Toyota Motor Corporation (TM) on Q4 2022 Results - Earnings Call Transcript

Operator: Thank you very much for joining us today despite your occupied schedule. We would like to start the Toyota Motor Corporation's Financial Result Announcement for the period ending in March 2022. First of all, let me introduce to you the members present for this briefing. Executive Vice President, Chief Financial Officer, Kenta Kon, Executive Vice President, Chief Technology Officer, Masahiko Maeda, Chief Communications Officer, Jun Nagata, and Accounting Group Chief Officer, Masahiro Yamamoto. Now ladies and gentlemen, first of all, Yamamoto will share with you the overview of the financial results. Masahiro Yamamoto: Hello, everyone. Thank you for joining us today. I am Masahiro Yamamoto. We would like to express our heartfelt appreciation to our customers around the world who chose us, as well as our shareholders, dealers and suppliers who support us. We would like to express our sincere gratitude to all the stake holders. I sincerely apologize for the inconvenience caused to our customers due to the recent production volume reduction. We will work hard to deliver our products as soon as possible. First, let me explain the summary of our performances for the fiscal year ended March 2022. Under the production constraints due to the spread of COVID-19 and semiconductor shortages, dealers, suppliers, and production sites have all worked tirelessly in order to deliver as many cars as possible to customers. Despite soaring materials prices and increase in expenses for the investment in new business fields, we achieved growth in revenue and profits, thanks to cost reduction and marketing efforts. This is attributable to the improvement of our revenue structure, which we have been working on for a long time, towards one that is not dependent on foreign exchange rates and volumes. As for the forecast, we have set our production volume assumption to an appropriate level, having safety and security as our top priority. We expect a decrease in our operating income due to unprecedented increases in materials and logistics costs. However, we will continue with our future investments and promote our various activities. As for the return to shareholders, the year-end dividend is JPY 25 per share, and maintain a steady increase. Share repurchases will be up to JPY 200 billion yen, including JPY 100 billion set aside to enable more flexible share repurchases than before while considering share price levels. Let me explain our performance for the fiscal year ended March 2022. Consolidated vehicle sales for the period was at 8.23 million units, which was 107.6% of consolidated vehicle sales for the same period of the previous fiscal year. Toyota and Lexus brand vehicle sales was at 9.512 million units, 104.7% of the same sales – of the same period of the previous fiscal year. The ratio of electrified vehicles was 28.4%. The consolidated financial results for this fiscal year were, sales revenue of JPY 31,379.5 billion, Operating income of JPY 2,995.6 billion, income before income taxes JPY 3,990.5 billion and net income of JPY 2, 850.1 billion. I would like to explain the factors that impacted operating income year-on-year. First, the effects of foreign exchange rates increased operating income by JPY 610 billion. Second, cost reduction efforts decreased operating income by a net of JPY 360 billion. This consisted of a JPY 280 billion increase due to cost reduction efforts and JPY 640 billion decrease due to the impact of soaring materials prices. Third, marketing efforts increased operating income by JPY 860 billion, largely due to the increase in sales volume and improved earnings in the financial services business. Finally, an increase in expenses decreased operating income by JPY 220 billion. As a result, excluding the overall impact of foreign exchange rates, and swap valuation gains and losses and other factors, operating income increased by JPY 280 billion year-on-year. As shown here, the operating income for each region increased year-on-year in all regions. This is largely due to the impact of foreign exchange rates, cost reduction and marketing efforts. Next, let me explain our business in China, as well as our Financial Services business. As for our business in China, both the operating income consolidated subsidiaries, as well as our share of profit of equity method periods increased mainly due to the impact of foreign exchange rates and marketing efforts. Regarding the Financial Services business, operating income excluding swap valuation gains and losses for the fiscal year increased year-on-year, largely due to the increase in the lending balance and margins. Next, let me explain the return to shareholders. We plan to make a year-end dividend of JPY 28 per share. We will continue to aim to pay stable and sustainable dividends, while maintaining and improving upon our consolidated dividend payout ratio in the medium to long-term, in order to reward shareholders who hold our shares in the medium to long-term. As for share repurchases, we set the maximum limit to JPY 200 billion, including JPY 100 billion set aside to enable more flexible share repurchase than before, while considering share price levels. Aiming at enhancing capital efficiency, we plan to implement share repurchases in a flexible manner, taking into account various factors including investment in growth, dividend levels, cash on hand, and share price levels. Next, I will explain the forecasts for the fiscal year ending March 31, 2023. Consolidated vehicle sales is expected to be 8,850,000 million units, which is 107.5% of the previous fiscal year, with growth in sales expected in all regions. As for Toyota and Lexus brand vehicle sales, it is expected to be 9,900,000 million units, which is 104.1% of the previous fiscal year. As for electrified vehicles, by improving our product line-up to better meet customers’ needs in each region, sales are expected to be 3,70,000 million units, which is 113.6% of the previous fiscal year. We expect that the ratio of electrified vehicles will amount to 31.0% of vehicles sold. Toward carbon neutrality, we will continue to make efforts to provide a wide range of options, to meet the needs of each region and hence be selected by customers in those regions. Next, let me explain the forecasts for the full-year consolidated financial performance. We have adopted FOREX-rate assumptions of JPY 115 per US dollar and JPY 130 per euro. Based on this, our forecasts for the full-year consolidated financial performance are, sales revenues of JPY 33 trillion, operating income JPY 2,400 billion, income before income taxes of JPY 3,130 billion and net income of JPY 2,260 billion. Next, I would like to explain the factors that impacted operating income. First, the effects of foreign exchange rates are expected to increase operating income by JPY 195 billion. Second, cost reduction efforts are expected to increase profits by JPY 300 billion, while the impact of a sharp increase in materials costs is expected to be JPY 1,450 billion, resulting in a total decrease of JPY 1,150 billion. Marketing efforts are expected to increase operating income by JPY 815 billion, largely due to the increase in sales volume. Finally, an increase in expenses is expected to decrease operating income by JPY 440 billion. Although we continue to face a difficult business environment, we will continue to further improve our profit structure and accelerate our efforts to transform into a future mobility society. This concludes my presentation on the financial results. Next EVP, Kenta Kon will talk about changes in profit structure, Kenta Kon: I am Kenta Kon. Although the results for the fiscal year ended March 31, 2022, are for a single fiscal year, they represent the accumulation of improvements so far in our profit structure, so I would like to add a few words from that perspective. These graphs compare the change in our operating income in the year of the 2009 global financial crisis and the COVID-19 pandemic last year, in each case compared to the previous year. In both cases, sales volume decreased by 15% compared to the previous year. But at the time of the global financial crisis, profits decreased significantly, pushing Toyota into the red, while in the fiscal year ended March 2021, we were able to secure a profit. This shows the break-even volume from the fiscal year ended March 31, 2009, onward. If we assign our break-even volume at the time of the global financial crisis a value of 100, we have lowered our break-even volume most recently to the 60 to 70 range, demonstrating that we have made significant progress in improving our condition over the past 13 years. This was not something that could be done overnight. Immediately after the global financial crisis, we had to put the brakes on all of our R&D expenditures and capital investments. We could do nothing to invest in the future. But while overcoming the numerous crises