Nidec Corp Adr

Dear all, thank you very much for joining NIDEX conference call. I am Yoichi Orikasa, General Manager, Kyoto branch of Mitsubishi UFJ Morgan Stanley Security. As we kick off the conference, I'd like to ask you to make sure all the materials are ready in front of you. If not, please download the files on NIDEX homepage right now. Please note, This call is being recorded and the conference materials will be posted on NIDEX homepage for the coming week for investors and analysts who are not able to join today's call. Now, I'd like to introduce today's attendees from NIDEX Corporation. Mr. Jun Seki, Representative Director, President and Chief Executive Officer.

Hello everyone, this is Seki.

Mr. Hidetoshi Yokota, Senior Vice President and Chief Financial Officer.

Hello, everyone. This is Hidetoshi Yokota.

First, Mr. Yokota will make a presentation. After his presentation, we will move on to a Q&A session, and Mr. Seki and Mr. Yokota will answer your questions. Mr. Yokota now presents NYDEC's Q3 fiscal year 2021 results, future outlook, and management strategy. Mr. Yokota, please go ahead.

Thank you, Urikasa-san. Good day, everyone, and welcome to today's conference call. My name is Hidetoshi Yokota, Chief Financial Officer of NYDEC. Today, Mr. Jun Seki, Representative Director President and Chief Executive Officer of NIDEQ, and myself will be your main speakers and answer your questions. Joining us also is Mr. Masahiro Nagayasu, General Manager of NIDEQ's IR team. For a far-looking statement, please see slide 2 of our presentation material for details. Now, I'm going to review the key figures. Please see slide 3. for the fiscal year 21 nine-month result. As shown on slide 4, nine-month net sales stood at record high of $1,407.2 billion, 18.8% higher year-on-year. Nine-month operating profit and profit before income tax increased 16.6% year-on-year to $134.6 billion, 19.4% year-on-year to $130.6 billion, respectively. Both stood at record high. Q3 quarterly net sales increased by 7.2% quarter-on-quarter to $496.5 billion, marking a record high for three consecutive quarters. Based on these results, we have made an upward revision on year-end dividend forecast by 5 yen, resulting in the projected aggregate annual dividend of 65 yen per share for fiscal year 20 months. On slide 5 and 6, you have a structure showing the net sales and operating profit year-on-year and quarter-on-quarter respectively by a product group with exchange rate effect, elimination, and structural reform expenses. As you can see on slide 6, all of the segments increase their net sales quarter-on-quarter. With regards to operating profit, appliance, commercial, and industrial products, or SCI declined due to increased material cost. However, small precision motor and automotive increased despite this adverse backdrop. Machinery declined as the September quarter had a one-off profit increase related to the acquisition and electric and optical components and others made an increase. Please see slide 10. We are aiming to become number one automotive hardware manufacturer by anticipating the strong electrification demand boosted by CASE, which means connected autonomous sharing and electric. In the EV traction motor related business, mass production of e-axle at the joint venture with Stellantis is expected to start in the second half of fiscal year 2022 in addition to those being mass-produced in China. We are also receiving new orders from Chinese, European, and Japanese OEMs, as well as US EV startups and newcomers from other industries, and the turning point of fiscal year 25 gets closer. In other motors and auto parts, We have prepared and continue to prepare highly competitive product lineups in ADAS or Advanced Driver Assistance System, powertrain chassis, and body area. With those product groups, we are aiming to achieve 1 trillion yen net sale organically and 300 billion yen additional net sales through M&As in fiscal year 2025 in the automotive segment. Previous slide 11, the Chinese battery electric vehicle market, the largest in the world, achieved dramatic growth of over 150%, entering into explosive high growth period. In calendar year 2021, not only domestic sales in China, but also export from China to overseas countries are progressing quite rapidly, and supporting increase of overall shipment. With regards to the made-in-China high-end BEV landscape on the right-hand side of the slide, the U.S. company T is expanding sales through exporting their main product models made in the Shanghai factory to Europe, and the Chinese company En has announced to export vehicles to over 25 countries and regions by 2025. Please see slide 12. The total sales volume of the 10 EV model using our e-axles has exceeded around 265 certain units on an accumulative basis as of the end of last December, and the sales volume in calendar year 2021 doubled compared to the previous year. The monthly production is exceeding 20,000 units from last November. Please see slide 13. We are going to invest around $300 billion to enable vertical startup to prepare for the EV turning point of fiscal year 25. In