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Toyota reports record profit, but firm's future in EV, AI technology race unclear

Toyota Motor Corp. President Akio Toyoda, left, answers questions at a press conference in Tokyo's Bunkyo Ward on May 9, 2018. (Mainichi)

TOKYO -- While Toyota Motor Corp. reported a record net profit, its largest in two years, on May 9 for the business year that ended this March, international competition to develop electric and self-driving vehicles has clouded the future of the company.

For the fifth consecutive year, Toyota has set its budget for research and development at a staggering figure of over 1 trillion yen, but with the automobile industry facing a "once in 100 year revolution" with electric and automated vehicles, building a strategy to remain in the market is no easy task.

"Toyota will hone the power of our cost reduction efforts to strengthen our earning power, and expand our investments in new technology and new fields," said Toyota President Akio Toyoda at a press conference on May 9.

The record high net profit for the automobile giant in the fiscal year ended March 2018 was in part supported by a weak yen, but the company changed gears and predicted a net loss for the current fiscal year ending in March 2019 due to a projected stronger yen. Toyota also projected sales of some 10.5 million units across its group companies, almost unchanged from the previous year, citing a decrease in sales in the company's main markets of North America and Japan, even with large-scale expansion into China and other parts of Asia.

Because of this predicted stagnation in sales, President Toyoda repeatedly emphasized the importance of the "Toyota manufacturing system" that aims for more thorough streamlining and the cost reduction he calls Toyota's "in-house technique." Toyoda also showed his commitment to prepare for the "life or death battle" that is the shift in automobile manufacturing to the development and installation of technology such as electric and self-driving vehicles, in-vehicle internet connectivity and ride sharing.

Toyoda's growing sense of crisis is based not only in competition to produce the next generation of automobile with manufacturers in Europe and the United States, but also the entry of IT giants and manufacturers from emerging economies like China into the market, further putting pressure on existing automobile makers. In the field of electric vehicles (EV), along with U.S. EV manufacturer Tesla taking the lead in the market, German maker Volkswagen also plans to sell 3 million EV units a year by 2025. Many venture companies are also entering into the fray. U.S. tech giant Google is concentrating its energy on the development of an AI system that would act as the driver for autonomous vehicles.

Toyota plans to use 35 percent of its 1.08 trillion yen research and development budget for the current fiscal year ending in March 2019 toward creating the next generation automobile, and has also rapidly shed its previous ideology of closed development over the past year. In addition to joining up with Mazda Motor Corp. and others to establish a subsidiary company devoted to the development of the base technology for EVs in September 2017, Toyota also revealed this January that it is teaming up with U.S. giants Amazon.com Inc. and Uber Technologies Inc. and others to promote efforts to offer a bus-type self-driving EV. In the area of automated vehicle technology, Toyota also started a joint company this spring that combined the basic development divisions of fellow automotive manufacturing group firms, such as Denso Corp. and Aisin Seiki Co.

Still, while top officials at the Ministry of Economy, Trade and Industry are positive that these moves will help Toyota catch up with other companies in the areas of AI and EV, a Toyota executive said that even if the company is successful in EV sales, "the production cost is high and unprofitable." If riding sharing and self-driving vehicles spread further, the number of car owners and drivers will fall, pushing the number of units sold even lower.

President Toyoda also announced the introduction of new cars with strengthened internet connectivity next month. While he emphasized that Toyota was ready to "try anything," the concrete future role of Japan's representative automaker is still unclear.

(Japanese original by Yoshinori Ogura, Nagoya News Center, and Hironori Takechi, Business News Department)

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