My name is Murao, President of GS Yuasa Corporation. Let me start by offering a word of appreciation to institutional investors and analysts. I would now like to report on the financial results for the six months ended September 30, 2022. First is an overview of net sales and profits. We registered JPY 235.2 billion in consolidated net sales, a year-on-year increase of JPY 40.1 billion.
This was primarily due to an increase in sales of lithium-ion batteries for hybrid electric vehicles, the consolidation of our site in Turkey, and the impact of a weaker yen. Operating income stood at JPY 8.2 billion for a year-on-year increase of JPY 3 billion. I will be discussing the details later on in today's presentation.
Profit attributable to owners of parent stood at JPY 1.7 billion on account of non-operating losses in the form of investment losses accounted for using the equity method and a worsening of foreign exchange gains and losses in some regions. This represents a year-on-year decrease of JPY 500 million. Furthermore, these results represent a record second quarter performance in terms of net sales and operating income. Shown here are the factors for operating income change.
While operating income was negatively impacted by an increase in personnel and other expenses, the execution of cost pass-throughs to reflect surging raw material prices and foreign exchange gains allowed us to deliver a year-on-year increase. Next are the segment results. I shall be discussing the details next. I would now like to go over the segment results, starting with the automotive battery segment in Japan. In this segment, net sales increased while operating income decreased.
The highlights are as follows. Sales volume of batteries for new automobiles decreased because of a production decrease of automakers due to the semiconductor shortage continuing. Additionally, sales volume of replacement batteries performed well due to the impact of an increase in continuous use of owned cars. Page 8 shows our market share for batteries for new automobiles and replacement batteries in Japan.
Our market share in batteries for new automobiles and for replacement remains unchanged from fiscal year 2019 levels, pre-COVID-19. In the replacement market, the share of batteries for start-and-stop vehicles continues a steady climb, and so does the share associated with European standard compliant, abbreviated as EN batteries, a type of battery GS Yuasa has a competitive advantage in. Next are the results in the overseas automotive battery segment. In this segment, both net sales and operating income registered a year-on-year increase.
In Southeast Asia, sales volume of batteries for automobiles and motorcycles remained strong. Additionally, sales volume of batteries for automobiles increased due to the consolidation of our site in Turkey. Lastly, sales increased thanks to the impact of a weaker yen. Page 10 discusses sales and market share by region globally in the overseas automotive battery segment, as well as the ratio of shipped batteries in ASEAN, where GS Yuasa has a significant presence.
As you can see, globally, the sales share for the ASEAN region continues on an upward trend, growing with each passing year. GS Yuasa aims to maintain a high market share in ASEAN, while at the same time working toward further profitability improvements through the introduction of new products and optimal production systems.
Allow me to direct your attention to the vertical bar graphs to the right, representing the ratio of shipped batteries for use in four-wheel and two-wheel vehicles. Market conditions in Indonesia, Thailand, and Vietnam continue to approach and exceed pre-COVID-19 fiscal year 2019 levels. Next are the results in the industrial battery and power supply segment. In this segment, we registered a decrease in net sales, accompanied by an increase in operating income. The highlights are as follows.
Sales decreased because supply of lithium-ion batteries for the interconnected system of large wind power generation in Hokkaido finished in the previous fiscal year. Sales of backup batteries and power supplies decreased due to long delivery times for many UPS components. Lastly, sales volume of replacement batteries for forklifts and trucks progressed steadily. Next are the results in the automotive lithium-ion battery segment.
In this segment, we registered a year-on-year increase in net sales and operating income. The highlights are as follows. Starting with Blue Energy, sales volume of lithium-ion batteries for hybrid vehicles increased because the number 2 plant started operation. Regarding Lithium Energy Japan, sales volume of plug-in hybrid vehicle models equipped with our lithium-ion batteries increased.
Additionally, in this segment, we newly established a battery for BEV development department, so this led to an increase in R&D expenses. Next are the results in the segment of specialized batteries and others.
The core company in this segment is GS Yuasa Technology, which manufactures and sells specialized batteries. In this segment, we registered a year-on-year increase in net sales, accompanied by a decrease in operating income. The segment highlights are as follows: Sales of lithium-ion batteries for submarines decreased due to the relation of standard for progress of construction works.