addition to the six factories that are up and running or being built, We are planning a more global production site and we are going to prepare double the production capacity of expected sales volume in fiscal year 25. This is slide 14. The profitability of quarter 3 fiscal year 21 formed a bottom as a result of lost sales due to cheap shortage and high low material price as illustrated on the right-hand side of the slide. Please see slide 15. Paradigm shifts from ICE on internal conversion engine vehicle to EVs is rapidly accelerating in two-wheel and compact cars as well. In the mobility area, the electric motorcycle formed mainly in India, China, and ASEAN countries is expected to enter a high growth period due to environmental measures. We are currently focusing on two major markets of India and China and have already started mass production of models for major customers. In the mini EV area, we have already received orders from major customers in the Chinese market and studying mass production from fiscal year 22. We consider these business areas as one of the most important growth drivers in small precision motors in Vision 2025. Please see slide 16. NIDEX Small Precision Motor Division starts a shift to mobility in fiscal year 22 with launching multiple projects project for electric motorcycle and mini EVs. As illustrated on the left-hand side of the slide, our motors have been adopted by China's largest electric motorcycle manufacturer, Yadia, for the first time and actual shipment started last September. The annual global market size of motorcycle is estimated at around 60 million units. the largest market being in India, followed by China and Indonesia. As electrification of motorcycles is progressing, electric motorcycles are expected to become rapidly widespread, mainly in these countries and regions. As shown on the right-hand side of the slide, we are receiving increasing orders from motors used in electric motorcycles and mini-EVs. that are under 30 kW and are in mass production within fiscal year 2022 for around 10 projects. Please see slide 17. We are implementing business portfolio transformation aimed at HDD motor market structural change. The sales of other small motors in Q3 has achieved record high as HDD sales declined due to reduced HDD shipment volume. Please see slide 18. In SEI, we are executing structural reform in overseas business and looking to enter a new phase of growth. While estimating CAGR of the market at 3% to 5%, We aim to grow SEI sales to CAGR of 10 to 11% by creating new demand through solution proposal in market such as HVAC and a handling robot where structural change is occurring. This is slide 19. In SEI, we are continuing to aim for 15% operating profit ratio, even though profitability improvement slowed down after progressing for six consecutive quarters since Q4 fiscal year 19. Please see slide 20. In other product groups, operating profit ratio is keeping high level after bottoming out in quarter four fiscal year 19. Please see slide 21. NIDICS Board of Directors has approved the resolution to purchase the share of OKK Corporation, or OKK, through a third-party allocation of common shares in a meeting of Board of Directors held last November, and we have executed a capital alliance agreement with OKK regarding this share purchase. This share purchase enable a mutual complement of products in the area of machine tool, which is an existing area of Nidec's business. Synergies expected, especially in such areas, are element technology development, manufacturing, and sales of machine tool business by Nidec Manufacturing Tool Corporation, which joined the Nidec Group last August. By joining NIDEC via the share purchase, OKCARE will make a fresh start as a comprehensive machine tool maker and enhance its product lineup as well as the sales capability while quickly reinforcing its production capacity as well. After the share purchase, we entered into the further expand NIDEC machine tool business and believe that it can grow globally at a faster pace by making necessary investments where they are needed on a timely basis. We hope to mutually export our group's and OKK's respective technological capabilities, brand power, and customer base to contribute to the development of the machine tool market on a global scale. Last but not least, on behalf of the entire management team, we would like to thank our customers, partners, suppliers for their support and commitment as well as our shareholders. At this time, we would like to open up the call for questions. Thank you.

Thank you very much, Mr. Yokota. Now, we'd like to turn to the Q&A session. Senior management of NIDIC will be pleased to answer your questions. Today's Q&A session will be conducted electronically. If you would like to ask a question, please press star key and 1 on your touch-tone phone. Again, please press star and 1 if you would like to ask a question. If you would like to cancel your request, please press star and 2. We now pose for questions from the participants. Okay, our first question today is from Alma Capital, James Parsford. James, please go ahead.