known as the Six Hardships, such as our quality crisis, we continuously worked to improve our profitability. Improved profitability was not something that Toyota was able to achieve on its own. Rather, it was the result of a desperate and concerted effort with all of our stakeholders. To them, we say thank you. During that period, as one of Toyota’s strengths is having a full line-up of products globally, we shifted to an in-house company system that would allow us to provide high-quality and reasonably priced vehicles at the right place and time to an even higher degree. Along with the in-house company system, we introduced our Toyota New Global Architecture, or TNGA, shared vehicle platform to improve the basic performance and product appeal of our vehicles and enhance the reflection of regional characteristics with the aim of not being the best in the world but best in town. In the past, we often introduced completely new vehicle models on a one-off basis as the market grew. But now we are continuously evolving our long-time, best-selling cars, such as the Yaris and Corolla, to keep them current so that they can go on being long-time, best sellers. We believe that this has resulted in our being able to increase profitability. I would like to explain the changes in our profit structure over the past six years since we transitioned to our in-house company system. Looking at the factors behind increases and decreases in operating income, our profit has increased despite major negative factors such as foreign exchange rates, sales volume, and increases in materials prices. In terms of sales, our greater-than JPY 2 trillion improvement in profit is due to sales price revisions and a reduction in selling expenses. We believe that this is the result of our customers highly evaluating our products. Also, post-sale vehicle quality helped customers maintain high vehicle value, leading to improved profitability not only in the automotive business but also in the financial services business. In terms of cost improvements, we believe that significant improvements have been achieved by the effect of switching to new products that are based on the TNGA platform and through the power of our production worksites, including those of suppliers, which can respond to the launch of various new products and environmental changes, as well as produce high-quality products. We used to increase profit through foreign exchange rates and volume growth, but this has certainly changed over the past six years. Comparing 2015 and 2021, we have increased our market share for new car sales in 11 of the 15 major countries, including China, the United States, and Japan. The graph on the right shows by-model used car prices in the U.S. three years after purchase. Our RAV4 has received higher appraisals than vehicles by other manufacturers in the same segment, and it is evident that those appraisals have gotten even higher since we switched to the TNGA-based RAV4. Being able to command a high price in the used car market protects the value of customers’ owned assets, and we believe this is building trust in our brand. Our in-house company system, best in town activities in each region, TNGA, product line-up strategies, the creation of ever-better motorsports-bred cars, and the human resource development that supports these activities, as well as various in-house system reforms. As mentioned, although our performance in the fiscal year just ended represents our situation for a single fiscal year, it is the result of efforts that have been ongoing for a long time, and we would once again like to thank everyone involved for their support. Many customers are currently waiting for a long time for delivery of their vehicles. We would like to take this opportunity to apologize again. This concludes my explanation. Thank you. Operator: We would like to open the floor for discussion Q&A. So Mr. Hukoi, please. Hukoi Owed Automotive Daily Journal. Unidentified Analyst: Can you hear me? Kenta Kon: Mr. Hukoi your voice is quite low. Could you once again repeat it yourself. Unidentified Analyst: Can you hear me? Kenta Kon: Yes. We can. Yes, thank you. Unidentified Analyst: First of all with respect to the assessment of the financial results of the fiscal year just ended the sales revenue is JPY 31 trillion and the operating income is around JPY 3 trillion, both record high levels. And with respect to those good financial results, how do you assess that, what is your view of that? The second question is as follows, due to the soaring raw materials prices, and cost improvement efforts, according to the information published in the period fiscal year ended the – end October, soaring raw materials prices were JPY 640 billion – JPY 1.55 trillion. Mr. Kon has been talking about JPY 300 billion to improve operating income to cost improvement efforts. But I think the soaring raw materials price is so high that cannot be covered by the product reduction. Is there any further room for cost reduction? And including overseas manufacturers are increasing their prices, what is your approach to passing on how your raw materials cost to the final person? Unidentified Company Representative: Thank you Mr. Hukoi. With respect to the good results, so financial results of the fiscal year ending in March '22, that will be explained by Mr. Kon, EVP, assessment of that and for the fiscal year just entered as the raw materials prices soared, what are we going to do with the cost improvement efforts, Mr. Yamamoto will respond to that. And with respect to pricing, Nagata will respond to that aspect of question. So first, may I ask Mr. Kon to respond to the first aspect. Kenta Kon: Thank you, Mr. Hukoi for your question. With respect to our assessment of the fiscal year just ended. Earlier, I made additional comments in the presentation. And as reflected there, the fiscal year just ended in March 2022, in terms of the financial results for the full year. But up until that particular moment, over 13 years altogether, we made accumulated efforts, which brought down the break-even units. And that reduced the break-even unit. And that is the major driver of this financial results. So this is the financial results achieved in a single year. So it is just one year. Over mid years that we continue to make efforts. So it depends on the economic conditions that prevail in any fiscal year reflected in those numbers. But on the foundational basis of that is the - not just the initiatives and activities pursued in that particular fiscal year, back the accumulated efforts for improving profit structure pursued over many years. So in that sense, the fact that we've been able to make this financial results could indicate that good results of our efforts to improve our operating structure is reflected and manifesting in that. As I said, the financial results reflect the efforts of single year, but in terms of the production Gamba every day, they are engaged in production activities, which produce a certain number of units, sometimes the line is a start and other times efficiency might suffer. So in that sense, the books are closed every single day. So every effort is made to achieve a better result, tomorrow than yes today. And maybe even better results after that. And those efforts pursued over 13 years or so is reflected in the financial results. We have suffered from the impact of raw materials or Omicron variant of COVID. But I think the most important factor and characteristics of this financial results will be continued and accumulated efforts over in the years for improving operating structure. That's my assessment of the financial results. Thank you. With respect to cost reduction efforts. If you could refer to slide 16 maybe. Thank you. JPY 2.4 trillion aiming at cap the shows the water for – it shows negative JPY 1.45 billion, that is the soaring materials and JPY 300 billion achieved through the cost reduction efforts and also from that subtraction the JPY 1.45 trillion of soaring raw materials please. And therefore, to continue making efforts to achieve around JPY 300 billion in cost improvement efforts, manifestation is something very difficult but what we have been continuing to do, we will continue to be pursued going forward. And when the raw materials prices are very high and soared, what sort of materials should we be using is a new aspect that we will consider. So, that might represent a certain perspective from which the cost improvement effort can be continued. So, everyday probably we can find those new seeds for improvement. Lastly, with respect to the efforts to pass on higher costs to prices and let me respond to that. Overall within Toyota one of the characteristics of Toyota is to have the operational and core line-up, both the passenger cars and commercial vehicles under the overall side level. So, we are operating globally with the core line-up of our products and therefore, in each region we have many different customers in different segments