Earnings Call Transcript - TM Q2 2022

Operator, Operator

Thank you, everyone, for joining us despite your busy schedules. We would now like to begin Toyota Motor Corporation's FY 2022 Second Quarter Financial Results Press Briefing. Starting by introducing our presenters today, Chief Financial Officer, Kenta Kon; Chief Communication Officer, Jun Nagata. We would now like to begin by having our CFO, Mr. Kon, explain about the financial results.

Kenta Kon, CFO

Hello, everyone. Thank you for joining us today. I am Kenta Kon. We would like to express our heartfelt appreciation to all of our stakeholders, including customers around the world who chose us, as well as our shareholders, dealers, and suppliers who support us. We sincerely apologize for the inconvenience caused to our customers due to the recent production volume reduction. We are working to recover production as soon as possible. Thank you for your understanding. I would like to provide a summary of the second quarter of this fiscal year. The semiconductor shortage and the spread of COVID-19 in some developing countries caused us to reduce our production volume globally. But our suppliers, plants, and dealers made great efforts to supply as many cars to our customers as possible. Our results for the first half of the fiscal year reflect our enhanced cost reduction activities and efforts to make more efficient use of fixed costs while enhancing product appeal by making ever better cars and investing for growth. We have also benefited from the tightening supply and high demand in the new car market as this has led to higher used car prices and allowed us to decrease the quantum of incentives. We believe these factors have made our results in certain respects appear robust beyond our underlying strength. Even though we have revised our operating income forecast upwards, excluding the impact of the depreciation of the yen, it would be in substance a downward revision due to increases in raw material costs. We will keep improving our operation to standardize what we have learned from COVID-19. In terms of our return to shareholders, the interim ordinary dividend is JPY 120 per share, an increase of JPY 15 compared to the previous fiscal year. We have also decided to conduct a repurchase of up to JPY 100 billion of our common stock. Let me discuss our financial results for the first half ended September 2021. Consolidated vehicle sales for the period stood at 4,094,000 units, which was 132.7% of consolidated vehicle sales for the first half of the previous fiscal year. Toyota and Lexus brand vehicle sales stood at 4,852,000 units, which was 121.0% of such sales for the first half of the previous fiscal year. The ratio of electrified vehicles was 27.7%. Consolidated financial results for the first half of this fiscal year were sales revenues of JPY 15,481.2 billion, operating income of JPY 1,747.4 billion, income before income taxes of JPY 2,144.0 billion, and net income of JPY 1,524.4 billion. I would like to explain the factors which impacted operating income year-on-year. First, the effects of foreign exchange rates increased operating income by JPY 255 billion. Second, cost reduction efforts decreased operating income by JPY 30 billion due to the impact of soaring material prices. Third, marketing efforts increased operating income by JPY 1,055 billion largely due to the increase in sales volume and increased earnings in the financial services business. Finally, a reduction in expenses increased operating income by JPY 10 billion. As a result, excluding the overall impact of foreign exchange rates, swap valuation gains and losses, and other factors, operating income increased by JPY 1,035 billion year-on-year. Next, I will explain operating income for each region. As shown, operating income increased year-on-year in all regions largely due to the increase in sales volume. As for our China business, the operating income of consolidated subsidiaries and our share of profit of investments accounted for using the equity method increased due to the impact of foreign exchange rates. Regarding financial services, operating income excluding swap valuation gains and losses for the fiscal year increased year-on-year mainly due to the increase in the lending balance and margins. Next, I would like to explain our return to shareholders. Based on the business results for the first half of this fiscal year, we decided to pay an interim dividend of JPY 120 per share, an increase of JPY 15 compared to the previous fiscal year. We intend to continue to maintain an improved consolidated dividend payout ratio over the mid to long term, as well as pay dividends stably and sustainably to reward our shareholders who hold our shares over the mid to long term. In addition, we will repurchase up to JPY 150 billion of our own shares for the current interim period, taking into consideration factors such as investments in growth areas and dividend levels. Next, I will explain the forecasts for the fiscal year ending March 31, 2022. Consolidated vehicle sales are expected to be 8.55 million units, which is 98.3% of the previous forecast. The regional sales breakdown is as stated in the presentation. As for Toyota and Lexus brand vehicle sales, we anticipate that vehicle sales will be 9.4 million units, which is 97.9% of the previous forecast. Next, let me explain the forecasts for the full year consolidated financial performance. We have adopted foreign exchange rate assumptions for October onwards of JPY 110 per dollar and JPY 125 per euro, which makes the full year assumptions of JPY 110 per dollar and JPY 128 per euro. Based on this, our forecasts for full year consolidated financial performance are: sales revenues of JPY 30 trillion, operating income of JPY 2,800 billion, income before income taxes of JPY 3,440 billion, and net income of JPY 2,490 billion. Next, I would like to explain the factors that impact operating income year-on-year compared to the previous forecast. The operating income forecast has been revised upward by JPY 300 billion from the previous forecast, taking into account the increase in operating income due to the revision of FX assumptions, reflecting the weaker yen and the decrease in operating income due to the increase in raw material costs. The factors that will impact operating income compared to the same period of the previous fiscal year are as shown in the presentation. Although we continue to face unpredictable conditions with regard to the stabilization of supply, as well as issues such as the sharp rise in raw material costs, we will continue to work towards the future and establish the lessons learned from the COVID-19 crisis. Thank you for your attention.

