Toyota Motor Corp. Annual Report 2017

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Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Table of Contents The Annual Report 2017 is intended to communicate to stakeholders the ways that Toyota is contributing to the sustain- able development of society and the earth based on its long-term strategies. More detailed ESG information is published in the Sustainably Data Book 2017. Toyota’s Reports and Publications Annual Report 2017 Table of Contents 1 Table of Contents (Published November 2017) 2 Message from the President Securities Reports/SEC Fillings Financial Results/Operating Results Corporate Governance Reports Sustainability Data Book 2017 Environmental Report 2017 —Toward Toyota Environmental Challenge 2050— * Toyota also publishes information on business and sustainability initiatives not included in the above reports and publications via its ofﬁ cial website. Investors http://www.toyota-global.com/investors/ Sustainability http://www.toyota-global.com/sustainability/ Period Covered: Fiscal 2017 (April 2016 to March 2017) Some of the initiatives in ﬁ scal 2018 are also included Scope of Report: Toyota Motor Corporation (TMC)’s own initiatives and examples of those of its domestic and overseas consolidated afﬁ liates, and so on. About the PDF This ﬁ le is an interactive PDF and can be navigated by clicking on the following elements. Main menu Jump to the beginning of each of the report’s main sections f each of the report’s main sections Sub-menu Jump to speciﬁ c parts within each section within each section Icons The More details and WEB icons found in each section link to icons found in each section link to related pages of the report and to relevant web pages and ort and to relevant web pages and PDFs online, respectively. y. n. * Requires an Internet connection. 1 TOYOTA Annual Report 2017 5 Long-term Strategy 9 Eco-car Strategy: Electriﬁ cation 12 Connected Strategy: Information 15 Automated Driving and Utilizing AI: Intelligence 18 At a Glance 19 History 20 Initiatives for Sustainable Growth 22 Corporate Philosophy 23 Making Ever-better Cars (TNGA) 26 Taking on the Future Mirai Creation Fund, Partner Robots 28 Toyota Environmental Challenge 2050 30 Aiming to Be the Best in Town Toyota Mobility Foundation, Social Contribution Activities 32 Employees 35 Corporate Governance 38 Risk Management 39 Compliance 40 Financial Information 40 Financial Strategy 42 Financial Results and Position 49 Non-Automotive Businesses Financial Services, Housing Services 50 Corporate Information and Stock Information Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Message from the President Sharing Our Passion to Create the Future Ma king Ever-better Cars and Human Resource Development: The Forces That Power Sustainable Growth The net losses recorded after the global ﬁ nancial crisis and the Europe. Beginning with 80 participants in Australia, a total of series of recall issues that began in the United States taught us an approximately 500 people (including the European leg this year) important lesson. We at Toyota learned the hard way that even have now participated over the project’s four years. rapid growth, if not built on a solid foundation, can ultimately fail to serve the interests of stakeholders when it leads to rapid downturn. Below are a few remarks from participants. To do right by our customers, investors, and other stakeholders, els on cars that had cleared internal standards on test courses I believe that we must build Toyota into a company that can sus- sometimes began to grate. It really brought home that some things tainably grow in any environment. We must manage it so that, like don’t come across through data alone.” a tree, the Company will grow larger and stronger over time, add- “In North America, we met people who live in places where having ing new growth rings year by year so that it can bear abundant a breakdown can be a life-or-death situation. For them, a car that “On long-distance drives in real-world use environments, noise lev- fruit in the future. won’t break or fail is an absolute necessity. I want to always remember that for customers, cars function as partners that they At the ﬁ nancial results press conference in May this year, I said that trust with their lives and livelihoods.” I want the current ﬁ scal year to be one in which we take a critical “The experience made me painfully aware of the limits of my look at our true selves and do everything we can to improve our knowledge about cars. Working in an administrative division, competitiveness. By competitiveness, I do not refer only to quanti- I can’t engage with a car the way an engineer can, but the things I ﬁ able things, like costs and productivity. It is crucial that we learned about what people think when driving were very valuable. improve the intangibles that make us competitive, by, for example, These two weeks changed my professional life.” developing human resources who are passionate about making ever-better cars and making the world a better place and who There are a few things I always tell participants after they come back. work to make constant improvements based on Genchi Genbutsu “You’ve driven the actual roads. You’ve had conversations. You’ve (onsite, hands-on experience). experienced the road, the cars, and the people who use them with your own senses. You’ve talked about these things and more with The Five Continents Drive Project is one initiative aimed at human your companions there using whatever knowledge of the local lan- resource development. Project participants drove across Australia guage you had. That’s the kind of situation where the true essence in 2014, then the Americas, divided into North America in 2015 of things emerges. Sometimes, the essence gets across best and Latin America in 2016. In 2017, they are driving across when you have limited words to express it. So, don’t rely solely on 2 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Message from the President data. I want you to take what you felt with your own senses, take Then, they are coming back to work, telling their junior colleagues the true essence of things, and use it to make ever-better cars. We about their experiences, and applying those experiences in their need you to help break down walls that Toyota itself has built.” own work. The road teaches the people, and the people make the cars. I hope that more and more of our colleagues will come to We’ve started a virtuous cycle. Participants are driving the same understand this process at a visceral level. roads as our customers, engaging with the cars and with the road. Taking on the Future In the near future, cars are expected to connect with people and What made me think that we ought to work with Dr. Pratt, made communities and take on new roles as part of the social infrastruc- me want to work with him, was not just that he is an amazing ture. New areas, such as AI, automated driving, robotics, and con- researcher and engineer, but because I believe that his goals and nected cars, are becoming especially important, and it is no longer motivations are the same as ours. enough to focus just on developing excellent cars and technolo- gies or to carry on sales and service in the same old ways. As we aim for the mobility society of the future, we are headed into unknown territory, seeking to ascend as-yet unconquered peaks. To take on a new breed of initiatives, we therefore felt it crucial to To climb these uncharted mountains, new technologies and the form a new team, rather than use previous frameworks. Accordingly, Sherpas who know the paths will be indispensable. Dr. Pratt in January 2016, we established Toyota Research Institute, Inc. agreed to be our Sherpa. This is what I told him: “Your compan- (TRI), welcoming Dr. Gill Pratt as its CEO. ions at Toyota are right behind you, sharing your goals and start- up mindset. And, I’m right there at the front of them. So don’t I ﬁ rst met Dr. Pratt in August 2015. worry, and take the path you believe in.” I asked him, “Why do you want to work with Toyota?” His response was very simple. No one knows when we’ll reach the summit we’re seeking, or “I want to eliminate the everyday tragedy of trafﬁ c accidents and even if we’re on the right path. What I do know is that only those contribute to making society better.” who reach the summit can see the opportunities that lie beyond. At the press conference announcing TRI’s establishment, he added to this, saying “I think Toyota will contribute to society by transforming In addition to TRI, we are actively collaborating and allying with from a successful hardware company to a new company by inte- other companies and partners in other industries, chieﬂ y in new grating software technologies; this is why I joined Toyota.” business areas. By humbly learning from these new partners and combining our strengths, we are endeavoring to make the mobility society of the future better, looking 10 and 20 years down the line. 3 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Message from the President Leading the Way Forward with Passion and a Start-up Mindset This year marks Toyota’s 80th anniversary. Toyota’s earliest roots all areas of human transportation, working always from a desire to are in automatic looms. Back then, I doubt that anyone could have make transportation itself an exciting, moving experience. predicted that an automatic loom company would evolve to make automobiles. Lastly, I’d like to conclude with a few things that I believe. I believe growth must be sustainable. Today, we are faced with a number of new rivals. We share with I believe if you do the right thing, the money will follow. them the start-up mindset of wanting to make the world a better I believe we have to earn our customers’ smiles every day and place. Just as no one could have foreseen Toyota’s evolution, no exceed their expectations. one knows what businesses will give rise to the mobility of the I believe there is no “best,” only “better.” future. What I can say for certain, however, is that the next forms I believe we are a company of dedicated, passionate people that that mobility takes will be created by those with an outstanding can accomplish anything. passion to make the world a better place. And, I believe Toyota will continue to constantly strive to improve We want to make ever-better cars. We want to make sure that cars remain a beloved form of mobility, Thank you for your continued conﬁ dence and support. the lives of customers and society as a whole. no matter how they evolve. We want to make our mobility society better and better. October 2017 I am conﬁ dent that no one wants these things more than we at Toyota. I also believe that we cannot build the future by ourselves. Having operated this long in the auto industry, working with vast networks of companies, we deeply understand the need for part- ners who share our aspirations. Rather than taking an adversarial stance, we want to form ties with a wide range of new partners to work with shared passion to create the future. I want Toyota to be not just an automotive company, but a human movement company. “Move” refers not just to transportation, but also to inspiring deep emotion or excitement. We intend to take on Akio Toyoda President, Member of the Board of Directors Toyota Motor Corporation 4 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence The Changing Business Environment and the Expansion of Mobility Value The current pace and scale of structural change in In this time of immense change, Toyota is taking Toyota aims to provide value related to social infra- move about freely and enjoyably and by providing society and industry are unprecedented. Values and a brand new approach, imagining the world in 2030 structure by achieving zero life cycle CO2 emissions services optimized to individual lifestyles. lifestyles are diversifying, while environmental prob- in order to create value propositions from a long-term from its vehicles to help create a sustainable world, Going forward, Toyota will create a sustainable lems and a wide range of social issues, such as perspective. eliminating causalities from trafﬁ c accidents, and future mobility society by working hand-in-hand urbanization, are growing more pronounced. At the Today, Toyota provides customers with the value of improving transportation efﬁ ciency through the com- with partners across industry lines to provide broad- same time, innovation is driving rapid technological mobility through cars. Going forward, in addition to bined transport of people and things. ranging value that exceeds customer expectations. development in such areas as information, intelli- evolving this value as provided through cars, we plan We seek to expand the value we provide into the gence, the Internet of Things (IoT), and robotics. to expand it in the directions of social infrastructure area of personal living by working to help all people and personal living. Business Environment Changes The Expansion of Mobility Value Individual desires/ Societal demands Lifestyle changes Environmental problems Urbanization Technological innovation Intelligence IoT Robotics n o i t a v o n n i l i a c o S y r t s u d n i n i s e g n a h c l a r u t c u r t S Evolution through cars (mobility) Ultra-efficient transportation of people and things Sharing Helping all people move about freely and enjoyably Contributing to the creation of sustainable society Combined transport of people and things Personal mobility More entertaining transportation spaces Customization to suit individual lifestyles Zero life cycle CO2 Fully automated driving Big data/AI Personal concierge Zero causalities from traffic accidents Creating opportunities for outings Social infrastructure Mobility today Personal living Alleviating traffic congestion/Utilizing transportation data Augmenting body functions Health support 5 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Focused on the Mobility of the Future Making Ever-better Cars and Our Strategic Shift toward Electriﬁ cation, Information, and Intelligence Technologies Based on the Toyota Global Vision, announced in March 2011, Toyota strives to implement a positive cycle of making ever-better cars that exceed customer expec- tations, enriching lives of communities, being rewarded with the smiles of customers and commu- nities, and thus reinforcing Shigeki Terashi Executive Vice President, Member of the Board of Directors its stable base of business in order to grow sustain- ably in concert with society. As it faces the greatest changes to the automobile in a century, Toyota’s long-term strategy is to advance management based on its vision of the future mobility society of 2030. Since the birth of the automobile in the 18th centu- ry, the mobility of people and things has increased dramatically. Today, it is possible to provide conve- nient transportation to virtually anywhere at any time. The development of mobility has underpinned eco- nomic growth and the development of society and culture. The heart of this evolution has been the steady improvement of vehicle performance, safety, and convenience. Now, changes driven by innovation in automated driving technologies that employ artiﬁ cial intelligence (AI), connected car technologies, robotics, and other areas are on the verge of linking cars, people, and social infrastructure in new ways, transforming indus- try, society, and the very ways we live. We believe that our customers today greatly enjoy car ownership—they feel attached to their cars and appreciate car design and the fun of driving. However, with environmental and resource-related problems growing more severe, cars are increasingly being seen as emblematic of pollution and the waste of energy and resources. The technologies driving the rapid changes in the business environment surrounding cars, such as electriﬁ cation, connected systems, and AI, have the potential to provide never-before-seen value. They are also driving the provision of social value by, for example, helping to eliminate trafﬁ c accidents and environmental burden. Going forward, the costs associated with these technologies, such as those of enhancing functionality to meet needs related to environmental regulations, automated driving tech- nology, and connected technologies, may signiﬁ cant- ly impact our businesses. However, mobility services and connected services that utilize such technologies also present opportunities to create new revenue models. Based on this understanding, we believe that Toyota must now endeavor to both make ever- better cars in order to sustain and enhance the auto- mobile manufacturing business, its current mainstay, and shift to new business models for the future. To make ever-better cars, we are striving to enhance the speciﬁ c appeal of each type of car, whether it be a Lexus, part of our GR sports car series, or a Land Cruiser, clearly deﬁ ning the role and key characteristics of each. By doing so, we provide value in the form of uniquely Toyota cars that will be cherished and appreciated by customers for years and years. At the same time, by making a strategic shift toward electriﬁ cation, information, and intelli- gence to build new business models, we are expanding our range of business. In these ways, we will not only continue to evolve our existing car manufacturing business, but expand the scope of innovation to encompass social plat- forms that meet society’s needs and technological platforms, such as AI, that extend beyond cars. By doing so, we aim to provide broad-ranging value that exceeds customer expectations as we work to cre- ate the mobility society of the future. There is a limit to what Toyota can do to provide such future value. To blaze the trail toward a new mobility society, we must ﬁ nd partners who share our aspirations and will inspire us to continue pushing forward while cooperating and competing with play- ers in other industries. Toyota’s Goals Development Aimed at both Axes of Making Ever-better Cars and Shifting to New Business Models Making Ever-better Cars Strategic Shift toward Electriﬁ cation, Information, and Intelligence to Build New Business Models Toyota Global Vision Reinforcing new value creation capabilities Safety and peace of mind Developing Toyota by taking on the future Sustainable growth Waku-doki (excitement and exhilaration that wows you) Environmental sustainability Customers’ smiles Toyota today Strengthening true competitiveness to lay a foundation for steady growth Steadily strengthening our foundation (Creative, advanced technologies) Ever-better cars Beloved cars Enhancing cars’ appeal (The fun of driving) (More-than-adequate QDR*) Environmental sustainability * QDR: Quality, durability, and reliability 6 TOYOTA Annual Report 2017 Safety and peace of mind Intelligence Automated driving AI People Electriﬁ cation EV/FCV (HV/PHV) Information Connected technology Big data Waku-doki (excitement and exhilaration that wows you) Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Focused on the Mobility of the Future Eco-car Strategy: Electriﬁ cation Toyota is exploring all available options in powertrain development. We believe that we can build a highly energy efﬁ cient mobility society by allowing govern- ments and markets to select the cars best suited to regional energy and infrastructure conditions and allowing customers to choose the cars with the spe- ciﬁ c characteristics best suited to their needs. For the time being, the further development of technologies for conventional engines, which are still the mainstream, is a practical, highly realistic way to help reduce CO2 emissions. At the same time, we are working to develop and increase the use of fuel cell vehicles (FCVs), the ultimate eco-cars, and advancing other initiatives in coordination with diverse stakehold- ers to realize our goal of establishing a low-carbon society that uses hydrogen. We are also accelerating the development of electric vehicles (EVs), another zero-emission vehicle option. To this end, we have established the EV Business Planning Department and a business and capital alliance with Mazda Motor Corporation, launching a new company to implement joint technological development. Toyota boasts a wealth of accumulated know-how regarding vehicle electriﬁ cation technology and com- mercialization that dates back to the launch of the Prius 20 years ago. We will continue to advance ini- tiatives to accelerate our technological development and further reduce CO2 emissions. Connected Strategy: Information Big data collected from cars will enable a wide range of new mobility services, such as accident and breakdown prediction, the generation of dynamic maps using probe data (vehicle tracking information generated using GPS), and agent functions to help users drive safely and comfortably. Aiming to build new business models, Toyota is shifting toward a focus on electriﬁ cation, intelligence, and information, and has created what it calls Connected Strategy. The three pillars of this strategy are as follows. 1. Connect all cars to build a data col- lection platform, 2. Utilize big data to revolutionize Toyota’s business, and 3. Collaborate with partners in various other industries and IT companies to pro- duce new mobility services. We aim to combine Toyota’s strengths—such as know-how developed in the automobile manufactur- ing business and contact with customers through sales of more than 10 million vehicles annually—and the strengths of companies in other industries, including IT. By doing so, even as car usage shifts from ownership toward service-based models, we are working to create a safe, convenient, and excit- ing future mobility society by providing customers with appealing services. Automated Driving and Utilizing AI: Intelligence Toyota’s overall development philosophy for auto- mated driving technology is the Mobility Teammate Concept, an approach built on the belief that people and vehicles can work together in the service of safe, convenient, and efﬁ cient mobility. We believe that it is essential that we develop auto- mated driving technology to be human-centric and, above all, safe. In addition to sophisticated safe driving assistance, we are developing automated systems that can perform full-time dynamic driving. At the same time, by utilizing our advanced safety technolo- gy know-how, we are working to promote the rapid uptake of new safety technologies in the market. Toyota has established Toyota Research Institute, Inc., with Dr. Gill Pratt, one of the world’s foremost AI researchers, as its CEO, and set up a related venture capital fund. Through these efforts, we are accelerat- ing initiatives in such areas as automated driving, AI, and robotics. Toyota believes that safe, fun automated driving technologies will expand freedom of movement for all, bringing cars and people even closer together, such that cars will continue to be loved by people. More details Electriﬁ cation, information and intelligence, p. 9–17 Advancing Our Business Structure Toyota is working to enhance its true competitive- ness, particularly in the automobile manufacturing business, and shifting to new business models. In line with these strategies, we are advancing initiatives focused on ensuring ongoing growth 10 years from now, 20 years from now, and beyond. Seeking to break free of the restraints of Toyota’s existing con- ventions and rules, we have started from scratch, focusing on the future as we set about to advance business innovation. Ongoing growth will be impossi- ble unless we overcome the major issues created by Toyota’s expansion. Today, Toyota makes and sells more than 10 million automobiles annually. To survive at this scale, we are establishing new ways of oper- ating to achieve the following two targets. (cid:129) Develop a sufﬁ cient number of people who can lead with quick judgment, quick decisions and quick action based on Genchi Genbutsu (onsite, Toyota’s Business Innovation Concept Our ideal Ambitious target setting Initiatives that break from convention Today Previous methods 10 years in the future, 20 years, and beyond hands-on experience), because the changes the company faces require new ways of thinking and acting (cid:129) Reduce the time and effort consumed by cross- functional coordination and establish work pro- cesses that allow us to focus on making ever-better cars One of Toyota’s traditional strengths has been the process by which its experts on each function and process engage in thorough discussion to ﬁ nd opti- mal solutions. However, before we began our current efforts to advance business innovation, overemphasis on function-based logic and reasoning had become a weakness, leaving Toyota unable to make quick deci- sions in response to a rapidly changing environment. Toyota regards the changes it has been making as opportunities. We seek to take on new challenges, unrestrained by existing approaches and remember- ing always that there are better methods waiting to be discovered. Making Ever-better Cars and Developing People Toyota has revised its internal organization a number of times to enhance true competitiveness and pro- mote sustainable growth. In 2011, we adopted a system of autonomous region-based management, stationing the chief ofﬁ cers responsible for each region in their respective regions to ensure operations are more closely linked with local communities. In 2013, we adopted the Business Unit System, under which we organized workﬂ ows by busi- ness model. Through these efforts, we made progress toward achieving management closely rooted in local areas and speedy product development. At the same time, however, it became clear that even with these changes, Toyota’s ways of operating were still basically extensions of the old forms, and 7 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Focused on the Mobility of the Future thus carried with them the same problems— coordination across functions and decision making were taking too long. In April 2016, we adopted a new system with smaller business units organized around products, aiming to dissolve the barriers between functions, reduce the need for cross-unit coordination, speed up decision making, and better link all the work we do to making ever-better cars while developing human resources to support that goal. Speciﬁ cally, we concentrated our forward-looking R&D and production engineering teams within the Advanced R&D and Engineering Company and estab- lished four vehicle-based companies specializing in compact cars, mid-size cars, commercial vehicles (CVs), and the Lexus brand. We furthermore concen- trated powertrain component-related operations in the Powertrain Company and connected technology- related operations in the Connected Company. The new product-based companies serve to remove all barriers between functions, consolidating the entire process from planning to production under the authority and responsibility of a single leader and providing all necessary business functions within a compact struc- ture for streamlined, integrated operations. Toyota also reorganized its head ofﬁ ce, which is responsible for corporate functions. We established the Corporate Strategy Division, charged with formu- lating long-term strategy for ongoing growth, and the Frontier Research Center, responsible for actively incorporating insight from outside the Company to create the technologies and businesses of the future from a long-term, society-oriented perspective. Continuing our business innovation efforts, we established the EV