Thank you very much for your presentation. Can I ask about the a little bit more detail about the margin decline in ACI and also in your materials it was different, but on a reported basis in autos, margins also slipped a little bit. I'm aware that costs, raw material costs, perhaps shipping costs have gone up. If you could perhaps break that down a little bit and also comment on what you're trying to do to offset that and the degree to which you may be able to recover that in pricing for some of the products but perhaps not other ones. And so we get a better feel for what we think is likely to happen over the next six months in that area. Thank you.

Okay. This is Yokota speaking. Let me respond to the question for the material cost and maybe shipping cost, James. For the shipping cost, yes, we are impacted, especially the shipment cost in the vessel between China and U.S. or China and Europe. We estimated the impact to ACI in Q3 is roughly 10億円 and maybe automotive for 5億円. Those are the impact of best-sell cost increase. For the material market, material price increase, this happens mainly in magnetic steel price increase in this period, even though the price increase is still continuous trend from last quarter or last-last quarter. But this time, Q3, We try to offset this price increase by asking customers to absorb the impact by increasing the price. But it took a little bit longer than expected, and we cannot absorb the cost completely. So that's why normally we say 1% impact still remains after all the negotiation with customers. But this time, Q3 estimated 2% remained because of the delay in the negotiation with the customer. Especially the magnetic steel, it's typically there's no surcharge contract. Like other copper or aluminum, those are normally we have a surcharge contract with the customer. But the steel and magnetic steel, there's no surcharge contract. So that's why it's a negotiation basis. The reason why, maybe you know very well in the situation, but magnetic steel, especially in the Europe area, all the steel manufacturers, all the capacity is almost occupied by European automotive OEM due to increasing the spike in the EV production. So that's why high-end magnetic steels are already occupied, and all the steel makers shift their production to high-end sites. Therefore, the ACI, we normally use regular magnetic steel and the capacity of those steel is quite limited due to the shift in the steel manufacture. That's why our purchase price increase and hit by mainly in the ACI area. Of course, we use magnetic steel in the automotive area as well. But ACI is mostly impacted by magnetic steel impact. So let's say all entire NYDEC, this time the material cost spike is roughly 60 or 70 billion. That is the impact, which is almost double the regular quarter due to the delay in the price negotiation with customers. And I forgot to answer the last question. How do we see the market? Of course, we don't have a crystal ball in the market price. But at this point, for quarter four, this trend is still there. For example, there is no solution for the capacity enhancement in steel manufacturing in Europe. China's situation is a little bit eased. So we see a little bit of stability in the steel price, in our magnetic steel price in China. But still, the European, the tight situation continues. So we still need to fight against this price increase. And other commodity, it depends. Some is still high price and some start declining, but some climbing again. So it's a bit difficult for us to foresee, but we expected Q4 is still going to the same pressure than Q3. That's a general assumption for us.

That's right. And just as a follow-up, in terms of these price increases for shipping, raw materials, things you've got coming through, what proportion of those – obviously, there may be a lag of three months or even sort of longer – But what proportion of those do you think is it realistic for you to pass on to your customers? Or is there a proportion of that, maybe a half or a third, that you won't be able to pass on and you will have to sort of find through internal cost savings and rationalization?

Yeah. Yeah. Roughly, normally we try to absorb or put in the price and try to absorb 60% to 70% or even more out of total material cost increase. Roughly, every quarter, the low figure for the material cost hike, let's say like 4% against the turnover. So that we try to absorb 3% by asking material supplier to absorb, swallow it, or we do some technical arrangement at the VAV, or ask customer to increase the price by absorb. So we say 3% out of 4% to be absorbed. But this time Q3, we couldn't absorb 3%, let's say 2% only. So the 2% remain. That time lag, it depends on the material. But in short, one is like one quarter, within one quarter. But maybe long one is maybe half a year. So it depends on the customer, it depends on our share in the market and relationship with the customer. So there's some range. was to cure the price absorption on those periods.

But you say you normally would internally absorb 60% to 70%, so you would take the 60% to 70% of the hit. In this environment where the increase is rather large, do you still expect to have to internally absorb 60% to 70% and the price increase will cover just 30% to 40%? Is that the plan? Is that just as normal?

James, maybe let me precisely state it. So 60% to 70%, this is a combination of internal effort and price transfer. So still the remaining piece to be absorbed in next quarter or further negotiation with customers.

Okay. But in terms of price transfer, well, your supplies, the price has gone up. So what percentage, how much of the increase would you expect normally to pass on to customers, and what do you expect to be the case on this occasion when the increase is rather large? Okay.

