Toyota Motor Corporation

Thank

you

very much for participating in this financial results announcement despite your occupied schedule. We would like to start the presentation on the financial year 2023, second quarter financial results. First of all, let me introduce to you the participants from TMC. Executive Vice President, Chief Financial Officer Kenta Kohn.

Chief Communication Officer Jun

Nagata.

The Chief Officer for

Accounting Group Masahiro Yamamoto.

Chief Officer

of Purchasing Group Kazunari Kumakura.

And Deputy Chief Officer

Production Department Yoshio Nakamura.

Now ladies and gentlemen, first of all, Yamamoto

will share with you the outline of financial results.

We would

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

And I would like to

express our appreciation for those of you who are participating in this financial results announcement. At the same time, we sincerely apologize for the inconvenience caused to our customers who are waiting for their vehicles. We are working to deliver them as soon as possible. First, let me provide a summary of the second quarter of the fiscal year ending March 2023.

The result for the first half was operating

income of 141.4 billion yen. The business environment is changing dramatically, such as the rapid changes of foreign exchange rates, rising interest rates, soaring materials prices and more. While production constraints continue due to low supply of semiconductors, a lockdown in Shanghai, the flood in South Africa, et cetera, we worked hard with our dealers, suppliers and production sites in order to deliver as many cars as possible to our customers. Operating income decreased due to soaring materials prices and one-time costs despite the positive effects from the depreciation of the yen. As for the full year forecast, it remained unchanged from the previous forecast, so we anticipate operating income of ,000,000 yen. We have revised our vehicle production forecast downward by 500,000 units to 9.2 million

units. Taking into consideration risks such as the

procurement of semiconductors, we will continue with our activities to strengthen our profit structure throughout the supply chain, even though we are in a situation in which it is difficult to predict the future due to rapid changes in the business environment. In terms of return to shareholders, the interim dividend is 25 yen per share, an increase of 1 yen compared to the previous fiscal year. We have set aside the full amount of 150 billion yen to make share repurchase in a pristine manner. Let me explain our financial results for the first half and September 2022, covering the six months from April to September. Consolidated vehicle sales for the period was ,159,000 units, that is .6% of the same period of the previous fiscal year. Toyota and Lexus vehicle sales was at ,742,000 units, which was .7% of such sales from the same period of the previous fiscal year. As for the regional sales breakdown, the sales volume decreased in developed countries due to production constraints, but the sales volume increased in regions such as Asia and others due to recovery from the impact of COVID-19. Consolidated financial results were sales revenue of ,709.3 billion yen, operating income ,141.4 billion yen, income before income taxes of ,834.2 billion yen, and quarterly net income of 1,171 billion yen. 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 565 billion yen. Second, cost reduction efforts decreased operating income by 650 billion yen, largely due to the impact of soaring material prices, which account for 765 billion yen. Third, marketing efforts increased operating income by 130 billion yen. Fourth, an increase in expenses decreased operating income by 310 billion yen. Lastly, we also incurred a negative impact of 341 billion yen, largely due to swap valuation losses and cost-determined reproduction in Russia. As a result, excluding the overall impact of foreign exchange rates, swap valuation gains and losses and other factors. Operating income decreased by 830 billion yen year on year. Let me explain the operating income for each region. Japan increased by 50.1 billion yen year on year due to the effects of foreign exchange rates. Despite the negative effect from soaring material prices, North America decreased by 332.1 billion yen due to soaring materials prices and increase in expenses. Europe also decreased by 106.5 billion yen due to soaring material prices and the cost of terminating our production in Russia, despite the positive effects from our marketing efforts. Asia increased by 62.8 billion yen year on year due to the effects of foreign exchange. Other regions decreased by 15.2 billion yen. In the next slide, let me explain the business in China as well as financial services. As for business in China, while the operating income consolidated, some figures decreased because of the decrease in sales volume or sales profit of investment accounted for by equity method increased year on year, mainly due to increase in sales volume and effects of foreign exchange rates. If natural services business, the operating income here increased year on year largely due to the impact of foreign exchange rates, increase in earning assets and others. With respect to the shareholder return, we decided to pay an interim dividend of 25 yen per share and increase of 1 yen, and we intend to continue to maintain and improve consolidated dividend payout ratio as well as a stable and substantially increase toward our shareholders who hold our shares over the midterm to long term.

Now let me explain the forecast for the fiscal year ending March 2023. Please note that the volume, sales revenue and operating income of Hino Motors are included in numbers from this forecast. Let me explain the vehicle production forecast for Toyota and Lexus. We have set a high production plan of 9.7 million units and worked hard with the suppliers and production sites in order to deliver as many cars as possible as soon as possible to our customers who have been waiting for a long time for their cars to be delivered. However, it is still difficult to predict the future due to risks such as procurement of semiconductors. Therefore, we decided to revise our plan to 9.2 million units, which is down by 500,000 units from the previous forecast. We intend to continue to consider all possible countermeasures and make every effort together with our suppliers and production sites. For consolidated vehicle sales volume, we have revised our forecast downward by 50,000 units from the previous forecast and we now anticipate 8.8 million units. Regional sales breakdown is as stated in the presentation. As for the sales volume for Toyota and Lexus vehicles, we have revised our forecast downward by 500,000 units from the previous forecast and the new forecast is 9.4 million units. Let me explain the full year consolidated financial forecast. We have adopted the full year foreign exchange rate assumption of 135 yen per US dollar and 137 yen per euro. The foreign exchange rate for October onwards is based on a three-month average rate of the second quarter, which makes the foreign exchange rate assumption at 135 yen for both per US dollar and per euro. Based on this, our forecast for the full year consolidated financial performance are sales revenue of 36 trillion, operating income of 2 trillion 400 billion, income before taxes of 3 trillion 340 billion, and net income of 2 trillion 360 billion. Now let me explain the factors that may impact operating income as compared to the previous forecast. First, the effects of foreign exchange rates will increase the operating income by 220 billion. Second, cost reduction efforts will increase operating income by 60 billion. Third, effects of marketing activities will decrease the operating income by 185 billion due to the decrease in sales volume from supply constraints and worsening of sales mix. Lastly, we also believe that we will incur a negative impact of 90 billion yen on operating income due to swap valuation issues and the cost to terminate our production in Russia. As a result, we have kept the operating income forecast unchanged from the previous forecast. The factors that we expect will impact operating income compared to the same period of previous fiscal year are as shown in the presentation. Although we are in a situation that makes it difficult to predict the future due to the