Business Planning Department in December 2016. Then, in January 2017, we created the Emerging-market Compact Car Company, aiming to bring highly competitive ever-better cars to market based on Daihatsu Motor Co., Ltd.’s approach to manufacturing affordable, high-quality products. In this way, we set up the EV business as an internal start-up under the direct control of the president. This too was in order to make a clean break from old hab- its and establish fast ways of operating to help drive Toyota’s overall efforts to advance business innovation. In April 2017, a year after transitioning to the new system, in line with our ongoing Company-wide busi- ness innovation efforts, we established the GAZOO Racing Company, aiming to leverage our accumulat- ed motor sports know-how to develop and release cars that offer customers true Waku-doki (excitement and exhilaration that wows you). We also consolidat- ed our regional business units into the Business Planning & Operation Unit, unifying region-based operations to facilitate cooperation with the product- based companies. The new framework has enabled the consolidation of responsibility and authority in the company presi- dents, helping to speed decision making. Furthermore, the new framework has helped us oper- ate with a greater awareness of the entire car manufac- turing process. This has brought to light previously unnoticed issues, and better positioned us to ﬂ exibly change organizational frameworks going forward. Toyota is stepping up its competitiveness by making ever-better cars while making a strategic shift toward electriﬁ cation, information, and intel- ligence to advance initiatives aimed at expanding future mobility value. To achieve the goals of our long-term strategies, we are developing human resources and revamping internal structures and advancing business innovation while reinforcing alliances with a wide range of partners, including those in other industries. Looking at the enor- mous changes surrounding cars as opportunities, Toyota is steadily advancing toward the creation of a better mobility society. Business Unit Presidents Didier Leroy Kiyotaka Ise Kazuhiro Miyauchi Moritaka Yoshida Keiji Masui Head Ofﬁ ce: New business planning; Company-wide strategy Business units: Medium-term strategy; near-term execution Frontier Research Center Region- based Divisions not belonging to any group (EV Business Planning Dept., Corporate Strategy Div., Corporate Affairs Dept., etc.) Groups (Business Development, External Affairs & Public Affairs, General Administration & Human Resources, Information Systems, Accounting, Sales Financial Business , Purchasing, Customer First Promotion, Production Planning) l i B u s n e s s P a n n n g & O p e r a t i o n i T o y o t a C o m p a c t C a r C o m p a n y A d v a n c e d R & D a n d E n g n e e r i n g C o m p a n y i i i i M d - s z e V e h c e C o m p a n y l Product-based C V C o m p a n y L e x u s I n t e r n a t i o n a l C o . i P o w e r t r a n C o m p a n y C o n n e c t e d C o m p a n y i G A Z O O R a c n g C o m p a n y i E m e r g n g - m a r k e t C o m p a c t C a r C o m p a n y Yoshihiro Sawa Toshiyuki Mizushima Shigeki Tomoyama Shinya Kotera 8 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Eco-car Strategy: Electriﬁ cation Toyota considers responding to environmental issues a top management priority and has long endeavored to contribute to the realization of a sus- tainable mobility society. To this end, we have taken on tremendous challenges, resulting in, for example, the release of the world’s ﬁ rst mass- produced hybrid vehicle, the Prius, in 1997, and a fuel cell vehicle, the Mirai, in 2014. Nevertheless, severe heat, heavy rainfall, drought, and other extreme weather phenomena attributable to climate change caused by rising lev- els of greenhouse gases continue to threaten livelihoods around the world. Furthermore, the world’s reserves of oil, the main energy source that powers cars, are not inﬁ nite. In response to these circumstances, in 2015, Toyota unveiled the Toyota Environmental Challenge 2050, starting work on six challenges aimed at not only eliminating CO2 emissions, but making a net positive impact on the planet and society. The ﬁ rst of the six challenges is the New Vehicle Zero CO2 Emissions Challenge, under which we aim to reduce global average new vehicle CO2 emissions by 90% from Toyota’s 2010 global level. Toyota is devel- oping and promoting the use of a variety of eco-cars to help achieve the Paris Agreement* goal of keeping global warming below 2°C. * The Paris Agreement, reached in December 2015, was negotiated at the 21st yearly session of the Conference of the Parties (COP 21) to the United Nations Framework Convention on Climate Change, held in Paris. The agreement set the long-term goal of limiting global warming to well below 2°C compared with pre-industrial levels and calls for net zero anthropogenic greenhouse gas emissions to be reached during the second half of the 21st century. Toyota’s Environmental Technology Strategy Toyota believes that it is vital to pass down to the next generation the gains in the mobility of people and things achieved thus far by global mobility society while also addressing climate change and the uncertain future of petroleum resources. We are therefore focusing efforts on developing eco-cars that save energy and use diverse fuels while also promoting their widespread use. Automotive fuels can be produced by processing a variety of primary energy resources. By developing different powertrains optimized for a range of such fuels, Toyota is working to save energy and respond to fuel diversiﬁ cation. As illustrated in the chart entitled “Alternative Fuel Comparison” on the next page, there are multiple alternatives to petroleum, each with its own pros and cons. Similarly, energy policy varies by country and region. Toyota is advancing development on all fronts, including hybrid vehicles (HVs), plug-in hybrid vehicles (PHVs), fuel cell vehicles (FCVs), and electric vehicles (EVs). Each type of eco-car has a unique set of characteristics. By enabling customers to pick eco-car that is right for them, we believe that we are helping to build a highly energy-efﬁ cient mobility society. WEB Toyota’s stance on keeping global warming below 2°C (Message from the President, Environmental Report 2017) Automotive Fuels and Powertrain Diversiﬁ cation Primary energy sources Automotive fuels Powertrains Petroleum Natural gas Coal Biomass Uranium Hydro, solar, and geothermal power Gasoline Diesel Natural gas-based fuels Synthetic liquid fuels Biofuels Electricity Hydrogen 9 TOYOTA Annual Report 2017 Conventional vehicles & HVs PHVs EVs FCVs g n i v a s y g r e n E n o i t a c ﬁ i s r e v i d l e u F Improving the fuel economy of gasoline and diesel vehicles, the dominant car types in today’s market Toyota is developing a range of eco-cars to suit diverse customer lifestyles and regional needs based on the idea that eco- friendly vehicles can best help protect the environment if they are in widespread use Toyota’s cumulative global hybrid vehicle sales surpassed 10 million in January 2017 Promoting the development of cars that use alternative fuels (electricity, hydrogen, etc.) Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Eco-car Strategy: Electriﬁ cation Accelerating Electriﬁ cation Initiatives Toyota is advancing development on all fronts, with a particular focus on electric and hydrogen power, which it views as especially promising approaches to fuel diversiﬁ cation. FCVs offer convenience on par with conventional gasoline vehicles in terms of cruising range and refueling time. Moreover, hydrogen can be produced from a wide variety of mate- rials and used for a wide range of applications. And, while EVs currently face hurdles due to battery limitations, namely cruising range and charg- ing time, they offer the advantages of being chargeable at home and requiring only relatively simple infrastructure development. Policies and regulations aimed at promoting the use of zero-emission vehicles are developing rapidly around the world. Toyota believes that it is therefore necessary to advance the development of eco-cars in a way that is responsive to the energy challenges and infrastructure of each country and region as well as the ways customers use vehicles. We take such an approach with EVs, one zero-emission vehicle option; at the end of 2016, we set up the EV Business Planning Department as an internal start-up aimed at creating and releasing prod- ucts based on the market characteristics of individual countries and regions. Aiming to quickly bring EVs to market, the new department is amassing a wide range of technological know-how and resources from the Toyota Group, such as those of Toyota Industries Corporation, Aisin Seiki Co., Ltd., and DENSO Corporation, working within a small corporate structure to advance development at a speed not seen before. We entered a business and capital alliance with Mazda Motor Corporation toward the goal of making more-appealing cars, announced in August 2017. One aim of this alliance is joint development of technologies for electric cars. Demand and expectations for EVs are growing worldwide. Details are yet to be determined, but Toyota and Mazda are considering the joint development of technologies for the basic structure of competitive electric vehicles. These technologies will enable rapid, ﬂ exible response to changing regulations and market conditions. To the extent necessary for the joint development of EVs, we aim to combine the strengths of both companies and freely share know- how related to EVs in order to nimbly and efﬁ ciently respond to difﬁ cult-to- predict changes in the EV market during the development period. In addition, in late September 2017, Mazda, Denso, and Toyota signed a joint technology development agreement related to basic structural technologies and estab- lished EV C.A. Spirit Corporation to facilitate said development. Toyota’s Corolla Hybrid and Levin Hybrid, equipped with hybrid units pro- duced in China, have been well received in the Chinese market. We intend to release plug-in hybrid variants of the Corolla and Levin in this market in 2018 and are considering plans to introduce EVs within a few years. The development of both EVs and FCVs presents opportunities to leverage Toyota’s electriﬁ cation technologies, which have been honed by its extensive know-how and experience regarding hybrid technology, one of Toyota’s core technologies. As our competitors also accelerate their electriﬁ cation initiatives, we expect that competition to procure onboard batteries will intensify. Among secondary batteries, which can be repeatedly charged and used, lithium ion batteries offer the best performance in terms of power and energy per unit mass and volume. Toyota developed the world’s ﬁ rst method for observing the behavior of lithium ions contained in lithium ion batteries’ electrolyte solution during charging and discharging. This is expected to lead to new insights in research and development aimed at improving battery performance and durability, helping to enhance the cruising distance and battery life of PHVs and EVs. Lithium ion batteries employ ﬂ ammable organic solvents, so they must be built to prevent leaks. Given this, Toyota is advancing R&D aimed at creating a solid-state battery that will serve as a high-performance, next- generation battery. In addition to R&D conducted by our own dedicated internal R&D divisions, we are working with universities and other research organizations in this area. Building a Low-carbon Society Spurred by the 2020 Tokyo Olympics and Paralympics, further develop- ment toward the creation of a hydrogen society is expected in the coming years. Toyota seeks to contribute to this development. Since the 2014 release of the Mirai, Toyota has continued to focus on technological Alternative Fuel Comparison (at present, in Japan) Choosing the Right Eco-car for the Job Hybrid Technology for Next-generation Eco-cars Electricity Hydrogen Biofuel Natural gas EVs FCVs Internal combustion systems Internal combustion systems e z i s i l e c h e V Well to Wheel CO2* Supply Cruising range Refueling/ recharging time Infrastructure HV/PHV zone Passenger car HV FCV zone Shuttle bus Full-size truck FCV (BUS) EV zone Home delivery vehicle EV Short- distance commuter FCV PHV Personal mobility Home delivery truck Travel distance HV Motor PCU Generator Battery Engine Fuel tank * A comprehensive assessment of CO2 emissions that takes into account all energy con- Fuel Electricity Gasoline, diesel, biofuels, CNG, synthetic fuels, etc. Hydrogen sumption from the extraction or production of the primary energy to the use of the vehicle. 10 TOYOTA Annual Report 2017 EV Motor PCU Battery PHV FCV Motor PCU Generator Battery Engine Fuel tank Motor PCU Battery FC stack Hydrogen tank Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Eco-car Strategy: Electriﬁ cation development related to FCVs, working with numerous important stake- holders, including policy makers, infrastructure- and energy-related industry bodies, international organizations, and citizen groups, as it steadily implements a wide range of initiatives aimed at the overarching goal of building a low-carbon society. Infrastructure is essential to the widespread adoption of FCVs. In Japan, the government’s Council for a Strategy for Hydrogen and Fuel Cells has compiled a Strategic Road Map for Hydrogen and Fuel Cells, laying out goals for public-private initiatives, aiming, for example, to establish 160 hydrogen stations and have 40,000 FCVs on the road by 2020. Based on this roadmap, an all-Japan consortium led by 11 com- panies, including Toyota and other automotive and energy companies, has begun work aimed at accelerating the full-scale strategic construc- tion of hydrogen stations. A memorandum of understanding to this effect was signed in May 2017. Furthermore, Toyota participates in the Hydrogen Council, a global ini- tiative promoting a united vision and long-term goals for the transition to new energy using hydrogen (launched in January 2017). The Hydrogen Council was created by 13 leading global companies involved in energy, transportation, manufacturing, and other various sectors spanning the hydrogen value chain and has grown to include 27 member companies. In Japan, we have begun studies with Seven-Eleven Japan Co., Ltd. on reducing CO2 emissions and energy use related to distribution and store operations. We are considering such measures as using fuel cell WEB Hydrogen Council trucks newly developed by Toyota for deliveries to stores and introducing fuel cell power generators that utilize automotive fuel cell units as a base power source at stores with hydrogen stations. In the United States, we have begun a pilot test using commercial heavy- duty trucks equipped with fuel cell systems at the Port of Los Angeles in California. These trucks are equipped with two of the fuel cell stacks (power generators) used in the Mirai and boast a gross combined weight rating (including cargo) of 36 tons. In addition, to promote infrastructure develop- ment and facilitate the adoption of FCVs in the United States, Toyota and Honda Motor Co., Ltd. are providing ﬁ nancial support for a plan being imple- mented by U.S.-based Shell Oil Company to install hydrogen refueling equip- ment at seven existing retail stations in northern California. Furthermore, Toyota is participating in a project called Accelerating the Development and Commercialization of Fuel Cell Vehicles in China being implemented by the Chinese government, which is aggressively promot- ing the spread of FCVs and establishment of related industry. Under this project, Toyota will begin pilot tests using the Mirai in regions around the country. We are currently testing the Mirai in Canada, working to foster understanding of FCVs. In-house Development and the Promotion of R&D The rapid expansion of the zero-emission vehicle business requires not just product development, but changes in production structure. Just in the area of the powertrain—the section of the vehicle most impacted by electriﬁ cation—in addition to conventional gasoline and diesel engines, we now need motors, inverters, batteries, high-pressure hydrogen tanks, fuel cell stacks, and more. In terms of production technologies, besides conventional machining, polishing, assembly, and iron and aluminum casting, we need technologies that enable increased precision, thinner components, and an expansion in the use of plastics as well as those related to coatings, new materials, nano-scale production, and chemis- try. Toyota has internally developed the fuel cell stacks and high-pressure hydrogen tanks that form the heart of the FCV, and has achieved world- class performance in both. We are thus acquiring technologies through in-house development while advancing business innovation to prepare for the anticipated pressures on production site management resources arising from electriﬁ cation. 20 years ago, Toyota launched the Prius, the world’ ﬁ rst mass- produced HV. Since then, we have continued to hone our core elec- triﬁ cation technology, releasing PHVs and FCVs. The technological prowess, know-how, and experience built up in bringing these prod- ucts to market are strengths of Toyota. We will provide a wide range of options in its powertrain development. We believe it is up to mar- kets to decide between the options, based on national and regional conditions, customer tastes, and other factors. Aiming to achieve zero CO2 emissions from new vehicles, Toyota will diversify its pow- ertrains and strive to make those of each type best-in-class. Toyota’s Involvement in Initiatives to Promote Hydrogen Use Worldwide Beginning pilot testing aimed at using renewable and hydrogen-based energy in FCV production lines by around 2020 Toyota’s role (cid:129) Establishing a model for hydrogen use at factories (cid:129) Showcasing said model to the public n o i t a r o b a l l Building a Low-Carbon Hydrogen Supply Chain in Aichi Prefecture Conducting cooperative evaluations involving industry, government, and academia o C Toyota’s role (cid:129) Working with the prefecture as an industrial leader (cid:129) Encouraging Toyota Group companies and industry to participate in efforts to use hydrogen in industrial areas Locally Produced, Locally Consumed, Renewably Produced Hydrogen EMS* Promoting cooperative efforts with the government, industry, and academia, led by Fukuoka Prefecture Toyota’s role (cid:129) Toyota Motor Kyushu participated in demonstrations of hydrogen use in factories as an example of industrial models KIX Project at Kansai International Airport Pilot testing a large-scale, centralized hydrogen grid model for airports (cid:129) Toyota, Toyota Industries, and Toyota Tsusho are part of the KIX Hydrogen Grid Committee (cid:129) Pilot testing fuel cell forklifts powered by CO2-free hydrogen generated Toyota’s role * EMS: Energy Management System using solar power. Fukushima Concept for a New Energy Society Conference (Launched in March 2016 by the Ministry of Economy, Trade and Industry) Toyota’s role (cid:129) Participating as an FCCJ* member (cid:129) Providing means of mobility, such as fuel cell buses and fuel cell forklifts 2020 Tokyo Olympics and Paralympics Presenting models of a next-generation mobility society and a clean, hydrogen society to the world Toyota’s role (cid:129) Supporting the games as a TOP sponsor of the IOC (cid:129) Providing mobility, such as FCVs and fuel cell buses, and supporting the next-generation mobility society concept Keihin Project in the Keihin Coastal Area Verifying a supply chain connecting hydrogen production using renewable energy to users as a model for small- to medium-scale concentrated ofﬁ ces Toyota’s role (cid:129) Representing businesses as a user of hydrogen * FCCJ: Fuel Cell Commercialization Conference of Japan 11 TOYOTA Annual Report 2017 China Beginning pilot testing of the Mirai United Arab Emirates Participating in joint research aimed at creating a hydrogen-powered society Australia Launching the Mirai on a test basis Canada Launching the Mirai on a test basis United States Implementing pilot testing of fuel cell heavy-duty trucks at the Port of Los Angeles United States Working with Shell to expand the hydrogen station network in California Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Connected Strategy: Information Building a Connected Platform for the Connected Cars of Tomorrow As the Internet of Things (IoT) develops, cars are increasingly connected to information networks, enabling consumers to enjoy a variety of new services. Connected technologies have the potential to create new value and new services by creating new modes of use and new roles for cars. In particular, big data collected from connected cars will be put to use in a wide range of services and businesses. As such, connected platforms that encompass information infrastructure will become extremely impor- tant business platforms for automakers. In preparation for the full-scale arrival of connected cars, in April 2016 Toyota established the Connected Company, and in November of the same year announced its Connected Strategy, consisting of three major points (its “three arrows”). 1. Connect all Toyota and Lexus cars and build a connected platform that will serve as information infrastructure 2. Use this platform to utilize big data collected from cars and contribute to the good of customers and society while revolutionizing Toyota’s own businesses 3. Building on this platform, coordinate with various different industries and IT companies to create new mobility services and establish a value chain Toyota’s Information Technology Initiatives to Date Toyota has rolled out information technology in the form of telematics services, in which communication devices installed in cars are used to interactively provide drivers with information via wireless networks and data centers. In 2002, Toyota launched its G-BOOK comprehensive telematics service. Since then, we have improved navigation functions and added the HELPNET emergency dispatch service and G-Security theft-pre- vention/stolen car tracking service, enhancing functionality centered on safety and peace of mind. In 2014, we released T-Connect, a new service based on G-BOOK. T-Connect offers more advanced functions, such as search functions controlled through an interactive voice-controlled interface called Agent as well as Apps, which allows customers to select and install a variety of applications on the onboard navigation system. Furthermore, Toyota uses probe data from cars (tracking data gen- erated using GPS) to generate its proprietary T-probe trafﬁ c informa- tion, which it offers as a predictive information service. This service predicts the destination of each car and provides information to help drivers avoid potential issues, such as accidents and congestion, along their anticipated route. Connected Services Today Toyota’s Information Technology Initiatives Location data Speed data Engine data Sensor data Control system data Comfort and convenience enhancing services Toyota Smart Center Emergency dispatch service Theft tracking service DCM* Provide services Automatic map data updates Services for safety and peace of mind Connected cars Operator service T-probe traffic information Predictive information service * DCM: Data communication module. An on-board integrated transmission module devel- oped especially for telematics services. 12 TOYOTA Annual Report 2017 2000 2002 2005 2008 Established GAZOO Media Service Corporation (now TOYOTA Connected Corporation) Commercialized DCMs for cars, launched G-BOOK services Made DCMs standard on Lexus models in Japan Expanded standard installation of DCMs on Lexus models to North America and China 2011 Built the Toyota Smart Center Vehicle database (big data) 2016 Established the in-house company Connected Company Established Toyota Connected Inc (now Toyota Connected North America, Inc.) Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Connected Strategy: Information How We’re Building a Connected Platform Key to the ﬁ rst arrow, connecting all cars, are our data communication modules (DCMs). In 2002, Toyota commercialized its DCMs and launched the G-BOOK service for Toyota vehicles. DCMs were then made a standard feature in Lexus cars, and Toyota launched the G-Link service in Japan before expanding it to North America and China. As the ﬁ rst step toward connecting all vehicles, Toyota plans to adopt common standards for its worldwide DCMs by 2019, equip virtually all passenger vehicles it sells in Japan and the United States with DCMs by 2020, and steadily equip more vehicles with DCMs in major markets around the world. By promoting the spread of connected cars, Toyota is expanding its points of contact with customers around the world, enabling it to pro- vide enhanced service. Communications between DCMs and the Toyota Smart Center pass through a global communications platform built in cooperation with KDDI Corporation. The platform comprehensively manages communications by automatically connecting with selected telecommunications carriers in each country or region based on car location data. At the same time, in North America, Toyota Connected North America, Inc., established in collaboration with Microsoft Corporation, operates the Toyota Big Data Center (TBDC), which consolidates big data collected from cars, and engages in research and development leveraging big data. Toyota Connected North America also works in close coordination with Toyota Research Institute, Inc., a research organization focused on artiﬁ cial intelligence. Going forward, as the number of connected cars and connected ser- vices increase, we expect the volume of data handled by the TBDC to increase dramatically. We are also at work on the development of next- generation smart center technologies to process the increasingly vast Mobility Service Platform Ride-share operators Car-share operators Insurance companies Rental companies Taxi companies Ha:mo, Kirobo Governmental Offices, Olympics & Paralympics, etc. l Toyota Financial Services Corporation Finance & Payment Center Mobility Service Platform Open up API, *1 partner with various mobility services Dealers Smart Key Box/ Trans log Flexible lease Telematics insurance Traffic/vehicle data utilization Fleet vehicle management Other API OTA*2 update of on-board software Person/device verification Basic telematics services (map update, agent, etc.) Big data utilization (CRM*3 quality control) Big data ( TBDC ) Toyota Smart Center Global Communications Platforms DCM DCM DCM DCM DCM High-frequency maintenance *1 API: Application Program Interface Functions used for programming. App functions maybe used simply by calling these functions. *2 OTA: Software update ‘Over The Air’ by wireless transmission. *3 CRM: Customer Relationship Management 13 TOYOTA Annual Report 2017 amounts of data expected to be generated as more cars are equipped with DCMs. As part of these efforts, in March 2017, we announced an agreement with Nippon Telegraph and Telephone Corporation to collab- orate on ICT platform research and development for connected cars. In addition, as part of its collaboration with U.S.