Could you?

Let me reply. Thank you, James. This is Seiki speaking. Thank you. To answer that, can we go page 19? Yeah. Yeah. You know, left-hand side is sales and right-hand side is profit. We're talking about sales. And then Bruva is a total appliance commercial industry under Nidec. And the green one is more like ASIMS. And then both have the same tendency to keep increasing. But, you know, while sales is increasing, reality was it was a bit difficult to tell customers we want to increase price. We concentrate to supply more, and then also our profit is deteriorated by increase of materials, but we have more revenues. And because we have more revenues, fixed cost percentage go down, and then we can expect offset. At least the total profit amount is more. That happened from like Q2 last fiscal year to like Q2 this fiscal year. And then actual damage getting bigger and bigger. And then Q3, because maybe we have December Christmas periods, and also we feel saturation from like a fridge or air conditionings So sales came down. Then we decided to tell customers, now we need compensations. That was the reality. And then, you know, even we say Q3, you know, November, up to October to beginning of November, it was still active. And then we started negotiating with customers, but it was soft. but we see clear downtrend from end of November to December. So we became very aggressive attitude to customers. And then finally, we fully negotiated with most of the customers, let's say 95% of customers, by the end of December or beginning of January. So that was the impact. If we go back to page six, This is Q2 versus Q3. Upper side is sales, lower side is profit. You see an obvious impact in the middle, appliance commercial industry area. This is caused by that delay, okay? But as I said, we finally negotiated fully, and then this will come back in Q4. Unless we have an extra, extra increase, yeah? and then we may have to push that out to Q1. It may chase, but at least this big deficit we created in Q3, that was already concluded. We will see in Q4. Then, go back to your questions. Usually, this type of material increase doesn't last long. Sometimes, let's say, six months. sometimes even just one-quarter. And then we have enough savings to absorb. This magnetic steel increase started from almost one and a half year ago, and it keeps increasing with almost no stop. So general answer to your question, we definitely absorb at least 50%. But because our savings is getting less and less because this continues long. So from now on, probably we have to request customers to offset this increase very much. That will continue. And then our forecast is this magnetic steel increase will not stop until like 2023, 2024. Right. Discussion may become very harsh with customers, but we also have to protect our profit. At least we cannot lose money to sell. That's what we are seeing. But meanwhile, we know this is not sustainable. Now I'm giving pressure to our engineers to choose alternative materials or reduce quantity of this magnetic steel, or manufacturing engineering can increase okay rate from one plate. Usually to have a large motor core from one plate, 55 to 60% remain, 40 to 45% going to scrap. we get the money to scrap those, but not the original price. So now I'm requesting them to increase this OK rate from current to 55% to 60% to like 70% to 75%. That will help a lot. So at the end of the day, not only magnetic steel, but also magnetic itself, copper, aluminum, technology will define cost competitiveness. So that is the area we historically won. So this time again, we're pushing engineering to save these situations. So to start it short, we want to go parallel. One, more price negotiation with customer, as long as this keep increasing. And then two, more technology. to reduce quantity or increase OK rate. That we are going to both. But this already continues very long. That is very much painful.

Right. Tremendous. Thank you for that very complete answer. That's great. Thank you.

Thank you.

James, thank you very much. For those who have just joined the conference call, let me repeat how you can ask your question to the company's senior management. Today's Q&A session is being conducted electronically. If you'd like to ask a question, please press star key and 1 on your touch-tone phone. Again, please press star and 1 if you'd like to ask a question. If you'd like to cancel your request, please press star and two. If you'd like to cancel your request, please press star and two. Now, our next question is from Mark Im of Yamco. Mark, please go ahead.

Thank you very much for that. I just want to follow up on the previous question about magnetic steel. Just to confirm, this is mainly an issue in your European operations, or is it pretty much company-wide the same effect?