and we are trying to satisfy those differences in very fine tune manner everyday. So from that perspective the products are planned and pricing is made. So there are variety of customers, different types of customers and feedback because of the soaring raw material prices, sometimes there may be segments from whom we may be able to receive a higher consideration, but at the same time, there are other segments of customers who need and who use vehicles for – as means of transportation, as the work people. So from those customers, even if the raw materials prices are soared and increased, trying to increase the prices charged to those customers who repeat them, a very difficult thing to do and as Kon mentioned earlier, for products we focus on regional differences and different product lines. So in each region for each line-up of products where can we set a higher prices or where is it very difficult to change prices, those will be closely examined before a decision is made. And that is we took in mind even in the firm context. Masahiro Yamamoto will add, on of the characteristics of Toyota as an OEM, we have the Crown or the Corollas or high Ace in the sales. They are so called long selling brands and we have so many of those long selling vehicles. That's one of the characteristics of Toyota as an OEM. And those brands are really enjoying patronage of many customers from the many segments. And therefore customers with respect to product strength s and pricing, they have a certain level of the market level they keep in mind. So we need to satisfy those expectations, meet those customers expectations. And therefore, even if inflation has set in to increase price we'll simply cannot satisfy those customer needs and expectations including that aspect and as Masahiko Maeda mentioned, we will continue to improve cost not on a single year basis, but also over many years so that we can meet customers expectations as much as possible. That's our approach. Thank you. Operator: Thank you very much to Mr. Hukoi. Now, let us move on to the next question from Asahi Kondo, please. We will switch the screen so when you see yourself on the screen please start your question. Mr. Kondo, please. Kohei Kondo: From Asahi Newspaper. My name is Kondo. This question is related to the first question. The year in – in March 2022 the impact of raw material cost is much higher than the previous year. So what is your perspective on the market conditions? And in the short term yen is weaker, so there may be impact to FOREX. So, can you tell us your view on that? And you do are reporting, if you look at the supply chain – with regards to supply chain assistant to support and distribution, what is your view, that is my first question. And the second question in relation to global production last year initially a JPY 9.3 million was the plan and after that you view that plan and ultimately you had about JPY 8.57 million. For this year JPY 9.7 million which is very high. There was this release semi conductors and yet JPY 9.7 million is the number you have, why do you have this number? And because product shortage from China some of your production site in Japan is going to suspend production, so, what is your perspective on the risk with related to the Chinese zero COVID policy? Thank you very much. Unidentified Company Representative: First, your first question was about the soaring raw material prices. And second how are we going to respond to our suppliers that will be explained by Kenta Kon, the EVP. And your second question JPY 9.7 million for this year production. What is the basis for this question? Because of the Chinese supply chain production is going to be suspended and we would like to have that included in our response. So Mr. Yamamoto, will respond to that second question. Thank you very much to Mr. Kondo. First of all the raw material price and the market conditions, JPY 1.45 trillion, as we mentioned, it is unprecedented. JPY 640 billion last year was the highest ever impact and this year, its more than twice that number. So the impact was very high. With our suppliers, with regards to raw material prices in principle Toyota will bear the burden, that is the basic rule. And based on that rule, globally, how much impact there will be, taking into consideration short term market and how much Toyota should bear the burden, that was calculated. In the short term, the weaker yen may have a major impact you mentioned, but JPY 1.45 trillion, if you look at the breakdown, about half of that comes from global affiliates, subsidiaries and affiliates. And the remainder comes from the Japanese business. In particular with the weaker yen, that we don't think had a major impact on the results. Suppliers JPY 1.5 trillion the impact of material prices impact both OEMs and suppliers. So, we have to work together to respond to the situation and we have to think together and implement the necessary measures together. As Mr. Yamamoto mentioned, the raw material prices have gone up. So, the amount of raw materials used to the extent possible and when possible, with reduced lower cost material, those are measures that have to be taken. Vehicle development and production in sales in term of our company and therefore we have to develop our products that offer higher value to the customers, so rather than just simply raising the prices. We have to make further efforts as a company in product development. In a single year JPY 1.45 trillion, that cannot be very observed in single year. So even if it may take time, we have to take solid steps and measures so that in several years time we will maintain or improve our competitiveness in the market. Cost reduction of JPY 300 billion per year, actually I think through efforts and activity, we have to make further efforts in these areas. So we have a sense of crisis. And we do realize that we have to continue these efforts. That's all from my side. The second point was about the production volume. Last year, against the plan, the production volume was lower and we repeated that several times and each, but still we wanted to produce each vehicle with all our efforts and passion. The people at the Gamba will all work very hard. And I would like to thank everybody for those efforts. This year's plan JPY 9.7 million. And I think that was the point of your question. In January JPY 11 million was the unofficial plan that we announced, and that was changed to JPY 9.7 million. Taking into consideration the situation last year what is important is safety and quality being predicted and to continue to reduce each vehicle, we have to go back to those basics. And with that thinking we came up with JPY 9.7 million, we don't know what will happen to this number in the future. But that's the approach for the next year. COVID-19s impact and how much semiconductors that can be procured this year have been taken into consideration. We asked the people on the Gamba, sudden reduction in production means they have no work, and there maybe switch to other work and there maybe replacement of people - people changes and they have made or gone through a lot of struggle. The plan – if the plan can be conveyed to the people earlier, for example by reducing check time, the people on the Gamba can continue to work and if they have some spare time they can work on closing activities. As Mr. Kon mentioned earlier, that with human resources development we'll have to continue and again the people have that mentality, continuing human resources development. So that will continue to be kept in mind, as we proceed with production activities. Thank you very much to Mr. Kondo. Operator: We would like to move on to the next question from Switch to the screen. So if you see yourself on the screen, please start your question. We are now trying to switch the screen. Unidentified Analyst: Newspaper? Can you hear me? Unidentified Company Representative: Yes, we can. Thank you very much. Unidentified Analyst: Thank you for this opportunity. I have two questions as well. Question number one relates to Hino Motor Corporation and because of the misconduct with respect to exhaust gas and that really lost and impaired the trust and confidence of consumers and also that really required improvement of a corporate culture and because of the stoppage of shipments, the financial well being of the company is in question. So there are huge and mounting challenge. As a parent company, how TMC assesses and considers this HINOs problem and going forward, because of so many challenges facing HINO, the human resources, boost and financial resources, what sort of assistance and support does Toyota intend to provide to HINO? Second question, you talked about the product driven management, and you also talked about the efforts for continuous improvement. I would like to ask about your future approach – approach going forward. As for the world has been focused on internal combustion engines, but it is quite true that the increasingly