-based Ford Motor Company, Toyota has announced that it will use the open-source SmartDeviceLink (SDL), which enables users to control apps on their smartphones via the vehicle control interface. On January 4, 2017, Toyota and Ford established the SmartDeviceLink Consortium to pro- mote SDL as a global standard. Revolutionizing Toyota’s Own Businesses with Connected Cars Becoming connected will change the very ways that cars interact with customers and society. Toyota will be creating millions of new contact points with customers and society around the world every year, enabling the roll out of a variety of new services and businesses. Connecting cars and establishing a connected platform that will serve as information infrastructure is the ﬁ rst arrow of our Connected Strategy. The second and third arrows are aimed at expanding our businesses that utilize the platform. We are implementing the Connected Strategy not by ﬁ ring the arrows in sequence, but by releasing them all virtually simultaneously. In line with the second arrow, aimed at contributing to the good of customers and society while revolutionizing Toyota’s own businesses, we are already using big data collected from connected cars equipped with DCMs to provide a real-time trafﬁ c information service covering all of Japan. Using this data, Toyota provides information on which roads are passable by tracking where cars are actually going. This information was used during emergency response and recovery operations following the Great East Japan Earthquake and Kumamoto Earthquake. Currently, such big data is being fed back to design and quality con- trol divisions to help quickly identify and respond to problems with cars on the market and as a tool to enable them to make ever-better cars. Furthermore, we have launched the e-Care service, which uses data from individual cars to anticipate breakdowns or the need for servicing, encouraging customers to bring their cars to a dealership before prob- lems occur. Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Connected Strategy: Information To provide even greater value through cars, we are accelerating research aimed at generating dynamic maps* that contain information on lane-speciﬁ c congestion and obstacles based on images collected by on- board cameras to provide more advanced driving assistance services. * Map data based on a high-resolution (25 cm relative precision, 1:500 scale) map linked to constantly updated information about trafﬁ c restrictions, congestion, vehicle location, and other factors. Creating New Services through Our Mobility Service Platform At the center of the connected platform powered by the Toyota Smart Center will be the Mobility Service Platform (MSPF). The third arrow, cre- ating new mobility services, entails connecting big data collected by Toyota through the MSPF with a variety of companies and services to globally develop new services and markets, and thus enhance the diver- sity and sophistication of the value provided by cars in the mobility soci- ety of the future. Toyota will continue developing new growth strategies based on the MSPF. Our ﬁ rst major initiative in this area is the development of telematics car insurance services in North America. We are providing multiple insur- ers with solutions that enable them to offer insurance based on scores generated from big data collected on policyholders’ driving distance and other driving patterns. Furthermore, we are accelerating the creation and commercialization of new mobility services by implementing pilot testing around the world in collaboration with car sharing and ridesharing services and taxi operators. Toyota is working to build a platform utilizing data collected from cars. Connecting all the new cars that Toyota sells will enable data collection from more than 10 million additional cars every year. In the future, all kinds of information, including that from cars, will be inte- grated in the cloud. We believe this kind of big data technology is the key to building a rich mobility society. As it seeks to provide services that exceed customer expectations, Toyota is working with a wide range of partners, taking on the future with a start-up mindset. Uses of Big Data from Vehicles and Toyota’s Alliances with Diverse Partners Partnership with a Major U.S. Semiconductor Manufacturer to Develop Artiﬁ cial Intelligence (AI) for Automated Driving Investment in a Mobility as a Service (MaaS) Company We are partnering with NVIDIA Corporation to develop automated driving technologies using AI, aiming to develop automated driving systems using NVIDIA’s graphics processing unit technology, which is well suited to deep learning. Toyota Financial Services Corporation, together with Aioi Nissay Dowa Insurance Co., Ltd., has invested in MaaS Global, a Finnish company develop- ing multi-modal services. MaaS Global is providing new services that enable efﬁ cient transportation combining wide-ranging means of transit, including taxis, rental cars, and other automobiles as well as trains, buses, and other forms of public transportation, alongside reservation and payment services through smartphone apps. Toyota has made an additional investment in Preferred Networks, Inc., to accelerate the joint research and development of automated driving technologies and other AI technologies in the mobility business ﬁ eld. Toyota, Intel Corporation, Ericsson, DENSO Corporation , Toyota InfoTechnology Center, Co., Ltd., Nippon Telegraph and Telephone Corporation, and NTT DOCOMO, Inc. formed the Automotive Edge Computing Consortium, aimed at building a platform to support a variety of businesses necessary for the development of connected cars. Toyota and Nippon Telegraph and Telephone Corporation are collaborat- ing on R&D related to ICT platforms for connected cars. Toyota is working with KDDI Corporation to build a global communica- tions platform not dependant on conventional roaming services to secure high quality, stable data transmission globally for communications between DCMs and the cloud, which is vital to connecting cars. Uses of Big Data from Vehicles Automobile manufacturing business Non-automobile manufacturing businesses Research and development Driving assistance Automated driving Information provision services Insurance and ﬁ nance Vehicle data General data Data centers Toyota established a company to support the development of telematics car insurance services in the United States in collaboration with Aioi Nissay Dowa Insurance Co., Ltd., and Toyota Financial Services Corporation. Under the open innovation program TOYOTA NEXT, Toyota selected ﬁ ve partners for the joint development of people-centered services that will provide customers the experience of an exciting future to look forward to. Toyota is collaborating with Line Corporation with the aim of creating new car-related services, such as voice-operated agent services, by linking the cloud-based AI platform Clova being developed by LINE with DCMs and smartphone apps using SDL. Sales and marketing Service and maintenance DCM Transportation and mobility services Entertainment Toyota and Ford Motor Corporation established the SmartDeviceLink (SDL) Consortium to promote industry standardization related to con- necting cars with smartphone apps. Toyota jointly established Toyota Connected, Inc. with Microsoft Corporation with the aim of collecting and analyzing data from cars and using the results to inform product development. Toyota, KDDI Corporation, and Tokyo Hire-Taxi Association are implementing demonstration testing related to the transmission and use of high-volume driv- ing data from connected taxis. Toyota is collaborating with Grab, Inc., a major ride-hailing service company in Southeast Asia, in the area of ride-hailing. Toyota and Uber Technologies, Inc., are collaborating in the area of ridesharing. Toyota is developing a car share application for dealers and distributors and implementing pilot testing in Hawaii. 14 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Automated Driving and Utilizing AI: Intelligence Toyota’s Unique Approach to Automated Driving driving systems that are highly effective in real-life situations as quickly as To eliminate casualties from trafﬁ c accidents, we must develop safe possible and promote their uptake as widely as possible. To do this, Since the 1990s, Toyota has engaged in automated driving technology Toyota is promoting, in parallel, the development of advanced safety research and development aimed at contributing to the complete elimi- technologies and utilizing insights gained through such development to nation of trafﬁ c casualties. Today, Toyota is advancing development in develop popularized technologies. We have already begun to put our this area based on its Mobility Teammate Concept. This concept is an active safety technologies on the market in such packages as Toyota expression of Toyota’s unique approach to automated driving and is built Safety Sense and Lexus Safety System+. We plan to offer such packages on the belief people and vehicles can work together in the service of as standard or optional features on almost all new Toyota and Lexus safe, convenient, and efﬁ cient mobility. models sold in Japan, Europe, and the United States by the end of 2017. As implied by the word “partner,” the inclusion of people is central to The mobility as a service (MaaS) market, including car sharing and this approach, based on our belief that people should have choices. The rideshare services, is expanding. As a mobility service platform provider, true value of automated driving technologies, we believe, lies not in the Toyota is actively exploring this market’s possibilities. We believe that technology itself, but in the social value it creates—helping to create a mobility service platforms will accelerate the development of automated rich mobility society in which everyone can enjoy safe, convenient, and driving technologies and help bring the freedom and joy of movement to enjoyable transportation. all people, including those who cannot drive. Going forward, the spread Moreover, we believe that the most important factor in the develop- of automated driving technology through MaaS will enable the collection ment of automated driving is safety. This conviction is in line with our of enormous volumes of data, which is extremely valuable to the further long-held stance of prioritizing the improvement of safety with the ulti- development of automated driving systems, giving rise to a virtuous mate goal of eliminating casualties from trafﬁ c accidents. To create a cycle that will provide customers with safer, more convenient, more safe mobility society, Toyota implements three-pronged initiatives aimed affordable transportation services. at developing safe cars, raising awareness among people, and improving the trafﬁ c environment while also pursuing real-world safety by utilizing WEB Initiatives for Improving Trafﬁ c Safety (Sustainability Data Book 2017, p. 11) information from actual accidents in product development. Our Guiding Development Philosophy Developing and Promoting the Use of Advanced Technologies Toyota’s unique approach to automated driving is built on the belief people and vehicles can work together in the ser- vice of safe, convenient, and efﬁ cient mobility. Advanced technologies Lexus LS Step up (cid:115)(cid:0)(cid:41)(cid:78)(cid:84)(cid:69)(cid:71)(cid:82)(cid:65)(cid:84)(cid:69) (cid:115)(cid:0)(cid:50)(cid:69)(cid:68)(cid:85)(cid:67)(cid:69)(cid:0)(cid:83)(cid:73)(cid:90)(cid:69) (cid:115)(cid:0)(cid:50)(cid:69)(cid:68)(cid:85)(cid:67)(cid:69)(cid:0)(cid:67)(cid:79)(cid:83)(cid:84) Popularized technologies Toyota Safety Sense Step up 15 15 TOYOTA Annual Report 2017 Advanced driving assistance technologies Automated driving technologies Next generation New Lexus LS (cid:51)(cid:79)(cid:67)(cid:73)(cid:69)(cid:84)(cid:89)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0) (cid:90)(cid:69)(cid:82)(cid:79)(cid:0)(cid:84)(cid:82)(cid:65)(cid:70)(cid:70)(cid:73)(cid:67)(cid:0)(cid:65)(cid:67)(cid:67)(cid:73)(cid:68)(cid:69)(cid:78)(cid:84)(cid:0) (cid:0)(cid:0)(cid:0)(cid:67)(cid:65)(cid:83)(cid:85)(cid:65)(cid:76)(cid:84)(cid:73)(cid:69)(cid:83) Next generation Following generation Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Automated Driving and Utilizing AI: Intelligence Speciﬁ c Approaches to Automated Driving communication goes beyond the relationship between driver and car to R&D Framework and Collaboration with Stakeholders encompass interaction with fully autonomous vehicles and others shar- Under the Mobility Teammate Concept, Toyota is developing automated ing the road, including pedestrians, bicyclists, and other drivers. Toyota believes that the development of automated driving technologies driving systems based on two approaches: Guardian and Chauffeur. In the near term, Toyota is working to bring the two vehicle systems and the use of big data with artiﬁ cial intelligence (AI) technologies can Guardian is a unique Toyota approach that assumes that a human will below, which offer automated driving capabilities, to market. solve a range of issues faced by society as well as promote the realiza- Moreover, the Mobility Teammate Concept’s approach to safety and Vehicle Systems with Automated Driving Functions Launch target Features Highway Teammate 2020 Urban Teammate Early 2020s The Highway Teammate will enable driver- supervised automated driving on express- ways that includes merging onto and exiting expressways, maintaining and changing lanes, and maintaining appropriate distance from other vehicles The Urban Teammate will enable the use of the Highway Teammate’s functions on regu- lar roads. In addition to detecting people and bicycles around the vehicle, it will use map data and visual data from intersections and trafﬁ c lights to obey local trafﬁ c rules. drive the car, while automated driving systems operating alongside the driver provide support when needed, such as when the car is in danger of collision, to protect the car’s passengers. This kind of system might detect, for example, that the driver is distracted and, after giving a warn- ing, brake and steer to allow the car to safely negotiate a curve. Chauffeur refers to automated driving at level four or ﬁ ve autonomy as deﬁ ned by the U.S. non-proﬁ t SAE International, and does not assume a human driver. Systems designed under this approach would allow, for example, the vehicle to drive autonomously while avoiding obstacles and to safely change lanes without human input to avoid obstacles in the road ahead even if there are other cars traveling at the same speed in adjacent lanes. The Mobility Teammate Concept aims to give people the freedom of choice by allowing them to enjoy the beneﬁ ts of automated driving tech- nologies while still allowing them to drive safely, enjoyably and freely when they wish. Drivers will be able to choose Chauffeur mode for some situations, such as expressway and long-distance travel, and Guardian mode for others, such as for low-speed and short-distance trips. Toyota’s Approaches to Automated Driving Guardian Chauffeur Provides driving support when needed, such as when the car is in danger of collision, to protect the car’s passen- gers; assumes a human driver Achieves automated driving at level four or ﬁ ve autonomy as deﬁ ned by the U.S. non-proﬁ t SAE International; does not assume a human driver The same sensors and cameras will be used for both approaches TRI Advanced Safety Research Vehicle - Platform 2.1 16 TOYOTA Annual Report 2017 tion of a sustainable future mobility society. To this end, we are seeking out partners who share these aspirations around the globe and acceler- ating a wide range of initiatives. Toyota established Toyota Research Institute, Inc. (TRI) in the United States to reinforce its AI research. Under the direction of Dr. Gill Pratt, previously program manager at the Defense Advanced Research Projects Agency (DARPA), TRI is advancing AI research toward the fol- lowing four targets. 1. Enhance the safety of automobiles with the ultimate goal of creating a car that is incapable of causing a crash. 2. Increase access to cars for those who otherwise cannot drive, includ- ing older persons and those with special needs. 3. Translate Toyota’s expertise in creating products for outdoor mobility into products for indoor mobility. 4. Accelerate scientiﬁ c discovery by applying techniques from artiﬁ cial intelligence and machine learning. Also in the United States, Toyota Connected North America, Inc. (for- merly Toyota Connected, Inc.), established in collaboration with Microsoft Corporation, operates the Toyota Big Data Center, which consolidates collected data, and engages in research and development aimed at using big data for a variety of services. Furthermore, to reduce trafﬁ c accident causalities, Toyota’s Collaborative Safety Research Center (CSRC), which engages in joint research with North American universities, hospitals, and research insti- tutions, launched CSRC Next, a new ﬁ ve-year program, in January 2017. Under this program, CSRC has partnered with eight leading research institutions in North America to set up 11 research projects focused on safely transitioning to emerging modes of mobility by addressing the opportunities and challenges presented by evolving vehicle technologies. Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Long-term Strategy Electriﬁ cation Information Intelligence Automated Driving and Utilizing AI: Intelligence With these organizations, Toyota is advancing cutting-edge research, areas, such as basic infrastructure and systems, cooperation with a wide working to quickly bring the goal of zero casualties from trafﬁ c accidents range of actors to create solutions is an effective way forward. Building closer to reality. on that shared foundation, companies can then advance development Furthermore, in July 2017, TRI invested $100 million to establish a individually, competing to better allow customers to move about safely, venture capital fund to provide funding to start-ups in the ﬁ elds of artiﬁ - freely, and conveniently; we believe that this approach will be efﬁ cient cial intelligence, robotics, autonomous mobility, and data and cloud and beneﬁ t customers and society. technology. The fund, operated through Toyota AI Ventures, newly estab- lished by TRI, will feature decision-making by a dedicated management Toyota’s ultimate goal in developing automated driving technolo- team with abundant investment knowledge and experience, operating gies is not simply to create autonomy for cars, but to expand autono- separately from TRI’s R&D operation. In addition to considering unsolicit- my for people—to create a world in which mobility is safe, ed pitches made by investment candidates, the fund aims to establish convenient, enjoyable, and available to everyone. Safety is our top- an investment model in which it identiﬁ es key research challenges and most priority as we pursue this goal. We believe that we can enhance then supports the creation of new companies to solve them. safety by building partnerships between drivers and their cars. Legal and regulatory updates, social system reform, and public accep- Even in a future where driving is automated, we believe that cars tance—there are numerous hurdles, varying by country and region, on will continue to be loved. Toyota believes that safe and fun auto- the road to realizing and popularizing automated driving. Given this, mated driving technologies have the potential to expand freedom of Toyota believes that coordination across national and regional boundar- movement for all and bring cars and people even closer together. ies involving a wide range of stakeholders, including those not directly connected to the traditional auto industry, is crucial. In non-competitive WEB Whitepaper on Automated Driving Automated Driving Technology R&D Framework Collaborative Automated Driving Development Toyota’s Concept of the Cars of the Future In January 2017, Toyota unveiled the Concept-i, a concept car developed with the aim of building a new driver-vehicle relationship in which artiﬁ cial intelligence (AI) enables cars to understand the driver, allowing people and cars to grow together as partners. The Concept-i aims to be a beloved car of a new era based on the idea that cars are among the most beloved of manufactured goods. Combining technology that understands people with automated driving and agent technologies, the Concept-i provides drivers with safety and peace of mind as well as new “Fun to Drive” experiences that enrich the enjoyment of transportation. For example, to provide safety and peace of mind, in addition to monitoring the car’s exter- nal conditions, the Concept-i assesses the driver’s condition using technology that understands people and monitors the reliability of the driver and the car. If the car’s reliability is high and the driver is overcome by a dangerous or high-stress situation, for example, the Concept-i will decide that support from the car is deemed neces- sary and switch to automated driving. With such functions, the Concept-i embodies Toyota’s Mobility Teammate Concept, which envisions a future in which people and vehicles monitor and help one another. Toyota plans to conduct road tests of vehicles equipped with some of the functions presented at Tokyo Motor Show 2017 by around 2020. Europe Toyota Research on Automated Cars in Europe (TRACE) Japan Toyota Motor Corporation: Advanced R&D and Engineering Company Connected Company Toyota Central R&D Labs., Inc. TOYOTA Connected Corporation North America Toyota Research Institute, Inc. (TRI) Toyota Motor North America Research and Development (TMNA R&D) Toyota Collaborative Safety Research Center (CSRC) Toyota Connected North America, Inc. Toyota InfoTechnology Center, U.S.A.,Inc. Massachusetts Institute of Technology Research aimed at furthering the development of automated driving technologies through projects ranging from autonomy to self-awareness Stanford University University of Michigan Research projects investigating human-computer and human-robot interactions, particularly focusing on the development of innovative and impactful approaches, algorithms and data Research focused on enhanced driv- ing safety, partner robotics, indoor mobility, automated driving, and stu- dent learning and diversity 17 TOYOTA Annual Report 2017 Concept-i Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information At a Glance History At a Glance Financial Highlights for the Year Ended March 31, 2017 (Consolidated) Net revenues/YoY change Operating income/Ratio of operating income to net revenues Net income*/Ratio of net income to net revenues* R&D Expenses/YoY change Capital Expenditures/YoY change ¥27,597.1 billion -2.8% ¥1,994.3 billion 7.2% Global Perspective/Data by Region ¥1,831.1 billion 6.6% * Net income attributable to Toyota Motor Corporation ¥1,037.5 billion ¥-18.1 billion ¥1,211.8 billion ¥-80.6 billion Number of Plants and Manufacturing Companies Distributors* R&D Sites* (As of February 28, 2017) (As of December 31, 2016) (As of March 31, 2017) Number of Employees 364,445 Total Vehicle Production 8,975,509 Total Vehicle Sales 8,970,860 (Consolidated, as of March 31, 2017) (Consolidated, FY2017) (Consolidated, FY2017) Japan North America Europe Asia excluding Japan Other 16 11 9 24 9 5 3 3 4 1 — 5 29 20 113 18 TOYOTA Annual Report 2017 58% 13% 5% 17% 7% 46% 23% 7% 19% 5% 25% 32% 10% 18% 15% *Number of bases for Toyota and Lexus brands Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information At a Glance History History Toyoda Model AA passenger car launched (1936) Toyopet Crown launched (1955) Corolla launched (1966) Celica launched (1970) Soarer launched (1981) Lexus LS400 launched (1989) Prius launched (1997) MIRAI launched (2014) TRI established (2016) 10,000 8,000 6,000 4,000 2,000 0 Domestic/Overseas Vehicle Production (Thousands of units) (Including Daihatsu and Hino brands since 2002) (cid:2) Domestic (cid:2) Overseas (cid:3) Toyota Motor Co., Ltd. established (1937) (cid:3) Kanban method adopted (1963) (cid:3) NUMMI established (1984) (cid:3) Guiding Principles at (cid:3) The Toyota Way 2001 (cid:3) Labor disputes (1950) Toyota adopted (1992) adopted (2001) (cid:3) Recall issues (2009–2010) (cid:3) Toyota Global Vision adopted (cid:3) Five Main Principles of Toyoda established (1935) (cid:3) Total Quality Control (TQC) introduced (1961) (cid:3) Toyota Motor and Toyota Motor Sales merged with TMC (1982) (cid:3) Losses (FY 2009) (2011) 1930 1940 1950 1960 1970 1980 1990 2000 (cid:3) Rio Earth Summit (1992) (cid:3) World War II (1939-1945) (cid:3) Rapid economic growth period (cid:3) Oil crisis (1973 & 1979) (cid:3) Berlin Wall comes down (cid:3) Kyoto Protocol adopted (1997) in Japan (1960s-1970s) (cid:3) Tighter control on exhaust (cid:3) U.S.