current financial structure. Colin, EVP speaking. Today's financial results announcement relate to the performance of Toyota over the past six months. However, these financial results reflect not only what has occurred over these six months, but also the outcome of our longstanding efforts since the global financial crisis. I believe they also reflect the competitiveness of Toyota as a whole, including our many colleagues in the auto industry. So that customers around the world will want Toyota products, we have continuously evolved our products by introducing such things as an in-house company system, a regional system, and the TNGA common vehicle platform. We believe that this has resulted in our products being accepted by the market. However, the environment has rapidly and significantly changed in the last half year. The U.S. dollar-Japanese yen exchange rate, which since 2017 had long remained stable between 1.05 yen and 1.15 yen to the dollar, rose from 1.21 yen at March end to 1.50 yen recently, while the yield of 10-year U.S. government bonds has risen from 2.3 percent to 4.1 percent. Also, as shown in this slide, energy and materials price, as well as the worldwide labor situation, are rapidly and significantly fluctuating. All of these tremendous changes, including the semiconductor procurement situation and the fact that the factors are occurring concurrently and for the broadly based auto industry, these changes could have a significant impact in the future, as well as my honest feeling is that it is difficult to predict the future of the auto industry, even six months ahead, let alone Toyota's earnings and production volume. With respect to our response to soaring raw materials prices mentioned in the first half of the analysis explained by Yamamoto, we have been constantly discussing with suppliers without drifting away from our focus of enhancing competitiveness over medium and long term. The cars consist of about 30,000 parts, and competitiveness cannot be increased by Toyota's efforts alone. Faced with the soaring raw materials prices, Toyota and each and every one supplier's work in one to implement measures to address these things.

Even now, the auto backlog issue is our solution is not in sight. Although the production volume forecast is revised, doing our utmost to deliver to customers who ordered early as soon as possible, this basic stance has not changed. In reality, there are many difficulties, and we apologize for the wait, but we continue to make efforts. And there have been many times in the past when it was difficult to predict the future, such as at the time of the global financial crisis. And every time we had a major impact, we are seeing changes that are beyond the scale we have seen before. I believe that our efforts that have been ongoing for a long time allowed us to manage to maintain production level. The product-centric management we have implemented following the global financial crisis has not only strengthened our production competitiveness, but also holds manufacturing skills and techniques at our suppliers and production sites. It has also led to significant improvements in efficiency in development, sales, and production, which allowed us to reduce the break-even number of units by more than 30 percent compared to before the global financial crisis. I believe that this is a result of steady efforts with many stakeholders over a long period to improve our structure. Since 2009, Japanese auto and parts industries have invested a cumulative 28 trillion yen in R&D and 23 trillion yen in capital expenditure, and have provided customers with attractive products to create numerous jobs, to pay taxes to the national and local governments, and to obtain foreign currency to finance energy imports. The Japanese auto industry has grown by sharing with many people the value created by mobility. I believe this is a tremendous strength that will enable the entire Japanese industry, including the Japan Automobile Manufacturers Association and the Japan Auto Parts Industry Association, to move forward as one team, even in these times of great change. This is something that has never happened before. Even now, headwinds such as sudden production increases and decreases due to the semiconductor shortage and rising cost due to soaring material prices continue. Although we cannot predict the future, we will leverage our long-cultivated competitiveness, profit structure, and strong bonds and relationship of trust that we share with our many colleagues in the auto industry to overcome challenges and further increase our competitiveness. We sincerely request your support. We will now start the Q&A session. If you wish to ask a question, please use the raise hand button on the screen. When we call on you, please turn on your camera and microphone. We would like to take as many questions as possible, so I would like to ask a number of questions for each person to two. Let us start with Mr. Yamamoto of Yomiuri Shimbun. I

will switch the screen, so if you see yourself on the screen, please turn on the microphone and start speaking or demute the microphone and start speaking. Mr. Yamamoto, could you start asking your question, please? Thank you very much for this opportunity. Yamamoto of Yomiuri Shimbun, thank you for the presentation. I have two questions. Question number one, the financial results that you have announced today, what is your assessment of that? Could you explain that once again? The second question relates to the volume, especially production volume. You made down the revision to the production volume in this announcement. I think the greatest factor behind that was the supply shortage of semiconductors. What sort of semiconductors are in short supply? And in order to recover and in order to increase the volume, what sort of measures do you think are necessary? Thank you very much. Thank you, Mr. Yamamoto, for your question. I think there are two major questions. One related to our assessment of the financial results that we announced today. The second one related to the down the revision of production and what is the semiconductor short supply and what sort of measures do you think are necessary for do we think are necessary for recovery? The first question will be answered by Korn, and the second one would be responded by Nakamura. And the third question, Mr. Kumakura of the procurement department will respond to that. Korn speaking. Thank you, Mr. Yamamoto, for your support. I would like to share with you how we assess and how we view the financial announcements. Let me share with you my view. As I mentioned in the presentation earlier, in the past six-month period, there has been major and significant changes, not just one, but several of those changes taking place concurrently. Exchange rate fluctuation was one of them. Interest rates, the raw materials prices, the energy semiconductors, and also the COVID impact still lingers on. And therefore, we are faced with a huge changes, and each one of them represented the change impacting us significantly, but we were hit by all of them at the same time. So this six-month period was a very demanding and difficult period. But despite that, the level of profit,

