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Unknown Executive: Ladies and gentlemen, thank you very much for joining us today, taking time out to presumably busy schedule. Now, we would like to begin TMC's FY '26 Q2 Financial Results Briefing. I am [indiscernible] from Corporate Communications, pleased to be your MC today. Now I would like to invite our Chief Financial Officer, Kenta Kon, for his presentation. Kon-san, over to you.
Kenta Kon: Good afternoon, ladies and gentlemen. Thank you for the introduction. I am Kon. Before I begin, I would like to start by sincerely thanking our customers around the world, who love Toyota cars; our shareholders, who support our efforts; our dealers and buyers and our other stakeholders. Here is a summary of Q2 results. Our operating income for the first half of this fiscal year was JPY 2 trillion. Despite the impact of U.S. tariffs, strong demand supported by the competitiveness of products has led to increased sales volumes, mainly in Japan and North America and has expanded value chain profits. The full year operating income forecast is JPY 3.4 trillion, despite the impact of the U.S. tariffs, we have continued to build upon our improvement efforts, such as increasing sales volume, improving costs and expanding value chain profits. We are steadily translating comprehensive future investments into improved productivity and increased returns with a strong focus on improving the breakeven volume. As for shareholder returns, to reward our long-term shareholders, the interim dividend is raised to JPY 45 per share, and the full year dividend forecast is JPY 95 per share. As announced at the Japan Mobility Show 2025, we will clearly define the 5 brands of the Toyota Group with clear directions. A diverse range of products, meet the needs of each individual customers and thereby expanding choice for our customers. I will now delve into our financial results for the period ended September 2025. Consolidated vehicle sales for the first half reached 4,783,000 units or 105% of the same period last year. Toyota and Lexus vehicle sales totaled 5,267,000 units or 104.7% compared to the previous fiscal year. Thanks to a strong demand from customers around the world, vehicle sales increased mainly in Japan and North America. The ratio of electrified vehicles rose to 46.9%, driven mainly by strong HEV sales in regions such as North America and China. Consolidated financial results. Sales revenues of JPY 24,630.7 billion; operating income, JPY 2,005.6 billion; income before income taxes, JPY 2,478.1 billion; and net income of JPY 1,773.4 billion. The factors that impacted operating income year-on-year, are shown on the slide. Next, the geographical operating income. In Japan, operating income decreased mainly due to the impact of exchange rate fluctuations and increased expenses in North America, it decreased because of the impact of the U.S. tariffs. Other regions saw an increase, mainly due to higher sales volume, improved model mix and other factors. Our China business saw increase in operating income and share of profit of investments accounted for using the equity method. Operating income in the Financial Services segment increased largely due to an increase in loan balances. Now, we will move on to the shareholder returns. We will raise the interim dividend by JPY 5 compared to the previous fiscal year to JPY 45 per share. The forecasted full year dividend will also be increased by JPY 5, reaching JPY 95 per share. We will continue to increase dividends in a stable and continuous manner to reward our long-term shareholders. As for share repurchases, in June of this year, we passed the resolution to establish a repurchase program of approximately JPY 3.2 trillion as part of taking Toyota Industries Corporation private. Therefore, no new share repurchase program will be established at this time. We will continue to conduct flexible repurchases of shares, considering factors such as common stock prices. Next, I'll explain the forecast for the fiscal year ending March '26. Consolidated vehicle sales remain unchanged from the previous forecast. Toyota Lexus vehicle sales has been revised upward by 100,000 units to 10.5 million units. Through the strong competitiveness of our products, we will capture even more robust demand, particularly in North America. Next, let me explain the full year consolidated forecast. We have adopted the full year ForEx rate assumptions of JPY 146 per dollar and JPY 169 per euro. Our forecast for the full year consolidated performance are sales revenues of JPY 49 trillion, operating