Okay. Thank you, Mark. Let me reply from Seki. It's global, actually, but particularly from Europe. two reasons. It's highly related with electrification. Electrification is accelerating, but particularly two major markets, one in Europe and one in China. If we look at North America and Japan and other markets, it's not as aggressive as Europe and China. And then Europe... Electrification ratio, including a plug-in hybrid, December sales is already reached more than 20% among new car sales. Original forecast was around 10% by the end of 21, so it almost doubles. It's very much accelerated. And then, obviously, you know, traction motor is large, and then, naturally, it required high quantity of magnetic steels. That's one of the reasons, but a hidden reason is OEM in Europe want to go more for 22 and 23, and then they start reserving magnetic steel for next year and after next year. That makes it difficult for appliance applications or industrial applications to get magnetic steel because automotive OEM is dominating those. And then, of course, for steel companies, high sales with better profit is better. And then I think automotive applications require a very long process to make it thinner. and then a good price and a good profit for them than appliance application or industrial application. That's happening in Europe. And then China is supposed to be the same, but China has a little more steel capacity than Europe against the demand. So that's what Yokota-san explained. It's similar, but the capacity and supply point of view China has a little more room than Europe. Overall, because of that demand, intensive demand in Europe and China, globally, this magnetic field is showing a shortage. It's coming from Europe. That is the background.

Thanks for that. Are you... expanding your supplies of magnetic steel or looking into, I don't know, investment in that area yourself over the long term?

We have several options for this, but obviously we are not going to have a steel mill by ourselves. We cannot control that. One, because globally China has a little more room for adjustments, we decided to have a huge import from China to Europe for appliance applications and industrial applications. Of course, that cost a lot, but because European cost is already very high, even paying logistic cost and import duties imported from China are almost similar or a little less. So we deserved up to FY22. We need to continue this for probably 2023 and 2024. That's the first one. And the second one, this has not been fully decided yet, but generally speaking, automotive application is thinner than industrial applications. One plate thickness for automotive, particularly traction motor, is, let's say, 0.25 millimeter to 0.27 millimeters, while industrial application is, let's say, 0.35 to 0.40. This thickness is created by times of rollings. That means automotive industry application need more rolling times. Because steel mill only making application for automotive side, very difficult for industry and appliance to get their standard thickness. So what we are studying, it may become expensive. But supply is more important, so they start studying if we can use automotive industry application for appliance and industries. Then instead efficiency become a little higher. So let's say while we usually use 150, we may be able to reduce to 135 with thinner magnetic steel. That we are studying. Now automotive is dominating and therefore minor users such as industry applications or appliance application may have to follow automotive standards. That we are studying. But probably we have many other choice and then way of adjustment we have to squeeze out to survive.

Okay, thank you. I'm sorry, just one more question. This is about your acquisition of OKK. Can you explain the background of that? I know you have exposure to machine tools, and you've made M&A in that area, like with Mitsubishi. Why OKK, and what is your long-term plan for machine tools?

OK. Maybe I go first, and then maybe Nagaya-san or Yokota-san, you can add several comments later. First, you know, We believe electrification from automotive side will grow very rapidly, and then we are very strong to build the motors. But we are not so strong for gear. When you are thinking gear for manual transmissions, and then gear for electric EVs. It's very different. Function is same. Transfer rotation power to wheels. But as you have experienced before, manual transmission vehicle is very fun to drive. Same time, very noisy. No one cares. when manual transmission is noisy with a sound from engine too. But once turned into EVs, very quiet, at least no combustion sounds. So sound from gear become very noisy. Actually, same or much less noise and vibrations than manual transmission. But because entire sounds and vibration become smaller, That sound from gear becomes outstanding. Then to control this, we need a very precise machining and grinding for gear. Then we hired many experts from gear areas, but we finally found that the best way is to acquire the best quality machine builders. That was Mitsubishi Heavy Industry Machine Tool Division. And now they are in our hand. And then, sometimes we found that to complete this machining area, we need not only for gear machining or gear grinding, but also standard machining centers. Then we also found that this segment way of competition is very soft. So usually they have a standard price, depending on brand sales power, they have like a plus minus 10% price gap. But because, and then many of time, they have a trading company to reach final users. And then because of those structure of commercial and business, their ranking from number one to number 10 has no change for 40 years. Very, very soft competitions. So our chairman, Mr. Nagamori, determined Let's go into this segment. It's not difficult to get the wins. So while we had a machine tool, which used to be a part of Mitsubishi heavy industry, we decided to find good machining center builders. And then OKK has very good engineering and history and assets. But their business was terrible. They had a huge negative profit from 20 and possibly 21. So therefore, it's not expensive to purchase. That was the background we bought. And also, this combination, machine tool and OKK, also helped a lot to make a reducer for robot as well. And then this is also another one we believe extends very much from the future. So while we are making the destructions, our idea is expanding. Probably we need this company, we need this company, this company will help a lot to sell in China or USA. So we will extend this idea for further. And then Mr. Nagamori is very energized to make this machine-tool division bigger under NIDEC. But go back to your first question. Original background, and it's still background, but not to sell outside, but to help internal business such as motor for EV or reducer for robot. That is background. Potentially, we can expand this to very strong. Nagaya-san, Yokota-san, if you have any additional comments?

