Toyota Motor Corporation (NYSE:TM) Q4 2025 Earnings Call Transcript

Toyota Motor Corporation (NYSE:TM) Q4 2025 Earnings Call Transcript May 10, 2025

Unidentified Company Representative: Ladies and gentlemen, thank you very much for coming despite your busy schedule. Let us now start the Financial Results Meeting for the year ending March 2025. I will be the moderator for today. My name is [indiscernible] from the Public Relations Department. Now from EVP and Chief Financial Officer, Yoichi Miyazaki, will give you the outline of the financial results.

Yoichi Miyazaki: I’m Miyazaki, CFO. I would like to express our heartfelt appreciation to our customers around the world who chose us as well as shareholders, dealers and suppliers who support us. So first, I would like to tell you the summary. Our operating income for the fiscal year ended March 2025 was JPY4.8 trillion. This high level of operating income was secured through the effects of price revisions and expansion of value chain profits while advancing comprehensive investments that led to the future and reinforcing our operating foundation. The operating income forecast for the fiscal year ending March 2026 is JPY3.8 trillion. We plan to reap the benefits of our efforts to reinforce our operational foundation while continuing comprehensive investments from a mid-to long-term perspective as well as strengthening our management foundation and developing new pillars of future profits.

With regard to the impact of the U.S. tariff, only the estimated impact of April and May 2025 have tentatively been factored in. As for shareholder returns, the full-year dividend for the fiscal year ended March 2025 is JPY90, an increase of JPY15 compared to the previous fiscal year. The forecast full-year dividend for fiscal year ending March 2026 will be increased by JPY5 compared to the previous year, reaching JPY95. Even in the face of declining profits, we will continue our efforts to maintain a policy of stable dividend increase that reward our long-term shareholders. From here, let me explain the details of the results for the fiscal year ended March 2025. Consolidated vehicle sales for this fiscal year was 9,362,000 units, which was 99.1% of consolidated vehicle sales for previous fiscal year.

Toyota and Lexus vehicle sales was 10,274,000 units, which was 99.7% of such sales for the previous fiscal year due to the supply constraints caused by the certification issue and other factors. The proportion of electrified vehicle was 46.2%, a significant increase from previous fiscal year, mainly led by HEVs, which were increased by 850,000 units from previous year. Consolidated financial results were sales revenues of JPY48,360.7 billion; operating income, JPY4,795.5 billion, income before income tax of JPY6,414.5 billion and net income of JPY4,765 billion. I would like to explain the factors which impacted operating income year-on-year. From FY2024 results of JPY5,352.9 billion, we excluded JPY352.9 billion of onetime favorable effects, which was attributable to market conditions and other factors at JPY700 billion for the comprehensive investments resulting in the forecast of JPY4.300 trillion at the beginning of FY2025.

Although there was impact from volume decline and model mix deterioration due to the suspension of production at Toyota Motor manufacturing in Indiana in the U.S., the profit amounted to JPY4,795.5 billion due to the improvement of earning power through price revisions, controlling incentives and expansion of value chain profits. We believe that the major achievement was JPY510 billion output of cost reduction efforts and marketing efforts while steadily reaping the benefits of comprehensive investments and the reinforcement of our operational foundation for the future, such as restoring the production pace to the current cruising speed of 10 million units. So this slide shows operating income by geographical region. Japan continued to maintain a high level of profit despite an increase in expenses due to the strengthening of the supplier base.

Q&A Session

In North America, operating income decreased due to the factors such as the impact of lower production volume caused by the 4-month shutdown of Toyota Motor manufacturing in Indiana, U.S.A. due to the quality issues. Asia and other regions recorded higher profits due to price revisions and other factors. Operating income of consolidated subsidiaries and share of profit of investment accounted for using the equity method in China decreased mainly due to an increase in sales expenses. Operating income in the Financial Services business increased largely due to the increase in loan balances. Next, I will explain the forecast for the fiscal year ending March 31. Consolidated vehicle sales is expected to be 9.8 million units, which is 104.7% of the previous fiscal year.

Toyota and Lexus vehicle sales are expected to reach 10.4 million units or 101.2% of the previous fiscal year due to the recovery in production volume. Electrified vehicle sales is expected to be a total of 5.184 million units or 49.8% of total sales. Now let me explain the full-year consolidated financial forecast. We have adopted the full-year foreign exchange rate assumptions of JPY145 per U.S. dollar and JPY160 per euro. Based on this, our forecast for the full-year are sales revenue of JPY48.5 trillion, operating income of JPY3.8 trillion, income before income taxes of JPY4.41 trillion and net income of JPY3.1 trillion. Next are the factors which impacted operating income forecast year-on-year. A JPY400 billion increase due to the elimination of onetime expenses related to Hino Motors, a JPY745 billion decrease due to the impact of foreign exchange rates.

The impact of material prices is JPY350 billion. With regard to the impact of U.S. tariffs, only the estimated impact in April and May 2025, JPY180 billion has been tentatively factored in. Regarding comprehensive investment, we have added JPY470 billion. We will steadily strengthen our management foundation as necessary and develop new pillars of future profit to realize sustainable growth from a mid- to long-term perspective and transformation into a mobility company. Additionally, as in the previous year, we expect to reap some of the benefits of comprehensive investments and achieve an improvement of JPY349.5 billion through factors such as increased sales volume, cost reduction efforts and expansion of value chain profits. As a result, the current forecast is JPY3.800 trillion, but we will use this as a starting point for future improvements.

I will explain Toyota’s profit structure. In the past, as a result of pursuing a management style focused on quantitative targets, we faced an extremely severe situation during the 2009 Lehman Shock, where we fell into a deficit of JPY461 billion and we were left with only JPY1.5 trillion in cash on hand. Subsequently, we rebuilt the financial base mainly by improving our breakeven volume so that we can continue to survive under any circumstances. As a result, we have been able to consistently achieve an ROE of over 10% after further learning and making improvements during the COVID-19 pandemic. Additionally, we have significantly improved profitability, increasing the marginal profit per unit by approximately 1.6x. The first driving force behind this improvement was product and region centered management.