income of JPY 3,400 billion, income before income taxes of JPY 4,180 billion, and net income of JPY 2,930 billion. The factors impacting operating income year-on-year are as stated on the slide, despite the impact of U.S. tariffs amounting to JPY 1.45 trillion improvement efforts such as increasing volume, model mix, cost reductions and expanding value chain profits are expected to result in a positive impact of JPY 0.9 trillion. To maintain and strengthen our earnings power, we will work with all stakeholders, including suppliers and dealers to leverage results of the strengthening of our operational foundations to further improve productivity. I believe, everyone here has seen the models we unveiled at the Japan Mobility Show. These cars speak more for themselves than I ever could. Each and every product is something that could not be created overnight. Toyota is a company managed through its products, which are the results of long-term efforts built up by many people. Our products were created by our development teams, production teams, suppliers, dealers, and of course, our customers and the market. The first half financial results reflect these efforts, and our cars have generated solid profits. And now, in addition to Toyota, Lexus, Daihatsu and GR, we are able to introduce the new Century brand. By having each brand take on clearer roles within the Toyota Group to form complementary relationships, we can expand customers' choices even further with a diverse range of products that meet the needs of each individual. We hope you will continue to have even higher expectations for the Toyota Group moving forward. A diverse range of products supported by such strong brands has led to 150 million units owned by our customers worldwide, and the value chain business has expanded to the order of JPY 2 trillion in operating income. This is the result of the efforts by our teams on the front lines in service, sales finance, used car sales, insurance, and other areas to maximize the value of each vehicle, supported by product strengths, such as ease of repair and strong supply of parts, as well as high residual values. The new RAV4 is the first to adopt Arene, a platform designed to efficiently develop software. RAV4 is our best-selling global model, with annual sales of 1 million units. We deliberately chose to lead with this challenging model. By utilizing the vast amount of data collected from roads and vehicles across the world, we will develop and refine SDVs together with our customers. By adding our SDV strategy to the virtuous cycle of the new cars and value chain businesses, we will further strengthen our profit foundation. Over the past two years, we have grappled with certification issues and lack of capacity head-on, carrying out to reinforce our operational foundation. As a result, we have thoroughly focused on safety and quality while securing additional capacity, leading to a stable production. On the other hand, investments in human resources and future-oriented investments have expanded, and, combined with the impact of U.S. tariffs, our break-even volume has risen significantly. To bring our break-even volume back onto a downward trend, we are launching a company-wide initiative. We will review the allocation of people, materials, and capital, and turn the results of the reinforcement of our operational foundations into earning power. We will pursue waste-free, value-added work and improve productivity, and also continue to focus on improving the break-even volume. This concludes my explanation of the financial results. Thank you.
Unknown Executive: Thank you very much, Kon-san. Now we would like to open the floor for questions. Let's prepare the stage.
Unknown Executive: [Operator Instructions] Your questions will be addressed by our Chief Financial Officer, Kenta Kon as well as our COO, Takanori Azuma from the accounting group. Please allow them to be seated as they respond to your questions. [Operator Instructions] In the second row in the middle section, please.
Unknown Analyst: I am Taguchi from Nikkan Kogyo Shimbun. Two questions. Number one, first of all, for the past several years, you are focusing on earning power. There must have been various external factors. But how have you raised your earning power with those efforts? And how has that been reflected in these Q2 results? Now 15% in September is something that we heard about the U.S. tariffs, as determined. And further, throughout the year, how do you plan to minimize the impact? I am sure you're working in various fronts, but probably you can tell us your directions.
