Since it is time, we would like to begin the Toyota Motor Corporation FY 2027 second quarter financial results press meeting briefing. I am Hashimoto, serving as your moderator. Thank you very much for attending despite your busy schedules. I would like to introduce our speakers today. Yoichi Miyazaki, EVP of TMC. From the Accounting Finance Group, Chief Officer Takanori Azuma. External and Public Affairs, Hiroyuki Ueda, Chief Officer. To introduce you the schedule, we will receive the explanation about the second quarter financial results from Mr. Azuma, and then Mr. Miyazaki will explain about the progress of our structural reform activities, restructuring activities. Then we would like to receive questions from the floor and participants. Azuma-san, please.
I am Azuma, Chief Officer of the Accounting and Finance Group. For the customers around the world who has been supporting us and love Toyota cars, and our shareholders who support our efforts, our dealers and suppliers, as well as all other stakeholders, we would like to start by sincerely thanking you. We will now explain the summary. Our operating income for the first half of this fiscal year was JPY 2.2 trillion. Through swift responses to changes in the external environment, including the situation in the Middle East, we mitigated the impact on earnings. Vehicle sales, mainly driven by hybrids, increased steadily, supported by strong demand. We have revised our full-year operating income forecast upward by JPY 500 billion from our previous forecast to JPY 3,900,000,000,000 . Despite the impact of rising material prices and production disruption caused by earthquakes and floods, we expect to maintain consolidated vehicle sales through recovery efforts at our production sites and optimize global supply.
In addition, to reduce tariff-related costs through the accumulation of improvement efforts, including the expansion of value chain earnings, we expect year-on-year profit growth and have revised our forecast upward. As for shareholder returns, consistent with our policy to increase dividends in a stable and continuous manner, the interim dividend is set at JPY 50 per share, and the full-year dividend forecast is JPY 100 per share. We will also increase our share repurchase authorization by JPY 300 billion, while additionally canceling 1 billion shares of treasury stock. We will reduce the level of treasury stock holdings and will pursue capital policies with a greater focus on capital efficiency. Next will be the second quarter FY 2027 financial performance. Consolidated vehicle sales for this period decreased by 25,000 units year-on-year, mainly due to the exclusion of Hino from consolidation.
Excluding the impact of Hino, consolidated vehicle sales increased by 26,000 units year-on-year, primarily in Japan and Europe. Toyota and Lexus vehicle sales totaled 5,059,000 units, or 96%, compared to the same period of the previous fiscal year, due to weaker demand in China and the impact of the Middle East situation. The electrified vehicle ratio increased, led by BEVs and HEVs in North America and Europe, reaching 55.6%. Consolidated financial results were sales revenues of JPY 26 trillion 962.4 billion, operating income of JPY 2 trillion 191.1 billion, income before income taxes of JPY 2 trillion 954.4 billion, and net income of JPY 2 trillion 236.4 billion. Let me explain the factors behind the changes in operating income.
Despite the challenges such as rising material prices and the impact of the situation in the Middle East, we steadily accumulated improvement efforts, including cost reductions carried out together with suppliers, price revisions, and the expansion of value chain profits, which helped mitigate the impact on our performance. In addition, we captured positive effects from changes in the operating environment, including the effects of foreign exchange rates and the mitigation of the impact of U.S. tariffs, resulting in a year-on-year increase in operating income. This slide shows operating income by geographical region. In Japan, operating income increased mainly due to foreign exchange rate fluctuations and increases in vehicle sales. North America returned to profitability largely due to price revisions and the reduced impact of U.S. tariffs. In Europe, operating income increased mainly due to the effects of price revisions and expanding value chain profits.
In China, due to the decreased sales and so forth, there has been a negative impact. The financial result, because of increased loan outstanding, that we enjoyed the increase. Now we would like to turn to the outlook for 2027 on March. Therefore, this forecast that the consolidated vehicle sales remain unchanged from the previous forecast by region. We have reflected solid demand in Japan, while in Asia, we have factored in elements such as a slower market condition in China and the impact of flooding in Thailand. The forecast for Toyota Lexus vehicle sales and electrified vehicle ratio have been revised downward, primarily reflecting slower market conditions in China. Now let me explain the full-year consolidated financial forecast. We have adopted the full-year foreign exchange rate assumptions of JPY 157 per U.S. dollar, EUR 182 per euro.
Forecast for the full-year consolidated financial performance is sales revenues of JPY 53,500,000,000,000 , operating income JPY 3,900,000,000,000 , income before income taxes of JPY 4,960,000,000,000 . Net income, JPY 3,570,000,000,000 . The factors behind the changes in operating income forecast compared with the previous fiscal year are shown here. Despite the impact of the situation in the Middle East and approximately JPY 1 trillion in rising material prices, we will work to offset these hardships and maintain our earnings power through continued marketing efforts and cost reductions. Given that, as well as positive changes in the business environment, we are forecasting operating income of JPY 3,900,000,000,000 , representing a year-on-year increase.
While we expect year-on-year profit growth, we remain focused on overcoming the impact of significant changes in the business environment, including U.S. tariffs and the situation in the Middle East. We will continue to advance structural reforms and work company-wide to further improve profitability. Now, I would like to explain our shareholders' returns. For this fiscal year, we have set the interim dividend at JPY 50 per share, up JPY 5 from the previous fiscal year. As announced at the beginning of the fiscal year, our full-year dividend forecast at JPY 100 per share, up JPY 5. Our dividend policy is to increase dividends in a stable and continuous manner in order to reward our long-term shareholders.
In response to shareholders' requests to sell their shares, we have increased our share repurchase authorization by JPY 300 billion, bringing the total amount of this fiscal year up to JPY 1,300,000,000,000 . As a result, we expect our total shareholder return ratio for the fiscal year to be 69.4%. We will also cancel an additional 1 billion shares of treasury stock, bringing the total cancellation this fiscal year to 1.2 billion shares, exceeding the amount repurchased this fiscal year. While maintaining flexibility for future strategic use, we have reduced the level of treasury stock holdings, and we will pursue capital policies with a greater focus on capital efficiency.
Next, we will ask Mr. Miyazaki.
Hello, I am Miyazaki, CFO of TMC. During our financial results announcements for the fiscal year ended March 26, we followed our financial performance presentation with an outline of our business structure reforms designed to overcome the impact of significant shifts in the business environment, such as changes in U.S. tariffs and the situation in the Middle East. Today, I would like to discuss the progress of these initiatives with the hope of fostering a better understanding of and instilling greater confidence in Toyota's mid-to-long-term strategy. This slide provides an overview of our transformation into a mobility company. Broadly speaking, we aim to achieve further growth in our existing new vehicle and value chain business, while also leveraging the strengths we have cultivated in automobile manufacturing to expand into new business domains such as robotics.
Underpinning this growth and business expansion are our people and the strength of our workplaces. To support this strengthening, we have decided to establish two new organizational groups effective this coming January. One of these is the Toyota Philosophy and Education Group, with Chairman Akio Toyoda serving as its first head. Through our work, we will pass on the experience we have gained amid numerous challenges, along with Toyota's philosophy, skills, and ways of working to cultivate the talent that will lead the next generation. The other is the Kanri Group, newly formed by merging our General Administration and Human Resources Group and Accounting Group. This new group's name in Japanese is "Kanri Honbu". While "Kanri" phonetically refers to the Japanese word for management or administration, the Chinese character used for "Kan" conveys the idea of observing carefully with both one's hands and eyes.