it's not that we just

are focused on and assess the profit level, but we've been able to secure profit, and we caused conveniences to customers and suppliers because we had to decrease production from the previously announced levels. But still, we think we were able to keep the current level of production. Compared with the past levels, we were able to maintain a very high level of production. This, I think, owes to the assiduous efforts we made over many years. And at the same time, this was not made possible by Toyota's efforts alone, the carmakers, members of JAMA, and also the suppliers. And everyone made focused efforts considering what we should be doing to deliver vehicles, and how can we deliver as many cars as possible to the customers. We shared those objectives and purposes together, and the fact that we were able to create such an environment was very important. This is not made possible through efforts overnight. I think this is the financial results that really made us really grateful for such an environment. But at the same time, the profit decreased, and therefore we would like to achieve as much recovery as possible -a-vis the impact of soaring raw materials prices for a single year. Probably it will be extremely difficult and demanding for us to achieve recovery in a single year, B2C business, and with the full lineup of product lines. And we have many suppliers. We may not be able to make that achievement in a short period of time. But even if it may take longer than we expect, but we would like to achieve the solid recovery, and we intend to plan for that purpose. Thank you very much. That's all from me.

Thank you,

Mr. Yamamoto, for your question. With respect to the production plan, let me respond in the following manner. Let me explain the background that led to the downward revision of the production plan. Since last year, supply has been interrupted, and the production continued to decrease. And so from suppliers and those in the actual forefront of the production, they were really seeking support. And in the Labor Management Council this year, we decided to take a pause and re-examine and review the production structure itself. And therefore, we have decided to take the intentional pause. And while we have done that with suppliers, we continue to have a very attentive and detailed discussion with the suppliers. And also incorporating future risks, we were able to come up with a plan and share that with the suppliers in advance to facilitate the suppliers to create their own plans. So we made such communication efforts

in earnest.

And in the early part of last year, we set $9.7 million as the baseline. But of course, we have been making every effort to deliver as many vehicles as possible to customers, and we made efforts to do that. But not only the supply issues relating to semiconductors, we are faced with the lockdown in Shanghai. And we were hit by many natural disasters this year. And those are unexpected events. And because of those events occurred simultaneously, even if we wanted to make more cars. And even though we made every effort to that end, we were unable to achieve what we wanted to do, causing some convenience to customers and suppliers. So that's the environment in which we had to operate. But with suppliers and with the departments concerned, prepared the maximum amount of facts to predict and read the future and what is likely to take place in the future. And every day we had repeated discussion with suppliers and departments in question. However, when it comes to specific numbers, we think that probably we may be able to produce 9.55 million units. But as I mentioned earlier, we have not been able to fully predict and forecast the future risks. And therefore, bearing that in mind, within the range of 2.55 million to 9.2 million units, we came up with this new figure as a reference baseline point. So that reflects the background that led to 9.2 million we announced.

Continuing on, I would like to refer to

the supply situation of semiconductors. What is the actual situation, including the past history? I would like to share with you a detailed account as much as possible. Because of the COVID-19 breakout, the semiconductors

for

consumer electronics increased in demand because of the PCs, smartphones and games. And the production was prioritized for consumer electronics. And also some of the semiconductors were hit by natural disasters of fire and also the lockdown in Southeast Asian countries or China that really impeded supply, which couldn't get faced with the demand. And such conditions still continues today. Since Great East Japan earthquake, Toyota has been implementing BCP risk and we have increased electronic parts inventory and working together with tier 1 suppliers. Up until the first half of 2021, we have been able to keep at the limited level the negative impact on production. The general condition I described continues even today. In terms of the usage of semiconductors in the automobiles, for different usage, the automobiles use different types of semiconductors. In many cases, 1,000 semiconductors are used per vehicle. As shown on this slide, the microcomputers, the

power semiconductors, image

conductors and analog semiconductors, all together, about 1,000 of them are used for vehicles. And with the advent of electrification and also with the enhanced level of advanced safety measures, the usage for automobiles or semiconductors is expected to increase. In the case of semiconductors from raw materials that moves to

pre-seeding processes as well as the following processes,

there are many different semiconductor manufacturers and for each process, those production is divided in different parts of the location throughout the world. And even if one element of the semiconductor is in short supply or eliminated, a single car cannot be built. With respect to the current situation of the semiconductor supply, for the automotive semiconductors, in terms of the total semiconductor market, it accounts for about 10%. So about 10% is for automotive use, and the majority of the semiconductor market is accounted for by telecommunications or data processing and also combined for electronic consumer usage. For electronic consumer semiconductors, because of the active investment, the supply and demand situation has relaxed. And in the case of automotive semiconductors,

some of the

stability of the supply was restored in those areas, semiconductors that are also used for electronic consumers. But in the case of semiconductors for which the capital investment is not really cutting up or capital has not been done, in this area, the supply is still in shortage. Very tight supply and demand condition continues, and in that, collaborating with the tier 1 suppliers and strengthening communication with the semiconductor manufacturers, extending support for logistics of production and also switching to substitute products, we have been able to steadily decrease the number of semiconductor items with inherent risks. But at the same time, as I mentioned earlier, for some parts, the inventory is very short. And in the overall process of semiconductor manufacturing process, which extends for several months, if a single day production is impeded, that will result in stoppage of supply. And this situation is likely to continue. As I mentioned, external environment remains tough, but we have been able to visualize the semiconductor products with risks apparent, and working with tier 1 manufacturers, the semiconductor producers will implement every possible measure to address them. In this manner, for two years and a half, every single day, we have been conducting supply measure conference and meetings. We discussed not just semiconductors, but natural disasters, the COVID impact among others, which resulted in difficult supply conditions. So every day, we had emergency supply measures for the past two and a half years, and therefore there's no longer emergency.