Additionally, sales volume of lithium-ion batteries for aircraft, mainly to airlines for replacement, increased. Next is the balance sheet. The highlights are as shown in the text boxes. Production cuts on the part of automakers prompted by supply chain issues and longer times in the procurement of parts have translated into an increase in working capital on account of an increase in inventories.
We offset this increase primarily through external financing, primarily through borrowings, and this has led to an increase in the balance of interest-bearing debt. I would now like to discuss the cash flow statements.
The highlights are as follows. While we ensured JPY 7.2 billion in profit before income taxes, operating cash flow only totaled JPY 1.9 billion, mainly due to the aforementioned increase in inventories. Investing cash flow came to negative JPY 15.7 billion due to capital investment for Blue Energy's No. 2 plant, et cetera.
These factors resulted in free cash flows of JPY -13.8 billion, although we conducted debt financing in order to allocate to shareholder returns, et cetera. Page 16 contains an overview of capital investment, depreciation, and R&D costs. The initial forecast for the fiscal year ending March 2023 remains the same. The only changes being slight upward and downward revisions to the sales forecast for some segments.
However, the following forecasts remain unchanged: JPY 520 billion in total consolidated net sales, JPY 29 billion in operating income before the amortization of goodwill, JPY 28 billion in operating income, JPY 28 billion in ordinary income, and JPY 12 billion in profit attributable to owners of parent. This concludes our overview of the results for the second quarter. Next, I will be discussing the environment surrounding storage batteries and GS Yuasa's strategies in this area.
Demand is expected to continue growing at a tremendous pace in the global market for storage batteries, in light of the acceleration of the electrification of mobility solutions like automobiles. Against this backdrop, demand for stationary storage batteries is also expected to continue growing toward raising the share of renewables and making renewable energy the main source of energy.
In particular, as shown in the vertical bar graph, demand for stationary storage batteries stood at 30 GW hour in 2019, but this figure is expected to increase approximately 110-fold by 2050. Toward raising the share of renewables and making renewable energy the world's main source of energy, storage batteries are indispensable devices in the execution of supply and demand adjustments of electricity.
Against this backdrop, the Japanese government's storage battery industry strategy has set a target domestic manufacturing capacity for storage batteries, both for automotive and stationary use, of 150 gigawatt hour per year by 2030. In the global market, the Japanese government has also outlined a production output target of 600 GW hour per year from Japan and to Japanese manufacturers, also in the interest of securing buying capacity and securing influence regarding the formulation of international rules.
Furthermore, the Japanese government has also stated a vision for Japan to secure a position as world leader as it pertains to storage battery technology, becoming a world leader in the development of next-generation batteries and in the full-fledged commercialization of all solid-state batteries. This page discusses the practical use of storage batteries in the renewable energy market.
In order to raise the share of renewables and make renewable energy the main source of energy, there is a need to stabilize electricity output and to this end, installing storage batteries is indispensable for the purpose of supply and demand adjustments. The diagram on the left illustrates this dynamic as connection of storage batteries to the grid can primarily be divided into three categories.
Shown on the left side is the category of attaching storage batteries to the power generation side, with direct connection to the grid shown in the middle diagram. Lastly, the right section of the diagram illustrates the category of attaching storage batteries to the demand side.
Installing storage batteries in the three manners outlined here has the effect of improving grid stability, and through the grid, the electricity accumulated in storage batteries can be supplied to renewable energy and power transmission operators as conditioning power.
Another of a wide variety of use cases is VPPs, that is virtual power plants, as distributed power supplies. Allow me to direct your attention to the right-hand side of the page, which showcases stationary storage battery facilities GS Yuasa has supplied in the past. Shown at the top is a storage battery facility in Kushiro, Hokkaido, established for the purpose of contributing to reducing the output fluctuations of solar power generation.
Shown at the bottom is a storage battery facility established in Wakkanai City, Hokkaido. This is a demand-side operation for the purpose of stabilizing supply and demand of grid electricity in a self-consignment system.
Additionally, as shown on page 21, another project is the world's largest storage battery facility located in Toyotomi-cho, Hokkaido, built for the purpose of contributing to grid stability through output fluctuation mitigation in wind power generation.