We are shifting our thinking away from conventional administrative management and aim to create a professional support team to foster fulfillment among colleagues and empowers them to take on workplace challenges. From here, I will explain the progress of our business structure reforms broken into several areas. First, let's look at our new vehicle business. By producing well-made products and delivering them quickly to meet diverse customer need, we will overcome the challenges posed by U.S. tariffs and developments in the Middle East. Our working pillars are enhancing product value through our five brands and enhancing earning power, as we explained during our full-year financial results announcement.
In terms of products, each of our five brands under the leadership of Nakajima and Simon, they have gone all out to ready an incredible array of models we believe will draw cries of wow. We hope you will look forward to their debut. Meanwhile, regarding production, which is a key driver of earning power, we will fully utilize our existing capabilities while also establishing new plants in necessary regions to increase our production capacity. Furthermore, regarding electrified vehicles, we will continue to expand production capacity, focusing primarily on hybrid electric vehicles, for which our large backlog of orders continues. Looking toward 2030, we will build a business structure that places battery electric vehicles on top of a robust foundation of 10 million vehicles centered on hybrid electric vehicles based on the actual market demand. I will explain how we are competing in the key regions.
First, in North America, our steady efforts to date have helped us build a solid business foundation. Driven by strong demand, particularly for hybrid vehicles, and supported by high employee retention and operational efficiency, as well as being backed by the industry's lowest incentive levels and inventory days, coupled with strong trust-based relationships with our dealerships, we achieved record-high sales last year. Although regional earnings for the fiscal year ended March 26 fell into the red due to the impact of tariffs, underlining strength has enabled a recovery to profitability in the second quarter. Moving forward, we will return to a strong growth trajectory by increasing production of high-demand hybrid batteries, significantly reducing external outflow costs by restructuring our vehicle lineup, and advancing automation through the introduction of robotics.
In China, amid the rapid expansion of the new energy vehicle market, we have introduced products tailored to local needs, halting the decline in our market share and enabling us to hold firm at our current level. Leveraging this foundation and to expand our customer base in the new energy vehicle sector, we will fully apply the capabilities of our joint venture partners, and led by our local chief engineers, we will quickly incorporate market feedback into our planning, development, and improvement processes. In procurement, we select the most suitable parts and technologies based on competitiveness, regardless of a supplier's nationality or corporate group. Furthermore, leveraging what we have learned, we will implement concurrent development processes at the Lexus Electrified Shanghai, scheduled to begin operations in September 2027, to shorten development times by 18 months.
Starting next year, we will roll out a series of highly competitive new energy vehicles developed with China for China to attract new customers and accelerate our growth again. In Asia, we are advancing a transition to a multi-pathway platform, which will be the foundation of our next-generation electrification strategy as we strengthen our commitment to mobility for all. This multi-pathway platform not only enables a single platform to cover the core A, B, and C market segments, but also accommodates a diverse range of powertrains, including battery electric vehicles, hybrid electric vehicles, and vehicles compatible with carbon-neutral fuels, making it in every sense a platform for innovative multi-pathway vehicles. In Asia, while the share of battery electric vehicles is rising, demand for a variety of powertrains remains strong.
While responding flexibly to such demand, we will cover the group of vehicle models that account for 60% of the market and enhance our cost competitiveness by aggregating volume. Furthermore, as we roll out models, we will incorporate lessons learned in China to significantly boost our cost competitiveness. Furthermore, drawing on our experience building an optimal global procurement foundation, as demonstrated by our IMV, Innovative International Multi-Purpose Vehicle series, which includes the Hilux pickup, we will expand our operations from Asia into the Global South. Through regional R&D, we will develop quality products and vehicle silhouettes tailored to each region's needs while standardizing a base platform across 1.5 million units in the Global South. We will offer electrified vehicles tailored to each region's needs at competitive prices, ensuring we maintain our position in Global South markets with a focus on Asia. Next, let's look at our value chain business.
We have expanded our business to more than JPY 2 trillion. The driving force behind this is our 150 million owned vehicles worldwide. This base is a unique asset that Toyota has built over many years, and it still has significant room to grow. We will continue to grow new vehicle sales and increase the number of owned vehicles while expanding our customer engagement throughout our customers' entire car ownership journeys, including replacement parts and maintenance and leasing and installment financing to build stronger, longer-lasting relationships with our customers. Furthermore, we will leverage connected services and other initiatives to pave the way for second and third cycle business opportunities. By expanding the three metrics of the number of owned vehicles, retention rates, and retention periods, we will continue to achieve an annual growth on a scale of JPY 150 billion, aiming to grow that another JPY 1 trillion by 2030.
Next, I will talk about the groundwork we are laying toward becoming a mobility company. Through entities such as Woven Capital, Toyota Ventures, and Toyota Invention Partners, as well as external funds, Toyota keeps its antenna trained on startups across the full spectrum of development stages, from early to growth to maturity, seeking promising technologies and business opportunities beyond the confines of the automotive sector worldwide, including in AI, robotics, space, and innovative energy technologies. We currently operate with a funding framework of approximately JPY 510 billion, and our collaborative partners now number more than 100 companies. We will combine the technologies and know-how identified through these activities with the technologies and workplace capabilities Toyota has cultivated to develop new businesses. One example is our robotics business, which has already taken concrete steps forward. In robotics, Toyota values expanding human potential most.
AI and robots exist not to replace humans, but to enhance human capabilities. The same holds for our robotics business, in which we aim to contribute to a richer quality of life by supporting those who act or take on challenges for the sake of others. In factory automation, we are integrating robotics and AI technologies with our expert skills and the Toyota Production System. Enabling people and robots to learn from and assist one another. We aim to make this a new approach to manufacturing reality, and furthermore, we will accelerate the deployment of robots at Woven City and extend the skills and insights honed at our plants to lifestyle domains, from our plants to our everyday lives. We aim to produce happiness for all through robots that are close to people and grow alongside them. Toyota's factory automation business is not simply about manufacturing robots.
The aim is to use robots to improve workplace productivity and enhance fulfillment for workers. Toyota has six strengths that will help it turn its robotic business into a winning strategy. First is the Toyota Production System, TPS. Eliminating waste thoroughly before implementing automation is the fundamental starting point for robotics integration, which represents the digitization and automation of the Toyota Production System through the use of robots. Next are the diverse workplace. At Toyota, 18,000 skilled craftspeople across 60 plants worldwide work daily on a continuous improvement. By leveraging unparalleled high-quality data drawn from these workplace efforts, we will rapidly advance the evolution of our robots. Then there is our hardware, which excels in quality, durability, and reliability, and our core robot model, which enables robots to learn craftspeople' skills efficiently. These support the development and production of highly reliable robots.
Furthermore, by leveraging our autonomous driving software platform, Arene, and implementing a factory control platform, we can effectively deploy robots across entire plants. These strengths will be a major source of competitiveness and set us apart from others. Toward commercialization, we will first thoroughly hone our robotics through internal use before launching full-scale external sales. Moving forward, we anticipate large-scale factory automation investments across Toyota's entire supply chain. We will turn our internal demand for 400,000 robots and our annual requirement of JPY 1 trillion to replace aging equipment from costs into a business growth opportunity. Building on this inner or internal demand, we will develop our technologies and human resources, initiate sales to other manufacturing companies and industries, and offer our products in lifestyle domains.