-Japan trade friction emissions (1970s) (1980s) (1989) (cid:3) Trade friction surrounding cars (1990s) (cid:3) The 2008 ﬁ nancial crisis (2008) 2010 (cid:3) The Great East Japan Earthquake, Thailand ﬂ oods (2011) (cid:3) UN SDGs adopted (2015) Toyota’s roots and entry into the automobile industry Establishing the Toyota identity and innovating to resolve social issues A series of challenges and the expansion of globalization Toward the future of a new mobility society (cid:3) Sakichi Toyoda invented a weaving machine that included (cid:3) Toyota organized its mass-production structure while estab- Jidoka (automation with human wisdom) functionality (cid:3) Alongside the launch of Toyota’s ﬁ rst passenger car, the Toyoda Model AA, Kiichiro Toyoda established Toyota Motor Corporation, foreseeing future motorization (cid:3) Toyota used Genchi Genbutsu (on-site hands-on experience) to carry out Kaizen (improvement), maintaining the Customer First spirit when responding to initial-stage defects (cid:3) Toyota incorporated the Just-in-Time concept in building new plants, aiming to control all aspects of production with assem- bly-line operation (cid:3) Labor disputes eventually became the basis for mutual respect between workers and employers lishing a method for quality control by building quality through processes and the Toyota Production System (cid:3) In response to trade friction between Japan and the U.S., Toyota started its ﬁ rst overseas mass-production project, NUMMI, a joint corporation with GM (cid:3) Regarding air pollution which had become a serious social (cid:3) Before concern about global warming was widespread, issue, Toyota took on problems that could not be solved just by working with existing technologies, responding to the world’s strictest exhaust gas regulations (at the time) with innovation (cid:3) Having experienced the ﬁ rst and second oil crises, Toyota worked to reduce resource and energy use, and its cross- functional team implemented cost improvement initiatives Toyota took on the challenge of developing and mass-pro- ducing the world’s ﬁ rst commercial hybrid vehicle, the Prius (cid:3) Toyota expanded its overseas production in anticipation of the future motorization of emerging countries. In 2007 its overseas production volume exceeded that of domestic production (cid:3) When faced with losses incurred due to the ﬁ nancial crisis, recall issues, the Great East Japan Earthquake, and ﬂ ooding in Thailand, Toyota overcame each difﬁ cultly through team- work and by following the Customer First policy 19 TOYOTA Annual Report 2017 Toyota regards the tremendous changes in the automotive industry as opportunities. In accordance with this view, we are working to make ever-better cars and to implement a strategic shift toward electriﬁ cation, information, and intelligence in order to build new business models. In these ways, we will not only continue to evolve our existing car manufacturing business, but expand the scope of innovation to encompass social platforms to meet society’s needs and technological platforms, such as AI, that extend beyond cars, to provide broad-ranging value that exceeds customer expectations as we work to create the mobility society of the future. WEB 75 Years of Toyota Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Initiatives for Sustainable Growth About Our Tree Icon Ever-Better Cars Enriching Lives of Communities Stable Base of Business Toyota Values Toyota strives to implement a positive cycle of making ever-better cars that exceed customer expecta- tions, enriching lives of communities, being rewarded with the smiles of customers and communities and thus reinforcing its stable base of business. Through this cycle, Toyota aims to grow sustainably in concert with society. Even as the business environment transforms and new challenges arise, Toyota will leverage the qualities, honed over time, that make it unique as it shifts to a longer term strategic perspective in order to maintain and enhance this positive cycle. By doing so, we will provide value to society in the forms of safety and peace of mind, environmental sustainability and Waku-doki (excitement and exhilaration that wows you). Business Environment Changes Individual desires/ Societal demands Lifestyle changes Environmental problems Urbanization Technological innovation Intelligent technologies IoT Robotics Strategic Shifts Electriﬁ cation Information Fruit Ever-Better Cars Fruit Enriching Lives of Communities Trunk Stable Base of Business Roots Toyota Values Intelligence The Five Main Principles of Toyoda The Guiding Principles at Toyota The Toyota Way Toyota is implementing Visionary Management based on the Toyota Global Vision. We use the image of a tree to sym- bolize this approach. The fruits of the tree are our contributions to making ever-better cars and the enrichment we bring to the lives of communities, the tree’s trunk represents our stable base of business that supports these efforts, and the tree’s roots are the Toyota Values. The tree icon in the upper right corner of each page of this section shows the con- nection of the content presented to Toyota’s Visionary Management. More details Toyota Global Vision, p. 22 The Value Toyota Creates Elimination of traffic accident casualtiess Freedom of m mobility for everyone Safety and Peace of Mind Toyota Safety Sense (Collision Avoidance Support Package) Integrated Safety Management Concept Raising awareness of road safety and ecological driving Welcab Personal mobility ITS Connect (road/car and car/car communications) Environmental initiatives Environmental Sustainability Automated driving Mobility Service Platform (MSPF) Ever-Better Cars Enriching Lives of Communities Passing down expertise Toyota Production System (TPS) Human Support Robot Vehicle development Supporting sports Waku-doki (excitement and exhilaration that wows you) Zero CCOO2 emissiionns Recycling Renewable energy MIRAI (FCV) Prius PHV Lexus Net popositsitiveve society y in harmonony with naturere Working toward a hydrogeh society FC buses Motor sports citement gging exc cars ingBrin he e the of co the wth rs to world w won onder and New w Ne ex exhilar aration 20 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Initiatives for Sustainable Growth Ever-Better Cars Enriching Lives of Communities Stable Base of Business Toyota Values emissions to help meet the Paris Agreement* goal of sound relationships with stakeholders through open, ensure compliance, carry out social contribution Toyota’s Approach to Sustainable Growth keeping global warming below 2°C, but to have a net fair communication in order to contribute to the sus- activities and address environmental problems. positive impact on the environment. tainable development of society and the planet. As In April 2015, this framework was revised to Toyota has taken the initiative in contributing to the sustainable development of society and the planet * The Paris Agreement, reached in December 2015, was negotiated at the 21st yearly session of the Conference of the Parties (COP 21) to our businesses develop, our communications with emphasize corporate value enhancement, an stakeholders also broaden and deepen. By working approach that makes CSR an integral part of man- through all its business activities. Cars have provided the United Nations Framework Convention on Climate Change, held always hand-in-hand with stakeholders and growing agement. This change was aimed at integrating the together, Toyota consistently provides the three specialized CSR-focused discussions that had until freedom of movement but have also had a wide range of other social and environmental consequenc- es. Toyota bears this in mind and listens closely to customers and communities as it seeks to achieve in Paris. The agreement set the long-term goal of limiting global warming to well below 2°C compared with pre-industrial levels and calls for net zero anthropogenic greenhouse gas emissions to be reached during the second half of the 21st century. forms of value listed above. WEB Stakeholder Engagement (Sustainability Data Book 2017, p. 74) harmony between individuals, society and the global Toyota is also utilizing its strengths to help solve environment through monozukuri (manufacturing). global social problems in line with the United Nations Toyota’s Implementation Framework then been conﬁ ned to the CSR Committee into broader discussions of overall management and business activities. To this end, the functions of the CSR Committee were transferred to the Corporate Planning Meeting and Corporate Governance Looking more closely at, for example, our environ- Sustainable Development Goals (SDGs), promulgat- Toyota’s implementation framework for sustainable Meeting. The Corporate Planning Meeting, under the mental efforts, we are implementing initiatives under ed in January 2016. In addition to addressing climate development includes the Corporate Planning Shareholders’ Meeting and Board of Directors, takes the Toyota Environmental Challenge 2050 as a top- change (in line with SDG 13), Toyota is working to Meeting and the Corporate Governance Meeting, a wide range of social issues into account when con- priority management issue. Speciﬁ cally, we are work- reduce trafﬁ c accident injuries and deaths (SDG 3) which carry out their respective activities from a long- sidering growth and business strategy. The ing to help resolve major global environmental issues, and to promote sustainable community building and term, Company-wide perspective. Corporate Governance Meeting serves to oversee including climate change, water scarcity, resource improved mobility (SDG 11). Furthermore, Toyota Toyota established a CSR Committee in October business operations and makes decisions regarding depletion and biodiversity degradation. As part of places value on all stakeholders in the management 2007 to coordinate and implement CSR activities. the governance framework under which such strate- this, we are aiming to not only achieve net zero CO2 of its businesses and strives to maintain and develop With guidance from this committee, Toyota works to gies are implemented. Helping Solve Global Social Problems Together with Our Stakeholders Implementation Framework Local communities Global society Media National and local governments Environmental Sustainability Safety and Peace of Mind Waku-doki (excitement and exhilaration that wows you) Economic organizations Industry organizations Employees NPOs/NGOs International organizations Academic communities Research institutions Business partners Shareholders Customers 21 21 TOYOTA Annual Report 2017 Shareholders’ Meeting Board of Directors Corporate Planning Meeting Chairman: Executive Vice President Shigeki Terashi Corporate Governance Meeting Chairman: Executive Vice President Shigeki Terashi (cid:3) Basic corporate policy aimed at con- tributing to sustainable development (cid:3) Overall management of corporate ethics, compliance and governance (cid:3) Sustainable growth strategies for corporate value enhancement (cid:3) Identiﬁ cation of and response to major risk management issues (cid:3) Social contribution and identiﬁ cation of and response to environmental and other social issues (cid:3) Planning and implementation of CSR activities Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Corporate Philosophy In all of its business activities, Toyota aims to contribute to the creation of a more afﬂ uent society and earn the trust of stakeholders as a good corporate citizen. Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base ase tab tabStabblee BBle Be Stabl BBBa BaBasese f B neiBuussis of Business Toyota Values The Guiding Principles at Toyota and Their Implementation established in 2001, laying out values and business Respect for people entails respect for all our Company’s losses following the global economic practices that everyone working at Toyota around the stakeholders and working to achieve business suc- crisis of 2008 and the series of recalls in 2010. We world should embrace. The Toyota Way thus clearly cess by promoting the growth of employees. are implementing a positive cycle of making ever- The Five Main Principles of Toyoda have been and practices that had previously been passed down passed down since Toyota’s founding as the core of only as implicit knowledge. its management. These principles embody the think- The Toyota Way’s main pillars are the concepts of ing of the Toyota Group’s founder, Sakichi Toyoda. In continuous improvement and respect for people, Rewarded with a Smile by Exceeding Your Expectations. The Toyota Global Vision articulates and facilitates the global sharing of values better cars that exceed customer expectations, enriching lives of communities, being rewarded with the smiles of customers and communities and thus reinforcing our stable base of business. By maintain- ing and enhancing this cycle, we aim to continuously 1992, they were reorganized in light of changes in with the keywords of taking on challenges, Kaizen, The Toyota Global Vision, published in March 2011, provide value to society in the forms of safety and society and business structure to create the Guiding and Genchi Genbutsu (onsite, hands-on experience) articulates the kind of company that Toyota aspires peace of mind, environmental sustainability and Principles at Toyota. under the former and respect and teamwork under to be and the values that it esteems as a common Waku-doki (excitement and exhilaration that wows The Guiding Principles at Toyota lay out the kind of the latter. Continuous improvement means never rallying point for the entire Company and as a state- you) while enhancing Toyota’s corporate value. company we want to be. Building on this, the Toyota being satisﬁ ed with the status quo and always doing ment to Toyota’s customers and society at large. The Way 2001(hereinafter called the “Toyota Way”) was our utmost to create even greater added value. vision took on particular meaning in light of the WEB Corporate Principles (Sustainability Data Book 2017, p. 5) The Two Pillars and Five Keywords of the Toyota Way Toyota Global Vision Continuous Improvement Respect for People Respect We respect others, make every effort to understand each other, take responsibility and do our best to build mutual trust. Teamwork We stimulate personal and profes- sional growth, share the opportuni- ties of development and maximize individual and team performance. Challenge We form a long-term vision, meeting challenges with courage and creativity to realize our dreams. Kaizen We improve our business operations continuously, always driving for innovation and evolution. Genchi Genbutsu We practice genchi genbutsu... go to the source to ﬁ nd the facts to make correct decisions, build con- sensus and achieve goals at our best speed. Rewarded with a smile by exceeding your expectations Fruit Ever-Better Cars Develop vehicles which exceed customer expectations Fruit Enriching Lives of Communities Contribute to communities Contribute to the future of mobility Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people. Through our commitment to quality, constant innovation and respect for the planet, we aim to exceed expectations and be rewarded with a smile. We will meet challenging goals by engaging the talent and passion of people, who believe there is always a better way. 22 TOYOTA Annual Report 2017 Sustainable Growth Trunk Stable Base of Business Roots Toyota Values The Five Main Principles of Toyoda / The Guiding Principles at Toyota / The Toyota Way WEB Toyota Global Vision Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Making Ever-better Cars (TNGA) Ever-Better Cars Enriching Lives of Communities Stable BaseBaBasese ase tab tabStabblee BBle Be Stabl BBBa f B neiBuussis of Business ToToyota a Value Toyota Values oyota Value Toyota Values In line with its Customer First policy, Toyota strives to make ever-better cars that surpass cus- tomer expectations. The automobile business is in the midst of tre- mendous change. In the automobile manufactur- ing business, Toyota’s most important business today, we seek to make cars even more appeal- ing so that they will be loved by customers for years and years. To this end, we are implement- ing Company-wide structural innovation across our global car making business. In terms of cor- porate structure, we have adopted a product- based in-house company system with the aim of more quickly responding to customer demand. Since its founding, Toyota has developed unique methods and values, such as the Toyota Production System (TPS) and Kaizen (improve- ment), handing them down as sources of com- petitiveness. Going forward, while we will leverage these strengths, we will not be bound by prece- dent as we endeavor to make ever-better cars. TNGA Accelerates Our Efforts to Make Ever-better Cars With the aim of making ever-better cars, Toyota is implementing a program of structural innovation it calls the Toyota New Global Architecture (TNGA). TNGA is how we are changing the basic architecture of our cars, entailing the integrated development of new powertrain units (engines, transmissions, and HV units) and platforms (chassis) from the ground up. By doing so, TNGA is aimed at dramatically improv- ing basic functionality—propulsion, turning, and stop- ping—and enhancing product appeal so that customers will love their cars for year and years. We expect these initiatives to cut development resource requirements by about 20%, permitting greater rein- vestment in enhancing quality and product appeal and thus accelerating a virtuous cycle, enabling us to deliver ever-better cars faster than ever before. TNGA comprises two main aspects: total optimiza- tion and individual optimization. Total optimization entails exhaustively enhancing cars’ basic perfor- mance and implementing smart sharing of the results, while individual optimization is achieved through the exacting design of each model by a chief engineer, who acts as development leader, in line with each region’s market needs and customer preferences. For example, the C-HR shares a platform (labeled “total optimization” in the diagram below) with the Prius, also in the C-segment. In contrast to the Prius’s development concept, beautiful hybrid, the C-HR was designed in line with the development concept of responsive driving performance, with a focus on performance-enhancing features unique to the C-HR. The C-HR’s exterior architecture fea- tures a distinctive diamond theme, and its styling is enjoying considerable popularity in the rapidly grow- ing compact SUV market. Toyota began the TNGA initiatives with the fourth- generation Prius (launched in Japan in December 2015), followed by horizontal expansion within the The Integrated TNGA Cycle Making Cars under TNGA Reinvestment by Streamlining Positive cycle of making ever-better cars Ever-Better Cars to Customers More timely delivery of improved products Individual optimization Making distinctive cars Aspects of cars tailored to customer tastes Total optimization Making better products and practicing smart sharing Total optimization through standardization Well-built Cars Enhance basic and product performance Working together consistently from planning and purchasing through production Smart Monozukuri (Manufacturing) Smart Sharing The Idea of Grouping Development Collaboration at production sites including suppliers 23 TOYOTA Annual Report 2017 Prius Prius PHV C-HR Creating distinctive cars based on common platforms C-segment Expanded TNGA to the Camry (D-segment) Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Making Ever-better Cars (TNGA) C-segment to include the C-HR (launched in Japan in December 2016) and Prius PHV (launched in Japan in February 2017). Leveraging the know-how gained from these earlier releases, we released the new Camry (launched in Japan and the United States in summer 2017) in the D-segment, expanding the range of car types produced under the TNGA. Powertrain Development One speciﬁ c initiative under TNGA is the develop- ment of new powertrains, which form the core of the automobile, that have a lower center of gravity, thus promoting both excellent driving performance and excellent environmental performance. Our approach to powertrain development aims to simultaneously enhance product marketability and improve production and development efﬁ ciency. To enhance product appeal, we are, of course, working to ensure excellent environmental performance while also seeking boost driving performance by focusing development on customers’ sensory experiences under the theme “Direct & Smooth.” Through this approach, we have developed powertrain units that, by themselves, improve power performance approxi- mately 10% and fuel economy approximately 20%. In terms of production efﬁ ciency, we are globally unify- ing processing and assembly standards as well as process and equipment speciﬁ cations in order to cre- ate a global architecture that will be able to quickly and ﬂ exibly respond to customer needs. Looking at development efﬁ ciency, to take the example of engines, we are unifying the design of combustion chambers and cylinders while achieving engine varia- tion using different combinations of cylinder volume and number of cylinders, thus promoting integration and reducing the types of engines under develop- ment by approximately 40%. Using TNGA-based modular development, in the ﬁ ve years leading up to 2021, Toyota plans to intro- duce a vehicle lineup that consists of 37 variations of 19 models to meet diverse driver needs. Beginning with the new Camry, Toyota will steadily increase the lineup of cars incorporating the new powertrains, aiming for such vehicles to account for 60% or more of all new vehicles sold in 2021 on a non-consolidated basis (in Japan, the United States, Europe and China). We estimate that the increased fuel economy of the new powertrains alone will reduce the CO2 emissions from the cars sold by Toyota on a non- consolidated basis in 2021 by at least 15%. Reinforcing the Powertrain Development Framework As part of the Toyota Environmental Challenge 2050, to help conserve the global environment, Toyota is working toward the goal of reducing its global aver- age new vehicle CO2 emissions by 90% from its 2010 global level. Conventional engine-powered vehicles account for the vast majority of vehicles currently on the market, and even hybrid vehicles (HVs) and plug-in hybrid vehicles (PHVs) have internal combustion engines. Toyota there- fore believes that the further technological development of conventional engines and transmissions, which will remain dominant for some time to come, is a sure, steady, realistic, and effective means of reducing CO2 emissions. At the same time, to advance the electriﬁ cation of vehicles, Toyota must also accelerate Ever-Better Cars Enriching Lives of Communities Stable BaseBaBasese ase tab tabStabblee BBle Be Stabl BBBa f B neiBuussis of Business ToToyota a Value Toyota Values oyota Value Toyota Values its development of hybrid technologies (electriﬁ cation technologies), such as those used in electric motors, batteries, and power control units (PCUs). Going forward, to produce greater results than ever using limited resources, we believe that we must implement business innovation, and we plan to care- fully review the technologies we have with the aim of further acquiring technologies through in-house cre- ation while sharing technologies within the Toyota Group and expanding areas of joint development. By strengthening coordination within the Group and efﬁ - ciently utilizing resources, we aim to quickly establish new technologies, enhance the collective ability of the Group, speed up development, and increase scale through the proliferation and expansion of envi- ronmental technologies. Furthermore, to advance electriﬁ cation and speed up the development of hybrid technologies, which are at the core of PHVs, FCVs, and EVs, we plan to increase the number of personnel involved in hybrid technology development by approximately 30% by 2021. Dynamic Force Engine (2.5-liter) in the New Camry TNGA Powertrain Adoption Plan (% of total sales in Japan, the United States, Europe and China) TNGA Powertrains’ Environmental Contribution (%) 100 (cid:2) TNGA (cid:2) Other 80 60 40 20 0 y t i t n a u Q s e a S l Conventional engine-powered cars TNGA TNGA HV TNGA PHV Steady reduction in CO2 emissions using TNGA powertrains FCV 2016 2017 2018 2019 2020 2021 2010 2020 24 TOYOTA Annual Report 2017 EV 2050 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Making Ever-better Cars (TNGA) Achieving both Smart Sharing and Outstanding Car Manufacturing The transition to a product-based in-house company system as part of the 2016 structural reforms was intended to better enable us to make ever-better cars while developing human resources to support that goal. Accordingly, R&D operations, which had been organized by function, have been divided into the categories of advanced and mass production, and those in the latter category have been allocated to the related in-house companies. The new system thus enables integrated operations, from planning to production, under the authority of each in-house company president. Advanced R&D is handled by the Advanced R&D and Engineering Company, which removes barriers between R&D and production engineering to speed up technological development. This company works with Toyota Central R&D Labs., Inc., Toyota Research Institute, Inc. (TRI), and the Frontier Research Center on cutting-edge research, exploring the possibilities of future automotive technology as it drives develop- ment. In addition, this company creates technological scenarios as global benchmarks to help Toyota understand how to achieve its vision for the future. Moreover, the Advanced R&D and Engineering Company supports development at the product- based in-house companies through its innovative technological development. In April 2017, we established GAZOO Racing Company, creating a framework for building up motor sports technical capabilities to serve as know-how for adding ﬂ avor and spice to driving. Using this know-how, we aim to develop and release cars that offer customers true Waku-doki (excitement and exhilaration that wows you). Taking a Genchi Genbutsu (onsite hands-on experience) approach rather than relying solely on data, we are positioning motor sports at the heart of our efforts to make ever-better cars. Each in-house company, due to its integrated oper- ations, bears the ﬁ nal responsibility for product reve- nue. To strengthen this system, in September 2017, we reorganized the Cost KAIZEN Division (now the Cost KAIZEN Department), reallocating approximately 60% of its cost planning staff to the in-house compa- nies. The Cost KAIZEN Department staff remaining at the head ofﬁ ce will promote overall optimization. More than a year after the transition to the in-house company system, the new approach to making ever- better cars has begun to take root, but areas that require improvement have also come to light. In partic- ular, we are still learning from our partners in business alliances and subsidiary Daihatsu Motor Co., Ltd. about efﬁ cient development and car manufacturing Ever-Better Cars Enriching Lives of Communities Stable BaseBaBasese ase tab tabStabblee BBle Be Stabl BBBa f B neiBuussis of Business ToToyota a Value Toyota Values oyota Value Toyota Values with a rigorous focus of the customer’s perspective. As part of such initiatives, we are encouraging healthy competition between in-house companies, such as that related to new compact vehicle projects between the Emerging-market Compact Car Company and Toyota Compact Car Company. Going forward, we will continue working to make ever-better cars that exceed customer expectations, seeking to translate structural reforms into opportuni- ties to improve ourselves based on the belief that the process of Kaizen (improvement) never ends and that innovation is created only though steadfast, ongoing Kaizen. Framework for Making Ever-better Cars Head ofﬁ ce Frontier Research Center Corporate Strategy Division i s n o i t a z n a g r o h c r a e s e R , s b a L D & R l a r t n e C a t o y o T ( ) . c t e , I R T Suggest technological scenarios A r c h i t e c t u r e s t e c h n o o g e s l i Cutting-edge research Technological scenarios Technological development Advanced R&D and Engineering Company s u p p o r t l D e v e o p m e n t Powertrain Company Connected Company l E e m e n t a l Vehicle companies Toyota Compact Car Company Mid-size Vehicle Company CV Company Lexus International Co. GAZOO Racing Company Emerging-market Compact Car Company 25 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Ever-Better Cars Enriching Lives of Communities Stable BaseBaBasese ase tab tabStabblee BBle Be Stabl BBBa f B neiBuussis of Business ToToyota a Value Toyota Values oyota Value Toyota Values Taking on the Future Society and industry are undergoing structural changes of unprecedented pace and scale. Values and lifestyles are diversifying, while a wide range of social issues are growing more pro- nounced, and innovation is driving rapid techno- logical development. We believe that the value of mobility is also beginning to change not just through the evolution of cars, but through an expansion into aspects of personal life, including social infrastructure. Toyota is taking on the future by not only evolving its long-standing monozukuri (manufacturing), but expanding its focus to encompass social platforms that address society’s needs as well as technologi- cal platforms, such as AI, that extend beyond cars. By doing so, we aim to provide broad-ranging value that exceeds customer expectations. Social platforms Mobility services, energy infrastructure, logistics services, ﬁ nancial services, etc. Switch to needs- driven thinking IoT information platform Connecting Monozukuri (manufacturing) Vehicles Personal living Ever-better cars Expansion Development outside of cars and Toyota products Technological platforms Basic technologies not limited to cars AI, ICT, human sciences, etc. Creating New Industries The Frontier Research Center was established as part of the April 2016 structural reforms with the objective of creating new value from a long-term per- spective to achieve sustainable growth by bringing together wisdom from across Toyota’s Group com- panies and afﬁ liates. The center is charged with, in short, fostering innovation in the value-creating industries that will come after automobiles from the perspective of serving the world and its people. We are now at a once-in-a-century turning point. We believe that we must not only continue to make ever-better cars that will be irreplaceable assets for our customers; in order to ensure that Toyota remains a best-in-town company, we must think about how we can next contribute to society—this time outside of automobile manufacturing, sales, and services—and get started. The Frontier Research Center is working to leverage Toyota’s traditional strengths in monozukuri (manufacturing), generate lasting employment, and create new industries for the next generation. The Frontier Research Center takes an open stance, advancing initiatives in collaboration with partners that share its vision. Investing in Start-ups through a Fund to Create New Value Mirai Creation Investment Limited Partnership (“the Mirai Creation Fund”) is an investment fund estab- lished by SPARX Group Co., Ltd. to accelerate future-oriented innovation. Along with Sumitomo Mitsui Banking Corporation, Toyota has participated in this fund as an investor since its establishment. The fund’s basic purpose is to help accelerate innovation by investing in and nurturing enterprises that possess technologies with the potential to drive future-oriented growth and to promote said poten- tial worldwide by building a portfolio of the promis- ing businesses it ﬁ nds. The fund also shares the corporate information it collects with Toyota, sup- porting new technological development by introduc- ing potential partners and facilitating the execution of capital alliances. The fund focuses investment on core technologies in the areas of intelligence (AI and connected technologies), robotics, and making a hydrogen society a reality. Since its establishment, the fund’s investment in start-ups has progressed as initially planned. As of June 30, 2017, of its total ¥36.7 billion, it had invested ¥14.3 billion in 29 companies in the United States, the United Kingdom, Israel, and Japan. Examples of companies in which the fund has invested include PKSHA Technology Inc. in the AI ﬁ eld and Getaround, Inc. in the connected technol- ogy ﬁ eld. These companies are advancing research and development in cooperation with Toyota. Investment Mirai Creation Fund SPARX Group Investment Sumitomo Mitsui Banking Corporation, etc. Searching for opportunities Searching for opportunities Investment Searching for opportunities Companies in the fund’s three target ﬁ elds Intelligence technologies (AI and connected technologies) Robotics Hydrogen society Contributing to Agriculture Toyota developed Housaku Keikaku, an agricultural IT management tool, to help improve agricultural productivity by applying production management methods and operational improvement know-how cultivated in the automotive business to agriculture. In 2014, we began providing the tool to rice growing agricultural coop- eratives. Starting in April 2014, as part of the Advanced Model Agricultural Business Formation Trials by the Japanese Ministry of Agriculture, Forestry and Fisheries, we established the Rice Production Kaizen Network, a consortium formed with nine rice growing agricultural cooperatives in Aichi and Ishikawa pre- fectures and the Ishikawa prefectural government. Through this consortium, we are providing Housaku Keikaku, conducting pilot testing aimed at further efﬁ ciency and quality improvement, and building a foundation for human resource develop- ment through front-line Kaizen (improvement). In April 2017, we announced new partnerships in Hokkaido and Nagano. As of May 2017, 33 cooperatives were using Housaku Keikaku. Going forward, we will continue to expand the number of users of the tool, seeking to contribute to enhancing the efﬁ ciency and quality of rice farming. 