This project has a capacity of 720 MW hour, and we supplied batteries to this site. GS Yuasa's efforts and initiative policies in the renewable energy market are toward high quality, highly reliable, and safe manufacturing, working as the support and backbone of the nation's infrastructure. We have achieved high quality and high reliability, securing the safe and stable supply of storage batteries and power supplies, including power conditioners to convert direct current to alternating current through domestic production.
Additionally, we are developing storage batteries and power supplies as an all-in-one package system, planning the offering of a system product presenting an attractive value proposition. We are currently developing stationary lithium-ion batteries with higher energy densities compared to current products, and with improved cost competitiveness. In the market for stationary storage batteries as well, we will be establishing a robust position for ourselves.
GS Yuasa's initiatives in the renewable energy market aren't restricted to the development of device hardware, as we are making progress in providing STARELINK, our proprietary preventive maintenance service leveraging AI-based predictive technology, IT, and cloud technology. Power generation facilities have a long usable lifespan of between 15 and 20 years.
Consequently, we would like to offer long-term support across four different domains to our clients in order to maintain stable operations and optimal control, which are essential. Shown at the bottom is an overview of this service across the following components. The first component is remote monitoring, which involves confirming the soundness of storage batteries and accumulating data pertaining to the status of these facilities.
The second component of this service is analysis and diagnosis, which involves carrying out an analysis of the data accumulated and submitting reports of the operational status and deterioration of storage battery systems, as well as of predicted abnormalities. The third component is capacity guarantee, which consists of estimating storage battery deterioration and proposing operational improvements.
The final component is maintenance and preservation, involving the execution of periodic inspections, periodic parts replacement, and repairs and restoration when abnormalities occur. In other words, this is a preventive maintenance system. Therefore, through preventive maintenance services, we provide a technology allowing our clients to enjoy even more confidence and peace of mind when using our highly reliable storage battery systems.
GS Yuasa's strengths aren't limited to these, as our support services are available 24 hours a day, 365 days a year, and we boast a network of more than 100 service locations throughout Japan with 1,000 professionals with expertise in the field of storage batteries.
Because we offer support systems capable of dealing with situations when simply having a strong network alone isn't enough when it comes to on-site maintenance and servicing, this allows us to secure the trust of customers while providing them with peace of mind.
We possess a network leveraging IT and a highly responsive footwork offering in-person on-site support 24 hours a day, 365 days a year. We would like to leverage this to function as a backbone to vital infrastructure, also within the renewable energy market.
I would now like to give you a brief summary of the creation of synergistic effects with GS Yuasa Energy Co., Limited, which corresponds to the old operations by the Panasonic Corporation. In the second half of fiscal year 2016, we took over the lead-acid battery business by transfer from the Panasonic Corporation. Since the amortization of goodwill was completed last fiscal year, we have decided to take this opportunity to give you a summary of the synergies resulting from this transfer.
The vertical bar graph on the left shows the trend over time in net sales and operating income of the automotive battery segment in Japan. The accumulated operating income of GS Yuasa Energy following the transfer stands at approximately JPY 20.1 billion. The accumulated amortization of goodwill associated with the transfer was approximately JPY 11.4 billion.
As you can see, this business has been able to deliver profits approximately JPY 8.7 billion in excess of the costs of amortization. Allow me to direct your attention to the graph on the top right corner. As shown here, market share also grew significantly after the transfer from a baseline of around 30%. The market share of batteries for new automobiles has therefore grown to around 70% and to approximately 60% for replacement batteries.
This business makes a contribution to the expansion of GS Yuasa's business, both in terms of profits and market share. We have therefore established a solid foundation in the market for automotive batteries in Japan. We have also unlocked other synergistic effects alongside profits and market share, the first one listed here being synergies resulting from joint purchasing.
The joint purchase of raw materials such as lead allows us to reduce raw material procurement costs by approximately JPY 200 million per year. Second, another synergy results from the mutual supply of storage batteries. GS Yuasa supplies large storage batteries and EN batteries to GS Yuasa Energy.
Conversely, GS Yuasa Energy provides small storage batteries and VRLA sealed batteries to GS Yuasa. Through this, we have enhanced both companies' product lineups, minimized defective products by sharing supply capacity between the two companies, and maximized sales opportunities.