Yeah, just to add a simple explanation to what Mr. Seki explained. NIDEC machine tool's lineup is for more like larger size of machining center. Of course, one of the benefits that we get is gearing technology. But their product line is mainly on the high-end. On the other hand, OKK is very good at mid-size or small-size machining center. If we really try to be successful in the machining business, we need a product lineup. because we have to access all of the potential customers everywhere. We cannot compete only one product in a very, very wide range of product competition. So that's why OKK is very essential to add such a variety of lineups on top of NIDEC machine tools, which is very good at large-sized machining centers. So this is also one of the biggest motivations for us to pursue OKK.

Thank you very much.

Mark, thank you very much. We have a few more minutes to accommodate some questions, and there seems to be a new question from Zach Inouye of MEFG Securities Americas. Zach, please go ahead.

Good morning and good evening. Thank you for hosting this timely call once again. I have some questions on your production capacity for your E-Axle. First of all, congratulations on reaching 20,000-mile production last month. And on the Flight 13, I know you have this capacity to increase to 6 million units in F-524. So, you know, rough calculation, that's about 500,000 units per month. That's, you know, 25 times greater than last month. So my two questions for me, one, based on your current customer inquiries, what is your expected or estimated orders for e-axle in FY24? And my second question is, when do you think the orders from non-Chinese auto companies will start to kick in?

Thank you, this is Seki speaking, let me explain. First, if you are on page 13, please look at the graph on the right hand side. Blue bar is the capacity, that's your scenes, and then green portion is actual current forecast of production volumes. So 3.5 million in 25, okay? And then we are not showing this green for 24, 23, 22. Your question was 24, but in 22, we are seeing about one million. And then we're expecting a very linear increase from 22 to 23, 24, and 25. So first answer to your question, 24, probably around 2.8 or 2.7 millions. And then this 3.5 million was a number we announced at the last financial announcement in October. Actually, this 3.5 already increased to 3.8 by 300,000. So after discussion with Mr. Nagamori, And we stopped to announce this volume increase because time by time, it's not so impactful. So instead, probably we announced this volume increase by every half year. So we didn't explain this time, but probably in April we explained. But time by time, this volume will increase. And then that's why we are aiming double of capacities because One day, this prepared capacity will be fulfilled, and even customers want us to surprise. We have no room. We know 25 is a breaking point. It looks a very steep curve, but for us, this is still slow. After 25, the speed of increase for electrification will be even more accelerated. Therefore, we need spare capacity to absorb all of those opportunities. So that we are aiming, and then we set this as a strategy. And this strategy is not the first one. We had a very huge success for hard disk drive by exact same strategies. Prepared capacity first, and then demand come next, yeah? Actually, because we had capacity, demand came. If we didn't capacity, everybody was slow and we are one of them and then we probably had to share those demand with our competitors. So to repeat that success again, we have this success. And then second question, European customers. I don't know if your question is excluding But we have Stellantis, therefore our delivery to them starts from this Q2, coming Q2, 22 Q2s. So that's the first one. And then, I don't know, we should really count Stellantis as one, but we supply to Peugeot, Citroën, and Fiat, and Opel. Now we are discussing with Chrysler as part of Stellantis, and then that will come. And then part from Stellantis, two things I would like to explain. I cannot mention the real name, but last time we explained type, customer type A, B, C. A is stick to be in-house, and then C is non-stick. They automatically outsource. And B is like a hybrid, joint ventures. Stellantis is there for type B. But we are talking about this type A customer. Actually, we don't see clear type C customer in Europe. They are either type A or B. And then type A customer start drifting to type A dash customer. A dash means, you know, they stick for final assembly, but they are abandoning to assemble motor itself or inverter itself or gear itself. They purchase motor, inverter, and gear set from outside, and then they keep final assembly in their plant. And then they probably insist it's an enhanced traction motor. But anyway, we start receiving RFQ for motors and inverters. for those therefore after 70s I think those parts business coming into the European side and another one is I explained this partially last time as well but because most of European OEM treating EV as core business I think they put aside hybrid business So hybrid business becoming a non-core business from them. And then they used to build a hybrid motor at in-house, or at least like a tier one suppliers. Those shifting to us. So we are receiving a lot of order of hybrid. Hybrid is a bridging technologies, but it's not disappear for another 10 years at least. It will not be increased, but I think as long as it continues at least five years or six years, we can absorb it and we can get the profit for those. So we are receiving many of hybrid motor, hybrid inverter in Europe. Is that a good answer to your question, Zach?