26 TOYOTA Annual Report 2017 Work order Agricultural cooperative Farmer A Work order Farmer B Land lease Landowner C Performance indicators Daily reports Approx. 800 farmers Standard lead time 1st plowing 2nd plowing 3rd plowing Field prep Planting Harvesting Drying/ Milling 90 days 40 days 5 days 7 days 140 days Sterilization Soaking Sprouting Sowing 90 days 40 days 5 days 25 days Plans Agricultural IT management cloud Cultivatable land database Work database Results Paddy location, area, contract details Laborers, man-hours per acre, farming season, etc. Laborer 1 Laborer 2 Laborer 3 Results Plans Smartphones Field prep Planting Fertilizing B A B C C A C B A C B A C B C A Approx. 2,000 paddies B Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Taking on the Future Solutions for the Problems Facing a Graying Society Ever-Better Cars Enriching Lives of Communities Stable BaseBaBasese ase tab tabStabblee BBle Be Stabl BBBa f B neiBuussis of Business ToToyota a Value Toyota Values oyota Value Toyota Values Since the announcement of its development vision in 2007, Toyota has been applying its technology and know-how developed for industrial robots used in vehi- cle manufacturing to create partner robots that offer support for everyday living, working to bring these robots to market. So-called service robots for non- industrial use include robots designed to inspect infra- structure or provide emergency response. Toyota, however, is focusing on partner robots that work closely with people to provide support for living. Japan is rapid- ly graying, and its working-age population is decreas- ing. Because of these shifts, the burden on the working-age population of supporting the elderly is forecast to balloon to approximately three times the 2000 level by 2050. Toyota aims to use partner robots to instead keep this burden at around the 2000 level. Under its vision for partner robot technology, “free- dom of mobility for all, and the joy of self-reliance,” Toyota is working to bring products to market in the four main areas of Senior Life Support, Welfare Support, Independence Support, and Medical Support. Focusing First on Needs Created by the Low Birth Rate and Graying Population Senior Life Support Welfare Support Toyota is developing the Winglet, a personal mobility robot ridden while standing that facilitates seamless travel indoors and out, so that seniors can easily leave home with safety and peace of mind. The Winglet is now undergoing pilot testing on public roads. Winglet Conversation robot, Pocobee Independence Support The human support robot (HSR) offers such functions as picking up and fetching objects and is being tested for use in areas that include preventing the need for nursing care, health management and assistance with housework. This robot is being provided to universities and other research institutions as a platform in order to foster a development community and accelerate devel- opment and testing through open innovation. The HSR was selected as the standard platform in the “@HOME” division for RoboCup2017 Nagoya Japan and as the platform robot for the World Robot Summit 2020 Partner Robot Challenge (a competition centered on uses for robots in the home). HSR Commercialization Schedule and Development Status Welwalk WW-1000 The patient transfer assist robot is being developed to reduce the burden on caregivers at elderly care facili- ties and elsewhere by helping transfer individuals who cannot move unassisted from, for example, a bed to a wheelchair. Conversation robots are being developed to help prevent the onset and progression of dementia and reduce the burden on caregivers in light of the forecast increase in Japan’s number of individuals with demen- tia and decrease in the working-age population. Medical Support In autumn 2017, Toyota will commence the rental of the Welwalk WW-1000, a rehabilitation robot designed to aid in the gait training of patients with lower limb paralysis due to stroke or other factors. The Welwalk WW-1000 comes with a range of reha- bilitation support functions based on motor learning theory, including the ability to adjust the difﬁ culty level of gait training to suit the patient and to provide feed- back about the patient’s gait characteristics 2017 Approx. 2020 Target areas Gait training robot Conversation robot The rehabilitation robot Welwalk WW-1000 received medical device certiﬁ cation in November 2016. Rental of the robot will begin in autumn 2017. Senior Life Support, Medical Support The robot is being tested at the National Center for Geriatrics and Gerontology with the aim of helping prevent the onset and progression of dementia, and we are working to quickly bring it to market. Medical Support, Welfare Support Standing personal mobility robot We are testing the robots at test-ride events in retail facilities and on public roads as we work with the police and government to expand areas where they can be used. Senior Life Support Balance training assist robot The robot is in use at 21 medical institutions across Japan for clinical research. We are incorporating feedback from doctors, physical therapists and other users as we work to bring the product to market. Medical Support Human support robot (HSR) We are creating a development community based on open innovation to advance technological development and testing aimed at commercialization. Independence Support Patient transfer assist robot We are implementing a development and testing cycle to create an easier to use device and bring the product to market Welfare Support Development Pilot testing Commercialization 27 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Toyota Environmental Challenge 2050 Ever-Better Cars Enriching Lives of Communities Stable BaseBaBasese ase tab tabStabblee BBle Be Stabl BBBa f B neiBuussis of Business ToToyota a Value Toyota Values oyota Value Toyota Values Toyota has long carried out a wide range of initia- tives aimed at addressing a host of mounting environmental problems, including extreme weather phenomena attributable to greenhouse gases, biodiversity loss due to development, and water shortages due to population growth. Toyota announced the Toyota Environmental Challenge 2050 in October 2015. In addition to continuing efforts to reduce the environmental burden attributable to automobiles to zero, we have set ourselves six challenges aimed at help- ing to build a sustainable world through initiatives that will positively impact the earth and society. 0 Challenge of Achieving Zero Net Positive Impact Challenge New Vehicle Zero CO2 Emissions Challenge Target Reduce global average new vehicle CO2 emissions by 90% from Toyota’s 2010 global level Actions Actions Challenge of Minimizing and Optimizing Water Usage Target Enact effective wastewater management and minimize water consumption based on individual local situations Further popularize next-generation vehicles to save energy and use diverse fuels (cid:129) Further popularize HVs and PHVs globally (cid:129) Further popularize zero emission vehicles such as FCVs and EVs*1 *1 Zero emissions: The elimination of all harmful exhaust gases; in recent years, this term has been used to refer particularly to automobiles that emit no CO2 whatsoever, such as EVs and FCVs. More broadly, the term encompasses efforts to completely eliminate waste that must be incinerated or put in landﬁ lls for ﬁ nal disposal. Life Cycle Zero CO2 Emissions Challenge Target Completely eliminate CO2 emissions from the entire vehicle life cycle Actions Reduce CO2 emissions from the entire life cycle, from materials, parts, and vehicle production to driving and disposal Reduce water consumption in existing manufacturing processes, introduce technologies that reduce industrial water consumption through rainwater use, and improve water recycling rates (cid:129) Manage wastewater quality by complying with strict standards, improving the local environ- ment by returning clean water Challenge of Establishing a Recycling-based Society and Systems Target Promote global rollout of End-of-life vehicle treatment and recycling technologies developed in Japan Actions Establish a recycling-based society with four key areas: (1) utilizing eco-friendly materials; (2) using parts for longer; (3) developing recycling technologies; (4) manufacturing vehicles from End-of-life vehicles (cid:129) Reduce CO2 emissions during material production by developing and adopting more low Two global rollout projects started from 2016: CO2 emission materials (cid:129) Reduce environmental impact by adopting more recycled materials 1) Toyota Global 100 Dismantlers Project 2) Toyota Global Car-to-Car Recycle Project Plant Zero CO2 Emissions Challenge Target Achieve zero CO2 emissions at all plants by 2050 Actions Introduce and develop low CO2 technologies, implement daily Kaizen, and promote the use of renewable energy and hydrogen (cid:129) Reduce energy use to one third by simplifying and streamlining production processes and implementing innovative energy saving (cid:129) Use renewable energy, including wind power produced on-site at our Tahara Plant by around 2020 Challenge of Establishing a Future Society in Harmony with Nature Target Promote global rollout of nature conservation activities beyond the Toyota Group and its business partners Actions Expand Toyota’s long-standing nature conservation activities in the areas of forestry, environmental grants, and environmental education The following three future-oriented projects started from 2016 to share our know-how and experience gained from these environmental activities 1) Connecting communities: Toyota Green Wave Project 2) Connecting with the world: Toyota Today for Tomorrow Project 3) Connecting to the future: Toyota ESD*2 Project *2 Education for Sustainable Development 28 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Toyota Environmental Challenge 2050 Key Fiscal 2017 Initiatives under Toyota Environmental Challenge 2050 Ever-Better Cars Enriching Lives of Communities Stable BaseBaBasese ase tab tabStabblee BBle Be Stabl BBBa f B neiBuussis of Business ToToyota a Value Toyota Values oyota Value Toyota Values New Vehicle Zero CO2 Emissions Challenge Cumulative Hybrid Vehicle Sales Surpass 10 Million Toyota places top priority on environmental initiatives. Aware that eco-friendly vehicles can best help pro- tect the environment if they are in widespread use, we have been working to promote the spread of hybrid vehicles (HVs). Toyota released the Coaster Hybrid EV in August 1997 and in December of the same year released the Prius, the world’s ﬁ rst mass- produced HV. Since then, Toyota’s HVs have enjoyed the support of customers around the world, and in January 2017 Toyota’s cumulative HV sales surpassed 10 million vehicles. The business environment surrounding eco-friendly cars has changed greatly in the 20 years since Toyota introduced HVs to the world. Environmental perfor- mance has come to be one of the standards by which customers choose their cars, and the increas- ing number of companies developing and releasing HVs has ﬁ rmly established HVs as an important vehi- cle category. With customers around the world increasingly choosing HVs and other fuel-efﬁ cient vehicles, the automotive industry has been better able to contribute to solving environmental problems. Hybrid Vehicles: Reducing CO2 Emissions Toyota calculates that the 10 million Toyota HVs sold as of January 31, 2017 have resulted in an approxi- mately 77 million ton reduction in CO2 emissions compared with what would have been emitted by gasoline-powered vehicles of the same class (in terms of size and horsepower). By the same comparison, these 10 million vehicles represent a savings of approximately 29 million kiloliters in gasoline. Toyota’s Mainstay Next-Generation Eco-Friendly Vehicle: The Prius PHV To further reduce CO2 emissions, Toyota is promoting energy savings by focusing on the effective use of the ﬁ nite supply of fossil fuels while also accelerating the adoption of other, diverse fuels, including the use of hydrogen and electric power. Speciﬁ cally, HVs rep- resent Toyota’s key environmental technologies for saving energy, while fuel cell vehicles (FCVs) and electric vehicles (EVs) represent key environmental technologies related to using diverse fuels. Currently, plug-in hybrid vehicles (PHVs), combining the best aspects of HVs and EVs, are the Toyota vehicles best able to contribute to the environment. Toyota positions the Prius PHV as the mainstay next-generation eco car to succeed HVs. In February 2017 a signiﬁ cant step forward was marked with the launch of the second-generation Prius PHV. With a higher capacity battery, the latest Prius PHV boasts an EV-mode cruising range of 68.2 km and, when running as an HV, achieves fuel efﬁ ciency of 37.2 km/l, equal to that of the fourth-generation Prius.* Furthermore, the new Prius PHV features a solar charging system, the ﬁ rst ever on a mass-produced vehicle, that is capable of generating enough electric- ity per day to drive the car up to 6.1 km. * Excluding A grade models (JC08 test cycle fuel efﬁ ciency values) Challenge of Minimizing and Optimizing Water Usage The Toyota Water Environment Policy Making cars requires a great deal of water. Toyota is working to minimize its impact on the natural aquatic environment in terms of both input, by rigorously reducing the amount of water it uses, and output, by rigorously cleaning water it has used. While the speciﬁ c issues and ways of addressing them vary by region, Toyota has created the Toyota Water Environment Policy to help it accomplish the challenge it has set itself with regard to the aquatic environment. The Water Environment Policy is composed of a Basic Stance, the Challenge of Minimizing and Optimizing Water Usage, and Three Directions for Initiatives. By carrying out the policy, we aim to help maintain rich aquatic environments. Toyota prioritizes the sustainability of water resources and aims to create an afﬂ uent society to ensure that sound aquatic environments can be shared by future generations. Toyota Water Environment Policy Challenge of Minimizing and Optimizing Water Usage Rigorous reduction of water consumption Minimize water intake at each factory and utilize rainwater to minimize impact on local water sources Being the best factory in the region to contribute to the whole community’s prosperity IN OUT Pursuit of Technology We will pursue technological possibilities and rigorously make water resource use more efﬁ cient. Three Directions for Initiatives Operations Rooted in Communities We will implement ongoing measures to improve aquatic environments, conscious that water is an asset that belongs to its locality. Rigorous cleaning of all water before discharge Make a positive impact on the environment by making wastewater cleaner than the body into which it is discharged Coordination with Society We will actively communicate and disclose information to promote coordination and cooperation with stakeholders. CO2 Emissions Reduction Effects of Toyota Hybrid Vehicles (Toyota Calculations) (Million tons) 16 (cid:3) CO2 emissions reduction (cid:4) Cumulative CO2 emissions reduction (Million tons) 80 CO2 emission reduction attributable to Toyota 10 million hybrid vehicles: Approximately 77million tons 14 12 10 8 6 4 2 0 70 60 50 40 30 20 10 0 ’97 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13 ’15 ’17 (Jan.) Prius PHV Challenge of Establishing a Future Society in Harmony with Nature Five-Year Partnership with WWF In July 2016, Toyota and the World Wide Fund for Nature (WFF) began a ﬁ ve-year partnership aimed at accelerating the globe’s transition to sustainability. Toyota is the ﬁ rst car company and the ﬁ rst Japanese company to sign a Global Corporate Partnership agreement with WWF. To help conserve biodiversity under the partner- ship, in 2016 Toyota donated US$1 million and began offering other forms of support to the Living Asian Forest Project. The Living Asian Forest Project will reinforce existing WWF initiatives to conserve tropical rainforests and biodiversity in Southeast Asia and help develop new conservation initiatives. WEB Environmental Report 2017 29 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Aiming to Be the Best in Town Based on a philosophy of contributing to society through the manufacture of automobiles, Toyota endeavors to proactively contribute to sustain- able development in harmony with society and the earth through all its business activities in countries and regions around the world. Toyota currently faces a business environment on the verge of tremendous change. Given this, we believe that in the coming years, aiming to be the best company in town, even more than being global or the best company in the world, will be more important than ever before. We aim to make ever-better cars in order to enrich customers’ lives in the regions and coun- tries where we operate based on relationships of sincerity and respect. This means maintaining and further developing sound relationships with increasingly diverse business partners and local communities through fair and open communica- tion. We believe that by doing so, we can become the most trusted, most loved company in every town where we have the privilege of doing business. In line with this approach, we are advancing a variety of initiatives to help address social issues confronting the regions and countries in which we operate. Toyota will continue to use the technologies and know-how it has built up in car manufactur- ing to contribute to local prosperity and contrib- ute to “enriching lives of communities” as it aims to always be the best company in town. The Toyota Mobility Foundation: Supporting Ideas and Initiatives to Enrich Mobility Established by Toyota in August 2014, the Toyota Mobility Foundation (TMF) aims to help realize a prosper- ous mobility society and eliminate disparities in mobility. TMF focuses on bringing together Toyota’s know- how and resources and the outstanding vision and experience of like-minded partners to create innova- tive technologies and systems with the potential to change the world, looking to share the fruits of these efforts with society at large. As part of these efforts, TMF supports initiatives to provide more people with enhanced freedom of move- ment by, for example, diversifying modes of transpor- tation to ease and prevent trafﬁ c congestion and developing vehicles and systems to help solve mobility challenges facing seniors living in remote mountainous areas. In addition, in July 2017, TMF turned its atten- tion to addressing energy problems, establishing a research program to support innovative research aimed at creating a hydrogen society, and began soliciting research proposals. TMF plans to ﬁ rst narrow down candidate research themes and then collect information on universities, research institutions, and NPOs working in areas related to said themes before developing proposals with potential partner organiza- tions. The proposals that TMF will support will ulti- mately be selected by TMF’s Board of Directors, with input from external experts on their practicability as well as legal and ﬁ nancial considerations. Now, three years after its founding, TMF is shifting its focus to creating a better future, working to ﬁ nd innovative technologies and ideas while leveraging the lessons learned from problem-solving initiatives undertaken to date. WEB Toyota Mobility Foundation TMF’s Projects Ueyama, Mimasaka City, Okayama, Japan Sustainable personal mobility model for remote mountainous areas Period Jan. 2016–Sep. 2019 Grant recipients Research institute for sustainable rural villages (NPO) Aida Ueyama Tanadadan (NPO) Grant amount Approx. ¥220 million Asuke, Toyota City, Aichi, Japan Sustainable personal mobility model for remote mountainous areas Period Apr. 2016–Mar. 2019 Grant recipients Nagoya University, University of Tokyo Grant amount Approx. ¥360 million Bengaluru, India Improving subway access (ﬁ rst- and last-mile connectivity) Period Dec. 2016–Mar. 2018 Grant recipients World Resources Institute Grant amount Approx. ¥33 million Bangkok, Thailand Trafﬁ c congestion mitigation Period Apr. 2015–Mar. 2017 Grant recipients Chulalongkorn University Grant amount Approx. ¥400 million Da Nang, Vietnam Trafﬁ c congestion prevention and mitigation Period Apr. 2015–Apr. 2019 Grant recipients Danang People’s Committee Grant amount Approx. ¥360 million 30 TOYOTA Annual Report 2017 Ever-Better Cars Enriching Lives of Communities Stable BaseBaBasese ase tab tabStabblee BBle Be Stabl BBBa f B neiBuussis of Business ToToyota a Value Toyota Values oyota Value Toyota Values Projects Bangkok, Thailand Trafﬁ c Congestion Mitigation Project in Bangkok Completed TMF’s inaugural project, launched in April 2015 and aimed at mitigating trafﬁ c congestion in Bangkok, Thailand, was completed in March 2017. The project was aimed at controlling trafﬁ c volume and improving trafﬁ c ﬂ ow in Bangkok’s Sathorn District, where congestion is especially severe, through a range of measures imple- mented in cooperation with private companies, the government and academia, including Chulalongkorn University, the grant recipient. One of the main measures taken to control traf- ﬁ c volume was the creation of a park and ride system. Parking lots were set up near railway stations to encourage people travelling to the city center to transfer from private cars to public transportation. The program also provided shut- tle bus service to two local schools to alleviate congestion caused by private cars dropping off and picking up students. To improve trafﬁ c ﬂ ow, the project identiﬁ ed trafﬁ c bottlenecks and worked to improve them. Implemented in close coordination with local police and transport operators, initiatives includ- ed measures to discourage drivers from unnec- essarily stopping or changing lanes and the establishment of bus lanes. The results of the project were used to formu- late a roadmap for future cooperative initiatives encompassing companies, government, and academia aimed at alleviating trafﬁ c congestion. This roadmap was then proposed to the National Trafﬁ c Management Board, which serves as an advisory body to one of Thailand’s deputy prime ministers. At a project closing event in April 2017, private, public, and academic participants agreed to continue working under government direction in accordance with the roadmap. Project room at Chulalongkorn University Park and ride Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Aiming to Be the Best in Town KURUMA-IKU (Nurture with Cars) Cultivates Children’s Spirit of Inquiry and Creativity As forms of value grow more complex, opportunities for learning that foster the creativity to develop new value and culture are more important than ever. At the same time, interest in cars has been falling markedly among young people, to the point that car ownership culture itself may disappear in the near future. In light of this educational environment in Japan and the changes facing the automotive industry, in 2013, Toyota began a workshop program focused on future communities and mobility based on the con- cept of using cars as a learning material to foster a spirit of inquiry and creativity. Programs for children in elementary school and below include activities that prompt participants to think about the roles of cars in society using anthropomorphized cars and activities in which they rediscover the value of mobility by attaching steering wheels to everyday objects. For junior high and high school students, we have devel- oped and implemented programs including “3H Drive,” in which participants plan a three-hour trip that exploits the features of their community and forms of mobility; “History Drive,” in which they learn about the past and present to create the