Furthermore, other synergies include support introducing manufacturing facilities and sharing technological know-how mutually. Through these, we have and continue to rationalize production and development.
Going forward, we would like to continue integrating each company's respective technologies in order to unlock further synergistic effects and maximize profits. This concludes my presentation. Thank you for your time.
I would now like to begin the Q&A session. Mr. Sugimoto with Mitsubishi UFJ Morgan Stanley Securities will be posing the first question.
My name is Sugimoto, and I am with Mitsubishi UFJ Morgan Stanley Securities. I have three questions for you. First, earlier, you mentioned how the company is enhancing R&D regarding batteries for EVs. Could you give us an update on this front?
Recently, I believe you mentioned to a newspaper reporter that GS Yuasa is planning to enter this market in 2023. Could you please confirm this timeline and give us more details? Second, I would like you to discuss the situation in Europe. The company was caught up in the region's logistics turmoil, leading to unrealized gains in the first quarter.
Last time, I believe you mentioned the need to reduce production in the second quarter to account for this. I would appreciate it if you could provide us with an update and discuss the outlook for the second half of the fiscal year.
Third, could you provide us with an update of the company's turnaround in China? Judging from the slide you showed earlier, it would appear that net sales were yet to stage a significant recovery in the first half. I believe lockdowns had an impact on results. Could you please give us a brief update of where things stand currently and also discuss the outlook going forward? This concludes my questions.
Thank you for your questions. Allow me to answer your first question pertaining to the development of batteries for EVs and GS Yuasa's market initiatives. Please refer to page 12. Starting in fiscal year 2022, we established a battery for BEV development department within the scope of the lithium-ion battery business unit.
In the past, we have developed, produced, and supplied batteries for EVs, so we already have a platform in place. This new BEV development department involves the development of high-energy density, high-quality batteries for EVs.
We have put together a team consisting of approximately 30 members who previously worked on batteries for hybrid vehicles and plug-in hybrid vehicles in the LiB Technical Center. As such, starting this fiscal year, we will register expenses associated with this project within the scope of the lithium-ion battery business unit. You mentioned a 2023 timeline, but actually, we currently supply batteries for EVs already.
I am not at liberty to discuss the details here, but we have already started discussions with a number of OEMs. I can say that for the sixth midterm management plan starting in 2023, we will be shifting resources from batteries for hybrid vehicles, which we had dedicated our efforts to in the past, to batteries for EVs, and also to ESS, which stands for energy storage systems.
As such, 2023 refers to the beginning of the sixth midterm management plan, during which we will be shifting resources considerably toward batteries for EVs. I hope I was able to answer your question.
Yes, thank you. Thank you.
I would now like to discuss the situation in Europe. Noteworthy here is the fact that our site in Turkey entered the scope of consolidation. Additionally, we also manufacture industrial batteries in the United Kingdom.
Regarding batteries for use in four-wheel and two-wheel vehicles, these are manufactured in Asia and are then imported and then sold in the U.K. and continental Europe. As such, local currency weakness has had some impact on our results. Furthermore, you mentioned the company's unrealized gains. A relatively warm winter and a logistics disruption translated into an increase in inventories all at once. However, as we approach demand season, inventory levels are gradually decreasing. I hope I was able to answer your question.
Thank you. Does this mean that the factors you just mentioned had somewhat of a negative impact on second quarter results, and that you expect similar effects to still manifest themselves somewhat in the second half of the fiscal year?
As it pertains to our subsidiary in the U.K. and subsidiaries in continental Europe, we are executing a variety of measures in order to reduce inventory levels. As we approach the demand season, these unrealized inventories are gradually going down. We therefore believe the situation is expected to gradually improve over time.
Now allow me to answer your third question pertaining to the situation at our bases in China. We have production bases in northern and southern China for the manufacturing of batteries for new automobiles. While we have been able to secure some performance results, China's zero-COVID policy has led to a very difficult situation in the replacement market. This concludes my answer.
Thank you for your answer. You mentioned initiatives such as dispatching staff from Japan to China in order to enact productivity improvements and enhancing e-commerce. Would it be safe to assume the company has steadily been executing these?
That is correct.
Thank you for your answer.