It

is in constant error. But at the same time, in the procurement with the suppliers, both in Japan and overseas, we are conducting overall stocktaking of parts and components, and how best we can maximize the production of vehicles is discussed every day, and measures are implemented so that that can be referred to the actual production and assembly plant. And in the sales area, although we are not able to foresee the future, but trying to minimize the conveniences caused by customers is impossible. We are trying to change the supply. And in the design area, how quickly the substitute products and components can be used are studied every day. For suppliers, for a long period of time, we cause impact from our decrease of production, and we cause inconveniences to supply here among others. But that notwithstanding, in line with the production plan, they have been making efforts alongside. And the impact of semiconductors continues to have impact. And as I said, we are anxious to produce as many vehicles as possible, but contacting customers, we are explaining the reasons why the delivery is extended among others. So in this manner, all of us are working hard, working together to overcome the current difficult period. And I personally do have the serious efforts, serious feeling that we feel sorry for customers, for inconveniences. But at the same time, I'm full of grateful features because everyone is making serious efforts working together. So I hope you understand the situation. Thank you very much. Thank you, Mr. Yamamoto. Let us

move on to the next question from Asahi Shimbun, Mr. Narabe. We will switch the screen. So when you see your face on the screen, please start asking the question.

Mr.

Narabe, thank you for waiting.

Mr.

Narabe, your microphone is not on. Now can you hear me? Yes. My name is Narabe from the Asahi Shimbun.

I

have two questions.

The

first question is electricity charges and other material charges increase. Toyota has supported suppliers in the past, and they have announced that they will support them. And if you go down that tier, like secondary or tertiary tiers, they are struggling more.

So

what are the support measures to the parts manufacturers and suppliers? And how do you support them? And how much will it cost on an amount basis? And the second question is, as you mentioned in your presentation, worldwide we are seeing an increase in interest rates. For North America, I think this will have a direct impact on your lease business. And this may bring down consumption. So what is your outlook for the global economy? Thank you very much, Mr. Narabe. Your first question was about soaring material prices and how to support the supply chain and the suppliers with which we have a business relationship, and in particular, how to support the secondary and tertiary suppliers. So what kind of support and how much of a support will we give? Mr. Kumakura from procurement will answer that question. Your second question was about the interest rates, in particular North America and globally. So global economy or global market

forecast,

how will it change in the future? So I will answer that question.

Now, I will

talk about soaring material prices.

So

there are many changes, and it's very difficult to predict the future. Many materials are tight in supply and rising in prices, and so the surrounding environment is very difficult.

Now,

for the concern of deceleration of the global economy, depending on the material, the market is becoming more stable, but overall, still the prices are very high. And in Japan, because of the weaker yen, the import prices are going up. In particular, raw material and energy prices are going up, which is a burden to our suppliers. Our basic stance is that we aim at coexistence and mutual prosperity with the suppliers. Cars consist of tens of thousands of parts, and there are about 60,000 suppliers, including the very deep tier suppliers. So there are many suppliers supporting us. A single part or a single company missing will not allow us to produce vehicles, and that will lead to reduction in competitiveness in the future. So it is a difficult time now. So rather than short-term measures, we have to look at the medium to long-term, and the supply chain as a whole will have to collaborate with each other.

So with

a sense of purpose, we will move forward. For our major materials, which market data we will look at and when that data will be reflected in prices, has been discussed with the suppliers, and we set a rule. And the 100 percent of the changes are reflected in the parts of prices. However, the speed and the scope of increasing prices in the short term is unprecedented. So the burden on the suppliers is much larger than what we have incorporated into the rules. So the timing of reflecting the prices in the parts prices are reviewed to reduce the burden, and we try to come closer to the reality so that the burden on the suppliers will be weaker. We take the necessary countermeasures.

Now on the energy cost.

In the past, there were no drastic changes, and we haven't had any voices from the suppliers to reflect those changes in the prices. So regardless of the market, that was not reflected in the prices. However, because of recent sudden and drastic changes, suppliers are telling us that they are struggling. From the viewpoint of protecting the suppliers, this time we decided to take measures. So we will continue to look at the market, production status, and the profitability of our suppliers in detail to take the necessary responses. So we are taking these responses, but this effect will have to be permeated to all suppliers. Because of the commercial practices, we will not be directly talking with tier two suppliers on prices. In order to maintain competitiveness in the future, we have to make sure that the effects will be felt by tiers at all levels, from tier one to tier two, from tier two to tier three suppliers. We are asking them to swiftly reflect

the

market change in the price changes. And I believe this will lead to enhancing competitiveness in the future. And that is why we are taking these measures. There may be further changes. We will look at the situation each time to take the necessary responses. Overall, we have to make sure that the supply chain is not impaired. If that happens, we will not be able to produce vehicles. And therefore, we need to make sure that the suppliers become stronger. So please understand that situation. Your next question was about the global market. I think I should talk about each region specifically rather than talking about the totality. First, the overall economy. Frankly speaking, as you mentioned, Mr. Narabe, the energy supply issue leads to inflation, and that leads to a hike in interest rates. So that is the spiral that we are in now.