To ensure steady sales growth from 2030 onwards, we will launch Toyota Robotics as a new company-wide organization effective January 1 and develop it into a core business pillar. Here, I will explain our capital strategy. We view return on equity, ROE, as a metric for gauging the progress of our transformation into a mobility company. First, regarding net income, which serves as the numerator in our new robotics business, we will maximize the technologies and assets of our existing businesses, which are still growing, to generate greater returns than in the past. Meanwhile, regarding shareholders' equity, which serves as the denominator, we will implement further shareholder returns based on the premise of stable and continuous dividend increases while executing flexible share buybacks as appropriate. We will balance growth with shareholders' returns, maintain shareholders' equity at an approximate level, and drive our transformation into a mobility company.
In this regard, we would also like to explain our approach to capital allocation and its scale. Regarding the use of funds, we will allocate them in the order of the priority listed on the left side of this slide, with JPY 16 trillion for capital expenditure and R&D expenses and JPY 7 trillion for shareholder returns. Over the five years ending March 2026, we allocated a total of JPY 38 trillion over the next five years, in addition to setting aside net liquid assets of JPY 7 trillion as a contingency reserve. We plan to allocate JPY 22 trillion to capital expenditures and R&D and a dedicated portion for flexible growth investments, while allocating JPY 11 trillion-JPY 14 trillion for shareholder returns. In this way, we will balance investments in growth with shareholder returns to continuously enhance our corporate value. With this, I conclude my explanation.
I hope you will continue to support us in the future as well. Thank you very much.
From here, we would like to receive questions from our audience. If you have any questions, please press the raise hand button, and when your name is called, please switch on your camera and microphone. We would like to receive as many questions as possible. Therefore, we ask that you limit your questions to two per person. Thank you for your understanding. The first person, please. From NHK, Kajiwara-san, please. We will be switching the screen, and if you see yourself on the screen, please start your question. [Foreign language] Kajiwara-san of NHK, are you connected? Can you hear us? I think you're now connected. Kajiwara-san of NHK, please turn your microphone and camera on. It seems that we're having some issues with connection. Therefore, we would like to come back to you, Kajiwara-san, and we will be going on to the next person. Yomiuri Newspapers, Kurama-san, please.
Kajiwara-san, are you connected now? I guess it's a little difficult, so Yomiuri Shimbun, Kurama-san, please. We will be switching the screen. When you see yourself on the screen, please begin your question. Can you hear me?
Yes. Kurama from Yomiuri. Yes, we hear you fine. Thank you. There's two questions that I have. First, regarding the North America business, the U.S. midterm elections, there was a blue wave on the Senate, and the lower house, upper lower house was won by the Democrats. So for your North American business impact and also the risks for environmental regulation strengthening, what is your view? Second question is regarding your China business. The Middle East situation has deteriorated, and the crude oil prices has gone up. I believe that had an impact negatively on your sales volume.
Rather than the hybrids that you have a strength in, probably the market is showing higher demands of battery EV, so how will you be adjusting to this change? For the parts procurement, you said that you will, regardless of the nationality or the company group that the supplier belongs to, you will be selecting based on technology. But when you think about the price, cost appropriateness, what will be the criteria you will be using to select the most appropriate supplier for the parts procurement?
Thank you very much for the first question regarding North America, U.S. midterm election results, how our thoughts are behind that. Ueda would like to respond from the External and Public Affairs Group.
Well, we have just heard about the initial reports of the outcome, and probably the numbers are still not at an accurate level, so we will not be able to speak decisively. But we have hearing the last evening news and the media reports, we know most of the outcomes. For our company, U.S. is a very important country, and not only for Toyota, but for the world, U.S. is an important country. This is going to be a large change, and probably everyone expects that there will be some kind of an impact to themselves, including ourselves, of course, our company. Going forward, there are uncertainties in what will happen in the future. But one thing we can say is that probably the controlling administration will be different according to the states, Republican or Democrats, and the majority now is held by the Democrats.
But what we place importance on as a company is the customers who purchase our cars, also the drivers who are enjoying and driving our vehicles. What we have focused our eyes on is these customers. We hope to be a company that they will continue to hope to buy and drive the Toyota vehicle. That will be the mission when we think about the countries. When the administration or the policies changes, there will be a change for us too, but we will be consistent and focused on delivering ever better cars to our customers. On the other end, after going into the U.S. and starting our business in manufacturing and sales, we have now built up quite a long history in the past years. In that sense, we talk about this in being the best in town.
What we mean is that in all states that we are operating in, we want to be regarded as the best in town company in that local community. That is how we decide on what kind of activities we do. In the long term, sometimes the government will be changes, the political parties in control will be changing from Democrats or Republicans. But what is important for us is the people who live in those local communities so that they will feel that they're happy that Toyota is in their community and neighborhood. The environment that we have focused on building, we want to continue the effort to build that with the mission unwavering so that we can deliver good cars and services to our North American customers. That is on our mind, and that is my response for your first question.
Regarding the China business, your second question, I would like to respond. As Kurama-san, you have rightly pointed out, the China market, the internal, the domestic demand, and the gas price hikes had been impacting the market, and the market has been downsizing year- on- year. Especially the conventional ICE vehicles has seen a significant drop and slowdown in sales. The new energy vehicles, a new category, 60% accounts for with this new energy vehicle category for the China market. However, despite this situation, we have the joint development work that was worked with our partners, and with the introduction of battery EVs that did, based on the joint development, we have been able to maintain or to stop the drop in our market share and even recover slightly.
We have felt a confidence that we will be able to recover our presence in this market and in an upward trend. As I have explained in my presentation, still the sales volume has been receiving an impact. We still seize the impact in our sales volume, and therefore, as a sales network, we are still struggling, and we are in a tough situation. I think we have to use this time to do all the preparations that we can to sharpen our knives and to be ready to use it when we need to. That is what we are talking with our partners and also the dealers. Going forward with China, for China will be our motto and our way of thinking in developing the vehicles to introduce it to the China market. That will be our approach.
In relation to that, the technology that is applied to our parts, I think your question was how we are going to apply that to the procurement of our parts. The meaning that we say, call out, "With China, for China," it does not mean that we want to be like the Chinese OEMs. It is not that we are aiming to become similar to them, but we want to brush up our unique strengths of Toyota. The master driver has honed our technology, the Toyota technology, and that is going to be utilized for China, with China. Those kinds of vehicles that have our technology and our characteristics, the quality, performance, and of course, the price as well, the demands of the market needs to be met. Therefore, that will be one criteria when we select the parts purchase procurement source as well.
I said that regardless of nationality and company group, we will select based on the demand. With this approach, of course, we hope the suppliers can work together with us to learn what we need to do and move forward with us. The car that we did the joint development together with our partners, the Japan-sourced or Japan partners provided, it is about 10%, but now the next generation will be about 30%. The car under development now, the Japan supplied parts is increasing to 40%, 50% level. I think that our partners, our existing partners, also are evolving with us. We want to learn together with our suppliers from the China market and be able to recover our presence in the Chinese market. That is how we are thinking. [Non-english content] .
Thank you very much. It was Mr. Kurama of Yomiuri. The next question is from Chunichi Newspaper, Atsumi-san, please. Chunichi . Please switch the screen, and then if you are displayed on the screen, please start to speak.
Atsumi of Chunichi Newspaper. I hope you can all hear me.
Yes, we can hear you clearly.
Thank you very much. I have two parts of questions. The first question is about this general opinion about this result of financial results that the Middle East and China situation was difficult, but you are still keeping a good result. What are the reasons? Of course, reduction efforts were one of the contributors, but I would like to hear more details why you did well despite the difficult environment. Second one, the reorganization and so on.