Operator, Operator

Mr. Katori from Yomiuri Newspapers, please.

Naotake Katori, Analyst

This is Katori speaking from Yomiuri Newspapers. I have two questions. First, I would like to hear your assessment and summary of the performance for the ended first half, particularly regarding operating income. It seems to be a record high compared to the past. What factors contributed to this? Additionally, the large vehicle segment has been performing very well, with strong sales from new car sales. Can you provide insight into the factors that led to this success? My second question is about the production recovery plan. I recall you mentioned plans up to November, but by December, will you be operating on weekends, including Saturdays? Given the continued impact of COVID, what does your recovery plan entail?

Jun Nagata, CCO

Thank you, Mr. Katori, for your questions. So your first question was about the assessment of the ended first half of this term about what were the contributing factors. And your second question was about the production recovery plan after December. That is how I understood your 2 questions. Am I correct?

Kenta Kon, CFO

Thank you very much for your question. Regarding the first half second quarter results, the assessments, if we can look at the third page of the presentation material, thank you. This is the summary. And I’d like to make some additional comments on this – in addition to this page. So as you can see on the very top, globally, production volume has declined globally. That is how we see the first half of this fiscal year. But in this situation, our dealers, our suppliers, our plants, the plants worldwide, so the operations side, they have made great efforts to supply as many cars as possible to the customers without stopping the vehicle plant. If a vehicle plant stops, there will be a huge impact to our suppliers and stakeholders. Therefore, the people working at the operations side wanted to avoid that situation and made strong efforts. And that has contributed largely to our results. But on the other hand, we are, in fact, having customers wait for car delivery. So there are many challenges still that we have to work on. And also for the sales results, even though there were limitations in production, the sales side did not drop so significantly. Compared year-on-year, actually, there was an increase. And this is because the dealers have worked hard to drop their level of inventory, also made efficient sales activities, and have been able to work flexibly with the existing inventories. So they have been working hard to capture sales opportunities and have good communication with the customers to deliver the cars as much as possible. This was also a huge contributor to the results. And on the other hand, there were some areas that went beyond our underlying strength. And it might just be partially, but the new car sales are tight in supply, and therefore, used car prices are now at a high level. As a result, the financial businesses, the residual value balance has turned positively, and this is mainly contributed by the high used car price market. Regarding incentives, under the current situation, for all of the OEMs, it’s the same situation, but we have been able to keep the incentives low. So these kinds of environmental aspects have contributed. This will be beyond our underlying strength. However, for the market fluctuation, the higher commodity price market, the higher commodity prices is also a large impacting factor. We are not in a situation where we can hand on these price increases to our customers. Therefore, cost reduction, fixed cost reduction, and making efforts to enhance vehicle value are the efforts made to recover the negative impact from the market fluctuation. For the cost reduction and fixed cost reduction, there have been huge efforts made company-wide, and this effort is continuing. Going through COVID, we do not have a feel at the point of this time that we are returning back to the before COVID times. So that will be a positive feeling that I have. I’m sorry to be lengthy – giving you a lengthy answer, but one of the reasons why we did not see a big drop in sales activities is because the product appeal being enhanced as a foundation of our business, I think that is a large contributor, having a stronger product appeal. TNGA was led – or started from the initiation – from the President Toyoda’s statements. Those initiatives were taken, product appeal strength and also to set the products in a group or series and families and to achieve ever better cars. This kind of activity has contributed to this result, I believe. For your second question about the production recovery, after December, we do still see much risk there. However, for the production volume, the 9 million that we have announced today for December and January, February, March, if we operate at full capacity, we still see some risk in order to be able to operate fully. Therefore, it is slightly conservative, this 9 million in volume. But based on our running production situation, including the Saturday operations, since we have customers waiting, we will do whatever we can to continue the production. So this will be my answers. I hope I have answered your question.