We have been developing ever better cars tailored to each region, expanded the Toyota and Lexus lineup and nurtured GR as a new brand. And this has allowed us to increase the average unit price, reduce incentives and carefully sell each ever better car. The second driving force was the implementation of Toyota strength TPS, Toyota Production System and cost reduction efforts. Since the COVID-19 pandemic, we have returned a cumulative JPY3.7 trillion on a non-consolidated basis to suppliers while working together with the stakeholders to further enhance our cost competitiveness. We believe that these efforts are reflected in the results of the fiscal year ended March 2025, as explained at the beginning of this meeting. Another newly emerging presence that is becoming a pillar of our financial foundation is the value chain.

The bar chart shows operating income by business. Compared to the fluctuating profits from new vehicles, value chain profits such as those from parts and finance has been steadily expanding at a pace of JPY150 billion annually over the past several years. The full-year forecast shows that it will expand to more than JPY2 trillion. We plan to further enhance the value of our 150 million units in operations, which is our strength through expanding maintenance services, strengthening our connection with finance and insurance by connected technologies as well as expanding the used car business and accessories business. In addition to this, we will also leverage software-defined vehicles and expand profit from new products and services created by working together with outside partners in woven cities.

And this long-term stable financial foundation is the base of our group vision, inventing our path forward together. As a result of these efforts, we intend to expand and stabilize earnings, especially in the asset business, which is less susceptible to market and economic conditions and achieve a business structure that allows us to reduce the amount of capital required to prepare for profit fluctuations. On top of that, we intend to increase the flexibility of our capital policy, focusing on returns to shareholders, including such things as further acceleration of stable dividend increases. An ROE of 20% was set as an indicator to measure the progress of this transformation of our business structure and capital structure towards a mobility company.

The next section explains shareholder returns. Our dividend policy is to increase dividends in a stable and continuous manner in order to reward our long-term shareholders. And despite a decrease in profit for the fiscal year ended March 2025, we have decided to pay a full-year dividend of JPY90, an increase of JPY15 from the previous fiscal year as announced. For the fiscal year ended March 2026, despite the difficulties in anticipating the business outlook due to the impact of U.S. tariff impacts and other factors, the full-year dividend forecast is JPY95 per share, an increase of JPY5 from the previous fiscal year. We have not set year-end share repurchase budget. However, depending on the stock price level and other factors and the need to respond to requests to sell our shares, we will continue to flexibly implement share repurchases in the future.

Lastly, Toyota alone cannot achieve structural reform of our business going forward. We will work together with our stakeholders with their support. This concludes my explanation of the financial results. Thank you very much.

Unidentified Company Representative: Now I’d like to introduce the CEO and President, Sato, to present.

Koji Sato: Hello, everyone. This is Sato speaking. In the last fiscal year, we were able to deliver many vehicles to customers by demonstrating our on-site capabilities, even as certification issues, recalls and disasters continue to impact production. I would like to express the company’s sincere gratitude to our Toyota, Lexus and GR customers as well as to our suppliers and dealers who worked hard to adapt to fluctuations. Facing various challenges over the past year, the entire company has reaffirmed the importance of Toyota’s starting point of carefully making and delivering quality cars. We will continue to build each car with careful attention to safety and quality to demonstrate gratitude to our customers and all our stakeholders through our actions.

Currently, the environment surrounding the automobile industry, including trade relations, is extremely flux. At a time when changes are rapid and the future is unclear, we believe that we must continue to pursue making good cars without wavering from our principles of product-centered management and striving to be the best in town. We will continue to establish development and production systems tailored to each region so that we can respond to the needs of our customers from up close and deliver cars on time. Also, in order to flexibly respond to environmental changes, we want to firmly maintain and enhance our earning power. In particular, reducing costs in mass vehicle production is an exercise not only increasing current earning power, but also in learning fundamental manufacturing principles and in continuing the evolution of technologies.

Toyota’s competitiveness spans from workplaces that pursue productivity and in which members think and act independently. To further strengthen this foundation, this year, we will continue to focus on advancing our initiatives for strengthening our operational base. We will do this by creating environments in which we can demonstrate our on-site capabilities for supporting the production of 10 million cars and our ability to continue taking on diverse challenges for the future. When we first began strengthening our foundations, we were very thorough about safety and quality and followed proper work practices. Our initiatives focused on regaining fundamental car making strength and extra capacity for taking on challenges, which I think were efforts to stop the bleeding, so to speak.

However, these efforts are now shifting to initiatives aimed at solutions for the future. Preventing recurrence of the certification issues is becoming an opportunity to accelerate workplace-related improvements, leading to initiatives to strengthen our company’s foundation, including its workplace culture. In the voluntary GPS issue came for certification work initiative established by Chairman Toyoda, improvement activities for addressing essential issues are making progress by identifying waste and bottlenecks throughout all processes from planning and development to production. Centered on the Toyota Production System, or TPS, we are rethinking in a future-oriented way how we work, aiming to shorten lead times. We intend to expand this action company-wide toward improving productivity.

Our plant members have tackled the medium-term to long-term challenges of a shrinking working population and young people turning away from manufacturing. While stepping up recruitment activities, we have improved workplace environments with efforts, including measures to combat heat, creating production lines on which our diverse team members can work comfortably and also by implementing our future production plant project, which looks 50 years into the future. When it comes to development, we are working to improve our car making productivity to continue to meet diverse needs. Our AREA 35 activities, which are meant to accurately grasp customer needs and optimize specifications and component types have improved development efficiency by the equivalent of three vehicle model redesigns on a trial basis in Japan.