community and the mobility of the future; and “Ideas Drive,” in which they walk through the community to identify challenges and imagine future forms of mobility. In the programs for junior high and high school students, in particular, we strive to provide opportunities for partic- ipants to think about their communities and their con- nections to society through the lens of mobility. Going forward, we plan to expand these programs across Japan in collaboration with a wide range of part- ners under the name KURUMA-IKU Lab (Nurture with Cars Lab). We will involve communities, providing opportunities for children and adults to interact on a level Program for children in elementary school and below Held so far in locations in Tokyo, Nagoya, Toyota, Hakodate, and Austria Program for junior high and high school students Held so far in locations in Kanazawa, Onomichi, Kawasaki, Okayama, and Minami-Ise Our Vision for KURUMA-IKU Parents learn from children’s creativity and communication Children + Parents Think about questions with no one right answer Children and adults learn from one another Involve local communities and catalyze horizontal connections Local communities Toyota Motor Corporation Learn what makes a quality mobility experience Network with government, schools and companies Use insights gleaned to create future mobility markets and mobility experiences Ever-Better Cars Enriching Lives of Communities Stable BaseBaBasese ase tab tabStabblee BBle Be Stabl BBBa f B neiBuussis of Business ToToyota a Value Toyota Values oyota Value Toyota Values playing ﬁ eld and learn from one another, and for Toyota employees to gain new insights into the future of mobility along the way. We hope to expand the range of these initiatives, with an eye to implementing them globally. WEB KURUMA-IKU Lab (Japanese language only) Taking Our Founding Principle of Social Contribution Global Toyota has a long history of social contribution that traces back to the desire of Sakichi Toyoda—the father of Toyota Motor Corporation’s founder, Kiichiro Toyoda—to support inventions that would enrich peo- ple’s lives. Kiichiro and his team, who together built Toyota’s automotive business, kept this spirit of social contribution alive after Sakichi’s death, espousing the concepts of contributing to the development and wel- fare of the country and remembering to always be grateful. These concepts were eventually woven into the Five Main Principles of Toyoda, the Guiding Principles at Toyota and the Toyota Global Vision. In these various forms, this spirit of social contribution has been handed down to today. In addition to contributions made through its busi- nesses, Toyota is pursuing social contribution in three designated global priority ﬁ elds: the environment, trafﬁ c safety, and education. We are also promoting activities in social, cultural and other ﬁ elds to meet the social needs of speciﬁ c countries and regions, utilizing our technologies, expertise, and other resources to proactively advance initiatives. Furthermore, Toyota strives to support volunteering and to sustain automotive and manufacturing cultures. Speciﬁ cally, in the area of the environment, Toyota actively provides environmental education, supports environmental programs, and undertakes greeniﬁ ca- tion. As forests are an important basis of a sustainable society, Toyota carries out ongoing stewardship and preservation, based on appropriate management, of the woodlands that it owns. Toyota also implements environmental activities in and outside Japan with an emphasis on collaboration with local and regional communities, and its employees volunteer on their own to undertake regional environmental preservation. In the area of trafﬁ c safety, Toyota carries out multi- faceted activities focused on the three distinct pillars of people, cars, and the trafﬁ c environment with the aim of completely eliminating trafﬁ c casualties. As a part of these efforts, since the 1960s Toyota has been conduct- ing activities targeting people—such as drivers and pedestrians—to raise awareness of trafﬁ c safety, and it implements a variety of programs for a wide range of people on an ongoing basis. In recent years, such pro- grams have also been launched at overseas afﬁ liates. In the area of education, based on the principle that monozukuri is about developing people, Toyota imple- ments occupational and educational support initiatives as well as activities designed to cultivate participants’ sensibilities and convey the importance of monozukuri (manufacturing) in order to promote the development of the leaders of tomorrow worldwide. WEB Social Contribution Activities Hands-on nature program for local elementary school students (Japan) Support for free cleft palate surgery project (Venezuela) White Road trafﬁ c safety program for children (Thailand) Support for toilet construction and improving hygienic habits (India) 31 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Employees Toyota prioritizes respect for people, aiming to provide employees with opportunities to make social contributions and realize self actualization through their work and to allow them to exercise their ability to think, create, and take action. To achieve this goal, a relationship of mutual trust and mutual responsibility between labor and management is essential. In such a relationship, the company places the highest priority on ensur- ing stable employment for its employees and pro- actively strives to improve labor conditions, while employees do their utmost to enhance the pros- perity of the company. This philosophy is shared by all Toyota afﬁ liates around the world and is reﬂ ected and implemented in Toyota’s manage- ment and policies. Toyota believes that this approach leads not only to management that operates with respect for people, but to customer satisfaction and social contribution. Fundamental Approach regarding Human Resource Development Toyota is committed to developing human resources in accordance with its philosophy that monozukuri (manufacturing) is about developing people. In order to sustain growth, it is important to strive toward achiev- ing people-centric monozukuri and to utilize the wis- dom of our people to make constant improvements. Furthermore, in light of the globalization of Toyota’s businesses amid the world’s many cultures and cus- toms, to make ever-better cars and carry out our Customer First policy, all employees must share cer- tain values. To this end, Toyota is implementing human resource development aimed at sustainable growth through a global educational program centered on the application of the Toyota Way. On-the-job training (OJT), a crucial part of developing and passing down Toyota’s tradition of superior monozukuri, is the foun- dation of this program. WEB Toyota Way 2001 On the Job Training Human Resource Development Rooted in Genchi Genbutsu In line with Toyota’s concept of Genchi Genbutsu (onsite, hands-on experience), we believe that the workplace is the basis for human resource develop- ment at Toyota. Being mentored by supervisors and senior colleagues and, in turn, mentoring subordinates and junior colleagues to build mutually beneﬁ cial learning relationships in the course of daily work Toyota’s Approach to OJT OJT Personnel system In tandem with OJT Off-the-job training Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values (OJT) provide the basic experiences that drive profes- sional growth. In addition, to supplement OJT, Toyota offers a variety of off-the-job training programs. Sharing the Values of the Toyota Way Globally We have organized job skills and techniques into a framework that we call Global Content to help Toyota employees around the world understand and prac- tice the Toyota Way as a shared set of values and ways of thinking. Global Content is utilized by Toyota employees through both on- and off-the-job training in Japan and overseas. Providing a common language for talking about ways of working, the Global Content gives Toyota an advantage by providing a platform for employees around the world to come together to improve efﬁ ciency. Global Content Overview Administrative and engineering employees Shop ﬂ oor employees Policy management (cid:129) Activities aimed at realizing Kaizen on a Company-wide scale (cid:129)Mechanisms to maximize overall output On-the-job development (OJD) (cid:129) A four-step method for human resource development through regular business activities and instruction Toyota Management Training Program (cid:129) An overview of management roles at Toyota (cid:129) Measures to implement for effective workplace man- agement Skills and roles of management and supervision (cid:129) Manager and supervisor skills for optimizing standard operations (cid:129) Knowledge about organizational and team operations gleaned from managing irregularities Problem solving (cid:129) An eight-step method for identifying and solving prob- Problem solving (cid:129) Techniques for improving current conditions in order to lems (implementing the Toyota Way) realize ideal working conditions Ji Kotei-Kanketsu (built-in quality with ownership) (cid:129) A three-step method for building quality into processes Production skills (cid:129) Knowledge regarding recognizing irregularities and key points in tasks (cid:129) Ability to correct irregularities Basic skills Minimum skills necessary for production line work s r e g a n a M s e e y o p m e l l a r e n e G The Toyota Way (cid:129) Toyota’s values (cid:129) The foundation of all work WEB Employees (Human Resource Development, Sustainability Data Book 2017, p. 63) 32 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Employees Promoting Diversity and Inclusion Toyota has positioned the promotion of diversity and inclusion in the workplace as an important management strategy. We are working to create workplaces where human resources with diverse abilities and values can thrive and each individual can achieve positive self actualization. Diverse perspectives help to generate novel ideas and uncover problems. Toyota aims to use these contributions to help enhance its competi- tiveness and make ever-better cars. Gender Nationality Age Childcare/ Nursing care Diversity & Inclusion Disability Work Style Reforms Toyota is advancing work style reforms to improve productivity and support employees seeking to con- tinue working while raising children or providing nurs- ing care for a family member. In October 2016, we expanded our existing telecommuting system with the introduction of the Free Time & Location (FTL) system. By adopting more ﬂ exible work styles, Toyota aims to make the most of each individual’s abilities and maximize results. While the previous telecommuting system was available only to employ- ees with childcare or nursing care responsibilities, all employees that meet certain conditions can request the permission of their supervisors to use the FTL system. As of March 31, 2017, of the approximately 13,000 employees who qualify for the FTL system, approximately 2,300 are using it. Over the next two years, Toyota plans to distribute dedicated computers for telecommuting to employ- ees eligible to work from home. We have received a great deal of positive feedback from users of the pro- gram already, with employees commenting, for example, that the system has made them more aware of time and thus more efﬁ cient when working, and that they have more time to spend with family. LGBT Diversity Management Toyota’s employees in managerial positions are lead- ing diversity management initiatives to create work- places where diverse human resources can thrive. Toyota seeks to develop supervisors who successful- ly implement diversity management. We are working to develop supervisors who understand and support the values and career goals of subordinates, taking a ﬂ exible approach to management to produce results at the organizational level while also giving 33 TOYOTA Annual Report 2017 ample consideration to the quality of the private lives of themselves and their subordinates. To develop such supervisors, Toyota implemented a trial program in which 200 employees in managerial positions tried working from home. More than 90% of participants found that working from home was help- ful and noticeably improved their productivity. These results are helping to foster a culture in which employees use the telecommuting programs avail- able to them. Developing Executives Globally The GLOBAL 21 program is aimed at developing executives globally. The program serves to enable outstanding human resources from around the world to obtain the skills and discernment expected of global-level Toyota executives and to fully realize their individual strengths in their respective roles. The pro- gram consists of the following three pillars. 1. Ensuring understanding of our management philosophy and the expectations of executives We are applying the Toyota Way and Toyota Global Vision, incorporating them into global personnel eval- uation systems and education. 2. Personnel management We are unifying evaluation standards and processes globally to ensure fairness and consistency. Our main evaluation criteria are individuals’ ability to set tasks, carry out tasks, manage their organization, and effec- tively utilize human resources as well as the level of trust and respect that others have for them. We assign and transfer human resources on a global basis, across countries, regions, and functions. 3. Development framework and education programs We are allocating human resources and developing executives globally. Our development of human resources at overseas afﬁ liates is based on education conducted by afﬁ liates in each region, with OJT at Toyota Motor Corporation (TMC) so that participants can learn Toyota-style ways of working. In addition, we are also implementing a program similar to GLOBAL 21 for employees of TMC. Localizing the Management of Overseas Afﬁ liates Taking a long-term perspective, Toyota seeks to localize the management of its overseas afﬁ liates, with deciding what to do as the role of TMC in Japan and deciding how to do it the role of local afﬁ liates. In principle, chief ofﬁ cers and other executives responsible for operations in overseas regions are stationed in their respective regions as part of efforts to create a management system closely rooted in local communities. We also actively hire and promote local human resources. As of July 2017, three of the Group’s eight regional headquarters are led by non-Japanese chief ofﬁ cers, and TMC’s top management includes seven non-Japanese nationals (of whom one is an Outside Member of the Board of Directors). Local employees hold 65.8% of Toyota’s overseas executive positions. Overseas Executive Positions Held by Local Employees (%) Fiscal year 2013 2014 2015 2016 2017 Local employees 60.1 64.7 62.9 62.6 65.8 Non-Japanese Executives in Charge of Operations in Overseas Regions Region Name Title North America Region James E. Lentz Senior Managing Ofﬁ cer Europe Region Johan van Zyl Senior Managing Ofﬁ cer Latin America & Caribbean Region Steve St. Angelo Senior Managing Ofﬁ cer WEB Employees (Diversity & Inclusion, Sustainability Data Book 2017, p. 66) Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Employees Toyota’s Work Style Innovation: Comments from the Field Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Are We Falling Behind? The Realization That Propelled Us to Aim for the Top Next-Generation Purchasing Team, Purchasing Group In 2014, in line with President Toyoda’s announcement of Toyota’s “intentional pause,” we began reforms. First, through comparisons with other companies, we identiﬁ ed Toyota’s strengths and weaknesses. We found that, while Toyota’s purchasing processes had been ahead of their time in 2000, they had not changed much since then. Speciﬁ cally, we found weaknesses in horizontal global transactions and that Toyota was lagging behind its competitors in this area. Our long history of diligently working to reduce costs in cooperation with suppliers as business partners is one of our unique strengths. While reducing prices from a Genchi Genbutsu (onsite, hands-on experience) perspective is the core of this work, when we closely examined buyers’ workﬂ ows, we found that a great deal of time was tied up with paperwork before they even got to that stage. To address this, we have been breaking down the entire division’s work process ﬂ ows, including those overseas, by degree of depth and detail, reorganizing them into new pro- cesses with the aim of globalizing purchasing operations. The realization that we were falling behind other companies propelled us forward, providing the urgency needed to tackle major reforms. Rolling out TNGA Globally with Photos and Comments MS General Assembly Engineering Division Aiming to make ever-better cars and enhance competitiveness under the Toyota New Global Architecture (TNGA), we have been steadily switching over to new processes at our assembly plants around the world. The lead times required to get factories up and running have shrunk dramatically over the course of the TNGA roll out, and we are now working at a speed unprecedented in automobile manufacturing. We are striving to maxi- mize efﬁ ciency as we set up the TNGA globally. This necessitates sharing information about problems and effective countermeasures found at the factories in Japan that switched over ﬁ rst in as close to real time as possible. If information about issues on the ground is shared only after things have settled down, it will be too late to prevent the same kinds of problems from cropping up elsewhere. To deal with this, we set up a dedicated internal SNS for TNGA where we could post and share photos and video from security cameras with comments. This has enabled the sharing of information from the plants involved in the ﬁ rst wave of transition in Japan with those overseas in later waves as well as sharing between overseas plants. Furthermore, automatically sharing the information on the SNS with equipment specialists in Japan has helped us get expert comments and advice whenever needed. This system is the prod- uct of Toyota’s corporate culture of helping those in trouble and offering mutual support, and we expect it to positively impact human resource development, as well. Finding My Own Leadership Style by Balancing Work and Home Natsumi Kakiuchi Engine Manufacturing Division 1, Kamigo Plant I serve as a team leader for conveying operations on the engine production line. My hus- band, like me, works on the shop ﬂ oor, and we have a 10-year-old at home. My husband and I strive to ensure our child isn’t left alone, even when the two of us have back-to- back shifts on a two-shift schedule. I think that my ability to communicate effectively with my colleagues to facilitate our work is a strength of mine. I wasn’t always the leader type, though; those who knew me when I ﬁ rst came to Toyota might hardly recognize me now. When I became a parent, there were certain things that, for the sake of my child, I was determined not let slip, no matter what. I think that being a parent gave me that strength, which I am now able to apply at work. Still, juggling work and childcare really is hard. It has shown me, though, that with the right tweaks both at work and at home, anyone can become a leader. It’s important to create an atmosphere in which everyone at work is supportive, even if, for example, someone suddenly has to take a day off. And in return, those juggling both work and home responsibilities will strive to do what they can, as best they can. I think that this kind of mutual understanding and support will help women and other employees juggling home responsibilities excel. Finding New Ways to Work Thanks to Telecommuting MS Product Planning Division Shinya Mori I live with my wife, who has an ofﬁ ce position, and our two year old. At work, I serve as the team leader of a cost planning team, and my wife and I both use the FTL* system to balance childcare and work. Everyone on my team, including those without children, uses the FTL system. I use the system to go home early, take care of childcare tasks, then work at home. To improve productivity by using time more effectively—one of the advantages of the FTL system— focusing on results at the team level is crucial. To that end, I think it’s necessary to share common work practices so that anyone can tell where things stand, no matter where they are or when they check. The FTL system has been greatly beneﬁ cial, allowing me to maintain my output at work while increasing the time I spend with my family. * Free Time & Location: A new telecommuting program launched in October 2016 34 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Corporate Governance Fundamental Approach Toyota regards sustainable growth and the stable, long-term enhancement of corporate value as essen- tial management priorities. Building positive relation- ships with all stakeholders (including shareholders, customers, business partners, local communities, and employees) and consistently providing products that satisfy customers are key to addressing these priorities. To this end, Toyota constantly seeks to enhance corporate governance. Moreover, the Company complies with the general principles of the Corporate Governance Code promulgated in June 2015. The speciﬁ cs of these efforts are discussed by the Corporate Governance Meeting and reported to the Board of Directors. Toyota’s Corporate Governance (Emphasizing Frontline Operations + Multidirectional Monitoring) Toyota is a company with an Audit & Supervisory Board. Three of the nine members of Toyota’s Board of Directors are outside members, and three of the six members of its Audit & Supervisory Board are outside members. In addition to auditing carried out by the Audit & Supervisory Board and an external accounting auditor, Toyota incorporates the perspectives of diverse stakeholders, including outside experts, to deliberate on and monitor management and corporate conduct. Appointment Audit & Supervisory Board: 6 including 3 outside Audit & Supervisory Board Members External Accounting Auditor Audit for consolidated ﬁ nancial statements and internal control over ﬁ nancial reporting Shareholders’ Meeting Appointment Board of Directors: 9 including 3 outside directors Audit Decision making and management oversight Appeal/Report Supervise Operating Ofﬁ cers Operational Execution Audit Head Ofﬁ ce Business Units In-house companies Supervise Corporate Governance Council Governance and risk management Audit Suggestion Executive Appointment Meeting/ Executive Compensation Meeting Advice Dialogue International Advisory Board Labor-Management Council/ Joint Labor-Management Round Table Conference Report Disclosure Committee Disclosure control systems Internal Auditing Department Internal control systems Business Execution and Supervision Toyota has established rules governing its Board of Directors that clearly lay out the matters to be dis- cussed by and reported to the Board. In accordance with these rules, management execution is delegated to operating ofﬁ cers, helping to ensure rapid decision making and appropriate oversight. With the aim of achieving the Toyota Global Vision, Toyota has been implementing ongoing revisions in its operational framework in order to quickly respond to the unprecedented rapid changes occurring in the external environment. Toyota introduced region- based management in 2011, followed by the busi- ness unit system in 2013 and the in-house company system in 2016. More details Business Execution Framework, p. 8 Under the in-house company system, product- based in-house companies handle integrated opera- tions spanning from product development to production. These companies work with the Business Planning & Operation Unit to promote the develop- ment of ever-better cars from the customer’s viewpoint (the existing region-based business units were reorganized into this unit in April 2017). In April 2017, to accelerate decision-making and business execution, Toyota more clearly delineated the roles of the Members of the Board of Directors as decision making and oversight, and the role of exec- utives as business execution. The Corporate Planning Meeting operates under the Board of Directors. This meeting considers growth strategies, factoring in the positive impacts that Toyota’s operations have on various social issues, and works with management to promote CSR and enhance corporate value on a Company-wide basis. The Corporate Governance Meeting provides opera- tional oversight by deliberating on issues related to the governance structure arising in the course of the implementation of these growth strategies. Toyota has also established an International Advisory Board, comprising experts from around the world. The board provides advice on management issues from a global perspective as needed. Toyota also deliberates on and monitors management and corporate conduct from the diverse stakeholder per- spectives provided by a wide variety of meetings, such as the Labor-Management Council/Joint Labor- Management Round Table Conference. 