Operator, Operator

Thank you, Mr. Katori, for your question. We would like to move to the next question. Mr. Kondo from Asahi Newspapers, please.

Kohei Kondo, Analyst

My name is Kondo from Asahi Newspapers. Can you hear my voice? Okay.

Operator, Operator

Yes, we can.

Kohei Kondo, Analyst

Based on your financial results, I have a question about sales, operating income, and net income. I believe it's a significant achievement, a historic high, and you've revised your forecast upward for the full year. Yes, yen depreciation contributed to this, but the numbers are impressive. However, society at large is still dealing with the effects of COVID-19. Additionally, the auto industry, especially smaller suppliers, is grappling with carbon neutrality and the challenges of CASE and other new technologies. They are still having difficulty improving their profitability. I understand your figures are influenced by those suppliers. How do you view this situation? What are your thoughts on returning profits and addressing divisions? Also, how is your relationship with suppliers, particularly with Nippon Steel, regarding the semi-annual steel price negotiations? At Nippon Steel, R&D investments and development costs are key factors in those negotiations. What measures will you take in response to this? Lastly, regarding the litigation about the patent, how do you plan to substantiate your position scientifically, and what is your stance on this litigation?

Jun Nagata, CCO

Mr. Kondo, thank you so much for your question. The first question was about our good performance on this interim financial result. Well, number-wise, and your question was that our numbers were based upon suppliers' numbers and what is our take on this, well, Mr. Kon is going to answer on this. And with regard to the relation with Nippon Steel, the first question was on the price negotiation, Nippon Steel is asking for a further price hike, and what is our opinion on this. The second is about this electromagnetic steel, what we think about this. And I, Nagata, will answer this question later.

Kenta Kon, CFO

Yes. Regarding the first question, I would like to answer, first of all, with regard to relations with suppliers, well, we would like to coexist with our suppliers so that we can reduce costs and enhance competitiveness together. We would like to enhance the competitiveness of suppliers, and we would like to reap the achievements fairly together. This includes our customers. We have not changed this philosophy all along. For example, yes, we do receive comments, like the one we just received from time to time. As I've been involved in the conversation and dialogue with suppliers, for example, we made announcements of reducing our production volume a couple of times, and orders from Toyota have a very high certainty. When there is a production volume decrease, we try to let them know as soon as possible, also in detail. And especially when there's a decline in production volume, the parts delivered from suppliers would also decrease. So there is some impact. But we also get opinions from suppliers that they don't have much loss from this because we try to reduce the cost by optimizing the quality, and we also try to deal with their concerns. There are several thousand proposals from suppliers. When I visited one of the suppliers the other day, they told us that when Toyota makes some casual comments, for example, these components need to be visible, if we make such a whisper or mumble that, then the supplier would use ink that would never disappear to clarify the location of that part, and that could be expensive. When our engineer goes to the site to see that ink, the engineer would say, 'No, no, you don't have to use this expensive ink; you can use a marker instead.' In such ways, we are trying to enhance competitiveness together. As a result, suppliers would have fewer concerns. Of course, we are still in the middle, so it's never complete. But we think we are trying hard to carry out these kinds of activities together, but the fact that we are still receiving such comments from outside like this one means we need to try harder. If you could deliver such feedback, then we will stop and rethink and try to improve ourselves further. This was my answer to the first question.

Jun Nagata, CCO

Mr. Kondo, regarding the second question with regards to the relations with Nippon Steel, starting with the price negotiation, as you know, this year, price hike was in the conversation. It is not limited to Nippon Steel but in the steel industry as a whole; there will be significant investment in carbon-neutral aspects. We are also struggling with the hike of material costs. We, honestly, understand their circumstances at Nippon Steel. On the other hand, as you may also be aware, we are in the B2C business. In other words, we deliver the complete product, which is the car, to customers. Even when there are price hikes, it is difficult for us to transfer those hikes directly to the consumers. That’s the nature of our industry. So as was explained, we have to sincerely reduce costs one by one. In other words, regarding price negotiation, both sides need to explain each other’s circumstances and understand each other and continue to sincerely negotiate how we can set the price. Regarding electromagnetic steel, there is a litigation right now. But there are 5.5 million people in this industry, and then we pursue to achieve carbon neutrality in the auto industry. Therefore, we have to try making this effort steadily and sincerely. Regarding the litigation, I have to say that because this is a pending case, I have to refrain from making any further comments. That is all from myself.

