Nidec Corp Adr

Thank you very much for joining the conference call. I'm Taku Miyagawa, General Manager, Corporate Division, Mitsubishi UFJ Morgan Funded Securities. 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 NIRIC's homepage right now. Please note this call is being recorded and the conference materials will be posted on NIREC's homepage for the coming weeks for investors and analysts who are not able to join today's call. Now, I'd like to introduce today's attendees from NIREC Corporation. Mr. Jun Seiki, Representative Director, President and Chief Operating Officer.

Hello, everyone.

and Mr. Akinobu Samura, Senior Vice President and Chief Financial Officer.

Hello, everyone.

First, Mr. Samura will make a presentation. After his presentation, we'll move on to Q&A session, and Mr. Seiki and Mr. Samura will answer your questions. Mr. Samura, now presents NIDEC Q1 fiscal year 2022 results, future outlooks, and management strategies. Mr. Samura, please go ahead.

Okay. Good day, everyone, and welcome to today's conference call. My name is Akinobu Samura, Chief Financial Officer of NIDEC. Today, Mr. Junseki, Representative Director, President and Chief Operating Officer of NIDEC, and myself will be your main speakers and answer your questions. Joining us also is Mr. Masahiro Nagayasu, General Manager of NIDICS IR team. For the forward-looking statements, please see slide two of our presentation materials for details. Now I'm going to review the key figures. Please see slide three for our first quarter's results. As summarized on slide 4, net sales increased 20.8% to 540.4 billion yen, marking a record high on a quarterly basis. Operating profit increased 0.2% year-on-year to 44.7 billion yen. Profit before income taxes and a profit attributable to owners of parent and increased 30.3% year-on-year to 57 billion yen, 23.5% year-on-year to 41.3 billion yen, respectively. Both stood at record highs on a quarterly basis. On slide five and six, You have step charts showing the net sales and operating profit year-on-year and quarter-on-quarter, respectively, by product groups with exchange rate effect, eliminations, and structural reform expenses. As you see the upper chart of slide six, overall sales increased due to weak YAM and strong machinery sales, which are backed by an increase in sales of semiconductor inspection systems resulting from strong demands for 5G, and in sales of press machines on the back of plastic reduction. This covered the negative impact from semiconductor shortage and lockdowns in China. Operating profit also increased due to increased sales and continued improvement on cost of goods. optimize fixed costs and their reflection on the selling prices. Discover the negative impact from product mix change in appliance, commercial, and industrial, or ACI. Please see slide 10. We are aiming to become number one automotive hardware company by anticipating the strong electrification demand boosted by which means connected, autonomous, sharing, and electric. In the EV traction motor related businesses, mass production of e-axles by the joint venture with Stellantis is starting this September. And orders are increasing throughout financial year 30, backed by the tailwind of strengths and environmental regulations in Europe. In China, in addition to the two existing major customers, we are going to focus our resources on the five customers, including the three new ones. Based on these, we have revised up the target of EV, traction motor, related sales in financial year 2025, from the previous 300 billion yen to 500 billion yen. In other motors and auto parts, the market in financial year 2022 is expected to recover gradually, while increased raw material prices are expected to continue. We are accelerating improvement of profit structure by passing high raw material costs onto our selling prices. and by reducing manufacturing cost. And we are aiming to achieve 1 trillion yen net sales organically and 300 billion yen additional net sales through M&As in financial year 25 in the automotive segment. Please see slide 11. The cumulative number of vehicles using our e-access exceeded 418,000 units, and the number of EV models has reached 11. Despite the April decline due to the lockdowns in China, the June quarter record receipment increased of 169% year-on-year. Please see slide 12. We are making steady progress to make e-axle business profitable in financial year 23 on a single year basis by introducing the second generation e-axle in the first half of financial year 22. The first generation e-axle prioritized a speedy entry to the market and the expansion of market share. Gen 2 is designed to achieve higher performance and further cost reduction. We are also expecting to introduce Gen 3 in the second half of financial year 2025, one year earlier than originally planned, whose theme is to gain overwhelming competitiveness to win through the high growth period. In the same turning point year of financial year 2025, we are expecting to recoup cumulative losses incurred in the ERC cell business. Slide 13. We have announced that we are going to build a flagship ERC cell factory in Pingtung, China, in addition to the six factories that are already existing or expected to be built. In order to increase production capacity of E-axles, this flagship factory is expected to be fully dedicated to E-axle production, from