Kenta Kon: Thank you very much for your questions. Well, earning power. So the first question was how our efforts have delivered, and that certainly is a question about our financial results themselves. As I mentioned in my presentation, JPY 2 trillion and JPY 3.4 trillion in operating income is what we have announced. We do have external factors, of course, but we do have global customers with very strong demand for products. And we feel that day in, day out, because of the high quality and the power of our products, which has been the result of our accumulated efforts. Regionally, North America, as you know, because of the impact of the tariffs, the situation is not rosy although I cannot share with you other than North America, for example, China, Europe, Asian markets and Africa. These markets, although the situation is not easy, but in terms of both revenues and sales volumes, we have seen some healthy situations. Brazil experienced some typhoons and hurricanes, but yesterday, we announced the restarting of the production. Actually, that has been brought forward by tremendous efforts made on the -- in the front line of our business, and that certainly is a part, a very important part of our earning power. In terms of our value chain, JPY 2 trillion annually is the revenues that we can expect for 150 million cars being owned, of course, is the basis of that value chain revenues. But once again, that represents the power of our products. Residual value of used cars, for example, is maintained very high. And also, Toyota vehicles are often said as being very easy to repair, because that concept is already built in, in the design of the cars. The repair personnel is involved in design so that easy to repair is an important part of our product, although it is not visible from outside. All of those components put together have been integrated into our earning power and that's the Q2 results. As for the second question of your is about the impact of the U.S. tariffs, how we responded successfully. I think I showed you some slide about that. Did I? Well, JPY 1.45 trillion is the impact from the U.S. tariffs. At the beginning of the year, our President, Sato-san talked about this. We really should not panic and try and respond hastily by raising prices of the cars. That's not our way. For each vehicle, each model, each region, we will scrutinize the competitive landscape and the market, and we carefully determine the price point. And as you can see on this slide, and of course, the efforts were not solely made to respond to the tariffs, but as you can see on the right-hand side, our improvement efforts amounted to JPY 90 million -- excuse me, JPY 900 billion, JPY 900 billion. And of course, that includes strong sales reflecting the strong capacity of the product as well as the value chain revenues. Do you have anything to add? Probably not. Thank you for your question.
Unknown Executive: So next to the previous questioner. Mizuno from Yomiuri Newspaper.
Mizuno Tetsuya: My question is to Kon-san. The Chinese semiconductors, the Nexperia, they shift Nexperia. What sort of countermeasures are you taking against that shortfall? Has it impacted you? And what sort of measures do you intend to take going forward, please?
Unknown Executive: Mizuno-san. If you could ask 2 questions at once? Or are you satisfied with just one?
Mizuno Tetsuya: Just one is fine.
Kenta Kon: Well, most recently, we have not seen any impact so far, but we do know that there's a risk. Therefore, we're trying to scope the impact and the areas where the impact would be felt, and we are currently monitoring the situation very closely. And of course, this is not only for Toyota, but it's, I think, for the entire supply chain, and we're looking for alternatives and what other options have available. We are researching such alternatives, and also monitoring very closely the impact situation.
Unknown Executive: May I have the person with the white jacket in front?
Unknown Attendee: I'm [indiscernible] from TV Tokyo. I have two questions, for Kon-san. Number one, about the U.S. market forecast. For the entire year, you have made some changes or not, no, you have not made any changes. But according to researchers, after October because of the tariffs, car prices could rise in the general U.S. market. So how do you view the North American market going forward? The second question is about what you mentioned in the second part of your presentation, earning power in order to regain the downward trend, the all-out efforts will be made. What sort of efforts will you be making in terms of breakeven volumes, for example, what level would you like to bring it back by what time frame?
Kenta Kon: Thank you very much for your questions. As for the North American markets going forward, as you mentioned and very rightly so the volumes that we expect have not been changed from the previous announcements. As we hear from the U.S., we see lots of very strong demand for our products. You may know this, the sales incentives tend to be really low, reflecting the strong value of our products. Still, we can barely cover the demand, and our inventory level tends to be rather low. And of course, on the front line, they are doing their very best in producing the number of cars needed. In terms of sales, therefore, we expect very healthy situations going forward. Now about the breakeven volumes in our earning power. I said that we will be making an all-on efforts involving different and various activities and initiatives. There are so many, I don't know, which one should take the highest priority, but enhancing the value-add work, eliminating wasteful tasks. For example, wasteful time of meetings with lots of people involved without much contributions. And of course, we'll be very careful in determining price point and increased sales certainly reduces breakeven volumes, our value chain revenues as well. We do not have the clear goals in terms of quantities, but we have seen this trend of increasing breakeven volumes, and we would like to see it decline.
