15 trillion income for Japan, thanks to this export automotive. So the energy cost is going up here in Japan as well due to inflation. But still, it's kind of a difficult situation. But 2 or 3 years ago, the JPY 15 trillion was spent to really procure the energy in Japan imported. So in order for Japan to economically be feasible, I think you have to continue to earn foreign currency. So Toyota should really support that kind of system as a company, and the number should really approve that. So as Mr. Nagata mentioned, what about the future? Well, we should never deviate from this policy. We'd like to keep the stronghold here in Japan and continue to make contribution to the local community and regional communities in Japan.

[Unknown Executive]

Next question, please. Person in the second row, from the front, please?

[Unknown Analyst]

I am [ Katsumata ] from [indiscernible]. I have one question for you. As for April to September, repricing efforts. Over the past recent years, it seems it has had major impact. So would you be more concrete in telling us what you have done? And as Nagata-san mentioned earlier, rewarding your suppliers is something that you have done. Now based on that, cost reduction efforts together with the suppliers is another area of interest that I would like you to elaborate on.

[Masahiro Yamamoto, executive]

Improvement efforts at genba can take multiple forms, as you've seen in Miyazaki-san's slide. I listened to people in genba, and I'm feeling the advancement of digitalization. I'm referring to a specific slide here, in terms of machined parts, the initial inspection of the surface finds 1 out of 10,000, some defector parts. And people in the genba have a very intense job because they should not overlook such defects.

But then you introduce AI camera. It can really be effective. On the right, you see sealers being applied, sealers that you're paying to reduce water leaks. It really takes skills. And then there are seasoned craftsman who are so good at it, VR algorithms can read in what seasoned craftsman would do, and newcomers can mimic what the seasoned craftsman would do, and that results in reduction in training hours. And some specific techniques can be handed down to next generations. But 3 years ago, together with our labor union, we decided to catch up with others in implementing such digital technologies.

And certainly, production area, our engineers and technicians are really eager to learn all our employees. Over the past couple of years during the pandemic, we have seen such results. With very strong workload in genba use of technologies as such certainly has proven quite effective. This is something Toyota does, this is something that we do together with our suppliers. Now, what was your second question? Would you repeat your question?

[Unknown Analyst]

No, it's okay. You have addressed my question.

[Yoichi Miyazaki, executive]

Well, in terms of our suppliers, I've given you several examples. We have direct touch with Tier 1, Tier 2 suppliers of ours. So we have direct touch points with them. And that probably the physical limit of our reach. But then, if improvement efforts should cascade it down to further down in the pyramid, then JAMA and part suppliers associations together should work together in implementing such improvement efforts.

Nagata-san is working on that. Nagata-san, do you have anything to add?

[Jun Nagata, executive]

This is also an activity of JAMA. As Miyazaki-san mentioned. JAMA supply chain committee is the forum that we work together, especially in a deeper down in our supply chain, what they should do is something that JAMA can communicate very well, and parts suppliers association as well. In terms of the creative ideas of what can be implemented and of course, sometimes we can visit genba of those lower tier suppliers. And that the efforts made by the entire industry association, not only by Toyota. And our activities are aligned with those with JAMA, and I think that's extremely important right now.

Now in the future, as has been mentioned, electrification and transition to BEV, how should we go about that? As you go down in our supply chain, especially the smaller suppliers, they are at loss what to do. And especially in the area of carbon neutrality, they are at a loss what to do. So not only our direct suppliers, but JAMA and part suppliers associations network should be leveraged so that we can work from both directions.

[Unknown Executive]

Now, I would like to shift to the online participants to entertain their questions.

[Operator Instructions]

Online participants, no one has raised a question. So we'd like to return to the people on the floor in this hall to entertain questions directly from them.

The person on the third row.

[Hayakawa shuntaro, analyst]

I'm Hayakawa from NHK. So for this financial results, you presented the operating income and then the profit, you have achieved a record high. And as [indiscernible] mentioned, the expense is gratitude. However, how do you foresee over this 6 months, the financial results? But of course, the raw materials and other prices are going up. So for the future the outlook, you have upwardly revised the future outlook? However, what are some of the concerns and some of the factors you are considering carefully?