parts manufacturing to assembling with an annual production capacity of 1 million units. We are also planning to build the 8th, 9th, and 10th factories globally going forward. As expected, the shipment volume of the axle in financial year 25 has been revised up to 4 million units. We are going to prepare almost double the production capacity to cope with this. Please see slide 14. NIREC has established a semiconductor solution center in Kawasaki, Japan, aiming to plan an semiconductor strategy for 10 trillion yen sales in financial year 30, with Mr. Ryuji Omura as the director, who is the leading expert of semiconductors in Japan and joined NIDEC recently. This semiconductor solution center is expected to build a strong partnership with semiconductor suppliers. to establish a sustainable supply chain of semiconductors inside and outside the needed group in anticipation of geopolitical risks and other contingencies, and to create synergies between semiconductors and the motors, providing high-value added solutions. The basic strategy for the semiconductor business is to optimize make or buy approach. and we are aiming to ensure a stable procurement of semiconductor components. We currently purchase in the first phase to procure high-value-added semiconductor components in the second phase and to become a comprehensive motor control solution provider in the third phase. Please see slide 15. As higher raw material price and lockdowns in China pressurize profitability, we are preparing for the demand recovery by increasing selling prices and reducing costs. Please see slide 16. Paradigm shift from ICE or internal combustion engine vehicles to EVs is rapidly accelerating in two-foils and small cars as well. We are focusing on two largest markets of India and China in both electric two-foil vehicles and small EVs. We are planning mass production in financial year 2022 for 11 projects, including six related to electric two-foil vehicles. And five are related to small EVs. We have oil motors for electric motorcycles in India. And with regard to production, we have converted the former HDD factory to that of micro mobility. And we are applying to double the flow area of our Indian factory. Please see slide 17. In the small precision motor segment, we are implementing business portfolio transformation amid HDD motor market structural change. Please see slide 18. In ACI, we are executing structural reform in overseas businesses and looking to enter a new phase of growth. While gaining market share outside Europe, that is shaken by the conflict. We are going to accelerate top-line growth through three new strategies in the fields of generators and battery energy storage system, battery charger for EVs, etc. And for the air conditioner market, we are going to expand the business globally, mainly for industrial use. Assuming higher raw material cost continues for the time being, the same as in the oat business, we will accelerate improvement of profit structures through passing that on to selling price and reducing manufacturing cost. Please see slide 19. Despite headwinds posted by demand slowdown in Europe and the raw material price hike, We are going to continue efforts to achieve operating profit ratio of 18%. Please see slide 20. The newly created machine business group that consists of two subsidiaries, Nidec Simp and the newly acquired subsidiaries of Nidec Machine Tool and Nidec OKK is targeting 500 billion yen sales in 2020. financial year 25, and 1 trillion net sales in financial year 30. And through this new business group, we are going to cultivate a pillar of growth with high profitability. The growth strategy of machine tool business for the two newly acquired companies is to enhance production and sales in China. to win market share using Nidex's cost competitiveness and brand power, and to pursue profitability through mass production effect. The organic growth strategy of Nidex Simple is to strengthen production and sales through collaboration among our major brands in the press machine business and to gain market share of reducers for 6-axis robots. Please see slide 21. In other product groups, the operating profit ratio since financial year 21 is keeping high level of over 15%. Please see slide 22 with regard to the inheritance of NINEX corporate culture. We are making continued efforts so that the founders' ideal management philosophy and passion will be succeeded to and penetrated into the next generation. Please see slide 23. We have now five internal directors, six outside directors, including four female directors, who were elected at the AGM held in June, resulting in the outside director's ratio of 55% and the female director's ratio of 36%. With this new team, we will continue to make the best efforts for a fair, transparent, and highly effective governance system. Lastly, 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 very much, Mr. Sambula. Now, we'd like to turn to the Q&A session. Mr. Seiki and Mr. Sambula will be pleased to answer your questions. Today's Q&A session will be conducted electronically. If you'd like to ask a question, please press the star key and 1 on your touchtone 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 2. We will now pause. for questions from the participants. Okay. Our first question today is from Ramze Niram, State Street Global Advisor. Please go ahead.