Going forward, we intend to further improve our development and production efficiencies by expanding these activities globally. We are working on establishing a system that will use digital transformation advances for seamlessly linking vehicle specification information from development to sales, which is currently correlated by people. Working together with our suppliers and dealers, we intend to strengthen our operational base for the future and improve our earning power. We will leverage this foundation to steadily advance our efforts to change the future of cars. And we will aim to transform into a mobility company. At the root of this is a desire to contribute to people’s happiness through cars and to provide freedom of mobility to all.

There is no clear definition of a mobility company. What is important is that we continue to act toward materializing our vision. We have been sowing seeds for the future, including building Toyota Woven City, which is a test course for mobility that will begin Phase 1 occupancy and demonstration trials this fall. Also, based on our Toyota Mobility concept, we have been working to materialize our path toward becoming a mobility company. Our path includes contribution to achieving carbon neutrality and expanding the value of mobility. With these as our pillars, we have deepened industry transcending cooperation and made efforts to expand the value of cars by integrating with social systems to create a safe and secure mobility society. This fiscal year, we will focus on our key themes of enhancing the resolution or multi-pathway approach and establishing a foundation for Toyota unique software-defined vehicles.

In Toyota’s multi-pathway approach, our value desire is to contribute to the achievement of carbon neutrality while leaving no one behind. In contributing to CO2 reduction through various vehicle types, we will also leverage technologies we home for next-generation battery electric vehicles to further evolve powertrains overall. In addition, to make each kind of powertrain a genuine option, we will work with many partners to drive advances in fuel and infrastructure. For internal combustion engine vehicles, we are continuing to refine our elemental technologies and strive to achieve evolution of engines, hybrid systems and fuels. In terms of achieving carbon neutrality when considering the current units of vehicles in operation, it is important to promote the shift to more environmentally friendly mobility centered on hybrid vehicles, which can immediately reduce CO2 emissions and to accelerate the spread of carbon-neutral fuels.

To meet the expectations of our customers around the world, we will continue to provide practical options that contribute to carbon neutrality, including more affordable hybrid vehicles. In order to popularize battery EVs in addition to technological innovation in vehicles and batteries, I believe it is necessary to create a battery ecosystem from battery material procurement to collection and reuse. We will create a framework for industry transcending cooperation and work hard to create an environment for popularization. When it comes to hydrogen mobility, the key to popularization is reducing the price of hydrogen. By accelerating the social implementation of hydrogen mobility in commercial vehicles, including through external sales of hydrogen fuel power units, we intend to increase hydrogen usage, which will lead to cost reductions and infrastructure expansion.

We will continue our efforts throughout the entire value chain without wavering from our aspirations for the future of hydrogen. Meanwhile, software-defined vehicles will play a leading role in transformation from cars to mobility through software-defined vehicles, we intend to achieve safer, more secure and more enjoyable mobility. The key to this is to increase the expandability of cars by renewing our electronic platform and employing Toyota’s software platform, Arene. In addition, in doing so, chip performance will become more important than ever. Furthermore, for cars to connect with society, it is important to develop infrastructure such as in the form of seamless communications environments and data centers. Last year, together with Nippon Telegraph and Telephone Corporation, we started building that foundation.

Based on these foundations, software-defined vehicles will help expand various possibilities of added value. For example, we intend to materialize the diverse values that data and AI will create such as database vehicle development and service evolution, AI agents that grow together with customers and services that utilize onboard sensors. Through co-creation with our partners, we will continue to accelerate the development of a foundation for Toyota unique software-defined vehicles. I have now shared with you our key initiatives for this fiscal year. To transform into a mobility company, we need to envision creating mobility society and pursue non-sequential evolution or in other words, innovation. Together with many partners, we will work toward creating values for cars that are integrated with society and accelerate our efforts to change the future of cars.

We would greatly appreciate your support and understanding.

A – Unidentified Company Representative: Thank you very much. We will now move to the Q&A session. Please wait a while as we prepare for the Q&A session. Let us now start the Q&A session. For the responders to the Q&A session, please come up on to the stage. Now let me introduce the attendees. First, Koji Sato, Chief Executive Officer; Yoichi Miyazaki, Executive Vice President and Chief Financial Officer; Masahiro Yamamoto, Chief Officer, Accounting Group. Please take your seats. Let us now start the Q&A session. We have people in the venue and online, but we will first take questions from people in this room. If you have any questions, please raise your hand. We’ll bring a microphone to you because of time limitations, we’d like to limit the number of questions each to two per person. The person in the middle, in the front, in the corner.

Unidentified Analyst: [Indiscernible] Thank you very much for today. I have two questions. The year ending March 2025, about the results, production start because of certification, you are solidifying your foundation, but revenues increased and profits were reduced. So what is your interpretation of the results? I would like to pose this question to Mr. Sato.

Koji Sato: So should I answer – can you ask your second question first?

Unidentified Analyst: The second question about the additional tariff imposed on cars by the United States. You mentioned that the impact for April and May would be JPY180 billion for the tariff impact. What is the basis of this number? And if the tariff policy continues, how will this impact your results for March 2026. I believe there will be further impacts, but what is your understanding of the impact, Mr. Sato?

Koji Sato: Thank you very much for your questions. Let me start with your first question. About our interpretation of the results for the previous fiscal year, I have three points to raise here. First, appreciation to others. As you mentioned, a lot of things happened last year. And globally, many customers utilized our cars. And even when the delivery time is very long, they waited for our cars. And we are very grateful for – to those customers. That is the number one reason behind the results of the year ending March 2025. I would also like to thank the dealers and also the suppliers, which allowed us to deliver those cars. So appreciation to others is the first point that I would like to mention. There are two other points.

Looking at the results, how important it is to follow the basic principles. not being able to produce cars was very difficult for us. The people on the Gemba, the front lines did their utmost. And despite the fact that they were very busy, they worked very hard to recover and restart production. And those efforts led to the financial results of last year. That is the second point. And third, as Mr. Miyazaki mentioned in his presentation, the profit structure change has had an impact on the financial results. Of course, new vehicles have a very large impact on profit, but new vehicle impact fluctuates when volatility is high or how can we avoid high volatility is a question. The supply chain has become stronger. We’ve been working on this for several years, and the results are starting to be seen.