You are going to establish Toyota Philosophy and Education Group, and Chairman Akio Toyoda will become the CEO of this group. At this timing, you chose to set up this new Toyota Philosophy and Education Group. Are you going to do those executive and managers training program under this new group? What is the purpose and activities of this new group?
Thank you very much for the question, Mr. Atsumi. As to the first question, Mr. Azuma, myself will respond. This time, yes, for the last six months, the results are announced, and looking at that Middle East impact and the flooding in Thailand and other geopolitical changes and earthquakes and all these things happened, so the sales and marketing and the production and the logistics and transportation, we did what we can do with utmost efforts, and that is the result.
For example, in the Middle East, for example, initially, the half of the units only could be put in place because we were limited by the logistics transportation channel. We had to revise this logistics channel, and then somehow we wanted to deliver vehicle to our customers in Middle East, and everyone worked so hard so that the distribution channel and production members worked so hard to enable that the reduction of the volume of production in China occurred. Still, the vehicles, there are some customers waiting in other regions, and then they still get the delivery. Whatever happens in a particular region, other region will contribute. We would like to be the best in town.
If any particular region is suffering from difficulty, the other regions will assist and cooperate through that kind of the reciprocal assistance program that some years after that we achieved above this previous year, did well in a way. The cost reduction is one of the areas, and we are now discussing, communicating with every the suppliers. This kind of activity necessary, if necessary, our engineers or technologies and know-how members are dispatched to the suppliers. In the prior, the process that we make in advance improvement. This kind of improvement activity will be continued. That is the response from my part. Thank you.
I would like to respond to the reorganization, the plan. I would like to touch upon this.
Toyota, the thought is that the Monozukuri or production starts from the human resource development in order to overcome this difficulty of this transformation era, that we have to think deeply and then challenge and then work hard, and then we nurture the human resources who can assist the other people. We recognize the challenge problem, and then inside the company, we are developing and revising HR and human resource development activities. We have been discussing this. Mr. Atsumi used the word kenshu, or the training, and so on, and education. Because training program is to people think that it is like you get a new skill by training program. We nurture, develop the people who can think, who know how to act, so that through work and job, the human resources should be nurtured, developed, and trained. That is what we discuss about.
For the next generation, the human resources, we have to give the education in a real setting. There are people with experience who have overcome difficulties, Toyota's technology, and then philosophy and know-how and everything. Maybe Chairman Toyoda is the best person who can, the only, lead that kind of education initiative that we discussed among the operating officers. Every time we faced a crisis, we depended on Mr. Toyoda, and he, Chairman Toyoda himself had to cope with the challenges. He felt some loneliness and isolation. We recognize that. In quality problem, and in recent years, Toyota was criticized as lagging behind in battery EV development. We had to cope with that. In this education problem as well, Mr. Toyoda himself had to stand alone, fight against those criticisms.
We operating officers thought that Chairman Toyoda alone is the only person who can lead such a group in the new, the philosophy and education group. We shouldn't just depend on him. We should pledge to fight with him. We have to convey this aspiration and feeling. All the operating officers decided as a consensus. We asked Mr. Toyoda to assume the position of the new CEO leader of this new group. President Kon and I talked to Mr. Toyoda, like internal offer, and asked him to assume this new position as the new CEO of this group. He understood our wish. He would like to do his best to convey his message, his training, so that he would try to nurture the human resources who do not get too depressed by the hardship and so on, and can keep going and work hard.
He agreed to serve this position and educate people for this new group. Through work and job, we will nurture a person who can be useful and effective at the work site, gemba. We think about that together with Mr. Toyoda. Of course, as to what we discussed with him, Mr. Azuma is going to assist Mr. Toyoda in this new role.
Let me add. To build this new group, we had several meetings with Mr. Toyoda, the Chairman. The employees of Toyota, TMC, have a sense of elitism, or that they feel they have to know everything. Maybe that is a mentality, but they should be frank enough. If they don't know something, they should be bold enough to say they don't know or they don't understand. They should continue to have a curiosity and interest.
Even though the environment changes, they should take them on and then accept them, and then take actions. Each person with a unique character should not be changed. His or her own unique quality should be utilized and enhanced so that the individual person's survival capability should be nurtured. That's something that he and we would like to do in this new group. When he came to office, he met with the different members representing different functions, and there's a get-together, a place for him where he get to talk to them, and he who bring this official document material, try to explain. He said, "Oh, that's an old way of doing things." Rather, they should consult with each other about the headaches and troubles, and then other function members listen to those troubles, and they will learn the lessons from the other function departments.
So, it is like a catchball. Please bring that methodology back to your own workplace. Externally, we should also have that kind of consultation, and then keep the interest and curiosity all the time. We have that HR development. It is not a formal training. It is like a philosophy, idea is shared, and then persons are given the most priority, and then nurture such personnel. That is how we like to develop this new group, and I hope you can have a good expectation on this group. Thank you very much.
Thank you, Atsumi-san. We will go on to the next question. Nikkei Newspapers, Asayama-san, please. We will be switching the screen. When you see yourself, please have your microphone on and ask your question.
Asayama from Nikkei Newspapers. Do you hear me?
Yes.
Thank you. I also have two questions. Starting with the sales volume forecast, for the ups and downs of the sales volume forecast. You said that the sales and operating income will be increasing, and on the other hand, North America and Asia, 20,000 and 40,000 units of vehicles, it is expected to drop as a forecast. Against this sales volume change, how will it be reflected in your operating profit forecast? The other question is the IAA Act of Europe.
If this act is enacted, then your U.K. and French hybrid production plant operation, plus your exports from Japan will be difficult. How do you feel about this IAA Act, and also, how will you be revisiting your European business strategy? Thank you.
The first question, Azuma would like to respond.
Regarding the Asia operations, recently we had the flood occurring in Thailand, and therefore there was a drop in production. Receiving the impact from there, plus within this fiscal year, the members will be making efforts to recover the drop, but we have reflected into our forecast the impact from this flood in Thailand. Regarding the United States, the models that have been introduced and launched, we are carefully implementing and launching our models, and therefore, we have made a slight revision in the forecast. That is the response for your first question.
For your second question regarding Europe, I think I will start by sharing with you the overall situation, and then Mr. Ueda here will make some additional explanation. For Toyota in Europe, we do not consider us as guests. We believe that we are a member of the European region as we engage in the operations there. From Japan, it is true that we are exporting from Japan to Europe, but there are the import from Europe as well. Locally, we have hired local employees to have local employment, plus including our suppliers, we have been contributing to the employment. So, the contribution there, plus the locally produced cars will be exported outside of Europe. We have been contributing to the European region by exports from the operations in Europe.
Then rather the shipment from Japan to Europe, actually, the contribution that we do starting from Europe region is larger. That is the actual state of our operation. So, in that sense as well, for the automobile industry of the European region, we have the belief that we have been contributing for long years and hope that the related parties and authorities will have an understanding of that. In Europe and EU, we have been increasing and enhancing our presence to number two among the players there. Therefore, we would like to be able to deliver smiles and convenience of their life through the vehicles that we provide. We hope this effort and operation will be acknowledged by the EU community. Recently, when Chancellor Merz has visited Japan from our Prime Minister Takaichi and Minister Akazawa, those points were mentioned and shared with them.
We have been able to explain our situation and our belief to Chancellor Merz in that occasion. Mr. Ueda will make some additional comments.