Hi, thanks for taking my question. So my first question is on organic growth. I mean, during the quarter, we have seen 15% tailwind from products, and if we exclude that, luckily we have 6% growth left. So can you break down 6% between the organic growth and also any growth from the acquisitions? That's my first question.

Ramzi, are you talking about the entire portion or any segment?

Yeah, I mean, it depends. I mean, is there any significant acquisitions? I think machinery looks like there is an acquisition, definitely, but broadly speaking also.

Machinery?

Yeah. I mean, I think it would be, I mean, at the group level, I think it is fine if you can do a broader understanding at the group level.

So as far as we have been saying is, as you can see, slide number 20. Can you see the slide number 20?

Okay.

And then we say fiscal year 2025, we are looking for a $500 billion top line. covering the Nidec Sinpo machine business. That can be divided into the pink portion. It's a new M&A. And the machine tool business, which means the Nidec machine tool and the OKK. And the bottom part, the green part, is the Nidec Sinpo organic growth. So roughly, we say that's going to be making a one-third each. Is that fine? In the Q1.

I mean, I'm actually asking for the Q1, this particular portion.

Pardon? Q1.

So, I mean, this is, we are talking about Q1, right? So, simple. And, you know, my next question on slide 15. Slide 15. I think I made it. Yeah, so I made a little calculation there. So it seems to me the loss, the operating loss from the traction motor business is roughly 6.5 billion in the quarter. So can you confirm that? If true, it is actually the operating loss from traction motor business has increased from 2.5 billion to 6.5 billion. Can you explain those numbers, please?

Sorry, Ramzeh. Your voice is breaking, so it's very difficult to catch. Can you speak again a little bit clearly and slowly? Yeah.

Sorry. On the traction motor business, even traction motor business, it seems like there is an operating loss of $6.5 billion in the quarter compared to $2.5 billion loss in the Q4. Right. those numbers and what is the expectation on the profit making on traction motor business?

Yeah. You are looking at page 15, right? Yeah. I guess you are measuring a gap between green bar versus blue bar. That is a loss from traction motors. And your question is Q4 versus Q1. It's about 50 to 60 billion Japanese yen loss. And then that is constant. Mainly, 5.6 billion. Sorry, 5.6 billion. Sorry, I got one decimal wrong. 5.6 billion. Yes. The majority of those are development fee for coming new product in 23, 24. And then basically we said currently we are building and selling Generation 1. Generation 1 is not profitable yet. So each time we sell, we lose money. But this is not answer to your question, but If we go to page 12, if you look at the bottom, gray arrow is generation one and the red arrow is generation two. In this quarter, we start producing this generation two. And then time by time, we expand this generation two. And then this Generation 2 is firmly profitable. We already confirmed double digit. And then it's a matter of how quickly we can convert from Generation 1 to Generation 2. Then we said, originally we said FY23 is a year we make break-evens. But today I announced we pull ahead by six months. So before, FY23 H1 was still negative. It's become positive. That's why as a total FY23, positive FY23 year alone. We already confirmed we can make a positive profit in FY23 H1 by six months ahead. So this is not end. After we confirm this, we continue to make efforts to provide this to Q4 in FY22. So time by time, we are improving profitability, preventing cash breeder from Generation 1, and then that will make much better in 22 total profit of traction motor. But you are right. At this moment, we lost 5.6 billion yen in Q1, mainly because of development.