Yes, President Seki, very clear. Very exciting, yeah. Thank you so much.

Thank you very much. We still have a few more minutes, and welcome your questions. For those who want to direct your questions to senior management, please press start at this moment. Okay. The next question is, again, from Mark Imogamco, and this will be today's final question. Mark, please go ahead.

Yes. Thanks again. I know this is a difficult topic to discuss, but do you have any comments on the Bloomberg article that appeared on Monday about Chairman Nagamori and President Seki?

Thank you, Mark. What I can tell is we don't have any gap between the Nagamori's or Mr. Nagamori's philosophy and my way. Almost zero gap, even one millimeter. So I'm fully aligning and personally I respect him a lot. And then You know, he's very severe. And then he's my master. It's a very natural master train. His, you know, people be very strong. So I think time by time, he sometimes very harsh to me to put more output. And then I'm okay. He's not telling me any wrong. So we are fully aligned. But First of all, I don't know why Bloomberg made that as articles because Bloomberg is a tier one media. I think content has many misreadings of our relationships and then company philosophy. So straight answer to your questions, I think there are no worries. We are still fully aligning. And then at this moment, I request him to take care of every job in Japan. And then while we need a quick turnaround from automotive divisions, he is turnaround in operation in Germany and operation in Mexico. So I fully spending my time in Germany and Mexico. Actually, I'm attending this meeting from Germany. And then last week I was in Mexico. So he accepted me to spend more time in Europe and Mexico. So maybe because I am so absent in Japan, people may feel it's very strange, but everything under agreement between Nagamori and myself, no misalignment. That's what I want to explain.

Okay, just what's the issue in Mexico?

It's the same. It's an automotive business, and then we have very slow operations in terms of overall efficiencies and scrap rate and people's trainings and qualities and inventories. While we have a very strong NIDEC in Japan and China, Southeast Asia, It's a bit slow to transfer to Europe and then Mexico. And then I retrained my peoples and then enhancement of business and then built basic strengths as manufacturers. That's what we are doing. And then Mexico is one of operations.

Very helpful indeed. Thank you.

Mark, thank you very much. Now we'd like to conclude the conference call. I'd like to appreciate for your participation. Should you have any further questions, please do not hesitate to contact NYDEC Corporation or your sales representative at Mitsubishi UFJ Morgan Stanley Securities. Again, thank you.

Orikasa-san, sorry, before we are fully closing, let me make a final remarks. As Yokota-san explained, our Q3 accumulated sales reaching 1.4 trillion yen. And then Q3 sales itself is like 0.5 trillion yen. We updated our sales target last time to be 1.9 trillion yen. Now it's become very positive. And then also in July, we announced Vision 2025 to be 4 trillion yen in 2025. As a very fast milestone, I committed 2 trillion yen by 2022, which is another 0.1 trillion yen if we land 1.9 this year. So 2 trillion yen is very reachable. And then as we explained through the electrification and robot, we have lots of source for further growth. And of course, M&A. particularly machine tool build areas. It's very active, so we will make a committed growth for next year, this year and next year, and then we will approach what we targeted in Vision 2025. So thanks for your support, but at this moment, we have a difficulty of material price and material supply. It's a very small thing if we look at two years period or three years period. Important point is we have enough strength to grow and then firm strategy to execute. So we will be there and then we will not betray your expectations. That's final remark from me. Sorry, Orikasa.

Mr. Seki, thank you very much. for your closing remarks. Again, I'd like to thank you for joining the conference call, and you may now disconnect.

Thank you, everyone. See you next time. Bye-bye.