As Mr. Miyazaki has mentioned to the Japanese government officials, we have opportunities to share the challenges that we feel. So, together with the government, us from the corporate sector are working together so that we will be able to be understood. In the area that I am in charge of in the External Affairs Group, JAMA, Mr. Sato, our Vice Chairman, he is serving as the Chair of JAMA. At JAMA, all of the OEMs of Japan are consolidated in sending a single message to EU. We have a good collaboration with the associations, together with the associations as well.
As it was mentioned in the media, when Chancellor Merz visited Japan, our President, Mr. Kon, had an opportunity to meet with the Chancellor. At that meeting, he was able to explain about the relationship that was built between the industries of Germany and Japan, the car industries. Also, the European region has built the culture, the car culture, and developed the car culture in Europe. But we also have adopted that in Japan, and therefore, we are willing to work together hand in hand going to the future as well. Also, in Europe, where there are a lot of car fans, I believe it will be the best for the customers and the EU region that we can contribute by providing more options for them. So, that is what we are talking with our fellow OEMs.
Also, in the auto industry of EU, Germany will be the main market. There, we have the understanding that there are a lot of commonalities between Japan and Germany. That opinion has been exchanged. So probably within the EU framework, there will be various things decided. But what we want is to have all the benefits for the customers in the EU region so that their options will not be narrowed down. We want to hope that there will be an environment maintained and developed so that we will be able to provide a better option and a better situation for our customers in the EU. Thank you. [Non-english content] .
Thank you very much. Next question to be entertained from NHK, Mr. Kajiwara. Are you connected now, Mr. Kajiwara? No, it's okay. Thank you. Go ahead.
I'm Kajiwara. I'm very sorry for the technical trouble earlier. Let me ask a question. The first question is that, now the midterm, the financial results were presented, and the mid-to-long-term policies were explained by Executive Vice President Miyazaki. What's the purpose and significance of launching that policy and plan? The second question is that the external environment is changing, and still you enjoy the continuous, the good results of this increased income. What are the future risks waiting for you? What kind of area would entail the future risk? Thank you.
I'd like to answer the first question. Thank you very much.
So far, yes, the mid-to-long-term policy to strengthen our competitive edge, what kind of business structure we should aim at? We have conveyed that message and transmitted the messages to the media and investors. When we have a communication forum opportunity, the mid-to-long-term policies, it's not high resolution or it's not that clear. That was pointed out by some previous communication meetings. We meant to be clear, but some criticism came. Maybe it was a one-way communication, or it didn't satisfy your level of high expectation, maybe. We recognized that backdrop as a backdrop of this. CFO, when I was given this, assigned this position, when I was engaged in the communication with other people outside, I had to rethink the future potential growth for TMC, the potential for that should be clearly understood by the outside people.
They should look at Toyota with a sense of wow and excitement to try to support us. Maybe we should keep this in mind when we communicate with the external stakeholders, and they should feel the confidence in Toyota that, "Oh, Toyota is okay. It will continue to be okay." Continuous information to be transmitted to you is crucial and important. That's something we discussed internally. This time, the significance and aim or purpose of this policy is that, listening to your voices and suggestions, we learned, and taking that into account, we tried to revise our communication forum like this. This is the first such conference after we got your input, and we would like to receive your comments and your opinion. I'm a bit nervous what you'd say about today's forum and how it's been conducted.
Before I became a CFO, I was in the sales force, and it was my career to sell. However, in that time, the sales and the revenue and the profits were to be increased. That was my focal point of purpose. Now, as this CFO, I have to pay attention to the BS as well as the PL. I have to be aware of that too. I learned that after I became CFO. Among these operating officers, we like to improve the efficiency for the potential for the future growth, and that's how we sorted out to make the points conveyed to you. We are engaged in the competition, and so that even though you say, "I would like to know this," some of the information is so confidential, we can't disclose.
But as to the progress state of those initiatives, we like to continue to provide you information so that you could expect and have a sense of expectation from us, and then to try to support us. I would really appreciate your continued support. Thank you.
As to the second point, Mr. Azuma will respond. Thank you.
As to the potential risk in the future, Azuma will explain.
Risks we talk about, yes, there are some uncontrollable risks, like forex, the rates are changing, or the price and cost of the raw materials and of tariffs. Those are outside factors that we cannot control. Chinese manufacturers are now active in Asia and Europe and Latin America. They are really expanding the activity there. These are the factors we cannot control by ourselves.
Something we can do, we should do our best to control within our jurisdiction or domain. We should strengthen our foundation and fundamental capability, then cost reduction improvement, and then producing better quality products. As Miyazaki mentioned earlier, the four pillars of QDR should be focused. Of course, the customer and our contact points should be created, and value chain will be emphasized. So that we can let the customer to be a repeated customer, return to us, and ride on Toyota vehicle. And come back to our dealership. So we would like to really improve the setup as well as to try to grasp them. Because dealers and suppliers and all the other stakeholders together with TMC to work together to identify the risks and then to try to cope with them. Thank you.
Let me add one more point on this question. For sure, we are finally reaching this stage of enjoying this increased profit and revenue, but when we look at the absolute value of the cost reduction, there is still room for improvement. We have to do it again. There are lots of places where we can further correct and amend. As a CFO, I would dare to say, this is an area where company-wide efforts are necessary to restart from the beginning.
That is something we want to do, that cost reduction. So that just because the figures have improved, we should not be too arrogant. That is the worst risk for the company inside. There are lots of things still remaining. We have to do it. The tariff impact and Middle East impact still are there, and we have not really defeated that. So we have to continue this activity.
Thank you, Kajiwara-san. On to the next question from Asahi Shimbun, Kondo-san, please. We will now be switching the screen. When you see yourself, please start your question.
I am Kondo from Asahi. Hello. Please. My first question. So the JPY 3,400,000,000,000 of forecast, it has been revised upward to JPY 3,900,000,000,000 . Can you elaborate on this point? So largely, probably it will be your sales and marketing effort and also the cost reduction, the reduction efforts on their expenses. From the forecast that was announced last time, what was the change points that you experienced, or what kind of initiatives have you been implementing? There will be the value chain activities, of course, but I would like to know a little more in detail. My second question, generally speaking, it has become more difficult to secure profit only with the new vehicle sales.
The value chain business significance and importance is probably becoming larger. That was mentioned by many other people as well. I want to ask about your current take and current evaluation about your value chain business. You have the mid-to-long-term forecast to enhance this business with the vehicles mounted with Arene will be increasing in the future. When you see more SDVs that you provide, what kind of services can you provide to the customers so that you expand further your value chain business? How are you viewing this?
Thank you for your questions, Kondo-san. Azuma will respond to your first question.
In the past three months, we have revised up to JPY 3,900,000,000,000 , JPY 500 billion was increased from our previous announcement. One would be the sales and marketing efforts like you see here, JPY 140 billion.
The breakdown here, it will be about the product appeal enhancement and also price revision. That is one. Centering around the U.S., the value chain profit has been expanded further. That is in North America and Europe. That is the second point. Next would be, because of the drop in production of China, that has been offset by the other region sales, especially around hybrid vehicles. The model mix has been reviewed, and that has contributed to the JPY 140 billion that you see here in the top bar. The other areas, the increase, decrease of expense and expense reduction efforts, it is the JPY 365 billion that you see. The largest item here will be tariff, the tariff impacts. We have reviewed the premise, and JPY 210 billion was the contribution here with the tariff impact.