Unknown Executive: Second or third row from the back, yes.
Unknown Attendee: Chikauka from Nikkei CrossTech. I have two questions as well. First question about hybrid. Hybrid is growing quite rapidly. So going forward, do you have any expectations about the future growth of hybrid going forward? As for EV, in 2030, 3.5 million units, I think is your base volume and you don't intend to change that base volume? That's the first question. Second question is about the price pass-through of tariff costs, tariffs basically speaking, or in essence, should be borne by the U.S. side. That is my recognition. If so, well, you mentioned that there's a strong demand for Toyota, which means that perhaps 15% of the entire tariff could be passed through to prices, and then for Toyota and for your cooperating companies that would lead to increased profit and would be beneficial for both. So would you say this is not as simple as that? Could you tell me your thinking on this point, on this issue?
Kenta Kon: Yes. May I? Regarding hybrid vehicles, it is growing very rapidly. And would that continue going forward? I guess is the gist of your question. Well, we believe that growth will continue. And I can't say, but from what I hear of from my observations of the market, the request for increased production toward hybrids and the demand from customers for hybrids is very strong. So we would like to accommodate such requests through production -- through increased production and accommodate the customers' requests, thereby increasing our volume for hybrids, I believe. As for BEV, well, we're looking at the actual demand, and it seems that compared to our initial estimations, things are actually declining. That is -- there's a shortfall against our expectations. And therefore, we have to look at the customer and market situation to at an appropriate timing, deliver good products that meet their needs. And the next one was about the price pass-through of tariff costs. Well, if you say that because you have such competitive product, if you increase your prices by 15%, it will be beneficial for all you said, but for many years, in the case of Toyota, we have many cars that's really been loved and used by our customers. For example, Carola, Hilux, Surf, or 4Runner in the United States or Highland Cruiser -- these -- we have many, many different models, and many customers are loyal to these brands. They continue to use them for many, many years, and many of our customers are fans of our cars, which means that for us to price these vehicles out of the expectations of customers is very difficult for us to do. So we want to enhance the value of these cars in order to charge the customers an appropriate price that meets that value, because if you outprice the customers' expectations, you can really lose their loyalty. So our method would be to take it step by step. As for hybrids, in 2025, I think somebody said it will reach 5 million units. Perhaps it was a goal that somebody mentioned, I'm sorry, I'm not quite sure about this, but 5 million in 2020-something, do you have a goal like that, a numerical target? You mean hybrids. Yes, hybrids. Really, well, at least I don't have any numbers firsthand on when we will reach 5 million, but the hybrid ratio amongst our -- sorry, 4.46 million units this year, that's about 200,000 unit up from last year. So this pace of growth, I think, we will -- we should maintain this pace of growth going forward.
Unknown Executive: Now person in the second row, in this section, please.
Unknown Attendee: I am Nakano from Nishinippon Daily. Now I have two questions. The first question is about Kandamachi in Fukuoka Prefecture. The battery plan for EVs. In April, you were to be -- to sign the MoU with the Prefecture, but now it has been prolonged and postponed to autumn. What is the progress? And also, 2028 start of operation that has been planned as well as the production capacity? Have there been any changes to your original plans? The next question is about taxes. Under Takaichi -- Prime Minister Takaichi, the tax treatment Minister has been appointed and some special measures could be taken in terms of taxes. And what is the view on that situation? And also, with the outlook for any preferential tax treatment. Do you have any outlook for that?
Unknown Executive: Thank you very much for your questions. As for the first question, Fukuoka Kanda battery factory, ongoing study continues. So I heard that is. Now we are talking with the Fukuoka government and stakeholders in Fukuoka Prefecture currently. As for the taxation, well, we have seen the changes in the administration in this country. Now there are various taxes involved in automotives and revising and changing of those taxes have been something that JAMA and other organizations have been advocating towards the government, Well, when it comes to taxes, we have to consider how we may be able to maintain monozukuri in production in this country in a healthy way. It's very important for the entire industry, not only for the automotives. I hope any form of taxes will be able to enhance domestic demand for the industrial products. Therefore, it is my belief that JAMA will continue to advocate for that.