vehicles will be battery EVs, in the case of battery EVs is probably - battery costs will be about one half of the overall cost, but in the age of electrification that will result in different cost structure. How do you intend to keep your cost competitiveness or competence of your products overall, these are my two. Unidentified Company Representative: Thank you, Mr. Shiraishi We received two questions, question number one related to Hino Motor, relating to the misconduct of that. And as a parent company, how does Toyota respond to them? And Kon, Executive Vice President will respond to that question. Second question related to the product driven management. Mr. Kon talked about in earlier presentation, in relation to that in the electrification, including the cost of battery EV will be the cost improvement efforts and also how you will address that. And Maeda, EVP will respond to the second question. So Mr. Kon, please. Unidentified Company Representative: Thank you, Mr. Shiraishi for your question. With respect to the first question, that relates to the Hino Motors. Hino is an consolidated subsidiary of TMC. And Hino Motor was engaged in the misconduct relating to the exhaust gas and also fuel consumption efficiency, the customers, dealers, the suppliers, and also the regulatory authorities will all supported Hino not to date. We see tremendous inconvenience because of this. And the confidence, the trust they placed on Hino was completely ignored. And as a parent company, I feel really sorry for that, it is very regrettable to what Hino did. Hino is a consolidated company engaged in the production and manufacturing of a commercial vehicles. And in terms of the supervisory and oversight responsibility for Hino as a parent company, we intend to support Hino and efforts to restore the confidence of those stakeholders. And as a parent company, we intend to work with Hino to restore such confidence, that I think is the role to be played by a parent company. Current, the special investigation committee composed of outside experts are now investigating the root cause of this problem, and will pay attention to the outcome of that special committee and bearing that in mind, in terms of the governance of Hino Motors but not limited to that, the reform of the corporate culture, the promotion of business, including those aspects of Hino Motor, and placing the greatest priority on the efforts to restore confidence and trust of stakeholders and customers. So we really can't - caused this inconvenience for which we sincerely sorry for that. That's my response to the first question. Thank you, Mr. Shiraishi. So with respect to the second question allow me to respond to that as aspect. In the age of electrification, how Toyota is going to keep its competitiveness? That’s your question. The competitiveness, what does that mean actually, as far as we are concerned, the fact that our customers choose our product is the indication of our customers, we think that it is the customer who has the final say on the product message and whether we can be - our product can be chosen by the customer is the key. And I think there are various different reasons that factors based upon which the choice and decision is made by customers. As Nagata mentioned, some customers will focus on the affordable product quality. But in other segments, customers might refer to value added aspect, which enhance their lifestyle or they enjoy and in certain areas where the usage is that made in the adverse natural environment, the durability, maybe the very important factor for the choice of vehicles. So as Kon mentioned on - his own presentation, we will continue with those activities as a part of our efforts to improve operating structure. We have in-house company system through that we focused on what other businesses we are doing on the global stage, what sort of product line-up we have and paying attention to those different in-house companies, focus on their own line-up and made efforts to respond to the customers of those different pointers. In the past, we tend to focus on volume or margin, but rather, some of those insurance companies compete against other in-house companies. So that ultimate difference will be made it to deliver different cars to customers, the best vehicles to customers. And if we can share with you slide number 31, this shows one of the characteristics of Toyota. In the different regions of Toyota where the regions in which Toyota is doing business. Toyota can be on the top. So it's not that our business is biased in any specific region. We talked about pool line-up operation globally. In many different regions the customers in different regions and throughout the world as a deep B2C company, we are allowed to do business. So amongst many different regions we do see – feel track of customers in different regions. And unless we operate through best in-house company, we want to able to capture those feedbacks. In the past we tend to focus on certain areas or services, but through those best in-house companies, every effort is made to receive feedback from customers, in-house companies is one effort of that and also focusing on being the best in town is that. So offer value, customers even after the delivery of product and receive feedback from customers and this report led the result of efforts Toyota made over the years to improve operating structure. And by doing so, you can develop human resources, so this efforts improve operating structure, also include as one aspect, the human resource development as well and that results in enhanced competitiveness. And those efforts should be continued on a sustainable manner. For the customers to choose Toyota on a stable manner, we need to continue with those efforts. There is no end our efforts for operating structure improvement, continuous pursuit will lead to, we continue with the customers, choosing customers, at Toyota Motor customers. And added to that would be the strength of software that will represent one new element, so together with Woven Planet, we intend to increase our strength in the software aspect. Vehicles tend to be focused on hardware, but including software driven - we intend to be get diversify the needs and desire of customers and customers and sending by the customers with different meanings. We intend to enhance our competitiveness because that leads to better product and proven of our attractiveness and I think the only way is to simply make those efforts and don’t get mannered. Thank you very much. Thank you Mr. Shiraishi. Operator: Now let us move on to the next question from We will switch the screen, so when you see yourself on the screen please start your question. Unidentified Company Representative: Mr. Yamamoto, thank for waiting. Unidentified Analyst: Can you hear me? Unidentified Company Representative: Can you repeat yourself? Do you hear me? Unidentified Analyst: My name is Yamamoto from the Yomiuri Shimbun Newspaper The first question, the forecast for this year in the United States, in Europe, the inflation in China has the zero COVID-19 And there is a concern of recession. This year overseas sales expected to be JPY 1.5 million. So, in this environment of recession, how do you see the market developing? Domestic production JPY 3 million that was in the forecast again. For TMC JPY 3 million in Japan. What does it means to Toyota? Unidentified Company Representative: Thank you very much to Mr. Yamamoto. The first question I want to clarify in March 2020 your question about the – was about the overall market forecast, yes. Then I will answer that question. And the second question was about TMC JPY 3 million production in Japan. What is - what does that mean for Toyota? I think that was your second question, and that would be answered by Mr. Yamamoto from Accounting Group. Your first question was about the overall market conditions. This fiscal year its going to be even more difficult than other years to make a forecast. As Mr. Yamamoto mentioned, overall globally, if there is any positive factor China still has many restrictions with zero COVID-19 policy, but overall, recovery from COVID-19 is going to be a big positive factor. And if you look at the negative factors, as we mentioned in the financial results announcement, the raw material prices are soaring, and inflation in various areas will have an impact on the daily lives of people. So there's inflation and then there is the Ukrainian factor and that is causing a lot of concerns in our areas. And next supply constraints of semiconductors in other parts will be a major limitation in the automobile industry. So these factors will be compounded this year. By region forecast, it's also very difficult. But let me give you a rough outline of what we are thinking now. China and the United States roughly speaking in the year ending March 2022 compared to the year ending March 2022, we will see a slight improvement and Japan and Asia we have the positive and negative factors