On a similar line, I think you had also increased the outlook for financial year 2025 to 4 million retraction motor units. So can you give some color on what are the factors that are contributing to the upward revision outlook? And also, can you give me what are the actual orders and the high-probability orders of the four-million units?

Okay. Thank you. I think you are looking at the page 26 left-hand chart. If you look at the 25, we are saying in red letter, it's 4 million. It was 3.6 million in April, so we increased by 400,000. And then before, we explained each time how many brands, how many models, but now it's too many. At least like 20 brands and almost 40 cars. So we quitted to announce those because it's too complicated. But instead, I would like to tell you a few facts. We are talking about 25, but in 22, we had four brands in the current lineup. Actually, four additional OEMs. We cannot say clearly the name of our customers, But all three are Chinese customers, and one are international customers. Builder is Chinese. All are Chinese, we can say. Up to today, we have two OEMs, Granjo Motors and Geely Motors. The total model is over 10, but only two OEMs. So we are very glad to have four more OEMs in this year. and it will expand to more than 20 towards 25. That is fact one. And then fact two, actually what we have in our hand is about five millions, not four millions. Farm order is already reaching about three millions, and a very good possibility, probability to get the order is one million. and we have a one million extra. So we are very confident to achieve this four million in 25 arteries. And then third one, about 1.4 million of this four million is coming from Europe, which is we call NPE, Nidec PSA e-motor companies. That is a joint venture with current Stellantis. located in France. And then that start production from this quarter. I cannot tell you exact month, but by this quarter, they start the productions. Actually, Mr. Carlos Tabarez, CEO of Scientist, already announced. I don't remember if he mentioned the exact month, but it is within this quarter, yeah. And then it will grow to more than 1.3 million in 2025. And then we're now receiving many inquiries from European companies and North American companies. So this 4 million will not stay. Time by time, we can explain. It will grow. We are very confident. The most important point is, if we assure this, we need to be ready to produce. That's why page 15, page 13, we say capacity first. Not necessarily we prepare double, but we say we need six million before 25. because now four millions, and then it will increase to 4.2, 4.5, 4.8, time by time, and then I think six million may not be enough. So I think we are one of the most aggressive investor for this production capacity, because we don't want to miss any opportunities. That is answer to your questions.

Thank you. And just one more follow-up here. Is there any guidance you can give for the target units for this financial year, if possible?

Sorry, say it again.

Yeah, so is there any guidance you can give for the number of shipment units for this financial year?

For this fiscal year? Yeah. Roughly 650,000.

And lastly, a final question. 650,000 plus NP.

Yeah. The 650,000 is the e-axle number we are going to build in China. And at this moment, within this fiscal year, we say... The volume of the NPE this fiscal year, just a minute.

I think we cannot tell that way.

Okay. So that would be a plus. It may not be a plus. Plus alpha.

Plus alpha. And we are not positively announcing, but we're historically delivering traction motor for LCB world, light commercial vehicle world. And then that is about $50,000 to $60,000 this year. So overall, we can say this fiscal year EAPS production is about $80,000, sorry, $800,000. So together with the production we made last year, we can exceed $1 million within this fiscal year. If it's very fast, we may exceed within this calendar year.

Okay, that's great. And finally, a final question from me is, broadly, can you give an outlook, I mean, the demand outlook of the auto segment as well as ACI? So the macro seems weakening in some of the countries. So what is the current demand you are seeing in different markets? Do you see any slowdown in the current demand?