35 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Corporate Governance Board of Directors Audit & Supervisory Board Toyota’s Board of Directors comprises nine members, three of whom are outside members. The Members of the Board of Directors are selected based on com- prehensive consideration of suitability with the aim of ensuring prompt, appropriate decision making and appointing the right person to the right position. Toyota believes that it is crucial to appoint individuals who comprehend and are capable of putting into practice its core concepts of making ever-better cars and Genchi Genbutsu (onsite, hands-on experience). Moreover, these individuals must be able to contrib- ute to decision making aimed at sustainable growth into the future. Toyota’s Executive Appointment Meeting, half the members of which are Outside Members of the Board of Directors, makes recom- mendations to the Board of Directors regarding such appointments. In order to ensure that outside per- spectives are adequately reﬂ ected in management decision making, the Company has three Outside Members of the Board of Directors, all of whom are registered as independent ofﬁ cers with the relevant ﬁ nancial instruments exchanges. When selecting Outside Directors who will serve as independent ofﬁ - cers, Toyota considers candidates in line with the requirements set forth in the Companies Act and the standards of independence established by the rele- vant ﬁ nancial instruments exchanges. Toyota’s Outside Members of the Board of Directors draw on their broad experience and insight, including their respective ﬁ elds of expertise, to inform decision mak- ing from a perspective that is independent of busi- ness execution. Toyota has adopted an Audit & Supervisory Board system. The six Audit & Supervisory Board Members (including three outside members) play a key role in Toyota’s corporate governance by undertaking audits in line with the audit policies and plans established by said board. Toyota’s appointments to the Audit & Supervisory Board are based on the belief that candi- dates must offer broad-ranging experience and insight, particularly in their respective ﬁ elds of exper- tise, and be able to audit business execution and advise management from a fair and neutral stand- point. Toyota’s Executive Appointment Meeting, half the members of which are Outside Members of the Board of Directors, makes recommendations to the Audit & Supervisory Board regarding such appoint- ments. Three individuals, all of whom are registered as independent ofﬁ cers with the relevant ﬁ nancial instruments exchanges, have been appointed as Outside Audit & Supervisory Board Members. When selecting Outside Audit & Supervisory Board Members, Toyota considers candidates in line with the requirements set forth in the Companies Act as well as the standards of independence established by the relevant ﬁ nancial instruments exchanges. Remuneration of Members of the Board of Directors and Audit & Supervisory Board Members Basic remuneration and bonuses for Members of the Board of Directors are effectively linked to corporate performance while reﬂ ecting individual job responsi- bilities and performance. Remuneration standards in each member’s home country are also taken into account when determining remuneration amounts and methods. Bonuses are paid based on the Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values relevant ﬁ scal year’s consolidated operating income, comprehensively taking into account dividends, the levels of bonuses for employees, trends at other companies, medium- to long-term business perfor- mance and past remuneration. Because the role of Outside Members of the Board of Directors includes monitoring and supervising management from an independent standpoint, they are not paid bonuses. Director remuneration and bonuses are decided by the Board of Directors with reference to proposals submitted by the Executive Remuneration Meeting, half the members of which are Outside Members of the Board of Directors. Remuneration for Audit & Supervisory Board Members consists only of ﬁ xed basic payments and does not include bonuses. As a result, this remunera- tion is not readily impacted by business performance, helping to ensure independence from management. Remuneration for Audit & Supervisory Board Members is determined by the Audit & Supervisory Board within the scope determined by resolution of the Shareholders’ Meeting. Analysis and Evaluation of the Effectiveness of the Board of Directors Based on instruction given by the Chairman of the Board of Directors, the Secretariat of the Board of Directors conducts quantitative analyses of the exe- cution of the Board of Directors’ duties, followed by a survey of the members of the Board of Directors and Audit & Supervisory Board on the execution of such duties and its oversight. Furthermore, based on the results of this survey, the secretariat conducts individ- ual interviews with the Outside Members of the Board of Directors and the Outside Members of the Audit & Supervisory Board. The Secretariat of the Board of Directors compiles the results of these efforts and presents them to the Chairman of the Board of Directors, after which they are reported to and discussed by the Board of Directors. In ﬁ scal 2017, these evaluations found that the Board was effective. The insights gleaned from these evaluations regard- ing information sharing and administration are being used in ﬁ scal 2018 to further improve effectiveness. Fundamental Approach to and Maintenance of Internal Control Systems Basic Stance on System for Ensuring Appropriate Business Operations Toyota and its subsidiaries work to foster a sound corporate culture based on the Guiding Principles at Toyota and the Toyota Code of Conduct. Toyota inte- grates the principles of problem identiﬁ cation and Kaizen into its operational processes and continuous- ly strives to develop employees who will put these principles into practice. System to Ensure Appropriate Operations Toyota endeavors to maintain and properly operate a system for ensuring the appropriateness of business operations as a corporate group in accordance with its Basic Policies on Establishing Internal Controls. Each ﬁ scal year, Toyota inspects the maintenance and implementation of internal controls to conﬁ rm that the organizational units responsible for implementing internal controls are functioning autonomously and enhancing said controls as necessary. The ﬁ ndings of these inspections are reviewed by the Corporate Governance Meeting and Board of Directors. For further information on Toyota’s fundamental approach to internal control systems and the mainte- nance of such systems, please refer to “IV. Basic Approach to Internal Control System and its Development” in the Corporate Governance Report. WEB Corporate Governance Report 36 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Corporate Governance Board of Directors and Audit & Supervisory Board Members (As of June 14, 2017) Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Chairman of the Board of Directors Members of the Board of Directors Full-Time Audit & Supervisory Board Members Outside Audit & Supervisory Board Members Takeshi Uchiyamada Didier Leroy Ikuo Uno Outside and Independent Director Masaki Nakatsugawa Yoko Wake Outside and Independent Member Vice Chairman of the Board of Directors Shigeru Hayakawa Shigeki Terashi Haruhiko Kato Outside and Independent Director Masahiro Kato Teisuke Kitayama Outside and Independent Member President, Member of the Board of Directors Akio Toyoda Osamu Nagata Mark T. Hogan Outside and Independent Director 37 TOYOTA Annual Report 2017 Yoshiyuki Kagawa Hiroshi Ozu Outside and Independent Member Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Risk Management Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Beneath the global CRO are regional CROs activities, review and report on major current risk Business and Other Risks Fundamental Approach appointed to oversee speciﬁ c regions, and each items, and review the status of improvements and Industry and Business Risks Toyota has been working to reinforce its risk manage- Within the head ofﬁ ce, risk management is system. Reports are also made on the status of initia- ment systems since the series of recall issues in assigned by function to chief ofﬁ cers and risk manag- tives to address imminent and serious risks with 2010. In June 2010, Toyota established the Risk ers, while in each in-house company, risk manage- global implications. In these ways, the meeting Management Committee (now the Corporate ment is assigned to the company president and endeavors to manage and prevent risk. region has its own risk management structure. reinforcements to each region’s risk management (cid:129) The worldwide automotive market is highly competitive (cid:129) The worldwide automotive industry is highly volatile (cid:129) Toyota’s future success depends on its ability to offer new, innovative and competitively priced products that meet customer demand on a timely basis (cid:129) Toyota’s ability to market and distribute effectively is an integral part of Toyota’s successful sales Governance Meeting) and appointed risk managers company risk managers. These individuals coordinate In addition, the meeting advances special mea- (cid:129) Toyota’s success is signiﬁ cantly impacted by its ability to for the global group and each business division as and cooperate with the regional head ofﬁ ces. sures related to information security and business part of global measures to prevent and mitigate the continuity management (BCM), areas in which the impact of risks that could arise in the course of busi- Corporate Governance Meeting level of risk facing corporations has been growing in ness activities. Toyota established the Corporate Governance recent years. maintain and develop its brand image (cid:129) Toyota relies on suppliers for the provision of certain sup- plies, including parts, components, and raw materials (cid:129) The worldwide ﬁ nancial services industry is highly competitive (cid:129) Toyota’s operations and vehicles rely on various digital Meeting in April 2015 as a business supervisory Risks related to Toyota’s businesses and other fac- and information technologies body. The meeting discusses the governance struc- tors that could signiﬁ cantly impact the decisions of Financial Market and Economic Risks Organization and Structure ture with the goal of ensuring the success of growth investors are listed in Toyota’s Form 20-F under the Appointment of Risk Management Personnel social challenges. Two of the yearly meetings of the Market and Economic Risks; and Regulatory, Legal, Toyota has appointed a global chief risk ofﬁ cer (CRO) Corporate Governance Meeting are attended by the Political, and Other Risks. and business strategies in light of a wide range of categories Industry and Business Risks; Financial to head global risk management and established a regional CROs, all chief ofﬁ cers and all in-house com- structure under the global CRO to monitor risk on pany presidents. This practice is intended to aid in a daily basis. This structure enables the Company to the initiation of action to prevent risks. Meeting partic- respond immediately in the event of an emergency. ipants comprehensively identify risks to business WEB Risk Management (Sustainability Data Book 2017, p. 133) WEB Form 20-F for the year ended March 31, 2017 Organizational Diagram of Risk Management (cid:129) Toyota’s operations are subject to currency and interest rate ﬂ uctuations (cid:129) High prices of raw materials and strong pressure on Toyota’s suppliers could negatively impact Toyota’s proﬁ tability (cid:129) A downturn in the ﬁ nancial markets could adversely affect Toyota’s ability to raise capital Regulatory, Legal, Political, and Other Risks (cid:129) The automotive industry is subject to various governmen- tal regulations (cid:129) Toyota may become subject to various legal proceedings (cid:129) Toyota may be adversely affected by natural calamities, polit- ical and economic instability, fuel shortages or interruptions in social infrastructure, wars, terrorism, and labor strikes Respective regions Regional CROs Regional functions Board of Directors Corporate Governance Meeting Risk management Risk management Chairman: Global CRO Chairman: Global CRO Executive Vice President Shigeki Terashi Executive Vice President Shigeki Terashi Respective groups (functional) Respective companies Collaboration Chief ofﬁ cers Secretariats for functions Collaboration Presidents Companies’ risk managers Collaboration 38 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Employees Corporate Governance Risk Management Compliance Compliance Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Fundamental Approach Organization and Structure Checks to Enhance Compliance By incorporating improvement initiatives into each year’s action plans, we ensure that these checks lead The Guiding Principles at Toyota state that Toyota Toyota established the Corporate Governance In ﬁ scal 2009, Toyota began implementing internal to ongoing positive action. shall “honor the language and spirit of the law of Meeting in April 2015 as a business supervisory checks to enhance its compliance structure. In ﬁ scal Moreover, subsidiaries are visited in order to keep every nation and undertake open and fair business body. The meeting discusses governance structure 2010 these checks were extended to subsidiaries in track of their compliance efforts and provide them activities to be a good corporate citizen of the world.” with the goal of ensuring the success of growth and and outside Japan. Since then, these checks have support as needed. Toyota believes that by adhering to this principle in its business strategies in light of a wide range of social been carried out and improved upon every year. actions, it can fulﬁ ll its corporate social responsibility challenges. Matters related to compliance are dis- Results are reported to the Corporate Governance and ensure compliance. cussed by this meeting. WEB Compliance (Sustainability Data Book 2017, p. 138) Meeting and used as a basis for further improvement. In accordance with its basic internal control poli- cies, Toyota promotes initiatives centered on the con- struction of frameworks, including the adoption and enforcement of the Code of Conduct as well as edu- Organizational Diagram Activity Diagram cation and other means of human resource develop- ment. Toyota has also established consultation hotlines; any concerns that are reported to said hot- Board of Directors Within Toyota (HQ) Secretariat and specialized divisions Individual divisions Distribution and collection of inspection sheets Feedback Support for improvement Subsidiary Second-tier subsidiary Self- inspections Incorporation into policy Self- inspections Incorporation into policy A P C D A P C D Self improvement Self improvement i i i D v s o n s m a n a g n g i i s u b s d a r i e s i lines are assiduously addressed to ensure that no potential problem is overlooked. Toyota Code of Conduct The Toyota Code of Conduct (adopted in 1998 and revised in March 2006) outlines the basic frame of mind that all Toyota personnel should adopt and sets forth concrete guidelines to assist them in upholding the Guiding Principles at Toyota and doing their part to ensure that Toyota carries out its corporate social responsibility. A booklet containing the Toyota Code of Conduct is distributed to all employees to better enable them to put the code into practice in their own lives both at work and in the community. WEB Toyota Code of Conduct Corporate Planning Meeting Corporate Governance Meeting Self- inspections Incorporation into policy Major company-wide issues relat- ing to overall corporate ethics, compliance, and governance A P C D Self improvement 39 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Financial Information Financial Strategy Financial Results and Position Financial Summary Financial Strategy Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Developing a Strong Financial Foundation 1. Growth: Continuous Investments for Sustainable Growth in the Future 2. Efﬁ ciency: Enhancing Proﬁ tability and Efﬁ ciency of the Balance Sheet 3. Stability: Maintenance of Liquidity The auto industry is on the verge of a once-in-a-century We continue to work to strengthen our proﬁ t structure. Having experienced the global ﬁ nancial crisis and the We believe that by striving turning point. We believe that artiﬁ cial intelligence (AI), Through the Toyota New Global Architecture, we Great East Japan Earthquakes, we believe it is to make ever-better cars automated driving, robotics, and other new ﬁ elds are are working not only to dramatically enhance the basic important to maintain a sufﬁ cient level of net cash to that provide value to cus- especially important to the mobility of the future. performance and product appeal of our cars, but also cover both the ﬁ xed costs for the automotive busi- tomers and enriching lives Given these circumstances, we must nurture both to enhance development efﬁ ciency by standardizing ness for half a year and the reﬁ nance requirement for of communities we can sus- the strengths that will enable us to survive today and parts and components through grouping develop- the ﬁ nancial services for half a year. This represents a tainably increase our corpo- the strengths that will enable us to survive tomorrow. ment. Furthermore, we will continue efforts to reduce ﬁ nancial foundation which enables Toyota to grow rate value and enjoy stable, If the strengths for surviving today are essentially expenses and appropriately manage ﬁ xed costs. sustainably in any business environment. ongoing development with defense-oriented, then I think those for surviving In terms of capital expenditure, we are working to The above level of net cash is not only necessary our stakeholders. tomorrow are offense-oriented. We have always thoroughly revise our expenditure priorities and for creation of further corporate value but also essen- Osamu Nagata Chief Financial Ofﬁ cer, Executive Vice President, Member of the Board of Directors To realize this goal, we are implementing a ﬁ nancial sought to promote both, but I think we may have plans, make equipment more compact, shorten pro- tial for Toyota’s management in order to maintain strategy based on the three pillars of growth, efﬁ cien- been shifting more toward the defensive. Going for- cesses, enable multi-model production, facilitate a full line-up in each region while responding to all cy, and stability, striving to maintain balance between ward, we will seek to focus more on our offense. faster response to changes in production quantities, options and opportunities, including next-generation said pillars over the medium and long-terms. We have already begun initiatives to this end and make effective use of existing equipment in order technologies and M&A. through such measures as shifting resources to R&D to improve productivity and reduce the need for Through our full line-up and all-embracing in key ﬁ elds and investing through Toyota AI Ventures investment. approach, we are able to hedge risks and continue and the Mirai Creation Investment Limited Partnership We aim to make smart and efﬁ cient use of man- operations timely in an adequate scale no matter how in order to secure technical prowess. agement resources, including people, things and and unexpectedly our business environment changes. Moreover, we have spent around 1 trillion yen on money, and by doing so maintain and enhance our R&D investment, capital expenditure, and sharehold- asset efﬁ ciency. In summary, it is our aim to establish a strong ﬁ nan- er returns each to date. However, this will not be enough to provide new value going forward; we will also need to work with partners in different industries and new ﬁ elds. We will consider all available options, including M&A, as we work to develop the strengths that will enable us survive tomorrow. 40 TOYOTA Annual Report 2017 cial foundation which will support Toyota’s sustainable growth by pursuing growth and efﬁ ciency in the medi- um to long-term while maintaining sufﬁ cient stability. Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Financial Information Financial Strategy Financial Results and Position Financial Summary Financial Strategy Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Model AA Class Shares support Toyota from a long-term stand point. By sustainable payment benchmarked at 30% of con- ment. For the ﬁ scal year to March 2017, we repur- We appreciate opinions of our shareholders who With regard to dividends, we strive for a stable and and in response to changes in our business environ- reﬂ ecting them in Toyota’s management, we intend solidated dividend payout ratio while considering fac- chased 449.9 billion yen, equivalent to 69 million Toyota issued the Model AA class shares to develop to increase our corporate value further. tors such as our ﬁ nancial results, investment plans shares as shareholder return. a new relationship with shareholders. The purpose of the issuance was to 1) raise funds for medium to and liquidity. For the ﬁ scal year to March 2017, we Going forward, we intend to build a strong ﬁ nancial paid an annual dividend of 210 yen per share. Since foundation while further improving proﬁ tability. At the long-term R&D activities, 2) enhance the base of Shareholder Return the interim period ended September 30, 2015, we same time, we would like to enhance long-term rela- long-term shareholders, and 3) diversify the means of have pursued a better balance between interim and tionships of trust with our shareholders through con- fund raising. The raised funds will be utilized for R&D Shareholder return is an important part of our man- year-end dividends. structive dialogues and stable shareholder return. On in the areas of advanced and cutting-edge technolo- agement policies. In principle, it is determined on the As for repurchase of shares, we intend to exercise the basis of this, we aim to realize both sustainable gies such as fuel cells, infrastructure, information basis of net income. ﬂ exibly in consideration of long-term capital efﬁ ciency growth and increased corporate value. technology and highly intelligent mobility. Dividend per Share and Net Income (cid:2) Interim dividend (cid:2) Year-end dividend (cid:4) Net income (right axis) Total Shareholder Return and Total Return Ratio (Billions of yen) 2,500 (cid:2) Total amount of dividends (common shares) (cid:2) Total amount of dividends (First Series Model AA Class Shares) (cid:2) Share repurchase for shareholder returns (cid:2) Share repurchase to avoid dilution of common shares (Billions of yen) 1,600 (Yen) 250 200 150 100 50 0 140 75 65 120 70 50 100 35 65 90 55 35 45 25 20 50 30 20 50 30 20 90 60 30 200 125 165 100 210 110 210 110 65 75 100 100 2,000 1,500 1,000 500 0 -500 1,400 1,200 1,000 800 600 400 200 0 (FY) ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 Repurchase in connection with the issuance of First Series Model AA Class Shares Repurchase in connection with the disposition of shares to Toyota Mobility Foundation 180.0 180.0 293.3 349.9 639.3 2.4 449.9 4.9 1,082.4 156.8 (FY) ’11/3 157.7 ’12/3 522.9 631.3 645.5 627.5 285.0 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 Total amount of payment (billions of yen) Payout ratio* 292.1 384.6 443.2 313.5 141.1 156.8 157.7 285.0 522.9 631.3 645.5 627.5 21.3% 23.4% 25.9% — 67.4% 38.4% 55.6% 29.6% 28.7% 29.0% 28.3% 34.6% Total shareholder return*1 (billions of yen) Total return ratio*1, 2 156.8 157.7 285.0 702.9 924.6 1,287.2 1,082.4 38.4% 55.6% 29.6% 38.5% 42.5% 55.6% 59.1% * Payout ratio: This is the ratio of (i) the amount of dividend per common share to (ii) net income attributable to Toyota Motor Corporation per common share. *1 Excluding repurchase made to avoid dilution of common shares. *2 Total Return Ratio: This is the ratio of (i) the sum of dividends on both common shares and the First Series Model AA Class Shares and the amount of repurchase of common shares for shareholder return to (ii) net income attributable to Toyota Motor Corporation. 41 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Financial Information Financial Strategy Financial Results and Position Financial Summary Financial Results and Position Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Consolidated Financial Results Consolidated Financial Position Reviewing the general economic environment for increased by 215 thousand units, or 10.4%, to 2,274 FY2017 (April 1, 2016 through March 31, 2017), with thousand units in FY2017 compared with FY2016, respect to the world economy, the U.S. economy has primarily as a result of the active introduction of new seen ongoing recovery due to increasing personal products and the efforts of dealers nationwide. consumption owing to improvements in employment Toyota and Lexus brands’ market share excluding Income before 2,193.8 billion yen income taxes (a decrease of 789.5 billion yen and equity in or 26.5% compared with Cash and cash equivalents increased by 55.6 billion yen, or 1.9%, to 2,995.0 billion yen at the end of earnings of afﬁ liated companies FY2016) FY2017 compared with the end of FY2016. The increases or decreases for each cash ﬂ ow activity compared with the previous ﬁ scal year are as follows: and income conditions, and the European economy mini-vehicles was 47.8%, while market share (including Net income 1,831.1 billion yen has continued its moderate recovery. Meanwhile, Daihatsu and Hino brands) including mini-vehicles weaknesses have been seen in some emerging was 45.0%, representing a record high. Each countries. The Japanese economy has been on remained at as high a level as in FY2016. Meanwhile, attributable to (a decrease of 481.5 billion yen Toyota Motor or 20.8% compared with Corporation FY2016) Cash ﬂ ows from operating activities Net cash ﬂ ows from operating activities resulted in an increase in cash by 3,414.2 billion yen in FY2017. a moderate recovery due to improvements in overseas vehicle unit sales increased by 75 thousand Changes in operating income and loss for FY2017 Net cash provided by operating activities decreased employment and income conditions. units, or 1.1%, to 6,697 thousand units in FY2017 For the automobile industry, although markets compared with FY2016, because of sales expansion Marketing efforts an increase of 210.0 billion yen compared with FY2016 by 1,046.6 billion yen from 4,460.8 billion yen in FY2016. have progressed in a steady manner in the devel- in Asia and Europe despite decline in sales in the Effects of changes a decrease of 940.0 billion yen oped countries and expanded in China due to effects Middle East. of a sales tax cut on small cars, markets in resource- rich countries have slowed down. Meanwhile, efforts Result of Operation for FY2017 toward improvement across businesses in areas Net revenues 27,597.1 billion yen including automated driving technology, connected vehicles, environmental technologies used in fuel cell vehicles and electric vehicles, as well as car-sharing and ride-sharing have become active. Operating income Under these conditions, consolidated vehicle unit (a decrease of 805.9 billion yen or 2.8% compared with FY2016) 1,994.3 billion yen (a decrease of 859.5 billion yen or 30.1% compared with sales in Japan and overseas increased by 290 thou- FY2016) sand units, or 3.3%, to 8,971 thousand units in FY2017 compared with FY2016 (April 1, 2015 through March 31, 2016). Vehicle unit sales in Japan in exchange rates compared with FY2016 Cash ﬂ ows from investing activities Cost reduction an increase of 440.0 billion yen efforts compared with FY2016 Net cash ﬂ ows from investing activities resulted in a decrease in cash by 2,969.9 billion yen in FY2017. Net cash used in investing activities decreased by Increase in a decrease of 530.0 billion yen 212.6 billion yen from 3,182.5 billion yen in FY2016. expenses and compared with FY2016 others Other a decrease of 39.5 billion yen compared with FY2016 Note: Translational impacts concerning operating income of overseas subsidiaries and concerning provisions in foreign currencies at the end of the ﬁ scal year are included in “Effects of changes in exchange rates” from the consolidated ﬁ scal year ended March 31, 2017. Cash ﬂ ows from ﬁ nancing activities Net cash ﬂ ows from ﬁ nancing activities resulted in a decrease in cash by 375.1 billion yen in FY2017. Net cash used in ﬁ nancing activities decreased by 48.4 billion yen from 423.5 billion yen in FY2016. 