And once those effects start to be seen, the extra investment capacity and strategy would be impacted by this. So those are the three points that I would like to raise regarding the financial results for the year ending March 2025. Your second question was about the U.S. tariffs. Government-to-government negotiations are ongoing at the moment, and the government officials are working hard now. So details of tariffs are still moving. So at this moment, it’s very difficult to forecast the future. But at the moment, there is already tariffs that are being imposed, and that part has been reflected in our forecast for this fiscal year. We don’t want to waver from our basic principles, and we will stay the course. So depending on whether you’re looking at short-term or medium-term, what we can do will change.

For exports to the United States, 1.5 million units. Of course, we have many customers in the United States. So desirably, we want to allocate to the United States. But in the short-term, we have to look at how we allocate the cars. But over the medium to long-term, appropriate products for the local area should be produced locally and delivered locally. Best-in-town is something that we’ve always talked about in the community, in the country. As a local citizen, we are taking actions. So that pillar will not waver. So over the medium to long-term, we will continue to take that approach.

Unidentified Company Representative: Thank you very much. We would like to entertain the next question. Person in the back there. Maybe second row from the front, please.

Unidentified Analyst: I’m [Ikeda] of Sankei Newspaper. I have two questions as well. The first question is about this U.S. tariff policy. The impact is so difficult to forecast accurately. However, the Toyota has been treasuring the domestic production level of 3 million units. But is it unchanged and maintained at that level? Is that the right understanding? Or as Mr. Sato mentioned about mid- to long-term perspective, localization will be further promoted naturally. But in mid- to long-term, that area might be revised or readjusted – is that – would that become necessary to readjust the 3 million unit production system in Japan, you have a relationship with your suppliers. So as to the U.S. tariffs, the parts suppliers might need to transfer the increased cost to their transaction price to you.

So what will be the position of Toyota to deal with the suppliers’ requests like that? The suppliers’ burden might be covered and accepted by TMC itself. Is that the direction? Or there could be maybe a combination of the adjustment. You work together with the suppliers to further reduce the cost to cope with that situation. So including the additional burden upon the suppliers, what do you think of the U.S. tariff policy?

Koji Sato: So at the beginning, as the domestic production policy and aspirations, that’s my first point I’d like to mention. And Mr. Miyazaki will add as to the substance to respond to your question. So actually, domestic production has a significance here in Japan. We should never forget that. It should be unchanged. We’d like to maintain that level. However, because domestic production and supply chain should be ensured and protected. And by continuing export, we will earn the foreign currency and by the earned foreign currency, Japan can purchase the energy necessary for the Japanese domestic activities and transactions. So from that standpoint, I think domestic production should be protected as a manufacturing industry initiative, it’s an important point that we should keep in mind.

From that standpoint, the domestic production and our aspiration for that and – will continue in our future initiatives. So based upon that assumption, the details can be added by Mr. Miyazaki.

Yoichi Miyazaki: Thank you, Mr. Ikeda for your question. Earlier, I said that the profit structure of the TMC, so I’d like to maybe recap that. So if we can show that, I’d like to show that again to you. But anyway, right now, as from your standpoint to the left-hand side, that the 2023 in March, the several hundred some – 5, 6 million units that is the consolidated figure of the sales. At the time of COVID-19, that was the situation that 1.3 million units, the consolidated sales reduction occurred. That is why it is down – come down to 7.56, JPY2.2 trillion of the operating income was still achieved. Right-hand side on top, you can see that the activities were launched at that time. And then the marginal profit went up to the 1.6 fold and so this destined to the U.S.A., the improvement is also achieved through this effort.

So as to the potential impact by the tariffs, as to the profit structure and business structure is the basis, we are not forced to take the too hasty action. We can continue a stable policy. And the 3 million units we are talking about, as Mr. Sato mentioned, the export to U.S. is 500,000 units. So for the customers, it might cause some problems. We have a long list of back orders. So that’s the current situation. So it doesn’t force us to revise and relook at this domestic production structure, including the government to government negotiation, we will see and monitor how the negotiation will take place between the two governments. In addition, vehicles cannot be produced only by us, we need a cooperation of the suppliers, the customers, the related sales, dealers networks.

So all those parties need to collaborate together to take a mid- to long-term initiatives. So we are looking and monitoring the situation. We have built this good profit structure already. So without taking any hasty action, we will play it by the year and then take stable actions. And as I mentioned earlier, the automotive industry has quite an important significance and role to play in the 3 million units of production in Japan. And then we export the vehicles and earn the foreign currency of JPY20 trillion. And then JPY24 trillion is the import expense we pay for energy and resources so that we are playing an important role for Japanese economy, and we’d like to continue to play that important role in the future as well. For the suppliers, what is the care.

For each supplier, we listen to the voices and requests to decide upon how to address the issues, and we will have a very detailed care and listen to their views. So manufacturing should be promoted together with the suppliers and dealers and sales network. So we have to pay due care to them. And then final wish is the happiness for the customers. And then we would like to continue the operation of automobile manufacturing as well.

Unidentified Analyst: The second point is the operating profit forecast that you just showed us – about the U.S. business is my question. The tariff burden will it be transferred to the vehicle prices or will you not be thinking about it for the time being? I understand it will be difficult to make a forecast. But in the profits that you have forecast, the U.S. – what is the U.S. sales volume that you assumed? People are talking about reduction due to last-minute purchases in the previous year. But what is your outlook at the time being. So tell us about the relationship with the forecast.

Yoichi Miyazaki: So I think it’s a question of how to look at the sales volume. But when we plan or do a sales plan, we – for financial results, we look at the fiscal year, but for a business, we look at the calendar year. In April, in the United States, there was a last minute market demand going up. And there might be repercussions from that. So there will be pluses and minuses. But as you mentioned, it is difficult to forecast the future. So depending on how things develop, we would like to take the appropriate action. Maybe I shouldn’t say fortunately, but in the United States, Toyota cars are still popular and the inventory level is less than 10 days’ worth. And for our mainline hybrid, the turnover is in five days. So we will look at real demand and I think we can make appropriate adjustments.