Okay, so just a moment. Can we go to page 19? Left-hand side is sales and right-hand side is profit. About the sales, we are still increasing from last Q4 to this Q1. As you can see, either blue bar or green bar. Green bar is our ASIMs and MOENs. And Bluebuy is plus group companies. Then it's increasing. However, if we're taking account, we are increasing price. Quantity-wise, not increasing this way. It's almost flat. And it's almost flat, but if we look at the segment by segment, industry and commercial motors are increasing. while appliance is decreasing. That makes flat. And then for appliance side, particularly we are seeing a huge reduction from fridge and the washing machines. We say cold and wet. And then we don't know if this is temporary deteriorations or this may continue another year or two years. But if we look at the automotive world, we thought it's coming back last year. Actually, it's very, very flat, like 8 million, sorry, 80 million per year. So I'm telling my people in appliance teams, it may not come back. So we need rapid light sizing for headcount of direct laborers or indirect laborers. And if it comes back, we can hire. So I'm looking at the appliance volume very conservatively. Commercial and the industry is still flying. That is the answer to your questions.

Thank you. Thank you very much.

I'll join you.

Thank you, Ramze.

Ramze, thank you very much. Our next question is from Mr. Takashi Ito from Anurag Investment Management. Please go ahead.

Yeah, so I just have a quick question on the missionary segment. So is the margins for the machine tool business, the one which is started in FY21, higher than the existing Shimpos business?

Thank you, Ito-san.

I think it's almost safe. Actually, simple business is still higher, and then machine 2 is catching up, and OKK is following machine 2. So it's around 10% to 12%, while original simple is staying about 20%. And mix is 18.1, as page 21 showing.

Thank you so much.

Yeah. But, you know, we are not increasing price. This is coming from pure cost reduction. Therefore, our customer is very appreciated, and then we are having many orders from customers in global, particularly machine tool is very specialized to build gear machining. We have a huge order of gear makers. because of high electrifications. So that is happening. So I think this future is very bright.

Thanks.

OK. Thank you very much, Mr. Ito. Our next question is from Mr. Tom Glue from Alma Capital. Please go ahead.

Hi. Hi. Can you hear me?

Yes, we can hear you, Tom.

Okay, great. Thank you very much for taking my question. I was just wondering, a question going back to talking about e-axle or traction motor, and I was wondering, is it possible to explain, you've said two things are changing. One is that the profitability will come sooner than we were expecting before, but also that you will be expanding production more aggressively than before, which together seem like they're going in opposite directions. So is it possible to explain how we can have confidence in these two statements together?

First, profitability. I cannot disclose at this moment, and I'm sure a customer is not happy to hear their supplier having high profitability. We don't trumpet this way, but... since our investors, confidentially, can explain. We successfully reduced all production costs, including the passing parts, by about 30% from Generation 1 to Generation 2. Then, of course, material hype is still continuing, but we successfully reduced take all compensation for material hike from customers. So we can enjoy this cost reduction for either price reduction for more market share or profit. And then in case we introduce all of those cost reduction into profitability, our profitability is secured as double digit. between 22 to 24, before 25, that is the most important period to take all market share. So we make a final decision depending on competition situations. But if we introduce all this cost advantage into profit, that makes this program very profitable. By the way, currently we... I don't want to say so clearly, but marginal profit base, it's almost break even. Profit base, minus 15%. So it's a huge gap. So last year, we lost 26 billion yen, sorry, 24 billion yen, negatives, because of traction motors. So if traction motor is break even, probably we reached 200 billion yen. of profitabilities. And then, as Ramzei made a question in the first, in this Q1, still 5.6 billion negatives, but as I said, in H1, in 23, we can make a positive. So that is a profit situation, and then answer to your second question, production. Of course, you know, investment is giving a pressure for cash flow. But once we're talking about profitabilities, investment is depreciations. Depreciation per line is about 4% to 5%. And then that 4% to 5% become a burden. unless we fill all the capacities. So let's say we fill capacity by 50%, impact is 2 to 2.5%, not extremely huge. So, and then as I explained, we are very confident to make this four millions. Therefore, I think about meanwhile, this is typically Chinese customer, but Chinese customer come to us and then pick up what they want, and they say they need it next year, less one year. So in that case, we are afraid more to lose this opportunity than stress from depreciation. So that's why our strategy is production first. It may impact some, but not huge for profit. That is what we are thinking.