What

we are struggling with is that from the second half of 2022 to 2023, recovery from COVID has been the general trend.

But the

recovery trend and the interest rate hike and the inflation

increase leading

to a less disposable income of consumers. If you look at that balance, it's very difficult to determine what will be the overall balance. And based on that, we created our forecast. Look at America, Europe, and Japan. So I would like to talk about these markets in comparison to 2022. For 2022, for these three regions, there has been supply constraints. So we saw a global supply constraint. For 2023, the current outlook is that for Japan, the United States, and Europe, the market will increase.

But as was mentioned in your

presentation, interest rates will go up. And the customers are thinking about lease and loans. So how much impact this will have on the lease and loans is something that we have to watch carefully. On the second point, which is China, just the same level as 2022 is what we forecast. Now, among COVID, because of COVID, there has been some subsidies activating the market. So how that will change and how the market will move, including the real estate situation, will have to be watched closely in China.

And for Asia,

India probably will be higher than this year, but for the other countries and regions, just the same level as this year. On the other hand, for Asia, the risk is weaker currencies, and how that will impact the local economy is something that we will watch closely. For 2022, we saw a supply shortage, but compared to 2019 before COVID, the overall market will achieve about 80 to 90 percent of 2019 in 2023. So we will look at the situation in 2023 and make our business decisions.

So

I mentioned this is difficult at the outset. Last year, this time, I don't think anyone has expected where we are in now. So every month or at least every quarter, we will get information from the local markets and make the decisions as necessary. That is all.

Thank you, Mr. Narabe, for your question. Let us move on to the next question. Mr. Oka of Newsbix, please.

I will switch the screen, so if you see yourself on

the screen, please start speaking.

Mr. Oka, please. Thank you very

much, Oka of Newsbix. I have two questions, if I may. First question, which relates to the operating income of different regions, especially in relation to North America, conspicuous is the decrease in profit in North America. Could you explain to us the reason behind that? So that's the first question. The second question is relating to the restrictions of gasoline vehicles in California and Europe. There has been rather rapid progress in restricting gasoline engines. You refer to the change in production of BEVs, and if there is an initial explanation relating to your BEV strategy, I would like to be enlightened on that. With respect to your question amongst the geographical income, you asked about the factor behind the profit decrease in North America. So Yamamoto, the chief operating officer for accounting, will explain to you. In California and Europe, there has been a restriction of vehicles relating to the achievement of carbon neutrality, and you asked about whether there has been any change in the Toyota's battery EV strategy, and I will respond to that question. Thank you for your question, Ms. Oka, and we would like to share the screen with you about the geographical regions. As you currently pointed out, the second one from the left that shows North America last year, it decreased from 395.1 billion to 23 billion, so there has been significant decrease in profit. The biggest factor behind that was the soaring raw materials prices or materials prices through costly improvement efforts in the production plants, and also the selling prices adjustment or modifications more than we do every year. We have been making pricing changes for one or once or twice a year, and by increasing the frequency of a pricing change, we would like to reflect those higher prices. Of course, this is not something that we alone can decide. We would like to work with customers to achieve the better pricing, and local Toyota people are making efforts to do that. So we are making every effort to recover the impact of higher prices, and

every

effort is made, but this 63 billion includes the financial services business as well, and the environment remains very tough. But with respect to North American business, how are we going to restore its strength is something that we have begun discussing right now. Thank you.

Now, with respect to the battery

EV, or I would like to talk about our plan for electrification, electric vehicles, but before that, I would like to talk about what we have been explaining in the past. We talk about carbon-free world, or how to reduce carbon, how to achieve carbon neutrality. I would like to start describing that. In trying to achieve carbon neutrality for different regions, the energy conditions vary from country to country, and the degree of transition to green energy is totally different from region to region throughout the world. And as you mentioned in your question, in California, the United States, or especially in Europe, in those regions compared with Japan or Asian countries, quite significantly, there has been a transition made to green energy using renewable energy more and more. So based upon that, in Europe, by 2035, including battery EV, they're talking about achieving 100% zero emission vehicles.

So therefore, Japan

has its own way of achieving carbon neutrality, and as I mentioned, the Europeans will have their own way of achieving carbon neutrality, the way to climb the mountain called carbon neutrality. So in line with the energy situation in each region, of course, the battery EV will be extremely formidable weapon, but at the same time, other power trains, including hybrid EVs or plug-in EVs, the fuel cell electric vehicles, or the hydrogen engines that we have embraced as a new energy, and also the synthetic fuels, I think there are many options that could be used in the future. And which one of that is going to be adopted would vary from country to country, and to reduce the CO2 as much as possible by using different options is something that we are considering in local and regional context. Now, has Toyota changed its strategy or policy with respect to the battery EV? In December last year, we had the forum in which we made a presentation or a strategy for BEV, and we talked about 3.5 million units of BEVs to be achieved by 2030. And in the case of the EVs, we cited a figure of 1 million, and those basic figures of baselines have not been changed. And with that in mind, we introduced BZ4X, which is the battery-dedicated EV. And in China, this month, we introduced BZ3 in China, which is the dedicated Chinese vehicle in the battery EV. In China, we work with BYD in developing the battery EVs by taking advantage of the strong technology. And this China example would be quite easy to understand. In China, where the battery EV will grow going forward, we will introduce those products going forward. And in Japan, in the United States, as we explained to you in a battery presentation forum, in order to reduce CO2 emission, we'll introduce and launch those BEVs or other vehicles in line with the local and regional requirements. So in line with the local conditions, we introduce

BEVs

so that we can achieve carbon neutrality altogether. So I would appreciate it if you could understand Toyota's strategy from that perspective. Thank you very much.