that I mentioned before. And if you add them together, it will be about plus minus zero. So, the market will be about the same as fiscal 2021 and the most difficult region to forecast I think is Europe, energy, materials, the wars in Ukraine issue will have a major impact and that will have an impact on the economy in general. So, we think the risk will outweigh opportunities. So, the European market I think it will be below fiscal 2021. And those are the rough outlooks and forecasts for the major market. That is for now, but the situation in COVID-19 and the Ukrainian situation will change rapidly day to day. So if the assumption in the general market changes that means a change in the standard, so you will have to make changes to our business so that we can see improvements. In cost profit structure and delivery to our customers and towards that end we will continue to make efforts on a day to day basis, that is all from my side. JPY 3 million units production in Japan that was the second question I believe and this is Yamamoto speaking. This is something I heard from another person. After the Great East Japan Earthquake, in Tohoku we set up the factory and we set up a foundation for industry, including employment. And as a result, to the Japanese auto industry which has to purchase materials from outside of Japan and has to earn foreign currency from outside of Japan, we have been able to make a contribution. Japan, we are a global company, but Japan is our home country. And we think people are supporting us in our efforts that we are doing in this country and that's what the JPY 3 million units means to TMC. Operator: Thank you. Mr. Yamamoto, let's move on to the next question from I will switch the screen. So if you see yourself on the screen, please start speaking. We are now switching the screen. Can you hear me? Yes. Unidentified Analyst: I also have two questions. Question number, that relates to Ukraine and Russia situation. In relation to that your business in Russia, how are you going to do with your Russian business? Currently, you suspended your operation because of the confusion of logistics, but Russian business, the outlook remains very uncertain, very difficult to read what's going to happen in the future? What's the current status? And what are you going to do with your business in Russia? The second question, as was mentioned in the first question, with respect to the having the higher cost prices, in this meeting it was mentioned that there has been unprecedented raw materials cost increase, exceeding JPY 1 trillion. And earlier, depending upon customers, you may be able to receive a higher amount of consideration for the product you offer to the customers. Am I right in understanding that, that includes Japanese market as well? How can you pass the higher cost to your prices in the Japanese market? I think it's very difficult decision for me. So here in the Japanese market, where a deflationary trend still continues, how are you going to absorb the impact of the higher raw materials prices in the Japanese market? Unidentified Company Representative: Thank you, Mr. Terino. The first question related to the current situation in Ukraine and what Toyota is going to do with Toyota's business in Russia? And I will respond to that question, Yamamoto speaking. And with respect to prices, I answered the earlier question the same line in a very difficult deflationary trend, what we are going to do with the pricing level was the question. So let me just respond to both of this question. With respect to Toyota's business in Russia, since on February 24 and I'm sure you still remember that vividly in terms of the visual impact on that, the Russia made an invasion into Ukraine, and starting from that many precious lives have been lost due to that. And in return to that certain livelihoods are being threatened and especially in Europe. And of course, Japan was no exemption, but energy and food are becoming scarce. So that’s the reality that we are confronted with. And many people throughout the world together with them we are indeed heartbroken and seriously hurted. We at Toyota believe that happiness is never born from aggression and the war caused by aggression. We sincerely hope that peace and security be restored to Ukraine at the world as soon as possible, that’s an urgent desire. And furthermore, Toyota has customers who own approximately 100 million vehicles worldwide. And in relation to that there are many stakeholders who support Toyota throughout the world, Hendrix. stakeholders. And with respect to our business in Russia, we will try to keep our approach of gaining the understanding and empathy of our many stakeholders and people including in Russia as well. And what we will be able to do is something that we will consider to – we will continue to consider and wrap our brains too. So that’s all with respect to Russia. With respect to the price here in Japan, which might reflect a higher costs depending upon the conditions of a region or depending upon the people who use vehicles as an essential means for business. In some cases, it may be easier to pass on cost and others not so. As Mr. Tara Nanos here in Japan, the business confidence is very low. The business sentiment remains very stagnant and also disposable income of people, it's very difficult. And so to increase or investment on context are we going to raise price or not, as mentioned earlier within Japan and the Japanese context, in the case of vehicles, especially mini vehicles or compact vehicles. For used vehicles for as an essential means of your business to raise prices charged to those people, I think it's very difficult to do. But having said that, depending upon vehicles, different forms, there are certain vehicles on which we can charge higher prices. So in that sense, by looking at each model one by one, we are now studying in a very detailed and fine tuned manner, what would be the best approach that we can take. I hope you understand of what we have imagined that. So how Japanese customers live in vehicles. In this current environment, we are making efforts so that our customers will be satisfied and be happy being able to buy our cars in this very difficult environment? And that's how I understand. Thank you Mr. Terino. Operator: Now let us move on to the next question. From Wall Street Journal, Mr. Sean, please. We will switch the screen, so when you yourself on the screen, please start your question. Sean McLain: Sean McLain from the Wall Street Journal. Can you hear me? Okay. Unidentified Company Representative: Hi. We hear you. Sean McLain: So I have a question about rising prices as well. And I'd like to ask, particularly about the US market, because I think it's a big source of your profits, so we're around record highs and transaction values in the US around $46,000. And what I'm wondering, is Toyota at all concerned about affordability of its products, particularly in the US, where maybe the average person can no longer afford a new car? And what Toyota is thinking about, if anything doing about that? And the second question is about hybrid sales. I noticed your electrified vehicle sales have started to increase. And while I understand that, that might partly be influenced by the sort of model mix you have in the country given production shortages. Where do you see hybrid sales going in the next year or two? Do you think there's a lot of room to grow hybrids around the world but particularly in the US? Unidentified Company Representative: Thank you very much, Mr. Sean. So first question was about the prices in the US market for Toyota customers, are we concerned about being too high for Toyota customers that will be answered by Mr. Kon, EVP. The second question was that over the one or two years do we see hybrid vehicle sales to grow globally? And if it is to grow in which areas will grow and that will be answered by EVP Mr. Yamamoto. Starting with Mr. Kon, please. I will answer your first question. About prices in North America. As Mr. Sean mentioned, it's not just for Toyota but for North America overall prices are going up. As a manufacturer, what you can do is to provide various options to customers, that is what we believe. As we mentioned before, on a global basis, we have a wide line-up, product line-up. In the United States, we have SUVs, SUVs pickup truck are the main lines of products, but we also Sedan, Hatchback. The compact cars are also part of our line-up. These are important products that we are offering to our customers. And we will continue to provide a wide variety of product line-up to our customers. And in addition to that, rather than just selling new vehicles to the customers, we also offer leasing options, like full service leaks. In Japan we have KINTO and also recently globally, we also have KINTO. So how to supply vehicles is also something we are having a wide variety or a wide broad line-up on. And when we listen to what the dealers are saying, in