[Yoichi Miyazaki, executive]

Earlier, I have made some summary statements in my remarks, but the actual numbers we have seen -- we are seeing, well, of course, each fuels in each of the people work so hard to come to this good result in the last 6 months. And now as to the full year outlook we have presented, of course, we have the resolve that we will continue to execute work by working hard.

However, the efforts we observed in this marketing sales, this number is so good. So what is the backdrop for this good marketing sales. We have introduced company system to build ever-better cost, the appearing the product lineup have been prepared already. That is a major important basis. The second factor is that many changes occurring. However, every day, in the daily operations, the accuracy is going up and then we have to make a quick decision. But local specification has been tailored made for each area. And then the fact in the field and front line has been considered to make a quick decision. And those results have been referred in this good result. More than ever to build ever-better cost in the local community that the local -- the genba base decision is made quickly. In others, the audit people involved in this production and logistics and so on, the United efforts of these people were reflected in discrete number.

So anyway, it cannot be done overnight. It's been of all these accumulated hard work and daily improvement and united efforts. All these results are reflected in this good result that we are announcing today. And so we are faced with a good situation now. We'd like to continue this good practice from now on. We have just completed the half of this full year business, and we can never feel so easy because we still have a lot of risks that we have to be prepared, as Hayakaw-san has pointed out. And the full year, the production is [ 110.5 million ] units. So we haven't changed the production outlook, but from my standpoint, we might have kind of a positive outlook.

However, as you pointed out, there are lots of concern. This market behavior is changing in China or in China. The real estate situation is uncertain, impacting the Southeast Asia and Thailand. And in those Vietnam and Thailand, the market itself is going through some changes.

We can never feel too optimistic. We really have to be careful. But still, anyway, the uncertainty in front of us and that uncertainty is getting more serious. So we should really have the spread antenna to have a good communication with the local CEOs and others to supply these good cars, which will please the customer there and then we adjust the cars according to the customer in each situation. That's what we'd like to be prepared.

[Unknown Executive]

Next question, please. Person in the front row, please.

[Unknown Analyst]

[ kata from ] I have 2 questions. Now, Miyazaki-san, you talked about the contribution to the future mobility industry, the future automotive industry. And yesterday, you made an announcement about the additional investment in the United States, in production, hydrogen, battery, carbon neutrality areas will become the focus of our future investment. And the second question is, earlier, you experienced some accident at your suppliers factory, which caused some holding of your production line. Has it had any impact in your production plans going forward?

[Masahiro Yamamoto, executive]

Now, the investment for the future. Of course, carbon neutrality is a major focus area. And going forward, battery EVs as well as hydrogen will become important areas as well because they will lead to new business domains. There are multiple options for investments during the technical workshops in monozukuri manufacturing workshops, you have witnessed all those endeavors that we are making. Investment simply is made into the areas where we have a basis of technologies and engineering and capabilities and technical workshops have demonstrated that we do have such a foundation. And in monozukuri workshops, you have witnessed our engineering prowess, which would enable further investment in such areas.

Now the question, I'm sure, would be what about ROI and profitability. How can we connect those different pieces of technologies and engineering prowess, and how to make -- allocate our investment going forward is something that we will still have to determine going forward.

[Jun Nagata, executive]

You asked about the accident at Chuo Spring company. Now, actually, because of the data deficiencies we have experienced halting of our assembly line. At the Chuo Spring company, they have resumed production, so bringing them up to speed and certainly would be the current focus.

As of now, we haven't changed our production plans. So before the end of the year, we will make some recoveries. So that's something that we do to respond to that particular accident. But what we have to do is -- because frequent incidents like this or accidents like this would only inconvenience our customers. So how to manage aging manufacturing equipment and facilities is something that we really have to go through together with our suppliers.

And we've already begun our endeavors so that going forward, we will not cause any inconvenience to the future customer of ours. We will continue steadily for the improvement.

[Unknown Executive]

We'd like to just entertain 2 more questions because time is getting short, please.