Mr. Naruse with Okasan Securities will be posing the next question.
My name is Naruse, and I am with Okasan Securities. I also have three questions for you. Could you please pull up page 5 showing the factors for operating income change? I would like you to offer some commentary on this topic. While automotive production is on a recovery trend, the pace has been rather slow, making for a challenging environment.
Looking at the factors for operating income change, quantity and composition change had a significantly negative impact of JPY 6 billion compared to the initial forecast. Conversely, other items delivered a significant recovery exceeding the forecast.
This differential is significant, so I would like to ask about the backdrop as it pertains to the waterfall chart on the right-hand side. For example, areas which the company temporarily carried out efforts in and which consequently won't make a contribution in the second half of the fiscal year.
While there have been minor net sales revisions, the profit forecast for the full fiscal year remains unchanged. Are there any noteworthy changes in these factors for operating income change? Could you therefore give us a little bit more detail on this front? My second question pertains to the sixth midterm management plan, which starts next fiscal year. Within this question, I would like to inquire about two items within the topic of lithium-ion batteries, as discussed on page 19.
The first item overlaps with the question Mr. Sugimoto asked earlier pertaining to batteries for EVs. Like under the IRA in the United States, more and more we are seeing requirements for local production. Naturally, producing high-quality batteries is a prerequisite, but I would like to hear GS Yuasa's philosophy as it pertains to local production.
I believe these types of initiatives require extensive amounts of CapEx and other forms of investment. So I would like to hear your thoughts on this. For example, whether the company would consider joint ventures in these areas. Additionally, even if we only consider local production in Japan, there are significant incentives for this as well. Unlike with hybrid vehicles, I believe the hurdle is high for EVs when it comes to exports, so I would like to hear your thoughts on these topics.
Lastly, as you mentioned earlier, I also believe stationary storage batteries to have a very large potential. With that being said, I also feel that the spark to set off this growth has not yet been lit. On page 21, you mentioned the development of third-generation storage batteries, but I would like to know if this will be the catalyst to spark growth.
Hokkaido has plenty of usable land, and GS Yuasa has a very good reputation when it comes to safety. I wonder if there really is a need to develop new high-density batteries. I would like to ask you about any major potential catalysts in the renewable energy market to propel this domain to the status of business pillar for the company. This concludes my third question.
Thank you for your questions. CFO Matsushima will be answering your first question regarding the outlook going forward. Regarding your second question, I will be discussing our approach to local production, especially in the U.S., within the scope of the midterm management plan for the automotive lithium-ion battery segment. Lastly, I will be answering the third question pertaining to our thoughts and approach to second and third-generation stationary storage batteries and the outlook in this area.
This is CFO Matsushima speaking. If I understood your question correctly, you referred primarily to changes in the waterfall chart on the right-hand side of the page. Changes in quantity and composition had a very significant impact on results, of which a decrease in quantity overseas accounted for approximately 60%. The impact on our recent performance overseas of the ongoing semiconductor shortage was greater than expected.
Another potential factor impacting our results in Europe is the ongoing conflict in Ukraine, and these factors translated into a significant decrease in quantity compared to the initial forecast. A further factor was a decrease versus the forecast in terms of sales quantity of batteries for new automobiles in the domestic market, resulting from semiconductor shortages. This item remained mostly unchanged on a year-on-year basis, but from the perspective of the initial forecast, results fell short.
Additionally, in the industrial battery and power supply segment, we are seeing a slowdown in demand from public agencies and the private sector as companies seem to be slightly cutting back on CapEx. We therefore saw a decrease in sales quantity for backup batteries and power supplies, in contrast to what we had estimated in the initial forecast. Furthermore, another factor had to do with the automotive lithium-ion battery segment, sales for which consist primarily of batteries for new automobiles.
Sales quantity decreased for batteries for new automobiles, so this was also a relevant change factor. On the other hand, in light of surging raw material prices, we executed cost passthroughs in each segment and were also able to reduce expenses. Additionally, foreign exchange had a positive effect, which was a helpful contribution allowing us to slightly exceed the initial forecast. This concludes my answer.