Unknown Executive: Then the person in white at the very back of the room.
Unknown Attendee: From Kyoto, my name is Tokumitsu. I also have two questions. First question, the Japan Mobility Show is now on, and I saw the exhibit there. And the Century branding has come to a milestone, I think, but I think that some of these pilot cars are also viewed toward mass production. So do they represent the future production plans of Toyota. The second question is about the impact of tariffs? You said it was of JPY 1.4 trillion, but now that's been increased to JPY 1.45 trillion. So a slight increase. And in August, the -- you had calculated on a reduction in auto tariffs, but you did make that modification after the imposition of the actual tariffs in September. Is that the reason for this slight increase is the question?
Kenta Kon: Regarding the Japan Mobility Show, thank you very much for coming to our booth at the Japan Mobility Show. As you said, well, I don't know if we intend to mass produce all of them. But of course, several of these models overall be marketed in the future, at least I believe they will be. And I think this attest to the strength of our product competitiveness. That's it in a nutshell, but especially the Century brand was launched. We were able to launch a totally new brand called Century, which I thought was a very big step forward, because currently, new car names, new models are very hard to come by. But to start from starting a totally new brand, I think, was a major initiative in the company, and it's also a big message from us. The launch -- you may have heard the presentation to launch Century, our Chairman, Toyota said this is the pride of Japan. He said, Century, the car and the brand is the pride of Japan, he said. So from that perspective, it goes beyond just car model. I mean, I think, in Toyota, it represents not just a model, but something beyond that. So I do hope that you will take it as such. Regarding the second question, may I address that question? In the first quarter, it was JPY 1.4 trillion, but now we've added 5 million. And as you said, from mid-September, there was a 15% tariff imposed. That is a tariff level was decreased. So this is based on the recalculation of the impact of tariffs and the tariff impact will hit not only Toyota, but also our suppliers and about 70% of part and components -- well, the components and parts manufacturers account for 70% of the market. So we want to work together with them to overcome this. When I visit the suppliers, each supplier has, for example, embarked on labor-saving and also changing their processes, et cetera, to challenge new initiatives to address the impact. So in addition to the product competitiveness, we would like to master our forces together as a manufacturing industry to overcome the tariff issue.
Unknown Executive: The person on the left, please.
Unknown Attendee: I am Toyoshima, WBS TV Tokyo. Kon-san, I have some questions for you. As a result of the U.S.-Japan tariff agreement. What do you think of it? Well, actually, the end result was as Toyota had expected, 15%, but now you are expecting the JPY 5 million in negative increase, is it because you have taken the very conservative way of revisiting your numbers? Or is a situation really, really difficult? Well, shortly after the announcement of your Q2 results, your stock price went up a little bit, but now it began to decline. Probably the market expected more of the improvement in revenues and profit, but how do you view that? Are there any risks of downward revisions going forward or upward revisions. Any of you?
Kenta Kon: Thank you very much for your questions. Well, to be honest with you, what do we review the situation? Well, they are striking the agreement itself is something that we are extremely thankful to the government officials. Without anything being decided, we really cannot plan on production in the automotive industry, which certainly is a very big industry. So uncertainties would not lead us to focus, cannot plan on cost reduction, cannot plan anything. Therefore, I really would like to thank all those people who are involved in the negotiations. And it is not a small improvement. And certainly, we will have to work on what we can do, both short term and mid- to long term in order to make further improvement, not only North America, but procurement, production, sales and marketing, all of us have to work together to bring about some positive results. Are you relieved? Or do you still see the situation to be rather difficult? Well, I would say both. Well, upward revision or downward revision possibilities. Actually, we are often called being very conservative in our projections, but I do believe we are being pretty neutral about this. But of course, towards the end of the year, we certainly do make efforts so that we can provide you with the -- even the slightest upside. Thank you very much for your questions.