Thank you very much to Mizoka. Now to the next question

from NHK,

Mr. Enoshima. We will switch the screen, so when you see your face on the screen, please start asking the question. Thank

you for

waiting. My name is Enoshima from NHK.

I have two questions. First is about the impact of the weaker yen.

So

the results reflect the weaker yen, but tell me about the impact of the weaker yen on the business results. The second point is about the cost of termination of production in Russia. You have about 90 billion reflected in the financial results. So is there a question? Your first question was about the impact of the weaker yen. This will be answered by Mr. Kohn, the executive vice president. The second point was about the cost of termination of Russian production and the potential of future losses in relation to this. So this will be discussed by Mr. Yamamoto from the accounting group.

Thank you very

much, Mr. Enoshima. As always, I will talk about the impact of the weaker yen on the financial results. So whether the weaker yen has an impact on our results. We are an OEM, and we do production in Japan, and we export our products. So foreign currency received from the customers. So the weaker yen means more sales and more profits.

But if

you look at the suppliers, there are differences between suppliers, but

some

suppliers have overseas affiliates, and they send parts to their overseas affiliates. So in that case, they will be profiting from the weaker yen. On the other hand, there are suppliers that import material from overseas. In that case, the weaker yen means purchasing prices will go up and they will incur losses.

So we

are talking about Toyota financial results here, but we work with suppliers and distributors. So there will be impacts felt on various fronts. So we cannot say the impact is positive or negative across the board.

In the short term,

over the past six months, the yen came down by 30

yen. And

10 years ago, there was a time when it was 75 to 80 yen to the dollar. At that time, several manufacturing companies transferred their manufacturing sites overseas to eliminate the impact from Forex. Back then, Toyota and other automotive companies in Japan, according to Toyota's words, have tried to protect domestic production at any cost. Eight to nine million for the industry, three million for Toyota was the amount of production in Japan. The supplier base and the employment, including that of suppliers, was protected by maintaining production in Japan.

So if there is an

impact of foreign exchange rates,

that would mean

that you are producing a lot in Japan.

But this time, there

was a negative impact on the suppliers. That is true. So as Mr. Kumakura mentioned, in order to maintain medium to long-term competitiveness, we will look at where they can enhance competitive nows and where they can improve the structure of their business.

Thank you very

much, Ms. Enoshima. Your second question was about Russia. We had a bar chart in Japan.

This is the amount of losses incurred in the first half, and that

includes retirement costs for retiring people and asset impairment costs. These are included in this number.

Since the conflict,

the stakeholders, including the employers, should be protected. That has been what we were discussing every day and every week.

So

for the employers, we wanted to secure them a second career or the next job, and lead time and funds would be necessary for that. So the money that we keep in Russia could be transferred to the employees. When we decided that that could be achievable, we decided upon this. So there may be some additional costs, but there will be no additional major costs incurred.

Thank you very

much, Ms. Enoshima.

Now, let us move on to the next question. From Wall Street Journal,

Ms. River Davis, please.

I will switch the screen, so if

you see yourself on the screen, please start speaking.

This is River Davis for the Wall Street Journal. Thank you very much for taking my question. I have one follow-up question on the chips issue. Last week, I think the mood in Detroit was sort of that we have made it through the worst of the chip shortage, and I see that you are taking a little bit more of a conservative forecast. Could you talk a little bit about why there is a difference there? And Kumankudel-san, I believe you are referring to perhaps analog chips when you are talking about chips that do not have as much investment in them. Is that a particular bottleneck at the moment? And my second question is about vehicle pricing. Nagata-san, you spoke a little bit about interest rates and inflation, and I am wondering how that is impacting car prices at the moment, and how you foresee it impacting car prices through the end of the year. Thank you.

Thank you very much, Ms. Davis. With respect to the first question relating to the chip, Mr. Kurumakura, the chief officer for purchasing group will respond, and your second question, my name, I will respond to that. Could you refer to page 18? Could you share with us the screen of page 18 of the slides once again? This is the slide that I shared with you earlier. As you correctly pointed out, there are different types of semiconductors and chips, and at this I cannot officially refer to analog semiconductor as was a key issue, but in some semiconductors, the supply is getting better, and other semiconductors, chips remain in short supply. And generally speaking, all in all, the worst situation I believe we have already overcome with, as was mentioned in the question, but at the same time, earlier I talked about 9.2 million units, which is the result of a downward reduction, and the background to that is we are now discussing with the suppliers one by one, and we are identifying the risks for specific semiconductors and that are incorporated in that figure, and including those unforeseeable figures, including those areas difficult to predict. We arrived at the figure of 9.2 million, as was explained by Mr. Nakamura, and every day we have been following the situation of each type of chips, and I guess we simply have to continue doing this going forward. Overall, as I mentioned earlier, if I may repeat myself, we have emerged from the worst situation, but if we look at each type of semiconductors, the supplies are not necessarily recovered to the satisfactory level, and therefore, suppliers are using different types of semiconductors for different parts of the vehicle, so by following the situation in great detail, we would like to refer to that situation in the actual production activities. That's all. Thank you.