With regards to sales price, we think it is up to the customer. The competitive situation, real demand situation will be looked at as we did before. So far, customer demand was very strong and in the past, we’ve raised prices from when demand was high. So we will look at the situation and take the appropriate action at the appropriate timing. Just because of tariff rising prices in hastily is not the type of reaction Toyota is thinking of.

Unidentified Company Representative: Thank you very much to Mr. Ikeda. So we’d like to take the next question, the person in front row, please.

Unidentified Analyst: [Indiscernible] I have two questions as well. Similar question about the U.S., the tax policy or tariff policy. In the future, would that have an impact upon your future business? As now, how do you analyze and look at that potential impact, short term versus the long and midterm the countermeasures? But this tariff new policy, is that do you think a transient onetime change or for your U.S. business, is that going to be more long-lasting impact for your business? Could you please comment on the future outlook? The second question is about 3 million units of the volume to be maintained in Japan. But to maintain that level how do you intend to take actions and measures? Because to the U.S., the U.S. import means increased cost incurred, so that maybe you increased export to other regions or to sell more in domestic market? What are those measures that you’re thinking about in order to maintain the 3 million units of production volume in Japan?

Koji Sato: Thank you for your question, [Mr. Yao]. Let me repeat some of the points Toyota wants to be the best in town, that’s a motto to be locally based company. So that the main access that even though the U.S. tariff policy might change, our access and policy will not change. As I said, that in the long-term, the local production, local development will be emphasized. In the short term, to the actual demand, the optimal response and operation should be devised. So these are the combination of efforts we will make to deal with the change. On the other hand, the tariffs, will that be eternal ones? permanent ones? We are not in a position to decide on the tax tariff policy. So whatever the situation will change, we’d like to be flexible to deal with, and then we will maintain our basic pillar and policy on the course and then deal with that situation.

Three million units of volume maintained in Japan. To do that, as I said, we should strengthen our foundation. That is a strong activity. To maintain the domestic production level that the strong foundation is crucial. In other words, so-called supplementary efforts like we support and invest for the suppliers, but it’s not that to return the money back to them. But rather, in order for them to further improve the productivity and have the spare room, we just work so closely with the suppliers. It’s a work together. So we now have the high level of the production operation in place. Just – so maybe the people in the field, the workplace might not have the enough energy or the spare capacity to improve further. So we should give them the spare room in energy and capacity so that they can work better.

So we will create a good climate and environment for them to do that. So it’s not just a funding support for them, and return the money back to them. But in the mid- to long-term, it will eventually boost our productivity together and further reduce the costs incurred. And then effectiveness will be improved and then eventually the total competitive edge will be further enhanced. So domestic production level should be maintained. By that protection, we will strengthen our productivity and the competitiveness. And that, I think, is a very important cycle we’d like to achieve. Thank you very much.

Unidentified Company Representative: Thank you very much to Mr. Yao. In the middle, third from the front row.

Unidentified Analyst: [Indiscernible]. Except for tariff impact, fiscal 2025, what kind of year will it be? How do you position this year? A major transformation in a century. It’s been several years since this has been discussed and diversification and localization you are working on these, but how is business going to be this year towards 2030? And my second question is about earning power. On the hybrid side, profitability is almost equal to gasoline cars. I think it was last year that Mr. Miyazaki talked about 5 million hybrid vehicles. So does this milestone – is this milestone unchanged? So – and what about your plans for improvement for PHEVs?

Koji Sato: Thank you very much for your question. The positioning of fiscal 2025. As I mentioned in the presentation, this year, in a sense is a year where globally, we are now seeing the speed towards electrification in each region. So depending on the region, the speed or how electrification will develop will be clear. In case of battery EVs, in the past, we discussed this on a global basis. Obviously, now China is moving fast. And not only electric vehicles but intelligence plus EV is pushing forward the mobility. So battery EV leading-edge technology will be incorporated so that we can push forward mobility. In the case of battery EVs, we will be delving deeper into this area. And for hybrids, realistically speaking, we are seeing a shift to BEVs. But having said that, there are many ways to realize carbon neutrality.

So an approach that combines vehicles with carbon neutrality will be very important. So from the fuel side, the carbon neutrality will have to be realized. It will be a very important turning point towards that. So hybrid PHEV will be the pillar. But in addition to that, carbon-neutral fuel will be combined. So that kind of practical solution will be accelerated. That will be very important. So in a sense, the basic pillars remain unchanged, but the resolution of each element will be higher than before. There is another point that we focus on, which is creating an environment or ecosystem. Just pushing for the evolution of the vehicle does not lead to realization of mobility. Battery EVs, hydrogen requires energy, infrastructure and the legal framework.

So mobility of cars alone will not allow us to push forward a mobility society. And so a comprehensive approach is necessary, which means that we have to work with our energy or IT industry people and we also have to work with government to create the environment and that will be the foundation. And this year, we have to focus more on creating this foundation. Now earning power will be discussed by Mr. Miyazaki.

Yoichi Miyazaki: So in the past and this year, as everybody is pointing out, it is – the future is unclear, uncertain, but in this environment, what we have to do is to make sure we continue to produce – making happiness for all. So maintaining 3 million in Japan and full operation of overseas plans is necessary. And we have to make sure we continue to produce ever-better cars. Going back to the basics and doing what we have to do is what we will do in 2025. For this year’s forecast, JPY3.8 trillion will be the starting point. But from here, we want to build up so that we can realize more. I mentioned JPY3.8 trillion. But our tariffs except for tariff and exchange rates, it will be JPY1 trillion. That will be JPY1 trillion.