Unknown Executive: Now we'd like to entertain questions from participants online. And after that, we'll come back to the people in the audience for questions. [Operator Instructions] Okay. Terasaki-san from Best Car, please.
Unknown Attendee: Can you hear me?
Unknown Executive: Yes, we hear you.
Unknown Attendee: This is Terasaki from the Editorial Department of Best Car I have two questions. First question. Well, it's been mentioned several times about the value chain and that it takes up a big portion of your operating profit. And looking at the graph, from 2020 for 5 years, you've probably increased your operating profit from value chain by double. You're doing many things. I think, of course, value of used cars is increasing. But 5 years ago, I believe the residual value of your used cars was still very high, but the operating profit doubling, I think, is something really a tremendous feat. So specifically, what pushed up the operating income so much? And you have 150 million cars in position. That's quite a large number, but 5 years ago, I think you had similar numbers. So what changed to boost the operating profit in the value chain so much over the past 5 years to the extent that you can disclose? That's the first question. Second question, since this is a good opportunity, you talked about the Japan Mobility Show, but in the booth in the Southern Hall, it was a very popular in Century. There was a 40-minute waiting line to view the Century. And so for the mobility show as a whole, I think the Japanese market will be boosted and galvanized. So if you could, Kon-san, talk about your impressions about the heat at the Mobility Show?
Takanori Azuma: Yes. First question will be addressed by myself, Azuma. The value chain, well, about 7 years ago, for the employees and to the outside, the -- then President talked about leveraging on the ownership and 6,000 stores and overseas 16,000 dealership network, leveraging that strong dealership network to communicate one-to-one basis with our customers. And that declaration was made in 2017 or '16. And then we started Tinto, and about 5 years ago, the car ownership was a little more than JPY 100 million. But over the last 5 years, thanks to you, new car sales has been increasing 10 million a year. And also, our ownership of our cars has also increased. And against that backdrop in Europe, we extended our guarantee period so that we can entice customers to come to our dealers more often. And as the years go by, our -- we lose contact with our customers, but we wanted to recapture that content -- contact, sorry, to have them come to our dealers and purchase supplies and accessories. And that cycle has now begun to turn, and that's now expanding from Europe to the other regions. So that's one major initiative that led to this. And in Asia, we offer second part that is more inexpensive accessories and supplies and also financial services are provided. So we want to utilize the dealership network to extend our touch points with the customers. And just the head office telling these regions what to do, you'll not come up with good ideas, but such good practices are now being leveraged across various regions, and we are building on these good practices, sharing these good practices, and that's leading, I think, to the very good results we are seeing today.
Kenta Kon: About the Japan Mobility Show. Thank you very much for your attendance. And my question about the Japan Mobility Show was your question. Well, we had such a large turnout so many customers who were viewing our cars with joy. And I was very, very happy to see the delight on their faces. The Japan Mobility Show, Motor Show, well, I think all across the world, you see regions where the scope or scale of these mobility shows are being reduced. And they're shifting toward the electronics and the electrical components of cars. But in Japan, we call this a Mobility Show. It's a show for mobility, and to have so many people come and delight in these exhibits and have fun. We were really encouraged and heartened by them. And looking at the smiles on the faces of customers, we are very, very happy ourselves.
Unknown Executive: Now let's come back to the on-site journalists. In the middle section, the second row from the front.
Unknown Attendee: I am [ Matsumi from Trinity Daily ]. About the United States, I have 2 questions. President Trump the other day talked about $10 billion investment for Toyota to build a new plant in the United States. So what is your take on what he had said? And have you made any changes to your investment plan in the United States? So that's the first question. Second question, the U.S. government talked about Toyota expanding its dealers network to sell other brands' cars. Is it true? And if you -- if it is, when are you starting that effort?