With

respect to the vehicle pricing, allow me to explain in greater detail. In the first presentation, as Surya Mamoto mentioned, substantial amount of inflation-related impact is included, and this is not limited to the United States, but as far as we are concerned, I think the prices that have risen because of the inflation for in terms of vehicle prices, we have begun to reflect those higher cost of prices to the vehicle price as much as possible, but

it's

not that we can pass on those higher costs to the vehicle price. As I mentioned earlier, the economic conditions vary from region to region, and also the vehicles offered in the market is quite different from region to region because of the different acceptability of customers, and therefore, for different regions, the models and brand, we examine them in great detail in deciding on the price adjustment. Let me explain to you the situation by region by region. The price revision or price adjustment, the United States and Europe, even in the past, we had a price reduction model for that price every year in terms of the year model, so in align with that year model timing, we made adjustments to the vehicle prices, and therefore, in Europe and the United States, in the inflationary situation, we actually feel that we have risen the prices significantly, but also in Japan and Asia, there is commonality between these two regions. The vehicle mix and the line-up have shifted toward compact vehicles, and substantial amount of the vehicle mix is comprised by compact vehicles, and in the case of Japan, the economic growth, I have been seeing increase in income levels. The real income has not risen in Japan. That's the reality, and therefore, the higher models, such as Lexus vehicles or higher brand vehicles, we charge higher prices, but in those areas where the vehicle is really essential for customers' lifestyle, and that is essential for living, we have been trying to moderate those price increase adjustments. But in the case of the vehicles in the Toyota brand, many are long-selling vehicles, Tron or Land Cruisers or Hiace, the Corolla, the Cambry, those models have been in existence for over 30 years, be it in the United States or in Japan. In the case of long-selling vehicles, customers do have very strong attachment to specific models, and therefore, they have their clear market-clearing view of the appropriate level of prices. In the case of the U.S. market, it is 25,000 to 30,000 Corolla, and with that, those models have been accepted and loved by customers, so we would like to keep those general image of the vehicle and prices in that relationship, so we are really racking our brains to come up with the appropriate level of prices. Thank you very much. Thank you, Ms. Rivers, for your question. Let

us move to the next question. From Gigi, Toyota-san, we will switch the screen, so when you see your face on the screen,

please start asking the question.

Thank you. My

name is Toyota from Gigi. Can you hear my voice? Yes.

So about the full-year forecast, for the full-year forecast, sales has

been revised upward.

Is

this because of the weaker Japanese yen,

or are

there other factors behind this upward revision? And if you look at operating income, you have maintained the previous forecast. $220 billion from Forex and for product mix that has had a negative impact, I believe. So what do you mean by aggravating product mix? And you've been talking about the impact of the weaker yen, but among the Japanese manufacturers, manufacturing sites are coming back to Japan, and exports levels may be changing, so what is your thinking towards the future? Thank you very much for your questions. Your first question was about the upward revision of sales. Is the weaker yen the only factor? And for the negative impact, the product mix has had a negative impact. And what are the details of the aggravating product mix? This will be explained by Mr. Yamamoto from the accounting group. And with the weaker yen, some manufacturing sites are coming back to Japan. And what does Toyota think of this general trend? Mr. Kohn, EVP, will answer that question.

Thank you very much

to Ms. Toyoda. First,

the forecast for the full year is $3.6 trillion.

So that is a change of $1.5 trillion. Upward revision in sales revenue. The dollar was $130, and that went to $135. This 5-year difference is behind this upward revision. And your second question was about operating income. And if you look at the product mix, this has had a negative impact.

So the

product mix and revision is a part of our revision.

So for the

product mix, as we have a global business, for depending on the region, the profitability differs. So there are -to-region differences, and there is also models that have higher profitability and those with lower profitability. So in relation to the different regions,

China, Japan, Lexus

volume has come down, and that has had a negative impact on in product mix. And Alphard and Belfryer volume in Japan has come down

for

various reasons. The main reason is semiconductor chips. Supply to these models was not sufficient, and therefore it has had a negative impact.

So with

the weaker yen, there are some manufacturing companies moving back to Japan. In the case of the automotive industry, once you start operation in one country, the primary, secondary, tertiary suppliers will also go to that area.

So

the supplier chain or the supply chain of the automotive industry is like that, and each company has many employees. And sometimes schools, hospitals, or cities may be created around that company.

So with the short-term changes in

Forex rates, it will be very difficult to switch quickly the location of the manufacturing sites. So each region will have to enhance their competitiveness so that they can respond to short-term changes. So they will need to maintain strength so that they can respond to those changes. On the other hand, if you look at the supplier base, manpower,

it

is true that manufacturing industry in Japan is very strong. So there will be no drastic changes in production, but to the extent possible, we will try to improve the productivity in Japan to produce products to deliver them to our customers. In order to achieve that, the efficiency and productivity in Japan will have to be focused on so we can produce as much as possible in Japan. That would be necessary under the current business environment, and we will continue to work on that. That is all. Thank you very much.

Thank you, Ms. Toyoda, for your question. There seems to be other questions, but since the scheduled closing time is approaching, I would like to dedicate only two persons to ask questions. Mr. Hans Greimel of Automotive News. I will switch the screen, so if you see yourself on the screen, please start your question.

Hans,

I think you're still on mute, so could you unmute yourself? Can you hear me? What about now? Can you hear me now?

Okay. I may ask

a question in English. Thank you.

Toyoda is at a stage now where it is introducing several newly developed cars and new kinds of cars. We have the Crown Series coming out. We have some new BEVs coming out. I think we'll soon have a new Prius coming out. These are all cars that rely a lot on the semiconductors and special materials for the batteries especially. To what degree are these price increases and the semiconductor supply problems impacting product development? Is it slowing down the rollout of cars? How is the chip shortage affecting your prioritization of which kinds of models you prioritize for production and sale over other kinds? Is there a prioritization of the mix that you are trying to achieve because of the shortage? Finally, can you give us any kind of idea about when you expect the shortage to eventually end? 2023, 2024, 2025? I hope not, but what kind of timeline do you see? Thank you.