Thank you for the detailed answer. Allow me to ask a follow-up question pertaining to the outlook for the second half of the fiscal year and full fiscal year. In terms of pacing, I believe there's some variance in terms of sales quantity, which I expect will improve over time. But would it be accurate to think the effects of the various cost reductions carried out by the company will continue to be in play in the second half as well? I would therefore like to hear your thoughts on the second half.
The price of raw materials on the LME has been very stable recently. As such, we believe we will be able to maintain existing cost passthroughs, making a profit contribution. Regarding expenses, we were able to rationalize variable expenses, which are proportional to sales quantity. Should the current shortage of semiconductors continue, then we can expect a similar reduction in expenses to occur once again.
Thank you for your answer.
I would now like to answer your second question pertaining to the status of the midterm outlook for the automotive lithium-ion battery segment. Shown here are the projections for the overall storage battery industry in Japan. For GS Yuasa, for the period between 2023 and 2025, sales and operating income will still be mostly centered around batteries for hybrid vehicles, plug-in hybrid vehicles, and ESS.
In particular, already during the fifth midterm management plan, we increased production capacity at Blue Energy, which stands at close to 50 million cells per year. Based on the current level of inquiries we have received, we expect to be able to reach an annual production capacity of 70 million cells between around the years of the late 2020s.
We currently supply Honda Motor Co., Ltd. and Toyota Motor Corporation with battery modules for hybrid vehicles, but we have also already started conversations with a number of other OEMs. Next, regarding our approach toward lithium-ion batteries for battery EVs. From the start of fiscal year 2022, we have gathered personnel and resources allowing us to go beyond existing development of batteries for EVs carried out by GS Yuasa.
We have therefore started development of batteries for EVs, delivering higher performance levels. However, although we currently supply batteries for EVs already, these efforts will only translate into actual market commercialization around 2025 and beyond. Regarding the topic of production primarily in the U.S., I am afraid I am not at liberty to discuss the specifics, but we have already started a number of discussions and preparations.
What I can say is that CapEx associated with the creation of infrastructure for the manufacturing of batteries for battery EVs is indeed a challenge. In light of this, rather than GS Yuasa taking a majority stake, we would like to provide primarily our technological expertise, for example, in the field of mass production to OEMs with whom we would like to work together. I hope I was able to answer your question.
Thank you for your answer. Thank you.
Lastly, allow me to answer your question pertaining to stationary storage batteries, referencing page 21. The bottom section discusses the first generation of stationary storage industrial lithium-ion batteries with the product name of LEPS-1. As we showed on page 20, we already have a large track record of supplying facilities using storage batteries to reduce output fluctuations.
I mentioned we were in the development phase, but development has already been completed for the LEPS-2 second generation of stationary storage industrial batteries. The technical specifications for which are shown here. Market launch for LEPS-2 will take place in the second half of the fiscal year with the projects and companies we will be supplying already having been decided upon.
Worthy of note here is that LEPS-2 improves upon the first-generation model, boasting a longer life and increased capacity. We were able to significantly improve the capacity maintenance rate. What is positive about this is that ESS are usually required to have a lifespan of between 15 and 20 years, and previously, these systems would gradually lose maximum capacity over time, requiring new units to be added from time to time.
Having an improved capacity maintenance rate has the benefit of allowing for some reduction in initial deployment. Even as the battery undergoes charging cycles, the rate of battery capacity degradation is slower than in other batteries. Furthermore, LEPS-2 also boasts an increased capacity of approximately 15% when measured against comparable models.
Whether the batteries are attached to the power generation side, directly connected to the grid, or attached to the demand side, the domain of ESS involves accumulating energy, which is then normalized before being supplied. Given the current energy situation, we believe that this domain will show very significant growth going forward.
We would like to go beyond LEPS-2, development for which was completed this fiscal year, as we would like to continue developing industrial use storage batteries with improved capabilities, such as LEPS III and beyond. I hope I was able to answer your question.
Thank you for your detailed answer underscoring this domain's potential. This transition has benefits for GS Yuasa in that it saves time and effort. Have there been any significant changes in client inquiries following the shift to LEPS-2?
We will start the supply of LEPS-2 batteries in the second half of the current fiscal year, but we have also received a large number of business inquiries for this product for the period corresponding to the sixth midterm management plan, which starts in 2023.