Your question will be, what has changed regarding tariffs in the past three months? First of all, last year, overall, we said the tariff impact will be borne by Toyota. After that, there were many rules that we established about making returns on the parts purchasing, and that was the negotiation discussions that we had with each supplier. Some of the parts, they will make an application to receive a refund about the parts supply that was impacted by the tariff, or they would go into selecting a different part. U.S., Canada, Mexico, and also Japan, the exports from Japan was also looked into to try to see how we can change and mitigate the impacts from tariffs.
This review of the parts that we procure has been reviewed, and the impact of the refunds as well from the U.S. government will be coming in. That is why we have reduced the impact to JPY 110 billion. Overall, JPY 1,100,000,000,000 will be the full-term impact from the tariffs. That has been included in the forecast. In addition, another item is what we have announced in August.
The development project has been canceled, and the value amount, we are still under negotiation with suppliers who are involved, so we will not be disclosing the actual financial figures. There were the negotiations held, and some suppliers shifted into a new project, and these kinds of details have started to become more clear. There is about a JPY 100 billion positive impact to the forecast, or the mitigation impact, maybe I should say. That is what we see in the change from the previous forecast.
Regarding your value chain question, I would like to provide the response. Maybe your question is how we are evaluating our value chain business, our take on the value chain business. 150 million vehicles of units in operation, and we expect this to grow. What I say to our members is that this is still a treasure mountain. We haven't been able to dig it all. We have to continue to dig, dig, and find our treasures. On the other hand, the value chain business, we're able to operate this business based on our UIOs. New car sales, it will be fluctuating depending on the economic cycle. However, when it is the UIO-related business, we will be able to anticipate the steady, rely on it more steadily.
By establishing a strong value chain business, as I said earlier, the capital efficiency can be promoted. The capital efficiency drive we can expect from the value chain business as well. In my presentation, I also talked about the JPY 150 billion annually that will be coming from the UIO that we have, and also to extend the retention period and the retention rate. These will be the contributing factors to enhance our value chain business going forward. From a mid to long-term perspective, what kind of services that we anticipate to further provide? From the members in our company, the ADAS technology utilizing services is an idea. Also utilizing connected services, providing updates, those kinds of service ideas, and also connecting it with after services so that there will be detections of crash in advance. Many ideas are coming up from our team members.
I'm sorry, for my end, I think that as amount of profit value or as a business, it sounds a little small scale. I'm instructing my team members that we should try to grow that further, that idea larger to scale. We still have some time in developing that business as we grow our value chain business. For those new ideas, let's think about how we can grow the scale of those kinds of ideas so that we can rely on it as a new profit source. For the future, I hope that we will be able to provide and to propose some kind of a service in the future so that it will be a wow for you, unexpected surprise. For the new services, I hope you can wait a little bit longer with some expectations of excitement. Thank you.
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Thank you, Kondo-san. We'd like to do the next question. Mr. Inajima of Bloomberg, please. We will switch the screen, and when your name is shown on the screen, please start.
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I am Inajima of Bloomberg. Thank you. I hope you can hear me. This time, you have shown the capital allocation plan, ROE 20% is the aim to be realized. Is that the basis, ROE 20% as a basis, that the JPY 11 trillion-JPY 14 trillion will return, and then the profit increase plan in the future, but ROE 20% as a scenario? Then March 2031 is the deadline or target date to achieve this? After that, what will be the own equity and the capital at that time? The second point of question is that, for example, as you talked about the value chain, it is a relevant question, but ROE 20% to be achieved, if that is the goal, then value chain will be used. As you mentioned, the new zone, new domains will be utilized for further boost profit.
Which is the most expected area where you would like to boost, increase your future income or profit? Could you please tell us?
Thank you for your question, Mr. Inajima. Our thoughts are as follows. For example, as we mentioned earlier, ROE, to transform to the mobility company, it is an index indicator. After we become mobility company, we would like to reach 20. Yes, that is our aim. That number is something that we have in mind, but number alone is not a goal, but rather what we want to do is that. The different changing environment and condition, what should be the foundation? That is, we bring smiles to the faces of customers. As Toyota company, we like to be loved by customers. We shouldn't do something the competitors do. Toyota should do something unique. That is our basic axis or pillar.
The automobile company, we are shifting to transforming into mobility company, and we are searching for different ways to do it. This time, Toyota Robotics is a new business we like to launch now, a new. The numerator and the divider that 20, of course, is the numerator was the robotics-wise, that the automobile market we have nurtured, acquired capital asset and know-how, which we could use it. Rather than starting brand new, a new business, I think return ratio should be increased because of accumulated assets. The automobile industry needs to be developed further, but with higher efficiency, we like to increase the numerator, and then that is something that we can do. The equity capital, of course, that the stable value chain income will be the basics we can depend on. Continuously, the dividends can be increased.
That is a major philosophy, idea that we can realize. As to the numerator as well, with high efficiency, we can have a good figure. As a result, the denominator will come down, and then we increase the overall result of ROE. As I said earlier, our aim is that for each customer, we will make them happy, the happiness for all. As a result of this good work, we should reach and get near this goal, ROE 20. In which area to achieve this ROE 20? Of course, both the numerator and denominator we have to do in order to increase the ROE. That is the equation to achieve the good ROE. The overall strategy, the one by one, we like to make a steady progress.
Then we have 400,000 members globally, and we like to work together with all of them to achieve this goal.
Thank you for your response.
[Non-english content] Thank you, Inajima-san. We will go on to the next question. From Automotive News, Hans-san, please. We will be switching the screen. When you hear yourself, please start with your question. Your question will be translated consecutively. Yes, we hear you. Please.
Thank you for taking my question. I would like to ask about the U.S., or more appropriately, North America. Sorry, let me start my video here. You are on the path to recovery for North American operating profit, but I see that in the latest quarter, the second quarter, it seems that there is still a loss in North America. Can you talk a little bit about that, what the reason for that loss was, and how it might be related to the RAV4 launch there? How do you appraise the RAV4 sales situation in the United States.? Was the launch not according to plan, and how do you plan to remedy that? Second of all, there was a talk about restructuring the lineup in the North American section of your presentation.
Can you talk a little bit about what you envision for restructuring the lineup in North America in order to restore profitability? Finally, over the next five years, you anticipate about a 38% increase in CapEx and R&D spending or investment. Can you give us a breakdown about where the biggest increases will come, either regionally or in terms of technology and factories? Thank you.
Thank you, Hans-san, for your question. Regarding your first question, myself, Azuma, would like to respond. Earlier, as I have explained for North America, we are seeing to be in the trajectory of recovery. We have done the price revision of our products provided there. Also, we are able to enjoy the lower incentives when selling the vehicles. Therefore, the sales expenses have been able to keep low, and cost reduction efforts has been positively contributing as well. On the other hand, including similar in Japan and U.S., the material price hikes in the market has been affecting us like a body blow. That has been a negative impact. Also, there has been various launches, and there will be the CapEx and labor cost hikes.
Together with the material price hikes in the market and for the investments in the future, such as the switchover happening in the plants, those expenses are being generated. Therefore, together, first, I think, thinking of all these factors, what we have established is to go back into a recovery trend. Regarding U.S., like Miyazaki-san explained earlier, U.S., we want to create a profit structure so that steadily and sustainably, U.S. will be able to generate profits. I think we just started to come back to that kind of structure, so we'll continue our activities. Regarding RAV4 that you mentioned, RAV4 is quite very stable or working very well from our plan, so there is no negative impact that we see from the RAV4 launch. I hope to receive your understanding on that point.