So JPY4.8 trillion in earning power is something that we can realize. So how to step up from there is something that we want to think about. We need to create products that meet the real demand of our customers. For hybrid vehicles, I mentioned before that real demand is very strong. So initially in 2026 5 million production, something that I mentioned, and I talked about bringing this plan forward. But after that, we decided to focus on strengthening the foundation. So we stopped for a while to reorganize development and production. So for hybrids, last year, as was mentioned before, plus 850,000 compared to the previous year is what we realized. But this year, we expect a growth of 5%. So 4.7 million is what we expect. So the original 2026 numbers is the plan that we had, but how to front-forward that plan is something that we will continue to work on, and we want to accumulate our earning power as we do so.

And about PHEVs. Once we – as we have continued to decrease on cost, other variation units, I believe, will be able to produce profits. I will be repeating myself, but we will do what we have to do now, and we want to further strengthen our earning power.

Unidentified Company Representative: The person with a gray jacket.

Unidentified Analyst: [Indiscernible] TV Tokyo. I have a question to Mr. Sato. Two questions. One is that the target production volume this year that the external environment is getting difficult, but the 10 million units have been already mentioned, six months ago, Mr. Miyazaki said, the production plan has been prepared and the OEM has a duty to steadily produce according to the target. But in a more difficult environment, 10 million units were still launched. What’s the purpose of this 10 million units announced? The group collaboration, the way you should be? That’s my second question. Toyota Industries is now talked about to go private. So the Toyota Group, you have a policy-based share cross shareholdings, the way the Toyota Group’s structure should be, the way it should be. What do you think of including the potential rumor about the Toyota Industry going private?

Koji Sato: Thank you for your question. So about the production and the volume, 10 million units announced and what’s the aspiration for that? Well, compared to the previous term that the actual performance showed, you produce steadily and properly, that is the basis an important factor to maintain the profitability. So we focused in the last one year to further strengthen foundation. What it means – of the 10 million units, we work so hard to strengthen the foundation. And as the outcome results and fruit has been cropped. In other words, the production has become stabilized and produce high-quality vehicle and deliver that to users. That’s one of the important targets for us. For example, but the investment – the total comprehensive investment for human capital in the last several years, for example, includes the production line.

the operation might stop. Sometimes you need a maintenance work or sometimes frequent repair might be necessary in some of the facilities. So maybe upgrading and the investment for that is quite important in math. It’s a big investment as well. So the frequency that the production line had to be stopped, but now it doesn’t have to be stopped. It’s a Kaizen improvement, which has been achieved in the last several years. So you don’t have to stop this production line. That is a better efficiency of the production. So that kind of this in advanced investment has borne good food. And then you could have a very good quality and efficient production. Fitch has shown this strength in the foundation. That is the basis. And that’s why we are still quite aware of this units target.

And that units are so important to support and protect our supply chain. From that standpoint, we put it at the threshold in the target. And then we would like to continue our efforts so that we can continue to steadily produce high-quality vehicles. And second point is the collaboration among the Toyota group of companies. And of course, we like to transform to a mobility company, that’s our grand aim and an entire group is trying to become a mobility company. And that’s a challenge, a common challenge for all of us. How should we be prepared and the confirmation we need to achieve this goal. I personally feel that the productivity and the efficiency should be improved, then there’s a vertical integration might be better. It’s more efficient to have the vertical – the integrated organization.

But we aim at the long-term annular based growth so that the automotive industry should continue to track this growth path. So in that sense, each company within the Toyota Group should have its own strength within the group what is the strength of that company within the entire Toyota group. And then that the significance meaning is quite important. We are the vehicle supplier. That is the TMC. The TMC, the vehicle producer is supported by different domains, and each member company has its own aspiration to achieve a certain goal and CEO of each group of the group companies, I think, are trying to set those goals. Of course, I’m the CEO of – Mr. Toyoda is the leader, the Chairman of the entire group and his message and aspiration is the basis of our efforts, and we will continue discussion within the group.

The Toyota Industries and how it’s positioned. Of course, it’s a regional company of the TMC. So it’s a very important company historically. And within the TMC group that is very important to do the forklift as well as the engine in other businesses as well. So it’s the important – one of the important companies within the group. So their position stays the same.

Unidentified Analyst: May I clarify one point, 10 million units, the target you said, now external environment is deteriorating, you produce 10 million units and do you have an outlook of global economy that you can still sell these many vehicles you intend to produce?

Koji Sato: Maybe Mr. Miyazaki can add. But as to the outlook of the global economy, we cannot define the global economic outlook. However, we are – do we have a regional headquarters system. And in each region, we have a CEO, and then we discuss the global economy and the regional economic outlook to come to our overall outlook. So our own outlook was 10 million units, our aim, a goal, we’d like to work toward. But it’s not just a target. It’s like the basic standard sort of – of course, it’s not really the goal or target we’d like to achieve, so please understand the nature of these 10 million units.

Yoichi Miyazaki: And in the past, I already told you, but in many regions, we’d like to strike a good balance and a good business in each region, that is a strong weapon for a company to achieve stable business and profitability. Therefore, in particular region, if it catches the cold, maybe the remaining healthy regions can complement and supplement for each other. So in case the very active region versus the sick region, the vehicle demand might not match, then I think each regional markets and markets will collaborate among themselves, and then we try to strike the balance between supply and demand, so that this system structure can be stably operated so that we’d like to work harder with the suppliers. Naturally, 10 million units is not the end of it.

We are not aiming at achieving this as a target. We’d like to build a good car one by one. And eventually, it might achieve 10 million units. So we’d like to give the due care to build a good quality for each customer and user.

Unidentified Company Representative: Thank you very much. I apologize to the people raising their hand in this venue, but we would like to take questions from people online at this juncture and then we will come back to this venue again later on. So if you have any questions from online, please use the raise hand button. Please turn on your microphone and camera. If you are called upon to speak. [Indiscernible], please turn on your microphone and camera before you speak.