Operator, Operator

Thank you very much, Mr. Kondo. We'd like to move on to the next question. From NHK, please go ahead.

Unidentified Analyst, Analyst

Excuse me. Can you hear me now?

Operator, Operator

Yes, I can hear you.

Unidentified Analyst, Analyst

So first of all, regarding the sales volume, you have reviewed the forecast. Can you explain why we conducted the review? Based on the results, it appears to be improving, but you mentioned that it is essentially a downward revision. You seem to be facing a very challenging result forecast. Can you also clarify why you view it as a tough forecast?

Jun Nagata, CCO

I believe you have one question. The reason for our review of the sales and production volume, as well as the downward revision, is what you're asking about.

Kenta Kon, CFO

Thank you for your question. Regarding the review of our sales volume, so on this slide on the screen, you can see the first initial forecast term, it was 8.7 million for consolidated sales, which has been dropped to 150,000 this time with the most latest forecast. We’ve had some opportunities to explain this up to this day. But there are some situations where we had to drop our production volume from our initial plan due to certain reasons. I might be repeating myself, but first of all, in Southeast Asia mainly, COVID-19 has had impacts. Therefore, the local production plants had to be shut down, and the parts supply had limitations. Also, there are some impacts from semiconductor issues. Malaysia and Vietnam encountered parts supply shortages, resulting in a drop in production for several months. Therefore, one reason for this review will be the impact from those factors. Regarding the downward revision, we are interpreting the forecast in a very tough perspective. For the first half results, for example, compared with last year and two years ago, we understand that there is a large increase in operating income. Again, repeating myself, this is really because of the strong efforts by the dealers, the suppliers, and the people working at Toyota. There were strong efforts made so that they can deliver the customers the vehicles as much as possible, as early as possible. All of these efforts have combined to come up with these results. However, in these results, there are some areas and factors that contributed from something outside of our own strengths. So we are looking at that neutrally. For the full year forecast, it is, in numbers, an upward revision, but we focus on the areas outside of the foreign exchange effect, focusing on non-forex impacts to improve profits as much as possible. So that is how we explained outside as well. When we focus on these non-forex impacts, we face several challenges that we must overcome. As much as possible, we will make efforts to recover from these challenges to improve performance. That will be my explanation for your question. Did I answer your question?

Operator, Operator

Thank you, Mr. Taruno.

Unidentified Analyst, Analyst

Yes, understood.

Operator, Operator

So from Wall Street Journal, Mr. Sean.

Sean McLain, Analyst

All right. Can you hear me?

Operator, Operator

Yes, we can hear you.

Sean McLain, Analyst

Great. So I was hoping to get a little more insight into your outlook for the remainder of the year and on next year in terms of when you think sales volumes will fully rebound, basically when the industry will get back to normal, what's your outlook on that, and what are the biggest challenges to achieving that? And then secondly, I'm wondering if you could talk about shortages beyond semiconductors. We’ve seen some news recently about shortages with magnesium and other parts. Basically, what are you seeing on the horizon? What are the things that you're looking out for that could possibly affect your recovery?

Jun Nagata, CCO

Thank you very much for your question, Sean. Your first question was about the timing of our recovery for the remainder of the year as well as the industry's overall recovery and the challenges involved in achieving that. The second question pertains to the current semiconductor shortage and whether there are any other concerns or shortages beyond semiconductors. Mr. Kon will address both questions.

Kenta Kon, CFO

Thank you so much for your question. Starting with the first one, in the remaining period of the fiscal year, the timing for us to completely recover is difficult to make anything certain. Of course, the risk is becoming significantly smaller. However, we’re not at a stage to say that the risk is zero. I don’t think the situation allows us to say that yet. For semiconductors, well, there are many factors; demand has sort of stopped. Therefore, the supply-and-demand balance has stabilized. However, the semiconductors differ from type to type, so we have to be very cautious in examining it. In December and January, I cannot say that it will recover to the past. I cannot say that there is no risk in reducing production. However, in comparison to past levels, even though there are some risks of production decrease, we expect a significant recovery. That is the situation. As for the overall industry, I cannot comment definitively. But if the supply of components is resolved, the OEM challenges will be solved all at once. In that sense, we hope that energy and material costs will not be raised rapidly, and we have to also secure those materials. That is the challenge we are facing within the industry. Other than the semiconductor issue, there is nothing critical at the moment. Due to the energy shortage, we are hearing of some magnesium shortages; however, we do not think that is a critical issue at present, and that is not what we are hearing now.