Okay, thank you very much. Can I ask, the Generation 2 e-axles, obviously, as you explained, more profitable than the Generation 1. And I was wondering, what are you expecting in terms of Chinese customers versus European or non-Chinese customers, usage of second generation versus first generation? Because obviously, your existing contracts with Chinese customers that at the moment they're all used to and employing first generation. So do you expect them all to switch to second generation very quickly or not? And for Europe, will it just be second generation?

Thank you, Tom. It's very, very good questions. What Chinese customer want is currently delivery. This is a very famous story, but Chinese government, Hong San, long time, Because local player is always weaker than international player. Like Changhan, Changzhou, Shanghai Motors, they are much weaker than Volkswagen, GM, Toyota, Nissan. With 20% price reductions. Lower price. Still, international, huge market share. So Chinese government are very unhappy to share some profit with those international players. That means with Germany, with Japan, with USA. But what we are seeing is in China, while ICE vehicle is reducing, EV is increasing very fast. And then nearly 80% of those EV is produced by local players. So when we look at this Q1 result, proportion of local player and international player is drastically changed. Now local player is more than 50%. And the international player used to have 60% or more, but they are now like 47, 48%. So this is what Chinese government expecting, I believe. Therefore, they are whipping all automotive OEM to increase EV more. So I didn't explain, but when we talked about 4 million, we're still using some compression ratio. But lately, Chinese player, volume which Chinese player requesting us always happen 100%. or sometimes 120%. So I'm requesting my people to stop compressing their volumes because it's danger. It may change in future, but at this moment at least what they're requesting is all realized. So that is the situation. And therefore, first their requirement is delivery as they want. And second, of course, I have to say, if we have any participants from China, sorry to say it this way, but Chinese automotive market is still not matured yet. So driver is not sensitive as European driver or US drivers. So accelerations or quietness is less sensitive compared with European market. So they want to make more EV and they want to sell more EV with farm delivery with cheaper price. That is their requirement. And then switch to Europe. If Europe is same tendency, I have to say at this moment, no. Because European player still producing their traction motor by themselves, most of the case. Stellantis case, it's a joint venture, probably they are treating us like an in-house. Mr. Carlos Tabarez announced that they have a very smart way to reduce cost of this powertrain production with firm control by joint ventures. They are kind of exceptional, but except them, all are still producing. And then they are not crazily chasing volume yet. And second, in European market, still maximum speed is very important, even EVs. And then autonomous range is very important too. Therefore, they are requesting very high torque high accelerations with very good quietness and motor efficiencies, which Chinese customers are not so sensitive. So I believe this tendency will continue for a while. So naturally, we may have to split the specification for European market and Chinese market. At this moment, we don't have any problem with this because Most of the majority of production for China, we have a Chinese plant, and Europe only we have a plant with scientists. In future, probably this makes some problems, and we need to maximize a common platform between Chinese and Europeans. But at this moment, we are not facing that problem yet.

That's a very clear story, thank you. But can I just ask, in terms of Generation 2 and Generation 1, is that the specification split that you're describing? Or within those two generations, are there different specifications?

First, Generation 2 is much lighter, smaller, thinner. So by weight, it's about 15% to 20% reductions. And then in terms of NVH, noise vibration harshness, it's about 10% better. But torque and motor efficiency, it's almost same. So specification-wise, we just kept flat. And then all other made better. And then if we bring this to Europe, probably we need a little more care for NVH. and then maximum speed by changing the ratio.

OK. But so your plan to switch people onto Generation 2 instead of Generation 1 e-axle, that is applying for both China and Europe then, it sounds like?