Unidentified Analyst: This is [indiscernible] from Best Car. I have two questions. Slide 11, you talk about sales volume forecast by region. Tariff and exchange rate impact was large. You mentioned JPY1 trillion, I think, but if you look at sales volume to the – to North America, 2.94 million for next year is your forecast. Compared to this year, it is an increase of over 200,000 units. Mr. Miyazaki talked about back orders. But are there any other factors that lead to this increase? Please tell us about the basis of this number. That is the first question.

Unidentified Company Representative: Maybe we should take the second question first. Can you give us the two questions together?

Unidentified Analyst: Now to my second question. Also on Page 11, you talked about breakdown of sales volumes by types of vehicle. 213% for BEVs. 310,000 is the number that you have. This is a big forecast. But if you – as of 2023, your announced plan was BEV 1.5 million by 2026 was the number that you gave us. So in 1 year, 5x as many would be very difficult. Will you be reviewing your plan? Well, according to media reports, some people say that you have already reviewed the plan, but are you in the process of review? So the question is about BEV sales strategy. That is my second question.

Yoichi Miyazaki: Thank you very much to your question, Mr. [indiscernible] First, your first question, last year, in North America, as I mentioned in my presentation, the Indiana plant because of quality issues had to stop production for a long time. But this year, this factor will be gone. So Indiana factory production will be back to full operation. And for vehicles for which we have back orders, we’ll be able to see increase in production. But as I mentioned before, there may be many other changes. So we may not have been able to forecast everything. But at this moment, this – these are the numbers that we have in mind. But as the situation changes, we intend to make adjustments as necessary. So each vehicle should be sold and delivered to our customer with attention to detail. And as – and some of those efforts, we are hoping will lead us to achieve those numbers.

Koji Sato: [Indiscernible] on to your second question, this is Sato speaking, I will respond to that second question. About the BEV sales plan. An increase of more than 150,000 new vehicle impact can be incorporated. So there will be vehicles launched and announced. And the outlook for those is the basis. 3.5 million in 2030 or 1.5 million in 2026, those are the numbers that we have announced before. But the basis of our calculation is real demand. So real demand, but real demand will change. So if the pace of real demand changes, based on those changes, we will be changing those reference numbers, especially preparation of the supply chain and investment timing are things that we have in mind when we came up with these numbers. Battery EV real demand is starting to be clearer. So 1.5 million is a number that will be reviewed. Thank you very much.

Unidentified Company Representative: I would like to entertain another person online. From [indiscernible], please turn on your microphone and camera.

Unidentified Analyst: Thank you. I, can you hear me well? Yes. Thank you. I have a question. About the U.S. and China, I have one question to each country – about each country. The first point is U.S.A. It’s a direct question. But earlier, you already mentioned that mid-to long-term versus the short term, how you prepare yourself to potential tariffs. But in the mid- to long-term outlook that you provide this suite of products to the local customers. It’s the best in town through the local production. If the tariff will stay permanently that the production capacity locally should be enhanced or you might have to build new plants there. Is it possible scenario? That’s my first question. The second question is a question about China.

So that in the material, you talked about China year-on-year comparison, 94.1%, that was a number. But in terms of share in the last several years, the local – the company is getting strong and you are having difficulty, but you will be launching emphasizing your effort in China to recover your activity. What’s the strategy? And taking into account the change of environment of the competitiveness in Chinese market. So what’s your outlook in China?

Yoichi Miyazaki: Thank you for your question. But thank you, [indiscernible] for your question. The first is a mid- to long-term outlook. Naturally, it’s been now doing this for some time. In the U.S.A., we have USMCA, which is the local production, the target to increase the local procurement level according to the rule, and then so local production, local supply and that the local supply percentage ratio should be increased steadily. From BCP standpoint, if though some incident occurs that the local production is still possible, not just vehicles but units as well that the local – the production – local procurement should be further promoted. We’ve been doing this for some time. But because of that, even though the tariff is there, it’s not our effort.

We’ve been doing something we should do, and then we steadily perform our duty that’s something we intend to do. As a result, if the things go smoothly, we might accelerate that action. But as I said, everything is not 100% predictable. Within that uncertainty we should not sway from 1 way to other, but we will take a steady one and stay in the course and make a final decision according to this monitoring. As to the China, let me respond on China. Our outlook on China, China is not one market, but rather the 1.4 billion population in China, we are not in a position to take care of all those people by our business, we are not in that position. So from that standpoint, the local coastal areas, that big cities, the population we’d like to target that is where the real focus in terms of the segment of Chinese market.

So in that sense, naturally, there are local manufacturers and suppliers in China, OEMs are very strong in certain provinces or regions, so Chinese market should be scrutinized by the – in details by region and region. So we should avoid the direct competition, but there are certain and lots of areas where we can coexist with the Chinese manufacturers. So in that Chinese situation, of course, that’s the market share as well, that the units and volume – the targets were achieved thanks to these suppliers and also the dealers there. As to the profitability in China, which we’ve been telling you. In Chinese business, our profitability level is highly evaluated. Compared to the local competitors, our level is on par with the Chinese competitors.

So that’s how we evaluate our Chinese business performance. So our strength should be leveraged further in the future. We announced last month that the development structure will be enhanced in China. So the BEV suitable for Chinese customers will be launched and Lexus brand, Toyota brands will be enhanced and protected further.

Unidentified Company Representative: [Indiscernible], thank you very much. Now going back to this room, we will take questions from people in this room again. In the middle, the person from the – in the second row.

Unidentified Analyst: [Indiscernible] automobile. I have a question about the Japanese market. Last year, there was a certification issue and quality issues leading to long lead time and low production. But if you look at this year, we have some negative numbers. Can you tell us about the background? And 3 million production in Japan, in order to maintain that, at least half of that number should be sold in Japan. But over the medium to long-term, what is your outlook about the domestic market?