the past incentives or price negotiations took place frequently, but recently, and partly because inventory is low, which vehicle is in which pipeline and which vehicle comes with which options and what advantages those vehicles provide to the customer. These kinds of conversations take place at Tiro. So focusing on the product. And I think this is very good. And for the customer, more options for models, more options on how to purchase vehicles. We will provide these various options and have the customer choose. So that is all for the first one. And let me answer the second question. So in the future, including the United States in one or two years, will hybrid sales go up? I think that was the question. If you look back in the United States when fuel prices go up, hybrid vehicle sales are tended to go up in the past. So taking that history into consideration currently we are seeing soar in crude oil prices. And not only in the United States, but globally. At least I think we can expect an increase trend of hybrid vehicle sales globally. There is another factor behind hybrid vehicles sales going up in the United States. The latest product RAV4. In the past, hybrid vehicles tended to focus on fuel economy. But the US customers not only focus on fuel economy, but also they focus on driving comfort, including good acceleration. So the new RAV4 has strengthened that characteristics. And the RAV4 hybrid that is currently on the market and the plug in hybrids are also very favourably accepted by our customers, very positive feedback from the market. So we - alongside the best in town activities, we will listen to the customer's voice in the United States to strengthen our product. We do think the market will grow and taking into consideration the environmental issue, I think we should grow sales of hybrid vehicle. That is all. Thank you very much to Mr. Sean. Operator: Scheduled concluding the time is approaching and therefore I would I can ask a final question. I'll switch the screen, so if you see yourself on the screen, please start speaking. Unidentified Analyst: Thank you very much. I have two questions as well, if I may. My first question is somewhat redundant from the previous question. But your view of the BEV, in one of the pages you talked about the outlook of sales, you talked about the increase of 593%, close to 600% increase in the BEV sales. And in the past when you had discussion with the battery electric vehicles, many customers buy BEV's as a second car, not the first primary car. But in terms of the recent situation, and also considering the prevailing situation including those, what is your view of the demand for BEV? That's the first question. Secondly, in the earlier response to the question with respect to the change in the earnings structure after the global financial crisis, and in a sense, you described, what has been done thus far, which resulted in the current situation in terms of operating structure. So in the general context, for the current fiscal year, starting from the 1 of April, you re-established - introduced Executive Vice President, you have been trying to reduce the number of directors or executives and try to accelerate the decision making speed. That's what we've been talking about. So, what is the objective of restoring the position of Executive Vice President is a view and how the Toyota's management is going to evolve and transform going forward, especially starting with the fiscal year. Those are my questions. Thank you. The first question relates to the market of battery EV, what sort of change is foreseen. And Maeda, EVP will respond to the question. The second question related to the new executive line-up, which restore the position of Executive Vice President. And so what is your objective? With that in the current fiscal year and what sort of change or transformation you mentioned that Toyota considered, it was the second question, Kon will respond to that. Thank you, Mr. Kiara for your question. In terms of the market trend of battery EV, that was your question according to my understanding. What feel I most and most important is that vis-à-vis the battery electric vehicles, the development in relation to that has been accelerating in the market. And that relates to the fact that there is a broader product line-up on various OEMs and also there are greater number of option available for battery EV, that’s one aspect. And also in the United States, there has been tightening trends or regulations that cannot be disregarded. Globally speaking, in fact a very tough and rigorous regulation established was done for the first time in the United States leading in that trend, and not just Toyota, but for other OEMs in the automotive industry, that is one factor accelerating various efforts by OEMs. This is whole being policy against regulations. So as those regulations and also the market trend has been strengthen more than we had expected in the past. As far as Toyota is concerned, I talked about RC and BC, we are yet to start receiving orders. But looking at the input in the market and general discussion in the market and those there seems to be a heightened expectations for those models. And therefore, looking at the input or reaction of a customer in the market and also different reactions of different regions of the globe or worldwide and those regulatory trends and therefore the battery electric vehicles will get accelerated. I think there are greater factors that lead us I think in that way. But at the same time, there are certain factors as well, as was mentioned in the presentation soaring market, material prices tend to become more manifest and more seriously in the case of the BEV. As was mentioned in the presentation, the higher cost of the materials of battery does have a huge impact in overall cost structure. We talked about the possibility of a reflecting costs and prices, but we have to take a good balance and also in different regions different sorts of subsidies may be considered for those vehicles, and therefore currently they tend to be more generous than those environmental vehicles. But customers are very sensitive to those. So we tend to take a very conservative approach in responding to that. So that's my response to your first question. Thank you. Thank you. With respect to your second question, in terms of the current executive line-up, the focus of your question, since the global financial crisis, the line-up of executive officers, and the system of senior advisors to the board, which was eliminated and also with respect to the members of the board, we had more than 100 in the past, but currently, internally, only six, including outside board members, including them, nine. So the board has been down side substantially. And that's the only change for the purpose of sharing information using IT tools, used for meetings and CEO's scattered throughout the world, and Toyota, located in Japan, including them, we have weekly meetings so that information can be shared thoroughly and quite swiftly. So 13 years ago, this is something unthinkable and imaginable. And this sort of change has been actually implemented and achieved. Starting in April of this year, you talked about the position of Executive Vice Presidents restored, and I think there is significance impacts. Looking at myself and I personally consider is that, as Toyota as President says, we live in a world where there is no right answer in front of us. And in that world full of uncertainty, how can we manage and steer for the going forward. As far as TMC is concerned, if we can discover a problem, TMC does have an ability to find solutions to those problems, which was demonstrated in the past. I think Toyota is a company that has ability to find solutions to various challenges or problems that we will be faced with diversifying society, characterized by a variety of a problem. Nobody knows what's going to happen going forward. So in that general context, ability to find and discover problems becomes very important. In the past, Toyoda, as the President was the only person trying to find and discover problems, in many cases with three Executive Vice Presidents working together with the President and trying to discover the problems in the world in which there is no right answer, tried to take measures because there is no right answer, no, we may not be able to find the right solution right away. But by discovering those problems, we will just implement the various potential countermeasures, and that I think is what we are aiming at. So with that aim in mind we will pursue going forward, and I hope you will continue to support us as we make those efforts going forward. That's all from me. Thank you very much. Mr. Kohei. Operator: Now with this, we’ve cleared the financial results. Thank you very much for listening despite your busy schedules today. Thank you.
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Toyota Motor Corporation's Earnings Report Analysis