Yes. That's what we are expecting. But China, it's already confirmed. All our customers are there. They want to switch.

They're all going to switch. OK. Again, this switch is to drive the profitability improvement that you're talking about within the next year and a half.

That's right. But introduction itself starts from this quarter. Actually, we can tell it's September. And then, let's say, in September, total balance of Generation 1 to Generation 2 is, let's say, 98 to 2. Month by month, it gradually increases. And then next, FY23 Q1, what I'm seeing is balance is about 75 and 25, sorry, 25 generation 1 and 75 generation 2.

Okay. And so final question is, in the medium term, once you've built the new factories in both Europe and, again, expanding in China, do you expect the margins to be very different if both markets are using Q1? Generation one I understand obviously the specs might be slightly different fit Do you expect long-term margins to be or profitability to be different given the production location and pricing with customers and things?

if we look at price of motor We are seeing a much higher price in Europe therefore if we make an exact same motor and profitability in Europe becomes higher than China. However, for Europe, probably we need extra specification, as I explained, more efficiency, more speed. That costs more. So as a conclusion, I think profitability becomes very similar. And then we have not started the business in North America yet. We are receiving many inquiries from North American customers. And North America will be very similar too. But probably a little easier to make a higher profit in the USA because less competition.

Thank you. Thank you very much.

Thank you very much, Tom. Our next question is from Mr. John Greenhill from Bearing Asset Management. Please go ahead.

Hi, thank you. I wonder if you could just give us more details on slide 14, and in particular, the timing of those three phases, even if it's a rough timing, how much you're willing to invest in that process. And then perhaps a little bit more detail on what you think the benefits will be. Is it predominantly sort of security of supply, or are you looking for a big cost advantage from that?

Thank you, Jones. I think everybody on page 14. And then in the table, we say phase one, phase two, phase three. At this moment, we are completely concentrating to make a phase one, which is secure delivery. Actually, we held a kickoff meeting on June 7th in Kawasaki, nearby Tokyo. And then we invited more than 30 very famous semiconductor suppliers And then we explained that probably our approach is a bit different from other their customers because we want to be very transparent for volumes. And then what we want is win-win, not take-take. That's standard automotive volumes. So they're a bit surprised, but they positively support our approach. We say we guarantee boring for five years, and then of course we pay if it's less. And then we also said if they don't deliver, we take penalty too, so it's even. So that communication is ongoing. I think we made about 50% completions. We still need another 50% to complete, to secure those. That's phase one. And then we are going to complete this by this October or November timings. As I said, July volume is already more than 40,000 per month. And that exceeds to 50 very soon, and then 60 in Q3. So we need a rapid action for this securing chips. And then now this team is preparing to move to phase two. Actually, they already made a draft RFQs. I have checked one, but it's not yet enough. They need probably one to two months more to complete this RFQ. RFQ is covering at this moment the traction motor, but also that will expand to other automotive parts, and also precision motor parts, and then appliance commercial industry parts. At this moment, this RFQ is dedicated to traction motors. And then goal is to make a long-term agreement with nominated supplier, as I explained in the beginning. So we want, then this is a direct answer to your question. purpose is obviously both volume securing and also cost reductions. Better price than current. Actually, up to 2020, semiconductor was nothing. You can request today and deliver tomorrow because inventory everywhere. It's changed from last year, 2021. Then, you know, NIDEC didn't have any integrated procurement. So we have over 200 plants, and plant by plant they are procuring, they were procuring a semiconductor as they want. We have a price disadvantage because lots of extra inventory from this world. And then now we realize that we are treated as like nothing. because each procurement activity has a very small volume. So now we integrating this requirement as total need to enjoy more scale merit. And then we already confirmed our demand of total need is good enough to make supplier happier. So that is what we are working. Is that answering to your question, John?

Yes, I think so. Great. And phase three, that sounds like a very long-term sort of distant target.