Yoichi Miyazaki: Mr. [indiscernible] is it just one question? About sales in the Japanese market. Of course, we have a model life cycle. So when you go to the peak there will be a stable period and then there are some differences in numbers. But basically, we are aiming at 1.5 million being sold. So there is no strong will or background here. In thinking about the model life cycle, we came up with these numbers. Now about the medium- to long-term outlook, it has always been said that in Japan, the population is declining and the birth rate is declining, but how to reduce the vehicle replacement cycle is something that we want to work on to revitalize the Japanese market. Attractive cars will have to be launched. And in order to make the replacement cycle shorter, we have to work more to sell them in a better way. So including Kinto and other initiatives, we will continue to try new efforts.

Koji Sato: Let me add something. Thank you very much for your question. Your question was about the future of the Japanese market. As Mr. Miyazaki mentioned, how can we produce and deliver cars that people would want to buy? If vehicles are produced based on traditional thinking, yes, we just launched a new Crown series. But 10 years ago, Crown was an FR sedan and authentic product, that was the stereotype image of the model Crown. But what is the significance of Crown being a long seller? That is something that we reviewed and due to come up with a new product. So the old – rather than looking at the old framework, what is necessary now in this market is something that we have to face. We are a car maker, so we need to produce cars that people would want to purchase in Japan. We have to come up with ideas to launch those products. We will need to solidify the foundation, come up with extra capacity so that we can produce cars that are suitable for the local market.

Unidentified Company Representative: Thank you very much to Mr. [indiscernible]. Time is running short, so we’d like to entertain just one last question, if we may. There is a person in the front section. Yamamoto of freelance journalist.

Unidentified Analyst: Earlier in the presentation, you talked about the multi-pathway strategy, which will be unchanged. But hybrid is a strong area, it’s doing quite well. On the other hand, the product, the PHEV is not really not growing as you expect. In hydrogen vehicle, so far, you are trying to boost the spirit, but maybe there’s a toning down about the hydrogen vehicles, I feel. So hydrogen engine might be applied to motor sports and it’s been five years since you applied that toward the end of the year. The Fuji 24-hour race that this hydrogen vehicle is to participate. At that time, you, Mr. Sato was the President to launch that hydrogen engine for the motor sports. So what’s the progress state of the hydrogen engine?

Another question. Earlier you told about this group strategy, you supply this suitable car to each region. On the other hand, the enjoyable the experience that the wow experience, like that kind of car that Mr. Sato likes, wow experience to be given by our car. So it’s sort of like – but there’s lately, we don’t really see many new models developed by you, which is suitable for that wow experience.

Koji Sato: Now about multi-pathway strategy, yes, we will maintain that strategy. The ICE will be further advanced and then the hybrid system will become more efficient. And then we will continue this technology development. So smaller compact car with a higher efficiency and also the output, the characteristics should be further enhanced, that technology development is being promoted. So that’s a powertrain evolution which should be driven and we’d like to continue that efforts in that area. On the other hand, in a way, fuel and energy might make a difference in terms of where we emphasize or the pathway toward the popularization. So the energy availability might make a difference I feel, especially hydrogen. The major challenge for hydrogen is that hydrogen itself we are so picky about this origin.

And hydrogen becomes such an expensive energy source. Energy cost is so expensive. It’s too expensive to popularize. It’s a barrier for popularization. So in order for us to promote that the hydrogen use should be increased first, that is an initiative we first have to take. And then for the passenger car, we will do our part. But 60x more the sensitivity for the commercial vehicle. One, the heavy-duty truck versus a small passenger car, the size or the scale is 60 folds difference. So that we are trying to make efforts in commercial vehicle as well so that the cost reduction effort should be made. Then finally, the technology of the hydrogen engine could become quite useful because hydrogen engine is combustion, the control is already in our in-house technology.

So efficiency is 1 challenge. And another one that the combustion of the hydrogen is the issue because for the ICE, it’s the combustion efficiency could be maybe enhanced by the better hydrogen combustion biofuel, e-fuel they are supplied in the engine technology wise because we developed a hydrogen technology, we have a benefit to be enjoyed by the accumulated technology. So hydrogen gave us a clue to starting point. But eventually, it will give us the synergy to really lead us to the multi-pathway development. So stand-alone hydrogen should not be just scrutinized. But that’s the starting point to lead us to this synergy of multi-pathway strategy. And so I think we now are seeing the visible side. So hydrogen is just a kick-off. Of course, liquid hydrogen is one area where we will work toward and work harder, and I hope you continue to support us.

Our Chairman, Toyoda is driving the car itself, the hydrogen vehicle. And he is a leading figure to promote the hydrogen society. So we like to realize a hydrogen society and multiple the simultaneous efforts are needed. So we will never give up to do that. And we’d like to reassert our strong determination. The second point, the car, which induces a wow spirit, I appreciate your question. Yes, I agree to you exciting vehicle is necessary. The car should be enjoyable. Otherwise, the car is not the car. It will just turn into a commodity. So we have a determination that the car should never be looked at as commodity so that the function wise and logical thinking wise and then based on the left side of the brain, you cannot sell the products based upon the catalog of the vehicles.

You just merely changed model switch and have a new design or the engine. It won’t sell anymore. So how passionate you are to produce a car which will trigger the sense of wow in you? Of course, you have to be sharp feeling to have appealing. It’s not just a sports car. For the ordinary cars as well, you have to instill your passion to appeal to the customer to their heart. So that I think each project team should share that sense. And I’m encouraging all the project team members to build such a car, and we are really encouraging. And that’s the way TMC should be. And that’s my passion. And in this fiscal year, we’d like to work hard to achieve this goal. So to your question, and you are thinking about the model, as time is ripe, we will disclose the new model to you.

I cannot disclose the name right now today at the press conference, so at another occasion, we hope we could be ready to tell you and announce you this new exciting car.

Unidentified Company Representative: Thank you very much to Mr. Yamamoto. Now it is time, so let us conclude the Q&A session. So I would like to ask the three gentlemen to stand up. Thank you very much. With this, we conclude the financial results meeting for fiscal 2025. Thank you very much for watching and coming.