Hans-san, if I can make some additional comments regarding U.S. production. From an overall perspective of the U.S. production, the most selling vehicle will be RAV4. This year, it had the full model change timing, and you said the new generation is now being launched. It is as planned, but because it is starting from zero, the launch from zero, so compared year-on-year, this year the number has gone down as a volume. That part is looking at the second quarter profit, there's some impact to the second quarter profit numbers because we are starting to sell from zero units with the new generation RAV4. For your other question, recently we've announced that Texas number two plant will be launched, we'll be working on, and the Tacoma production will happen in this Texas new plant that we construct. Tacoma is going to be produced in this second plant.
If it is the same frame type of vehicle in the future, there's a possibility that other models can join in this Texas number two new plant. That's a possibility. Also for the electrification and also the autonomous driving technology, the more that it comes in, we want to look at the overall picture of U.S. and North America to see what will be the best way that we divide the roles inside of the structure that we have built in North America. As I have mentioned a little bit in my presentation, as a company, we are engaged in a battle, in a competition. There's things that we can say and explain to you, but there's some things that we'll have to wait for the appropriate timing.
I hope that I can receive your understanding on the things that I can say now and cannot. Thank you, Hans-san. [Non-english content]
We would like to entertain next question. Inoue-san, please. Mr. Inoue, we will switch the screen, and when you are displayed on the screen, please take the floor.
I am Inoue. I hope you can hear me.
Yes, we can.
Thank you. I have two parts of questions. I am Inoue, the free economic journalist. Thank you. I have a question about organizational reform, that you are eliminating the conventional accounting department, HR department, building a new type of Kanri Group. You announced it already on August 20th, as an administration reform group was established. I think it is related to this restructuring. Now that you are building a new Kanri Honbu, what kind of discussion did you have before you decided to set up? What is the direction you identified, and why are you building and organizing this brand new Kanri Honbu Group?
My second question is a new business-related question. Newly, the new investment areas, like Prime Minister Takaichi has 17 strategic areas, and it is quite overlapping with her 17 areas. Toyota is, aside from automobile business, like the other, the defense industry and other public entity, government-type activity, are you going to enhance that defense and government agency-type work as well?
Thank you for your question, Mr. Inoue. As to the first question, Azuma will respond.
Yes. The way of building a new Kanri Honbu, that is HR and general affairs and accounting departments all will be covered, so that the administration reform, the promotion office started, and we have been discussing this reorganization. The purpose of this new group is that we administration department members should really accompany with the gemba.
Their headaches, their problems should be shared by us, so that with our skill, we should assist them, contribute the gemba people to solve together and grow together. We should become that kind of the departments or the Kanri Group. Relatively speaking, we are an administrative division, general affairs division of the headquarters, and something happening in the gemba is not only conveyed to head office as a second information or questionnaire, through questionnaire, rather than direct information. It is not that raw information is not taken, received by us. We do not go to the gemba, and we just use a tool like a questionnaire, get the data, and collect and maybe look at just average figure. That has been the way we practice for many years.
I personally am creating this new Kanri Honbu, which the Chinese character meaning is hands and eye, to care for and to support the other people in the frontline. In 1950, there was a labor dispute in Toyota for 12 years. Finally, they came to the labor management declaration, and the workplace became so much better. However, in the last 12 years, in those 12 years, every day the administration department people went to the gemba. Every night, three times, they had this get-together meeting with the laborers, workers, what's the headache, and what they can contribute to solve the problem. After the labor dispute occurred, that took them 12 years to come to a settlement.
Based upon the mutual trust, labor and management came to the agreement that the company will improve the working condition. Labor will enjoy this progress, prosper with the company, and they will enjoy the benefit. So mutually, they care for each other, think for each other. We would like to return to this strength we had many, many decades ago. So the general affairs and the Accounting Department and HR Department would like to be united to come to this new group called the Kanri Group. It is not just headquarter improvement. Each company oversees activities and subsidiaries and other entities. Our administration policy will be conveyed as a message to all of them globally in Toyota through trials and errors. We would like to revise, improve. It is going to be more like down to earth, the communication among the family members of Toyota Group.
That kind of discussion has been conducted before we decided to launch this new group. Thank you.
Inoue-san, thank you for your question. To respond to your second question, I, Ueda, would like to respond. As to the intention to engage in the defense industry, clearly we are not thinking about going into defense industry. We like to contribute to people, and then we like to create happiness for all and create good vehicles to serve for people. Based upon that, we are not to be engaged in related to defense industry. That is the basic idea for the time being for Toyota. On the other hand, recently, Prime Minister Takaichi is another mentioning dual use. Or this week, the National Disaster Management Agency was established, and natural disaster occur so frequently and rampantly in Japan.
There are also places where people cannot go to transport the rescue goods or the food and water and other things, or they have to do something to detect these survivors. So mobility can contribute to that kind of disaster countermeasures in case of emergency, like disaster prevention, disaster reduction, emergencies, or dealing with earthquake situation. Maybe local governments could use some of our mobility products to develop that kind of mobility and R&D for that. I think it is something where we might work together. But in that case, as I said, it is not directly with the defense and the military, and that is assumption. And then we will be engaged in that kind of a situation. Thank you.
It is clear. Thank you very much.
[Non-english content] Thank you, Inoue-san. We will go on to the next question. Impress Tanigawa-san. When you see yourself on the screen, please start with your question.
I am from Impress, a Car Watch magazine. Tanigawa is my name. Can you hear me?
Yes.
Miyazaki-san said that the ABC segment is going to be dealt with one single platform. I think that is a great idea. I think the C segment is fine, but the A and B segment, it might be too costly using the same platform, and it will erode the cost competitiveness of AB segment cars. Do you have a plan to overcome that? Also, at the beginning of 2030, there will be all 50 models having mounted the Arene. On the other hand, the Level 2++ autonomous driving system will be introduced on a personally owned vehicle in 2028. At 2030, Level 2++, what is the expectation of the spread of the Level 2++ cars by 2030?
Tanigawa-san, thank you very much for your question. The main challenge will be the cost competitiveness, price competitiveness, how much we can achieve that. First, we want to bundle the volume so that we can receive the benefits from the scale of volume. In addition, in China, we have been, as a company, having a lot of experiences and learning a lot from these experiences in China. Therefore, we want to reflect what we have learned into this new project of a single platform. That will be the challenge we will take on, and that is what I conveyed to you today in my presentation.
In that sense, maybe at the beginning, profit-wise, it might not be as good. That is something we do anticipate, but I think we should not just wait for the competitiveness to grow, but just do it and take action first, because we have to protect the Asian market and the Global South market if we do not make challenges from the current state that we are in now. We would like to take on that challenge. For the cost reduction from an absolute value level, I said I want to insist and persist on that point. The reason I said that is because in order to achieve a certain target, we might start from a certain point, but after we introduce new models, we want to steadily be able to promote the cost kaizen, cost improvements.
That is the kind of structure that we want to have as a company. If we think about our capability, then we can make decisions such as taking on a certain speed and making certain decisions. That is the challenge that we want to do to brush up and recover our capabilities. We will be receiving a lot of input from various stakeholders so that we can be well prepared to have a successful launch of this car. That will be what we will be working on. The second question regarding autonomous driving system and technology, I talk a lot with Nakajima-san about this, but we do not know how much we will be able to spread or penetrate, but we have a target of achieving zero traffic accidents.