  • Missed EPS expectations: Toyota reported an EPS of $0.49, falling short of the anticipated $2.91.
  • Exceeded revenue forecasts: The company posted revenue of approximately $72.99 billion, surpassing the expected $62.07 billion.
  • Challenges and opportunities in the EV market: Despite lagging in the pure electric vehicle segment, Toyota's launch of the all-hybrid Camry highlights its commitment to vehicle electrification.

On Wednesday, May 15, 2024, Toyota Motor Corporation (NYSE:TM) disclosed its earnings before the market opened, revealing an earnings per share (EPS) of $0.49, which did not meet the anticipated $2.91. Despite this shortfall in EPS, the company managed to post revenue of approximately $72.99 billion, exceeding the expected $62.07 billion. This financial performance indicates a complex landscape for Toyota, as it navigates through challenges and opportunities in the automotive industry.

Toyota, a global leader in the automotive sector, is currently facing hurdles in the electric vehicle (EV) market. Michael Dunne, founder and CEO of Dunne Insights, pointed out in an interview with CNBC International TV that Toyota is "behind the game" in developing and marketing pure electric vehicles. This situation is particularly pressing as the competition intensifies, especially from Chinese manufacturers. This challenge is juxtaposed with Toyota's significant achievement in launching the ninth-generation Camry, which will be exclusively available as a hybrid model. This move underscores Toyota's commitment to electrification, despite the perceived lag in the pure EV segment.

The launch of the all-hybrid Camry at Toyota's Kentucky plant is a strategic step towards addressing the growing demand for electrified vehicles. Kerry Creech, the president of Toyota Kentucky, emphasized the importance of the facility's team members in reaching this milestone. Toyota's investment in the Kentucky plant over nearly four decades highlights its dedication to not only advancing vehicle electrification but also ensuring job stability in the U.S. This initiative reflects Toyota's broader environmental goals and its strategy to diversify its range of electrified vehicles.

Despite the challenges in the EV market, Toyota has seen a significant increase in profits, particularly from its hybrid vehicles. This surge in earnings demonstrates the company's ability to capitalize on the current demand for hybrid technology. However, Toyota has cautioned about a potential decline in profits due to issues related to its Asia-focused car brand, Daihatsu. This forecast suggests that while Toyota is making strides in certain areas, it must navigate through impending challenges to maintain its financial health and market position.

In summary, Toyota's recent financial performance and strategic initiatives reveal a company at a crossroads. While it faces challenges in the rapidly evolving EV market, its successful launch of the all-hybrid Camry and the financial gains from its hybrid vehicle sales highlight its strengths. Toyota's ongoing efforts to innovate and adapt to market demands, coupled with its commitment to sustainability and job stability, are crucial as it seeks to overcome obstacles and capitalize on new opportunities in the automotive industry.

Toyota Motor Corporation Quarterly Earnings Preview

  • Earnings Expectations: Wall Street anticipates an EPS of 2.91 and revenue of $62.07 billion.
  • Strategic Shifts: Toyota's focus on electric vehicles (EVs) and artificial intelligence (AI) positions it as a strong competitor in the automotive industry.
  • Financial Metrics: Toyota's financials suggest it might be undervalued, with a P/E ratio of 9.22 and a P/S ratio of 0.93.

On Wednesday, May 15, 2024, Toyota Motor Corporation (NYSE:TM) is set to announce its quarterly earnings before the market opens, with Wall Street expecting an earnings per share (EPS) of 2.91 and revenue forecasted at around $62.07 billion. Toyota, a leading global automotive manufacturer, has been in the spotlight for its significant financial performance and strategic shifts towards electric vehicles (EVs) and artificial intelligence (AI). The company's focus on innovation and sustainability positions it as a strong competitor in the rapidly evolving automotive industry, particularly against EV market leaders like Tesla.