In light of this, currently, we are evaluating optimal ways to carry out the manufacturing of these batteries. Additionally, currently, storage batteries and power supplies, including power conditioners, each use separate board foundations, and these two are installed separately.
Going forward, naturally, we will continue battery development, but we would also like to work on system development toward integrating batteries and power conditioners into a single board foundation, and through this, simplify the installation process. Through these efforts, we will be making batteries more compact and easier to install, and we believe this will lead to an increase in business inquiries.
Thank you for your answer.
Mr. Sakae with Daiwa Securities will be posing the next question.
Thank you. My name is Sakae, and I am with Daiwa Securities. I have four questions, the first pertaining to GS Yuasa Energy. Between fiscal years 2016 and 2021, GS Yuasa Energy delivered an accumulated operating income of approximately JPY 20 billion. This appears to indicate an average operating income margin of around 10%.
Additionally, I believe the average operating income margin for the automotive battery segment in Japan to be in the high single digits, so this appears to indicate an advantage for GS Yuasa Energy. Could you elaborate on what the difference between the two is? Additionally, do you expect this strong margin on the part of GS Yuasa Energy to continue?
Thank you, and allow me to answer your first question. As you mentioned, GS Yuasa Energy has maintained an operating income margin of approximately 10%, while the margin for GS Yuasa itself is in the high single digits. The first difference between the two is the ratio of shipped batteries, for batteries for new automobiles and replacement batteries. Replacement batteries have a higher weighting for GS Yuasa Energy, leading to higher profit margins.
Another difference is that GS Yuasa offers a very wide range of variations, from small batteries all the way to batteries for use in buses and trucks. GS Yuasa Energy, on the other hand, features less variation and focuses on batteries offering higher mass production efficiency, so we believe this is another point of difference.
Going forward, as I mentioned earlier, GS Yuasa will be supplying large batteries to GS Yuasa Energy, and conversely, GS Yuasa Energy will be supplying small batteries and VRLA batteries to GS Yuasa. As such, we expect current operating income margin levels to be maintained. I hope I was able to answer your question.
Thank you for your answer. My second question pertains to the topic of storage batteries corresponding to pages 20 and 21. Page 20, on the left-hand side, covers the connection of storage batteries to the grid and divides these into three domains. In which of these categories does GS Yuasa have the strongest advantage?
Additionally, on page 21, you mentioned the integration of storage batteries and power supplies. I would like to know if other industry players already offer such integrated solutions or whether GS Yuasa is the first company to do this.
Thank you, and allow me to answer your second question. While we do not necessarily have a particular competitive advantage in this domain, as it pertains to the connection of storage batteries to the grid, be it through attachment to the power generation side, a direct connection to the grid, or attachment to the demand side, we do have a track record of supplying batteries.
In fact, we have significant results in the supply of batteries in the context of attachment to the power generation side and direct connections to the grid. As it pertains to attachment to the demand side, while we do have a track record when it comes to installations in factories and buildings, we have not made much in the way of inroads when it comes to households.
We expect demand to continue growing significantly in these three domains. Going forward, we would like to expand our operations in these domains. In short, based on our supply track record, we believe we have advantages when it comes to attachment of batteries to the power generation side and direct connection to the grid. Your second question pertains to all-in-one solutions.
There are companies already offering all-in-one solutions, but many companies still offer solutions with separate board foundations for storage batteries and power supplies. Up until now, GS Yuasa too had offered these separately, but in order to improve efficiency, we are currently in the process of developing an all-in-one solution and would like to offer these going forward. I hope I was able to answer your question.
Thank you for your answer. Allow me to ask my third question. What is GS Yuasa's production capacity in terms of gigawatt hour? Additionally, at what pace do you expect gigawatt hour production capacity to grow toward the years 2030 and 2050? Do you expect it to follow the trend shown in the vertical bar graph?
What scale can we expect in terms of CapEx in order to increase gigawatt hour capacity? Lastly, within the scope of increasing production capacity, what is your approach to Lithium Energy Japan in terms of the sixth mid-term management plan?
First, GS Yuasa's current production capacity stands at approximately 3 GW hour. We are in the process of expanding capacity by approximately 1 GW hour, with associated costs between the high single-digit billion JPY figures and 10 billion JPY.