Is that right? Yeah, yeah. I forgot to explain. Very important point. First of all, we don't want to. We don't want to build by ourselves because we have no interest about semiconductor itself. We just need a semiconductor to build our product. Therefore, we want to avoid phase three as much as possible. But if necessary, we go phase three. So first, we want to stop by phase two, and then we want to make a good price and good delivery from existing suppliers. But if necessary, we don't hesitate to move to phase three.

That's right, sir. Thank you very much.

Thank you very much, John. We don't have much time, so the next will be the final question. Mr. Takashi Ito from Arga Investment Management. Please go ahead.

Yeah, hi, sorry. Just a quick question. I had missed it earlier. So what are the long-term profit margins of the actual segment as such, the sub-segment?

Oh, that's a very, very good question. Again, can we go back to page 26? Please look at the left chart. Time by time, we're changing 25 volumes. It starts from like 2 million and 2.5 million, 2.8, now 4 million. While we are changing, we have not changed the 2030 target, which is 10 million. This 10 million stands 45% market share at that time. And then EV demand prediction in 2030 is keep increasing. And then if we can really take a 45% market share, of course we dominate these areas. And then we can lead pricing. That time, I think... 20%, 25% margins, not dream. So then, meanwhile, if we stay like 7% or 8% market share, of course, we can't control this price. So important point is we need market share by 2030 to get the higher profitabilities. So as I explained in the transition periods, Our engineering make a cost reduction anyway, together with the purchasing department. And then if we use those cost advantage for more market share or more profit with less market share, that become choice. It's depending on situations, but potentially we're aiming 45% market share in 2030. with 20 to 25% of profitability. That is our strategies.

And just a quick follow up. So right now, the main customers are in China, but how will the ASPs change if you start developing new products for the European car companies?

This is what we are thinking. Today's package don't have, but up to last time, we explained we splitting our customer type A, type B, type C. Type A, they love to build motor by themselves. Type C, they don't care if it's outsourced or in-house because outsourced is very competitive. They are procuring traction motor. from outside, like us. And Type B is in between, it's a hybrid, like a Stellantis. They don't want to relying on outside, but they want to keep control. Their choice is like a joint ventures. Some are like a technical corporations, partnership, whatever relationship between here. Type B is some soft binding, hard binding. And then, We are concentrating to China. There are two reasons. One, there are so many type C customers. They don't care to build by themselves. They're freely requesting us to build for them. And two, reason two is they have an extremely short lead times. Now very much cash consuming because we need production capacity in advance. This is just average number, but current Chinese customer required lead time from order to SOP is about 1.5 years, while European player average lead time is about 3 to 3.5 years. So spend the money to make it cash. This lead time is very important, particularly our current volume increasing periods. Chinese is much easier to work with because of the short lead times, the lower requirement, and then more reliable volumes. And then, so, for these stations, we buildings and selling in China, but for Europe, I think they follow similar. We say type A, but actually type A is transforming to type A dash. That is, you know, they keep final assembly in their site, but they request a supplier to build stator or loaders or inverters and gear, and they purchase those as component, and they make just final assemblies. Because now they're realizing their in-house cost is far higher than our selling price. Because they don't have enough volumes. Why do we have enough volume already? So what we are predicting is they move to A to A dash, and then finally it becomes C. This transformation occur from cheaper car Probably for very high segment, like segment E, segment D, segment F, they may keep in-house, but they can't keep their in-house production for segment C, B, A. That's probably coming to us. Invading those one by one, and then maybe 2035 or 2040, probably no one build by themselves. At least even debut, just the final assembly. That's what we are seeing.

Thank you so much for your time. Thank you, Ito-san.

Thank you. Ito-san, 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 don't hesitate to contact NIDEC Corporation, or you are self-representative at Mitsubishi U.S. Morgan Sunday Securities.

Thank you, everyone.

Thank you, everyone, for joining the conference call, and you may now disconnect.