[Unknown Analyst]

[indiscernible] In the U.S.A. about the American market? That's my question. 3 months ago, when you announced the first quarter, the results that there are some risk factors, and then you mentioned about the risk. But what is the outlook of the U.S. market from now on? The second question, is the UAW strike has finally been settled? So what will be the impact and the rippling effect due to the strike in the U.S.A. because U.S. automakers, their burden was -- is going up. And some people say that it will be advantageous for the Japanese companies that maybe investment cost will go up because of the overall impact. So what do you think of that settled labor union strike in the U.S.A.?

[Yoichi Miyazaki, executive]

As for the outlook for the U.S. market, let me respond to that part of the question. First, economic numbers themselves, I think we might present and make us feel a bit cautious. But actual operator in the U.S. market that is not yet being felt directly in the market because the inventory level, stock level might have been improved slightly, but there's a shortage of products in the -- inventory level, that's the U.S. market situation. And the market demand is strong, so that analysis as of now.

Fairly looking at the other OEMs, maybe it's not the case wherever. Differentiation amongst different OEMs in the U.S. So what we actually feel is a strong market tendency right now. That is because of a good powerful lineup and appeal of our products. And because of that good line of products, we are in a good position now.

As to the overall market condition, we still have to be cautious and we need to monitor closely as to the U.S. market itself is in that kind of condition right now. But what about the global situation, the U.S. or the European market, strong markets. On the other hand, as I said, China, the economic situation is getting a bit stagnant and then the market is changing in some of the emerging countries as well.

So when you look at the overall global situation, we have a real balanced portfolio around the world. Where we should do what kind of operation should be really scrutinized by us. As to your second question, Nagata will respond to your second question.

[Jun Nagata, executive]

Obviously, the UAW strike, would that have any impact on Toyota or in other companies in the future? Well, we are not so sure about the possible impact on us. However, we feel after the strike that basically the U.S. operations, like TMNA basically should have the dialogue with the employees like Toyotas, the intracompany level union. We should have a good dialogue with the employees, their hard work. And company competitiveness should be discussed between the management and the labor union members.

What about the pay rates. What is a good optimal level pay rate in order to improve the productivity and competitiveness. So we have a good dialogue with employees. The local entity announced yesterday for the North American company, they have the regular pay rates. And then they announced the result of the settlement. As I said, the employees made a great contribution in comparison to the other company's pay level, that's how we decided to revise and increase our pay level.

So we'd like to enhance a competitive edge, and it should be a quick cycle. And in the North America, the company should really upgrade itself to the better future. We would like to create a good cycle toward a better future. As Miyazaki said, he intends to make an investment in many new areas. That's what we'd like to do. And that's the belief of Toyota for the future.

[Unknown Executive]

Let us entertain the last question for the day.

[Unknown Attendee]

I am Yamamoto Shina, a freelance journalist. Now your numbers overwhelming. Chairman Akio has saw the seeds for the over the past 14 years, and those numbers indicate the results of that.

I'm sure a new management executive group will do something that is unique to them. What sort of seeds do you think they will saw? And also, what would be the weaknesses that Toyota has to continue working for?

[Yoichi Miyazaki, executive]

It's a very tough question, as a matter of fact. Sowing the seeds, when it comes to this new executive group, as you've seen at the Tokyo Mobility show, there are new areas that we are working on right now. When you saw seeds, you cannot expect it to burgeon immediately. And you don't know whether the seeds were sown by yourself or someone who are before you. But anyway, it's an all-out effort of the entire company under the new executive team, nurturing new ideas. We would like to explore new possible business domains. And as we do so daily, several years later, we will look back at what we did and what we discussed and find that we have done several years ago. That's been a very good decision and have flourished.

So what are the weaknesses of Toyota, as you asked. As I mentioned earlier, if we become complacent and lose focus in what we do, that will turn out to be a major weakness. So what is our cause? Why do we work each and every day? And why do we make strides forward? Those are the things that we would like to continue talking with our employees to make sure that we are aligned.

We'd like to raise the level of the entire automotive industry in this country, and we will do our very best in contributing to that end and for that purpose. And thank you in advance for your understanding and your cooperation.

[Unknown Executive]

Thank you very much. So this concludes all the question-and-answer session. So we would like to ask the speakers to stand up. We again like to thank you very much for your participation. Thank you.

So the speakers will now step down from the stage. Thank you. This concludes all the programs of this announced briefing session on the financial results. Thank you very much for your participation.

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