While we expect these costs to go down in the future, currently, the cost per gigawatt hour is in the ranges I mentioned just now. Next, I would like to discuss our approach to Blue Energy and Lithium Energy Japan going forward. We are currently in discussions and preparations with a number of partners, so I am not at liberty to discuss the details, but we believe Lithium Energy Japan will serve as the base for the manufacturing of ESS.
Regarding batteries for EVs, plug-in hybrid vehicles, and hybrid vehicles, we are currently in the process of carrying out a number of preparations. Blue Energy's number 2 plant was completed this fiscal year, and both the number 1 and number 2 plants will be at full capacity with the production of batteries for hybrid vehicles. As such, there will be a need for us to think about how to structure our production system going forward, including having discussions with partners. I hope I was able to answer your question.
Thank you for your answer. I believe that increasing gigawatt hour capacity in terms of batteries for automobiles requires CapEx of approximately 10 billion JPY. So would it be reasonable to assume a similar cost for ESS?
Indeed. While there are some differences, based on our own experience and market research, we believe costs to be between the high single-digit billion JPY figures and 10 billion JPY.
Thank you for the informative answer.
Mr. Shima with Nomura Asset Management will be posing the next question.
Thank you for your time today. I have three questions. My first question pertains to an operating profit forecast of over 10 billion JPY in the not-too-distant future for the automotive lithium-ion battery segment. Could you please elaborate further on this topic? Second, what is the outlook for 12-volt lithium-ion batteries?
Question number 3 pertains to page 19, which shows the trend in the storage battery industry. Could you tell us about GS Yuasa's outlook for subsidies and the supplementary budget proposal for the storage batteries industry, to the extent you can here?
Thank you for your questions. Allow me to answer your second and third questions first. On the topic of 12-volt lithium-ion batteries, we have secured contracts with two European manufacturers of luxury vehicles.
Although I am not at liberty to share the specifics here. Specifically, in fiscal year 2022, the supply quantity to one of these companies has increased. In terms of the future outlook, up until now, GS Yuasa has had a limited presence in terms of supplying lead-acid starter batteries to OEM manufacturers in Europe.
As such, we want to make steady progress in terms of 12-volt lithium-ion batteries. We currently manufacture cells in Japan and assemble the batteries in Hungary for supply in Europe. Allow me to answer your third question, which pertains to subsidies for the storage battery industry. As a manufacturer of these batteries, these subsidies are most welcome and beneficial.
These subsidies for the development and production of new automotive batteries and ESS are most welcome, and we would like to utilize them to the fullest extent possible. We are in contact and in discussions with the Ministry of Economy, Trade, and Industry. We would like to leverage government subsidies so that we can further grow the scale of our business. Are these answers satisfactory?
Thank you for the detailed answer.
Allow me to answer your first question, which pertains to a comment made within GS Yuasa Report 2022 by Kenji Kohno, business unit manager of lithium-ion batteries. In the report, Mr. Kohno states that the situation is such that we will be able to forecast operating profit of over JPY 10 billion in the not-too-distant future.
Things have fallen into place to allow Blue Energy, which manufactures batteries for hybrid vehicles, to deliver high levels of operating income with a high level of certainty. Starting in 2023, annual production capacity will go up to 50 million cells per year from a baseline of 20 million cells per year. Furthermore, by the latter half of the decade, we expect capacity to reach 70 million cells per year.
In light of this, we have high conviction that sales and profits will increase for Blue Energy. Regarding Lithium Energy Japan as well, we believe we will be seeing further demand for industrial storage batteries in the form of ESS and batteries for EVs, primarily commercial vehicles. In terms of 12-volt lithium-ion batteries, we manufacture the cells at Lithium Energy Japan, and the battery assembly is carried out in Europe.
To be frank with you, while sales quantity is increasing, the growth hasn't been as significant as we had expected. That comment on the GS Yuasa report is aspirational and means we are aiming for JPY 10 billion, so we are not yet at a stage where we have established a concrete path to achieve these numbers.
With that being said, we would like to aim for these numbers over the course of the sixth and seventh midterm management plans. This concludes my answer. I'm looking forward to a continued strong performance.
Thank you for your answer.
Thank you. We have now reached the end of today's Q&A session. Thank you for your time.