In its fiscal fourth quarter, Toyota reported a nearly doubled profit, driven by increased sales and higher margins, highlighting the rising demand for hybrid vehicles. This performance underscores Toyota's strength in the hybrid market, a segment that continues to attract consumers worldwide. However, the company has also signaled a cautious outlook for the coming year, expecting a decline in profits due to the repercussions of a scandal involving its Asia-focused car brand, Daihatsu. Despite these challenges, Toyota's commitment to expanding its EV and AI capabilities demonstrates its proactive approach to capturing growth in the burgeoning EV market.

Toyota's financial metrics reveal a company that is potentially undervalued, with a price-to-earnings (P/E) ratio of approximately 9.22 and a price-to-sales (P/S) ratio of about 0.93. These figures suggest that Toyota's stock might be reasonably priced in relation to its earnings and sales, respectively. Additionally, the enterprise value to sales (EV/Sales) ratio of roughly 1.53 and the enterprise value to operating cash flow (EV/OCF) ratio of approximately 16.42 provide insights into the company's valuation in comparison to its sales revenue and operating cash flow. With an earnings yield of around 10.84%, Toyota offers an attractive return on investment based on its current earnings.

The company's financial health is further evidenced by its debt-to-equity (D/E) ratio of about 1.07, indicating a balanced financing strategy that leverages both debt and equity. The current ratio of approximately 1.19 shows Toyota's capability to meet its short-term liabilities with its short-term assets, highlighting its financial stability. As Toyota navigates the challenges ahead, including its strategic investments in human capital and its multi-pathway strategy for powertrain technologies, its financial performance and strategic direction will be closely watched by investors and industry observers alike.

Top Battery Stocks to Watch in 2024 Amid EV Sector Challenges

Top Battery Stocks to Watch Amid EV Sector Challenges

In May 2024, amidst a challenging backdrop for battery stocks due to a slowdown in demand for electric vehicles (EVs) and a sell-off in battery stocks over the past year, InvestorPlace highlights three top battery stocks poised for potential growth. Despite the recent downturn, the long-term outlook for the battery sector remains positive, driven by the ongoing trend towards electrification and a resurgence in the lithium market, with prices of the shiny metal seeing double-digit gains this year.

Lithium Americas (NYSE:LAC) emerges as a standout opportunity in the lithium mining space, despite a roughly 30% decline in its stock year-to-date (YTD). The company is advancing its Thacker Pass Project in Northern Nevada, aiming for full production and expecting to recover $3.9 billion worth of lithium. With a $2.26 billion financing commitment from the U.S. Department of Energy and a $650 million investment from General Motors (NYSE:GM), Lithium Americas is well-positioned for growth.

Solid Power (NASDAQ:SLDP) is highlighted as a promising player in the solid-state battery market, a technology that could revolutionize the EV sector with its superior charging speeds, safety, and energy density. Backed by automotive giants BMW (OTCMKTS:BMWYY) and Ford (NYSE:F), Solid Power has made significant progress, with its stock gaining 30% in the past six months.

Toyota (NYSE:TM) is recognized for its strategic approach to EVs and solid-state battery technology. The automotive giant's stock has surged nearly 27%, outperforming the S&P 500's 7.5% return. Toyota plans to invest $13.6 billion in solid-state batteries, targeting a 2027 release with features like 10-minute fast charging and ranges up to 750 miles. This investment aims to enhance vehicle range and efficiency while reducing costs by 50% by the late 2020s, positioning Toyota as a key player in the future of electrification.

These companies represent strategic investments in the evolving battery and EV markets, offering potential for significant returns as the sector navigates its current challenges and capitalizes on long-term growth trends.

Toyota Motor Corporation's Resilience in Market Fluctuations

Toyota Motor Corporation's Market Performance Amid Economic Fluctuations

Toyota Motor Corporation (TM:NYSE) recently saw its stock price fall by 1.63%, closing at $242.97. This drop was slightly more pronounced than the overall market downturn, with the S&P 500, Dow, and Nasdaq experiencing losses of 1.46%, 1.24%, and 1.63%, respectively. Despite this short-term setback, Toyota's shares have seen a notable increase of 6.94% over the past month, significantly outpacing the Auto-Tires-Trucks sector's modest gain of 0.46% and the S&P 500's 1.6% rise. This performance indicates a strong position within the market, especially when considering the broader economic context.

Looking ahead, investors are closely monitoring Toyota's financial health, particularly with its upcoming earnings release. The company is anticipated to report an earnings per share (EPS) of $2.91, which would mark a 5.21% decrease from the same quarter last year. Additionally, revenue is expected to hit $67.21 billion, reflecting an 8.28% drop from the previous year's quarter. These projections suggest a challenging period for Toyota, yet the company's stock remains a strong buy according to analysts, with a Zacks Rank of #1 (Strong Buy). This optimism is likely rooted in Toyota's consistent performance and its ability to navigate market fluctuations.

From a valuation standpoint, Toyota's Forward Price-to-Earnings (P/E) ratio of 10.66 positions it at a premium compared to the industry average of 6.22. This higher valuation could be attributed to the company's robust fundamentals and growth prospects, as evidenced by its Price/Earnings to Growth (PEG) ratio of 0.37, which is in line with the industry average. These metrics suggest that investors are willing to pay a higher price for Toyota's shares, expecting future earnings growth.

The broader Automotive - Foreign industry, where Toyota is a key player, enjoys a favorable position with a Zacks Industry Rank of 74, placing it in the top 30% of all industries. This ranking reflects the industry's strong performance and the positive outlook analysts have on it. Toyota's financial ratios further underscore its market position. With a P/E ratio of approximately 10.96 and a Price-to-Sales (P/S) ratio of about 1.17, Toyota appears to be undervalued relative to its earnings and reasonably valued based on its sales. The company's enterprise value to sales (EV/Sales) ratio of roughly 1.77 and its enterprise value to operating cash flow (EV/OCF) ratio of approximately 19.79 highlight a moderate market valuation in relation to its sales revenue and operating cash flow, respectively.

Moreover, Toyota's earnings yield of around 9.13% presents an attractive investment opportunity from an earnings perspective. The company's debt-to-equity (D/E) ratio of about 1.04 indicates a balanced approach to leveraging debt and equity in financing its operations, while the current ratio of approximately 1.18 suggests a healthy liquidity position, capable of covering short-term obligations. These financial health indicators, combined with Toyota's market performance and analyst expectations, paint a picture of a company that, despite facing short-term challenges, is well-positioned for future growth and profitability.