Thank you very

much, Hans. The first question must be responded by several answers with respect to the semiconductor shortage. You also asked about the usage of new materials used for batteries to what extent that would impact the vehicle development and what would affect the priority of the development. So this will be responded by Kumakura in charge of procurement. The second question is very difficult, but Kumakura-san will respond to that question as well. Thank you very much. Kumakura is my name. Let me respond to that question. With respect to the shortage of semiconductors or the materials used for batteries, to what extent do they impact the development of vehicles or launch of vehicles? But they alone would not impact those. For the development of vehicles, if the volume is assembled, we can start the stage of development, and therefore, the development itself will not be affected or slowed by the factors you have mentioned. But with respect to the models to be manufactured and produced, to what extent and how the supply situation is improved and what will be introduced for different models, and what is even more important relates to the customers who are waiting for the vehicles to be delivered. They have purchased the vehicles, but the supply has not kept up with the demand, and therefore, they have been kept waiting and waiting. There are many customers in queue. So to those customers who are waiting, we would like to deliver vehicles as quickly as possible. So that perspective is always kept in mind in looking at the semiconductors and the parts comprising semiconductors as the supply are considered. So that is a sequence of our thinking. With respect to your second question, the shortage of semiconductors, when that is going to be removed or recovered, that's a very good question, but I personally had not expected that the supply shortage will continue this long. Earlier, I mentioned that we have been conducting emergency countermeasure meetings since two and a half years ago. I never expected this to last for two and a half years, but looking at individual elements out of 1,000 semiconductors, some will still reflect the situation whose supply will remain in short. And of course, I would like to see this shortage to be eliminated and removed as quickly as possible. As mentioned in the question, it's going to be 23, 24. For us to see the end to this shortage situation, I have not been able to predict the future and when the problem will be eliminated. So I do not know is my answer. In this uncertain world every day,

all

of us working together and strengthening our relationship with the semiconductor suppliers,

we

are making every effort to obtain the supply of semiconductors. Probably my response is not really up to your expectations, but I hope that's the best I can do. Thank you.

Thank you

very much. Now let us move on to the last question from Nikan Kogyo. Masatoshi-san, we will switch the screen, so when you see your face on the screen, please ask your question.

This is Masatoshi

from Nikan Kogyo.

Thank you

for the opportunity. I have two questions. First is the return to the suppliers. For the full year, the material cost rise has been reduced from 1.7 trillion to 1.65 trillion. Do you intend to continue to provide support to the suppliers next year? Second, Toyota has been adamant about protecting the supply chain in Japan and you've talked about 3.5 million in Japan, but there are external factors as well. And you have not been able to maintain that number. As Mr. Korn mentioned, there are complex economic risks and manufacturing sites and procurement strategy of Toyota. What is your strategy over the medium to long term? Thank you very much, Ms. Masatoshi. The first question was about the impact of material cost rise. It has been reduced by 50 billion. And you also asked whether the supplier support will continue next year. And Mr. Yamamoto will answer that question. Your second question was about for maintaining the supply chain in Japan. What is our medium to long term strategy? That will be explained by Mr. Kumakura and, as necessary, EVP Mr. Korn will respond.

Thank you very much

to Ms. Masatoshi.

The full year forecast for

this year,

we made a

revision by 60 billion. And the iron, aluminum, these materials market has come down slightly from the highest level, and that has been reflected in that revision. And the impact of the change in volume has also had an impact on the revision of 50 billion.

So on our relationship with our suppliers,

basically there is no change.

1.65 trillion within this supplier,

the market ups and downs, and other factors are included.

Stable

quality and stable production will have to be done. And also for manufacturing, archives and activities will have to be continued. So a stable environment is necessary for operations, and that is included in these numbers. And carbon neutral, when it comes to carbon neutral, the suppliers will also have to take action. The supply chain as a whole will have to think about carbon neutrality. Some suppliers are wondering what carbon neutrality is about, and sometimes the suppliers may not have meters in their production lines to measure CO2. So time to consider and time to prepare is necessary for the automobile industry as a whole. And in order to prepare,

we have

1.65 trillion. We will work on activities hard this year, and we will think again what we will do next year.

Next year,

we will continue support to the suppliers.

Protecting

the supply chain, as I mentioned before, is something that we have to continue to work on, and each one will strive hard to enhance competitiveness.

So how

changes will come about? We cannot predict that. So if we have to continue supporting the suppliers, we will, and if things become stable, we will look at the situation and take the necessary response, looking at the changes. Now, three million in Japan,

three million

or more to be produced in Japan was the plan, but semiconductors, floods, earthquakes, we had these natural disasters plus COVID. So unfortunately, we were not able to achieve three million.

So

it's not a matter of whether this is good or bad, but we have to keep three million in mind and look at the overall picture of supporting the supply chain.

Over the medium

to long term,

that

perspective will remain unchanged.

So I

have almost nothing to add to what Mr. Kumakura mentioned, but I may be repeating things. This year, production in Japan will be about 2.7 million or so, but basically, we will continue to keep three million in mind. There are some factors in Japan that lead to lower production, but over the medium to long term, we want to maintain three million in Japan, and our thinking remains the same. There was a reference to the Uyghur yen, and there was a question about going out overseas and then coming back to Japan, but that is not easy, and that will not happen. But we will use the source of competitiveness so that we can create the value of mobility.

Thank you very much.

Thank you very much to Mr. Matsuatoshi. With this, we conclude the Financial Results Meeting. Thank you very much for listening, despite your busy schedules.