Operator, Operator

Thank you, Sean, for your question. We would like to move on to the next question. Shiraki from Reuters, please.

Maki Shiraki, Analyst

I'm Shiraki from Reuters, and I have 2 questions as well. So in your consolidated sales forecast, the electrified vehicles volume is my question. Also, compared with the initial forecast, there has been a slight decrease. And I might be taking it in a selfish way, but here, is it purely about the sales trend impact? Or is it because of the semiconductor crunch and the material price hike? Because of such a high level of material prices now, does it mean that price pressure is more on the electrified vehicles related to the inventory management issue that you said before? Maybe are you focusing on selling more of the conventional gasoline vehicles? Will that be a background to this revision? Gasoline price hikes are another trend we're seeing in the market. So of course, from an environmental perspective, I thought that electrified vehicles will have a higher ratio. But why is it that you dropped the ratio there, too? And the next question is about not related to the performance, but under Mr. Kishida's administration, there is a topic discussed about reviewing the disclosure from companies and reducing the frequency from every quarter. And from the press, there are some concerns. But from the PR side or functions inside the company, also for the investments towards making future investments towards human resource development and other business plans, some people say that quarterly disclosure will be too frequent. So Toyota being a global company, what are your thoughts regarding this quarterly disclosure? And in Europe, there are some reviews that are being discussed. But if you have any ideas about what will be an appropriate way to review the quarterly announcement, can you share that with us?

Jun Nagata, CCO

Thank you, Shiraki-san, for your questions. The first is for the electrified vehicles volume; it has been downward revised from the previous forecast. So the reasons for this are what you want to hear. The second question is about the disclosure announcement of the quarterly results. There is a discussion about reviewing this frequency, and what does Toyota think about this topic. Both of these will be responded to by Mr. Kon.

Kenta Kon, CFO

Thank you for your questions. Starting with the electrified vehicle ratio, as you have pointed out, it has slightly dropped. However, there is no significant factor affecting this globally. For electrified vehicles, particularly in China, electric vehicles constitute about 30% this year, which is an increase from around 20% last year. Therefore, globally, this does not indicate a reduction in the ratio of electrified vehicles in the global market. Our understanding of this change is that this is not a significant difference. Regarding your second question about the quarterly performance announcement, I am not fully aware of the detailed discussions currently happening. However, when I talk to investors and stakeholders, it needs to be something that will be beneficial for the stakeholders and investors. A company, as a going concern, always thinks about the next 10 years or 20 years as we operate our business. In the meantime, of course, it’s important to make the most appropriate and timely announcements and reports. For key matters, we should not wait 3 months to make significant reports and announcements. But if the quarterly results should be announced, it may cause that the ups and downs seen every quarter may be in sync with the ups and downs of company value. If it is understood this way, it probably will not be very positive to make a quarterly report. Therefore, along with these financial disclosures, we think it’s important to have media like Toyota Times, to disclose our thinking, philosophy, and what’s happening at Toyota. We are trying to make use of these media to communicate what is happening within the company effectively, and I think this is quite important for us. That will be my answer to your question.

Operator, Operator

Thank you, Ms. Shiraki. We'd like to take the next question. From Nikkan Kogyo Shimbun, Ms. Masatoshi, please.

Unidentified Analyst, Analyst

This is Masatoshi from Nikkan Kogyo. Can you hear me? Regarding the first half results, there was a reduction of JPY 30 billion due to cost reduction efforts, which I believe was affected by the increase in material costs. Can you provide a breakdown along with the benefits of the cost reduction? Additionally, concerning the period from January to September, have you changed your perspective on raw material prices? That's my first question. My second question is, given the current situation, what additional capacity do you have to recover those benefits? What measures do you plan to implement?

Jun Nagata, CCO

Thank you very much for your question. The first question was about the impact of the cost reduction and its breakdown, as well as the increase in material prices. The second question was regarding any additional opportunities to recover profits. Mr. Kon will respond to this.