In order to achieve that state, we need to do the necessary preparations, and we'll need to introduce these technologies to the models. Therefore, we'll have several models that first have initially introduced this system and technology. As a lineup, we want to be able to keep ourself flexible so that we can introduce to wherever we want, and we want to start with the first step by 2028 with this Level 2++ technology. Thank you.
Time is running short, so we'd like to entertain two more questions from two persons. Next question from Nikkan Kogyo Shimbun, Kawaguchi-san, please. We will switch the screen, and if you are shown, please take the floor.
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Thank you. I'm Kawaguchi of Nikkan Kogyo Company. Thank you. I have two questions. The first question is about this financial results. EV sales volume is markedly increasing, 2.3-fold more than the previous period, 230,000 units in total. So far, I think only early adapters have purchased the EVs. That was a trend. Domestically, as well, we see bZ4X and so forth, and the environment has changed for EV acceptance. Do you think that's a turning point that people are more likely to buy EVs nowadays? The second question is that during the business structure change reform. Page 19, I think, shows the global sales volume, and still it's like to increase toward 2030. There's no particular number.
Your outlook says that you're expecting that sales volume will likely to increase, but the machine, the plant, the factory is another concept you like to realize, but in which area? In which region? What are the necessary environment of which will condition, then you can justify building a new plant? Could you please tell us all those points? Thank you.
Thank you for your question. The number increased. I don't know, a bit shy to hear that word. This year, the outlook forecast that 460,000 units is our outlook. Then for your standpoint, Toyota used to be criticized that not doing good enough. Now you have a different viewpoint of what Toyota is achieving. As Kawaguchi-san mentioned, battery EV is to be supplied according to the actual demand.
The 2026 forecast said that was 2.5 million, but now it's half a million is the demand. Battery EV, the progress itself, of course, it went through the different turning points afterwards. Anyway, the battery EV and its development has been different from the beginning. Battery EV, if it becomes popular, first North America and Europe are the first market, including maybe Chinese market. They are the likely market, advanced markets, which are the early adopters of battery EV. The U.S., the same way, the gallon is $4 or more per gallon. The battery EV didn't grow so fast, and the hybrid is still growing smoothly in the U.S. still. In Asia, on the other hand, early adopters, they overcome that stage, and then the low cost, initial cost-wise, they're cheaper. So battery EV tended to be chosen in Asia now.
That's a new phenomenon in Asia. As I said earlier, A, B, C, all together will be on the same platform called multi-pathway platform. We decided to make a big change of this new multi-pathway platform system, starting from Asia and focused on Global South. Affordable, as defined, definition of affordable may have changed in recent years. Accordingly, we take steady steps to quickly take those steps to respond to the situation. That's the backdrop for my presentation. Another one, 2030, toward 2030. As I said, our aim is that existing capacity should be fully first utilized. In that context, hybrid will be a focus, and a steady business foundation is established first. 10 million units capacity we have, battery EV-wise, as you point out, it makes sense. In other words, it is declining, actually the profit increase as well.
What we should aim at is hybrid should be the focal point, and there's a big demand. We should make sure that that hybrid strong demand is taken by us. Then quickly, we will supply the cars which satisfy the customers. 10 million units should be covered by the hybrid and other main models. In addition, the battery EV will be accumulated based upon actual demand. Where we will build new plants? Within the existing plants, Area 35 will be implemented, and maybe some of the storage area of the parts and components are now turned into the production line. Building a new plant, Global South tend to be a central area where we build new plants. The leading figure is India.
The greenfield we announced to build the new plant in India, we announced we are preparing to start up this plant in India. There's a sure and accurate demand, and then there should be the trust-based relationship to enable us to build new plants. If that country can receive us in that way, then we are ready to go to that country and build the plants. Thank you.
Thank you, Kawaguchi-san. Now to the final question. Nikkan Jidosha Shimbun Fukui-san, please. We'll be switching the screen. When you see yourself, please start your question.
I'm Fukui from Nikkan Jidosha Shimbun. Thank you for the explanation. I want to ask about the region-based and product-based management, because I think that's the strength of Toyota. I have two questions regarding that. The first question will be a little similar to the earlier questions, but you have within China, the development phase is going to be lead time reduced 18 months, and to go into the Global South markets. But in Global South, there will be the Chinese OEMs emerging there as well. Can we say that? Also, you have established a very strong foothold in terms of management, and that is thanks to the TNGA main platform that you are utilizing.
For your new strategy forward, what kind of impact can you expect from your new strategy to your business? That's my first question. For the second question, it will be regarding your regional strategy. Currently, you talked a little bit about your Global South strategy and Japan and U.S., the lead advanced developed countries' manufacturing state, will it be changing? For example, the EU IAA, together with that act, will there be any changes in your EV strategy? With the organization changes that you've announced today, there will be the regional CEOs being changed, and also the East Asia being divided, and also for the China business going forward, the regional-based business management, what is the anticipation moving forward?
Oh, thank you for your question. It has been a question that covers quite a wide scope, so I'll do my best to be able to respond to that broad question. I'll start with the region-based management and product-based management. That will continue to be our unwavering direction, because for us, our aim is to deliver happiness for all through the vehicles that we deliver to our customers, and we want to face each and every one of our individual customers, and that is how we sell every single unit of the vehicle. So that is something we will continue to do. In that, in the meantime, while in parallel, how are we going to reflect the learnings that we have acquired from China experience? Including the China OEMs, as we compete with other OEMs, we have once again acknowledged that speed is key.
Therefore, what we've learned in China, we need to keep our antennas high and make sure that we apply that to other regions as necessary. Because if we don't do that for the Global South markets, that people are very worried for Toyota. We are receiving questions about, "Is Toyota okay in the Global South markets?" So we don't want to raise so much concerns, and that is why with a new platform, we want to make a new approach to make cars, and that has come out by necessity through the competition with the other OEMs. The strategy has come out naturally from the competition that we have with other makes. For the A, B segment, Daihatsu vehicles, Daihatsu models have been utilized by Toyota, and C will mainly be Toyota products. But now we're going to bundle all the A, B, C segment cars on one platform.
It is not just a platform. There will be several common parts and components that we will be able to utilize as well. There will be positive impacts from those activities as well. That is the expectation we have as of now. As we have responded to an earlier question, it is a price challenge and also the cost challenge. Those will remain as we implement this, so we need to take on those challenges so that we will be able to enjoy the profit from this activity. Regarding the manufacturing activities inside of the developed markets, will they be changing with the operations that we have in China? What is necessary, we will continue to introduce. As I said, customer-based and region-based is what we will keep focused on to deliver the vehicles.
We will always be aware of what the customers are wanting in each of the regions and markets. If we can do the horizontal sharing to other areas, we can do that. If there are things that we should share, we will do that. If we should do that uniquely, we will do it uniquely. The reason why India was taken out from East Asia is because from west beyond India, we believe those markets have potential to grow further. We want to be able to have a special focus on that area. That is why the regional group, we are going to have an independent regional group with India so that we can have more intensified focus on our efforts there.
In any case, what we will have to prioritize is to listen to the voice of our customers, and together with what we hear, we need to quickly, appropriately develop the affordable vehicles and deliver it to our customers. In order to achieve this, we will do our best to change anything we have to. Thank you.
Thank you, Fukui-san. I believe we have come to the end of the time, and we would like to end our financial results briefing. Thank you very much for joining us.