Kenta Kon: Thank you for your questions. For one thing, $10 billion, I read that in news. Now the United States really wants to see employment increasing and customers should be served with next generation of cars and services. Therefore, we do plan sizable investment plan going forward. I cannot really say it's $10 billion, but I would say Toyota will continue to make a sizable investment in the United States. I have to limit myself to that. Now in terms of Toyota's dealership to sell imported cars, well, Toyota makes cars in the United States. So we are considering doing something about the Toyota cars made in the United States. Now how about other OEMs? Vehicles being sold in Toyota's dealers network. Well, it is not for us to decide. But if there are any demand or requests for that end, then we may consider it.
Unknown Executive: Yes, the person in front of the microphone with a spectacle.
Unknown Attendee: Ohira from Asahi newspaper. It's related to that. I have 2 questions on tariffs. First question. Toyota, you're considering selling U.S.-made cars in Japan and that was announced when President Trump came to Japan. But considering the briskness of the U.S. market and also the U.S. and Japan production capabilities and cost of transportation, it doesn't seem to be very economically rational. So what would be the goal or what was the motivation of doing this if you're going to do it? Also, second question in relation to that, the -- for the cars assembled in the United States, conventionally, you are procuring parts from across North America. Now these parts may be replaced by U.S. domestic made parts. Are you considering such a shift? Or have you already started such initiatives?
Kenta Kon: Yes. Thank you. First question -- I'd like to address the first question about the economic rationale, what's the meaning of -- or rationale behind engaging in reverse imports. As you say, when you look at the economic situation currently, it may not be such an economically rational initiative. But it may deliver to Japanese customers products that are not easily available in Japan. And of course, the model segments, et cetera, and how to price these models, what sort of supply structure we will take, there are many challenges. So we will consider all these challenges to consider what sort of business we can make out of that offering. So we are currently making preparations now. So that's it for the first question.
Takanori Azuma: Thank you. Regarding the second question about the local production in the United States, and of course, this is not just limited to the United States, but in all regions of the world, we want to produce locally and procure locally so that we can manufacture cars on that basis in each region. For example, this year, in North Carolina, we have built a battery plant, which was a major decision, and this led to increasing the local procurement rate in North America. So our plan to produce locally as much as possible remains unchanged. We would like to move -- make efforts toward that end going forward.
Unknown Attendee: How about Mexico? How about replacing with the Mexican parts? Are you considering such a possibility?
Takanori Azuma: Well, currently, we have no concrete plans to do that yet. But let me consider the suppliers who have already made forays into the local market and the manufacturing they do there. And of course, they are hiring employees, and they have to, of course, create a livelihood of their families as well. Therefore, I think we'll have to take all that into consideration when we make such decisions.
Unknown Executive: The 2 people who have raised their hands will be the last to ask questions. Let's begin with you.
Unknown Attendee: I am Fukui from Nikkan Jidosha. I have 2 questions. So your sales remains brisk because of your product competitiveness. Even the ever better cars that you have advocated for the past 10 years certainly delivered the results. Now at the Mobility Show, you announced a new brand strategy, which sounds a bit futuristic. In 2024, you experienced the certification irregularities. And at the time, you revisited your product plans altogether. And you launched various projects to do so, revisited them and some projects, I understand, have been either delayed or canceled. What sort of impact do you see now out of that because development takes 2 to 3 years? Your healthy product portfolio towards the latter half of 2020s, do you think you will be able to maintain momentum and that would impact your profitability? So I would like to learn your midterm view. In relation with that, your investment in the United States has been mentioned this year, for the year, you increased number to about -- by 130 units, but then your production plan remains at around 10 million and in United States, you have a very low inventory level because your cars are selling so well. So how do you plan on your capacity increase in terms of production? Because just increasing the capacity would only increase your fixed cost. So how do you plan to go over 10 million vehicles? Do you plan to enhance your alliance within the group and to be more efficient in procurement of components? So what's your plan going forward?