Kenta Kon, CFO

Thank you so much for your question. In the first half, the breakdown for minus JPY 30 billion, so the so-called pure cost reduction excluding the market is about JPY 300 billion per year as the target for us. Since this is half a year, it will be JPY 150 billion. We were a little short of this target as a result of the pure cost reduction. Conversely speaking, the other than that was the market fluctuation, a little less than JPY 100 billion. We were short of this target, unfortunately. This is the cost reduction benefit, and the remainder is the market. In the second half, the impact is going to be larger a little bit. On a year-on-year basis, the cost reduction will be minus JPY 345 billion. The annual cost reduction is JPY 300 billion, and we are also a little short of this target. In other words, conversely speaking, the remainder is the market fluctuation, but a little more than JPY 200 billion is the cost reduction, and the remainder is the market impact. Net-net, the second half is going to suffer a little tougher than the first half. Our measures to strengthen our profitability, well, on this point, as much as possible, the foreign exchange fluctuation should be eliminated. In other words, we would like to turn this number more positively by excluding those FX impacts. That is the numerical aspect, but there is no major measure which can turn around the number by JPY 100 million all of a sudden. Rather, it’s in the unit of several thousand or several tens of thousands, the accumulation of small benefits. We will continue with those series of methods, and also value chain, including the supplies and used cars and connected car business software; we would like to further improve the profitability of those areas. By doing so, we would like to improve our profitability higher, more than JPY 2,800 billion.

Operator, Operator

Thank you very much. It is now the scheduled time. However, we would like to take one last question. From Toyo Keizai, Kigawa-san, please.

Yukinobu Kigawa, Analyst

Can you hear me?

Operator, Operator

I think your microphone...

Yukinobu Kigawa, Analyst

Can you hear me?

Operator, Operator

Yes, we can hear you now.

Yukinobu Kigawa, Analyst

I have a question about your future plans for promoting electrification. By 2030, you mentioned aiming for a 200-gigawatt operational capacity, and the bZ4X has been announced. You plan to establish a North American plant by 2025, supported by investments solely from Toyota. Meanwhile, electrification globally is gaining momentum and becoming even stronger. This will require significant investment and efficient allocation of resources. Once again, how do you intend to advance your efforts in promoting electrification?

Jun Nagata, CCO

Thank you, Mr. Kigawa, for your question. Regarding electrification, we receive a lot of questions, and we have repeatedly responded that basically, it is about how we are going to reduce CO2 as quickly as possible starting now. What Toyota has been saying is that regarding electrification, we are going to become a department store of electrified vehicles, which means that we’re going to have a full lineup of electrified vehicles so that we can deliver it to various regions and markets, customers all around the world, and have our customers choose what they want to use. This has always been our approach. For each region, especially the energy situation that will be supplied there and also the fuel situation is completely different. Therefore, in Europe, there’s a lot of renewables, so battery EVs will be suitable. But in other regions, there should be other options that will be most appropriate for them and have the consumers, users select it. Regarding what you mentioned, Mr. Kigawa, about battery EVs, we also think that if renewable energy is reduced further in terms of cost and more supply, then battery EVs will be a viable potential CO2 reduction vehicle and an excellent solution. As you have mentioned, Toyota is going to make JPY 1.5 trillion investment to build that foundation for supply. Within the United States, we’re investing until 2030 in battery plants with an investment of JPY 380 billion. Until 2025, the battery EV investments and lineup include 15 models we are preparing in that timeframe. We have the bZ4X, the battery EV-specified lineup we have announced; thus, batteries and battery EVs are both being developed. Compared with other OEMs, we don’t think we are inferior. We are preparing ourselves to be competitive in the competition with other OEMs regarding batteries and battery EVs. We will steadily promote this approach and plan. However, up to now, we have been saying many things, but at the end, battery EVs need to have clean energy as the base. If you have clean energy as the premise, then it will be very effective. Unfortunately, in Japan, with our energy situation, rather than battery EVs, plug-in hybrids and other electrified vehicles meet our conditions. It will reduce CO2 emissions in Japan and also is easier for consumers to purchase. That will also contribute to reducing CO2 emissions in this region. This is also what we have been saying. In order to promote electrification, having a wide variety of electrification options is our goal, which means a full lineup of electrified vehicles. We will work on various technical innovations to protect Japan’s 5.5 million employment related to this industry. This is another message that we have stated. Unfortunately, we have several electrified vehicle projects, but what is happening now raises the concern that some people are saying that Toyota is a promoter of hybrids and is against the promotion of battery EVs. This unfortunate narrative causes difficulties in communicating our intentions. We are struggling to convey that we are serious about promoting battery EVs, and that is something we need to address in our communication strategy. I appreciate any advice and comments from the media on this matter.

Operator, Operator

Thank you very much, Mr. Kigawa. With that, we'd like to end our financial results briefing. Thank you very much for joining us despite your busy schedule. We would like to end our press briefing here. Thank you.