Kenta Kon: Thank you very much for your questions. About the product competitiveness for the midterm future, it seems that you may have a question about that. Well, 2 years ago, we did experience the certification irregularities, and we put on lots of efforts in reinforcing our foundation. Well, sometimes we had to halt our production lines. So 2 years ago, 1 year ago, we experienced that quite frequently. That is not about the product competitiveness, but it was about the production. But certainly, those hiccups we experienced in the past, but they have decreased -- they have been decreasing very rapidly. It is still increasing the fixed cost rapidly will have a future impact. Therefore, we really have to be careful when we plan for that. For example, it may be an impact of 1 second or 2 seconds on the production line, but we have to make steady efforts in order to enhance our productivity step by step. We are not talking about thousands or hundreds of thousands of vehicles or million vehicles to increase in our production. So when it comes to the product competitiveness in the midterm, we will make sure that we will maintain that going forward. That's all from myself. Anything would you like to add?
Unknown Executive: Final question, the person in the very front row.
Unknown Attendee: Yao from Nihon Keizai newspaper. I have also 2 questions as well. First question. Your management is based on product and region. So one of your access is, of course, the region and you want to be the best in town. So compared to other manufacturers you have a revenue structure that's not biased in particular countries or regions. So what sort of impact do you feel from the tariffs on this regional-based sales operation? And another is related to this. You -- about maintaining the production capacity of 3 million units a year domestically in Japan. In the previous financial results, you also announced about the new construction in Toyota City of a factory, but due to increased tariffs by the United States, your export costs will increase. And I believe that you announced that you will adjust destinations to adjust for that. So how do you intend to work towards maintaining the 3 million units production capacity in the domestic market in Japan?
Takanori Azuma: So I'd like to address the first question. Well, we manage our company based on product and also region, and we are also managing company based on that. And about 10 years ago, we were skewed on North America. More than half of our sales was from the United States and the remainder from the rest of the world. But if we had been imposed such tariffs with the same sort of situation, then the impact would have been much larger. So we have to think first about the customers in each region to engage in our business operations, and that's done by the regions. The same for revenue Lexus customers, GR customers and the mini car companies, each are attended to by each of these divisions or regions. So the regions are working hard not against each other, but in a balanced manner, and that's why we have a very good revenue structure. For example, in Africa, in the past, Africa was part of the other -- the rest of the world. Also, Latin America was the same. But these regions have been referred or transferred to Toyota Tsusho and with Zephyr I think it's being run by -- that business is run by people who think first about Africa. So they support very high revenues in Africa. And in the earnings report, Japan, Asia, Europe, Africa and the other regions, and the other regions are actually leading the revenue for us. And within Asia, India and also in Europe, there were some very difficult regions where Toyota were using these markets to polish our products, but now these regions are seeing an increase in revenue. So we're very well balanced in terms of regions. And so all of Toyota is making a global effort to accommodate the U.S. tariffs. And so we would like to ask each of the regions to actually focus on their respective regions and the businesses there.
Kenta Kon: Regarding the 3 million production capacity and our strategy vis-a-vis local production, well, 3 million units domestically is a very, very important goal for Toyota. We have the field, genba, right next to the production facilities, which enables us to turn that cycle very rapidly. And that would help monozukuri or manufacturing prowess in Toyota. And so that becomes a source of our global competitiveness, I believe. Of course, to safeguard monozukuri or manufacturing in Japan, we need to maintain or retain a significant amount of domestic production because if that declines and then the supply chain will also weaken that could lead to or impact jobs and others. So we have to earn foreign currency and purchase resources to run the domestic business. I think that's how we survive. And so domestic production in Japan must be safeguarded and protected. On the other hand, local production is important too in many ways. And I think to manufacture where the customers are, to sell where there is a market for the product or to produce where there's a market for the product. And also, we must develop components and parts or vehicles that match those needs. And then that's best produced locally. So in Japan and non-Japan areas, perhaps we can allocate the production of different models. That sort of adjustment is done. But we don't intend to transfer something drastically from Japan to the United States or overseas to Japan. We're not discussing such drastic measures. We will continue as we have in the past. Thank you.
Unknown Executive: Thank you very much, ladies and gentlemen. It is now time to close the session. Thank you very much for being with us today. Please excuse the presenters. With this, we would like to conclude TMC's FY '26 Q2 Financial Results Briefing. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]