42 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information 17,833,695 18,209,553 (375,858) Current liabilities 17,318,965 16,124,456 1,194,509 Financial Information Financial Strategy Financial Results and Position Financial Summary Financial Results and Position Consolidated Balance Sheets Assets Current assets Cash and cash equivalents Time deposits Marketable securities FY2017 (March 31, 2017) FY2016 (March 31, 2016) Increase (Decrease) Liabilities 2,995,075 1,082,654 1,821,598 2,939,428 1,032,034 1,511,389 55,647 50,620 Short-term borrowings Current portion of long-term debt 310,209 Accounts payable Trade accounts and notes receivable, less allowance for doubtful accounts 2,115,938 2,000,149 115,789 Other payables Accrued expenses Finance receivables, net Other receivables Inventories Deferred income taxes Prepaid expenses and other current assets Noncurrent ﬁ nance receivables, net 6,196,649 436,867 2,388,617 — 796,297 9,012,222 5,912,684 451,406 2,061,511 967,607 1,333,345 8,642,947 Investments and other assets 11,707,160 10,834,680 283,965 Income taxes payable (14,539) Other current liabilities 327,106 Long-term liabilities (967,607) Long-term debt (537,048) Accrued pension and severance costs 369,275 872,480 Deferred income taxes Other long-term liabilities Marketable securities and other securities investments 7,679,928 7,439,799 240,129 Total liabilities Mezzanine equity Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values FY2017 (March 31, 2017) FY2016 (March 31, 2016) Increase (Decrease) (Yen in millions) 4,953,682 4,290,449 2,566,382 936,938 3,137,827 223,574 1,210,113 4,698,134 3,822,954 2,389,515 1,040,277 2,726,120 343,325 1,104,131 12,762,268 13,214,955 9,911,596 905,070 1,423,726 521,876 9,772,065 904,911 2,046,089 491,890 30,081,233 29,339,411 485,877 479,779 255,548 467,495 176,867 (103,339) 411,707 (119,751) 105,982 (452,687) 139,531 159 (622,363) 29,986 741,822 6,098 Afﬁ liated companies Employees receivables Other Property, plant and equipment Land Buildings 2,845,639 25,187 1,156,406 10,197,109 1,379,991 4,470,996 2,631,612 32,998 730,271 9,740,417 1,352,904 4,311,895 Machinery and equipment 11,357,340 10,945,267 Vehicles and equipment on operating leases Construction in progress 5,966,579 474,188 5,652,622 513,953 214,027 Shareholders’ equity (7,811) Toyota Motor Corporation shareholders’ equity 17,514,812 16,746,935 767,877 426,135 456,692 Common stock, no par value Additional paid-in capital 27,087 Retained earnings 397,050 484,013 397,050 548,161 17,601,070 16,794,240 Accumulated other comprehensive income (loss) 640,922 610,768 159,101 412,073 313,957 Treasury stock, at cost Noncontrolling interests (39,765) Total shareholders’ equity (1,608,243) (1,603,284) 668,264 861,472 18,183,076 17,608,407 — (64,148) 806,830 30,154 (4,959) (193,208) 574,669 Less – Accumulated depreciation (13,451,985) (13,036,224) (415,761) Total assets 48,750,186 47,427,597 1,322,589 Total liabilities, mezzanine equity and shareholders’ equity 48,750,186 47,427,597 1,322,589 Note: Mezzanine equity consists of the Model AA Class Shares, which is reported as a separate line item between Liabilities and Shareholders’ equity. 43 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Financial Information Financial Strategy Financial Results and Position Financial Summary Financial Results and Position Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Consolidated Statements of Income (Yen in millions) Consolidated Vehicle Sales Net Revenues Net revenues Sales of products Financing operations Costs and expenses Cost of products sold Cost of ﬁ nancing operations Selling, general and administrative Operating income Other income (expense) Interest and dividend income Interest expense Foreign exchange gain (loss), net Other income (loss), net Income before income taxes and equity in earnings of afﬁ liated companies Provision for income taxes Equity in earnings of afﬁ liated companies Net income Less – Net income attributable to noncontrolling interests Net income attributable to Toyota Motor Corporation FY2017 (For the year ended March 31, 2017) FY2016 (For the year ended March 31, 2016) Increase (Decrease) 27,597,193 25,813,496 1,783,697 25,602,821 21,543,035 1,191,301 2,868,485 1,994,372 199,453 158,983 (29,353) 33,601 36,222 28,403,118 26,549,111 1,854,007 25,549,147 21,456,086 1,149,379 2,943,682 2,853,971 129,410 157,862 (35,403) (5,573) 12,524 2,193,825 2,983,381 628,900 362,060 878,269 329,099 1,926,985 2,434,211 (805,925) (735,615) (70,310) 53,674 86,949 41,922 (75,197) (859,599) 70,043 1,121 6,050 39,174 23,698 (789,556) (249,369) 32,961 (507,226) (95,876) (121,517) 25,641 (Thousands of units) 10,000 (Billions of yen) 30,000 8,871 9,116 8,972 8,681 8,971 8,000 6,000 4,000 2,000 0 28,403.1 27,234.5 27,597.1 25,691.9 22,064.1 25,000 20,000 15,000 10,000 5,000 0 FY 2013 2014 2015 2016 2017 FY 2013 2014 2015 2016 2017 Operating Income and Ratio of Operating Income to Net Revenues Net Income Attributable to Toyota Motor Corporation and ROE (cid:3)(cid:3) Operating income (cid:4)(cid:4) % to net revenues (Right scale) (Billions of yen) 3,000 (cid:3)(cid:3) Net income attributable to Toyota Motor Corporation (cid:4)(cid:4) ROE (Right scale) (Billions of yen) 3,000 (%) 12.0 13.7 13.9 13.8 (%) 15.0 12.5 1,831,109 2,312,694 (481,585) 2,853.9 2,750.5 Note: Net income attributable to common shareholders for the ﬁ scal year ended March 31, 2017 and 2016 is 1,821,314 million yen and 2,306,607 million yen, respectively, which is derived by deducting dividend and accretion to Model AA Class Shares of 9,795 million yen and 6,087 million yen, respectively, from Net income attributable to Toyota Motor Corporation. 2,500 2,000 2,292.1 8.9 Net Income Attributable to Toyota Motor Corporation per Common Share (Yen) Basic Diluted 605.47 599.22 741.36 735.36 (135.89) (136.14) 1,500 6.0 1,320.8 10.1 10.0 10.0 2,500 1,994.3 8.0 2,000 7.2 6.0 1,500 1,823.1 8.5 1,000 500 0 4.0 1,000 962.1 2.0 500 0 0 2,312.6 2,173.3 10.6 10.0 1,831.1 7.5 5.0 2.5 0 FY 2013 2014 2015 2016 2017 FY 2013 2014 2015 2016 2017 44 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Financial Information Financial Strategy Financial Results and Position Financial Summary Financial Results and Position Consolidated Statements of Cash Flows Cash ﬂ ows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation Provision for doubtful accounts and credit losses Pension and severance costs, less payments Losses on disposal of ﬁ xed assets Unrealized losses on available-for-sale securities, net Deferred income taxes Equity in earnings of afﬁ liated companies Changes in operating assets and liabilities, and other Net cash provided by operating activities Cash ﬂ ows from investing activities: Additions to ﬁ nance receivables Collection of and proceeds from sales of ﬁ nance receivables Additions to ﬁ xed assets excluding equipment leased to others Additions to equipment leased to others Proceeds from sales of ﬁ xed assets excluding equipment leased to others Proceeds from sales of equipment leased to others Purchases of marketable securities and security investments Proceeds from sales of and maturity of marketable securities and security investments Payment for additional investments in afﬁ liated companies, net of cash acquired Changes in investments and other assets, and other Net cash used in investing activities Cash ﬂ ows from ﬁ nancing activities: Proceeds from issuance of long-term debt Payments of long-term debt Increase (decrease) in short-term borrowings Proceeds from issuance of class shares Dividends paid to Toyota Motor Corporation class shareholders Dividends paid to Toyota Motor Corporation common shareholders Dividends paid to noncontrolling interests Reissuance (repurchase) of treasury stock, and other Net cash used in ﬁ nancing activities Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (Yen in millions) FY2017 (For the year ended March 31, 2017) FY2016 (For the year ended March 31, 2016) 1,926,985 2,434,211 1,610,950 98,666 23,253 30,673 7,073 (53,299) (362,060) 131,996 3,414,237 1,625,837 159,265 8,833 33,329 9,272 32,889 (329,099) 486,320 4,460,857 (13,636,694) 12,927,981 (1,223,878) (2,317,559) (13,549,278) 13,115,854 (1,282,545) (2,776,671) 41,238 1,238,278 (2,517,008) 1,901,541 44,274 571,888 (2,969,939) 4,603,446 (3,845,554) 273,037 — (3,697) (634,475) (63,936) (703,986) (375,165) (13,486) 55,647 2,939,428 2,995,075 42,147 1,111,727 (2,197,477) 3,415,815 628 (1,062,744) (3,182,544) 4,845,872 (4,176,202) (10,903) 474,917 (1,225) (704,728) (73,129) (778,173) (423,571) (199,871) 654,871 2,284,557 2,939,428 45 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Financial Information Financial Strategy Financial Results and Position Financial Summary Financial Results and Position Segment Operating Results Automotive FY2017 (As of and for the year ended March 31, 2017) Net revenues for the automotive operations decreased by 895.5 billion yen, or 3.4%, to 25,081.8 Net revenues: Sales to external customers Inter-segment sales and transfers billion yen in FY2017 compared with FY2016, and Total operating income decreased by 756.0 billion yen, or 30.9%, to 1,692.9 billion yen in FY2017 compared Operating expenses Operating income Assets with FY2016. The decrease in operating income was Investment in equity method investees mainly due to the effects of changes in exchange rates and the increase in expenses and others. Depreciation expenses Capital expenditure Financial services Net revenues for the ﬁ nancial services operations decreased by 72.6 billion yen, or 3.8%, to 1,823.6 billion yen in FY2017 compared with FY2016, and FY2016 (As of and for the year ended March 31, 2016) Net revenues: operating income decreased by 116.7 billion yen, or Sales to external customers 34.4%, to 222.4 billion yen in FY2017 compared with Inter-segment sales and transfers FY2016. The decrease in operating income was mainly due to the increase in expenses related to Total Operating expenses Operating income credit losses and residual value losses in sales Assets Investment in equity method investees Depreciation expenses Capital expenditure ﬁ nance subsidiaries. All other Net revenues for all other businesses increased by 143.6 billion yen, or 12.2%, to 1,321.0 billion yen in FY2017 compared with FY2016, and operating income increased by 14.8 billion yen, or 22.3%, to 81.3 billion yen in FY2017 compared with FY2016. Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values (Yen in millions) Inter-segment Elimination and/or Unallocated Amount Consolidated — 27,597,193 (629,306) (629,306) (626,950) (2,356) 7,915,579 90,193 — 12,014 — 27,597,193 25,602,821 1,994,372 48,750,186 2,845,422 1,610,950 3,541,437 (Yen in millions) Inter-segment Elimination and/or Unallocated Amount Consolidated — 28,403,118 (647,909) (647,909) (647,149) (760) 8,179,682 78,776 — (10,010) — 28,403,118 25,549,147 2,853,971 47,427,597 2,631,389 1,625,837 4,059,216 Automotive 25,032,229 49,618 25,081,847 23,388,874 1,692,973 16,156,496 2,745,437 912,797 1,293,564 Automotive 25,923,813 53,603 25,977,416 23,528,418 2,448,998 15,621,757 2,532,644 900,434 1,389,289 Financial Services 1,783,697 39,903 1,823,600 1,601,172 222,428 22,507,613 9,792 671,155 2,182,149 Financial Services 1,854,007 42,217 1,896,224 1,556,998 339,226 21,709,010 9,168 697,991 2,638,111 All Other 781,267 539,785 1,321,052 1,239,725 81,327 2,170,498 — 26,998 53,710 All Other 625,298 552,089 1,177,387 1,110,880 66,507 1,917,148 10,801 27,412 41,826 Note: Unallocated corporate assets included under "Inter-segment Elimination and/or Unallocated Amount" for FY2017 and FY2016 are 9,177,953 million yen and 9,369,868 million yen, respectively, and consist primarily of funds such as cash and cash equivalents, marketable securities and portion of security investments held by TMC. 46 TOYOTA Annual Report 2017 Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values (Yen in millions) Inter-segment Elimination and/or Unallocated Amount Consolidated Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Financial Information Financial Strategy Financial Results and Position Financial Summary Financial Results and Position Geographic Information Japan Net revenues in Japan increased by 71.3 billion yen, or 0.5%, to 14,830.8 billion yen in FY2017 compared with FY2016. However, operating income decreased by 475.2 billion yen, or 28.3%, to 1,202.2 billion yen in FY2017 compared with FY2016. The decrease in operating income was mainly due to the effects of changes in exchange rates and the increase in expenses and others. North America Net revenues in North America decreased by 812.8 billion yen, or 7.4%, to 10,239.0 billion yen in FY2017 compared with FY2016, and operating income decreased by 217.6 billion yen, or 41.2%, to 311.1 billion yen in FY2017 compared with FY2016. The decrease in operating income was mainly due to the increase in expenses and others as well as the increase in expenses related to credit losses and residual value losses, and the recording of valuation losses on interest rate swaps stated at fair value, both in sales ﬁ nance subsidiaries. Europe Net revenues in Europe increased by 19.7 billion yen, or 0.7%, to 2,681.0 billion yen in FY2017 compared with FY2016. However, operating income decreased by 84.6 billion yen to an operating loss of 12.2 billion yen in FY2017 compared with FY2016. The decrease in operating income was mainly due to the increase in expenses and others. Asia Net revenues in Asia decreased by 184.0 billion yen, or 3.7%, to 4,819.8 billion yen in FY2017 compared with FY2016, and operating income decreased by 14.0 billion yen, or 3.1%, to 435.1 billion yen in FY2017 compared with FY2016. The decrease in operating income was mainly due to the effects of changes in exchange rates. Other (Central and South America, Oceania, Africa and the Middle East) Net revenues in other regions decreased by 49.1 bil- lion yen, or 2.2%, to 2,161.0 billion yen in FY2017 compared with FY2016, and operating income decreased by 50.2 billion yen, or 46.1%, to 58.6 bil- lion yen in FY2017 compared with FY2016. The decrease in operating income was mainly due to the increase in expenses and others. FY2017 (As of and for the year ended March 31, 2017) Net revenues: Japan North America Europe Asia Other Sales to external customers 8,798,903 10,033,419 2,517,601 4,279,617 1,967,653 — 27,597,193 Inter-segment sales and transfers 6,031,965 205,672 163,438 540,204 193,421 (7,134,700) — Total 14,830,868 10,239,091 2,681,039 4,819,821 2,161,074 (7,134,700) 27,597,193 Operating expenses 13,628,623 9,927,897 2,693,283 4,384,642 2,102,380 (7,134,004) 25,602,821 Operating income (loss) 1,202,245 311,194 (12,244) 435,179 58,694 (696) 1,994,372 Assets 14,791,969 17,365,237 2,846,469 4,486,021 2,819,935 6,440,555 48,750,186 FY2016 (As of and for the year ended March 31, 2016) Net revenues: Japan North America Europe Asia Other Inter-segment Elimination and/or Unallocated Amount Consolidated Sales to external customers 8,588,437 10,822,772 2,507,292 4,475,623 2,008,994 — 28,403,118 Inter-segment sales and transfers 6,171,051 229,198 154,039 528,236 201,220 (7,283,744) — Total Operating expenses Operating income Assets 14,759,488 11,051,970 2,661,331 5,003,859 2,210,214 (7,283,744) 28,403,118 13,081,966 10,523,151 2,588,915 4,554,670 2,101,305 (7,300,860) 25,549,147 1,677,522 528,819 72,416 449,189 108,909 17,116 2,853,971 14,291,434 16,622,979 2,612,210 4,415,700 2,579,113 6,906,161 47,427,597 Note: 1. Unallocated corporate assets included under “Inter-segment Elimination and/or Unallocated Amount” for FY2017 and FY2016 are 9,177,953 million yen and 9,369,868 million yen, respectively, and consist primarily of funds such as cash and cash equivalents, marketable securities and portion of security investments held by TMC. 2. “Other” consists of Central and South America, Oceania, Africa and the Middle East. 47 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Financial Information Financial Strategy Financial Results and Position Financial Summary Financial Summary (Consolidated) Ever-Betetterer Carss EEEnrEEnrEnric Enriching Lives of Cof CCCof C Communities Stable Base of Business ToToyota a Value Toyota Values oyota Value Toyota Values Fiscal years ended March 31 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Consolidated Vehicle Sales (thousands of units) 8,913 7,567 7,237 7,308 7,352 8,871 9,116 8,972 8,681 8,971 Foreign Exchange Rates (Average) Yen to US Dollar Rate Yen to Euro Rate 114 162 101 144 93 131 86 113 79 109 83 107 100 134 110 139 120 133 108 119 Net Revenues (billions of yen) 26,289.2 20,529.5 18,950.9 18,993.6 18,583.6 22,064.1 25,691.9 27,234.5 28,403.1 27,597.1 Operating Income (Loss) (billions of yen) 2,270.3 (461.0) Income (Loss) before Income Taxes (billions of yen) 2,437.2 (560.4) Net Income (Loss) (Note 1) (billions of yen) 1,717.8 (437.0) Common Shares Cash Dividends (billions of yen) 443.2 313.5 Cash Dividends per Share Payout Ratio (yen) (%) Value of Shares Repurchased [shareholder return] (Note 2) (billions of yen) 140 25.9 69.9 100 — — 147.5 291.4 209.4 141.1 45 67.4 — R&D Expenses (billions of yen) 958.8 904.0 725.3 Depreciation Expenses (Note 3) (billions of yen) 1,042.4 1,072.1 1,032.0 Capital Expenditures (Note 3) (billions of yen) 1,480.2 1,302.5 579.0 468.2 563.2 408.1 156.8 50 38.4 — 730.3 812.3 642.3 355.6 1,320.8 2,292.1 2,750.5 2,853.9 1,994.3 432.8 1,403.6 2,441.0 2,892.8 2,983.3 2,193.8 283.5 157.7 50 55.6 — 779.8 732.9 706.7 962.1 1,823.1 2,173.3 2,312.6 1,831.1 285.0 522.9 631.3 645.5 627.5 90 29.6 165 28.7 200 29.0 210 28.3 — 180.0 293.3 639.3 210 34.6 449.9 (maximum) 807.4 727.3 910.5 1,004.5 1,055.6 1,037.5 775.9 806.2 885.1 893.2 852.7 1,000.7 1,177.4 1,292.5 1,211.8 Total Liquid Assets (Note 4) (billions of yen) 4,215.4 3,324.1 4,656.3 4,943.4 4,968.1 5,883.1 7,661.9 8,508.2 9,229.9 9,199.5 Total Assets (billions of yen) 32,458.3 29,062.0 30,349.2 29,818.1 30,650.9 35,483.3 41,437.4 47,729.8 47,427.5 48,750.1 Toyota Motor Corporation Shareholders’ Equity (billions of yen) 11,869.5 10,061.2 10,359.7 10,332.3 10,550.2 12,148.0 14,469.1 16,788.1 16,746.9 17,514.8 Return on Equity Return on Asset (%) (%) 14.5 5.3 (4.0) (1.4) 2.1 0.7 3.9 1.4 2.7 0.9 8.5 2.9 13.7 4.7 13.9 4.9 13.8 4.9 10.6 3.8 (Note 1) Shows “Net income (loss) attributable to Toyota Motor Corporation” (Note 2) Value of common shares repurchased (shareholder return on Net Income for the period, excluding shares constituting less than one unit that were purchased upon request and repurchases made to avoid dilution of shares) (Note 3) Figures for depreciation expenses and capital expenditures do not include vehicles in operating lease (Note 4) Excludes ﬁ nancial subsidiaries 48 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Non-Automotive Business Corporate Information and Stock Information Non-Automotive Businesses Financial Services Housing Services Toyota Financial Services Corporation provides ﬁ nan- One such initiative was investment in a new In housing services, Toyota Housing Corporation oper- from across the Toyota Group. Using this facility, we cial services, mainly auto loans and leasing, to more telematics car insurance services company in the ates a range of housing-related businesses, including aim to accelerate joint housing development with than 26 million customers across its network, which United States. This company is developing insurance detached house construction as well as condominium companies throughout the Toyota Group, focusing spans more than 35 countries and regions. In April services in which driver-speciﬁ c data on distance development and housing renovations. The mainstay on housing ten years down the road and beyond. 2016, Toyota Motor Corporation created an internal driven and other driving patterns is collected and detached house construction business has a sales area In November 2016, Toyota Housing and Misawa Sales Financial Business Group, better enabling its analyzed to calculate insurance rates. covering 28 of Japan’s prefectures, with three factories Homes Co., Ltd. entered a capital and business alli- ﬁ nancial services and automotive business divisions to Furthermore, Toyota has entered a partnership with across the country. In ﬁ scal 2017, the housing services ance, under which Misawa became a subsidiary of work together to rapidly implement automotive sales Uber Technologies Inc., the largest ridesharing com- business sold 10,321 units on a consolidated basis and Toyota Housing. Since 2005, when Toyota Motor and value chain initiatives. In ﬁ scal 2017, the ﬁ nancial pany in the United States. Through collaboration with generated net revenues of ¥300.8 billion. Corporation and Misawa Homes formed a capital alli- services business recorded net revenues of ¥1,823.6 Uber in ridesharing outside Japan, Toyota aims to Under the brand vision “Sincerely for You,” we ance, the two companies have engaged in joint billion and operating income of ¥222.4 billion. build safe, convenient and appealing mobility services. have been working to strengthen our brand and the materials purchasing, joint land purchasing and sub- With the automotive industry undergoing major Going forward, we will continue to develop and competitiveness of our products. As a result, we dividing, joint development of rental housing, and changes, Toyota has been implementing numerous provide ﬁ nancial services in line with customer needs achieved greater growth in orders received than the personnel exchange. The new alliance will accelerate new initiatives related to the use of information tech- and local market characteristics to help customers average for Japan’s top eight prefabricated home both sides’ growth strategies and link their business- nology in cars, especially in the area of connected enjoy the beneﬁ ts of driving. companies in ﬁ scal 2017. Furthermore, aiming to cre- es, particularly their detached house business and cars, to cultivate new business areas. ate housing that will support working women and new businesses, to provide customers with better WEB Toyota Financial Services Corporation enable seniors to enjoy rich, active lives, we created products and services. the KenBiKenJu Laboratory, a next-generation hous- ing research facility that brings together technologies WEB Toyota Housing Corporation (Japanese language only) Network Spanning More Than 35 Countries and Regions Sma rter l ivi ng Time for women to shine Exploring smart living using cutting-edge technology to achieve greater comfort than ever before. Reducing the burden of housework, childcare, and nursing care to give women time to shine, helping them participate fully in society. Hea lth for the w ho le fa mil y V it ality for life Facilitating daily health management, offering refreshment for the body and mind, and providing quality sleep. Extending healthy life expectancy and pro- viding the safety and security to enjoy life. KenBiKenJu Laboratory, a next-generation housing research facility 49 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Non-Automotive Business Corporate Information and Stock Information Corporate Information and Stock Information (As of March 31 2017) Corporate Data Company Name Established Common Stock Fiscal Year-End Public Accounting Firm Number of Afﬁ liates Number of Employees Corporate Website Stock Data Number of Shares Authorized Number of Shares Issued Number of Treasury Stock Number of Shareholders Number of Shares per Trading Unit Stock Listings Toyota Motor Corporation August 28, 1937 ¥635.4 billion March 31 PricewaterhouseCoopers Aarata LLC Consolidated subsidiaries: 597 Afﬁ liates accounted for by the equity method: 54 364,445 (Parent company: 73,875) Corporate information: http://www.toyota-global.com IR information: http://www.toyota-global.com/investors 10,000,000,000 shares Common shares: 3,262,997,492 shares First series Model AA class shares: 47,100,000 shares 288,274,636 shares 687,028 100 shares Japan: Tokyo, Nagoya, Fukuoka, Sapporo Oversea: New York, London Japan: 7203 Securities Code American Depositary Receipts (ADRs) Ratio: 1 ADR=2 Common Stock Transfer Agent in Japan Symbol: TM Mitsubishi UFJ Trust and Banking Corporation 1-1, Nikko-cho, Fuchu City, Tokyo 183-0044, Japan Japan toll-free: (0120) 232-711 Depository and Transfer Agent for ADRs The Bank of New York Mellon 101 Barclay Street, New York, NY 10286, U.S.A. Tel: (201) 680-6825 U.S. toll-free: (888) 269-2377, (888) BNY-ADRS Depositary Receipt: http://www.adrbnymellon.com Transfer Agent: https://www-us.computershare.com/investor Contact Points for Investors Japan Toyota City Head Ofﬁ ce: 1, Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan Tel: (0565) 28-2121 Fax: (0565) 23-5721 Tokyo Head Ofﬁ ce: 4-18, Koraku 1 chome, Bunkyo-ku, Tokyo 112-8701, Japan Tel: (03) 3817-7111 Fax: (03) 3817-9092 U.S.A. Toyota Motor North America, Inc. U.K. 1114 Avenue of the Americas, Suite 4115, New York, NY 10036, U.S.A. Tel: (212) 715-7447 FAX: (212) 759-7670 Toyota Motor Europe Second Floor, Caroline House, 55-57 High Holborn, London WC1V 6DX, U.K. Tel: (207) 290-8511 Major Shareholders (Top 10) Name Japan Trustee Service Bank, Ltd. Toyota Industries Corporation The Master Trust Bank of Japan ,Ltd. Nippon Life Insurance Company State Street Bank and Trust Company (Standing Proxy: Settlement & Cleaning Services Division, Mizuho Bank, Ltd.) DENSO Corporation JP Morgan Chase Bank, N.A. (Standing Proxy: Settlement & Cleaning Services Division, Mizuho Bank, Ltd.) Mitsui Sumitomo Insurance Company, Limited Trust & Custody Services Bank, Ltd. The Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders Common shares (1,000 shares) First series Model AA class shares (1,000 shares) Total (1,000 shares) 364,158 229,274 156,668 120,045 104,004 86,882 72,050 60,811 58,941 56,099 180 — — 560 — — — — — — 364,338 229,274 156,668 120,605 104,004 86,882 72,050 60,811 58,941 56,099 Percentage of Shareholding (%) 12.06 7.59 5.18 3.99 3.44 2.88 2.38 2.01 1.95 1.86 1. The Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders is the nominee of the Bank of New York Mellon, which is the Depositary for holders of TMC’s American Depositary Receipts (ADRs). 2. The percentage of shareholding is calculated after deducting the number of shares of treasury stock (288,274 thousand shares) from the total number of shares issued. Ownership Breakdown Individuals, etc. (including treasury stock): 728,206 thousand shares (22.00%) Other corporate entities: 687,807 thousand shares (20.78%) Financial institutions, brokerages: 1,103,278 thousand shares (33.33%) Foreign corporate entities and others: 790,804 thousand shares (23.89%) Note: Ratio indicates the share of ownership to the total number of shares issued. 50 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance History Initiatives for Sustainable Growth Financial Information Non-Automotive Business/Corporate Information and Stock Information Cautionary Statement with Respect to Forward-Looking Statements Toyota has become a Worldwide Olympic/Paralympic Partner in the category of vehicles, mobility services and mobility solutions. This report contains forward-looking statements that reﬂ ect Toyota’s plans and expectations. These forward-looking statements are not guarantees of future performance and involve known (v) Toyota’s ability to realize production efﬁ ciencies and to implement capital expenditures at the levels and times planned by management; (vi) changes in the laws, regulations and government fuel shortages or interruptions in electricity, transportation systems, labor strikes, work stoppages or other interruptions to, or difﬁ culties in, the employment of labor in the major markets where and unknown risks, uncertainties and other factors that may cause Toyota’s actual results, per- policies in the markets in which Toyota operates that affect Toyota’s automotive operations, par- Toyota purchases materials, components and supplies for the production of its products or formance, achievements or ﬁ nancial position to be materially different from any future results, per- ticularly laws, regulations and government policies relating to vehicle safety including remedial where its products are produced, distributed or sold; and (xiv) the impact of natural calamities formance, achievements or ﬁ nancial position expressed or implied by these forward-looking measures such as recalls, trade, environmental protection, vehicle emissions and vehicle fuel including the negative effect on Toyota’s vehicle production and sales. statements. These factors include, but are not limited to: (i) changes in economic conditions, economy, as well as changes in laws, regulations and government policies that affect Toyota’s market demand, and the competitive environment affecting the automotive markets in Japan, other operations, including the outcome of current and future litigation and other legal proceed- A discussion of these and other factors which may affect Toyota’s actual results, performance, North America, Europe, Asia and other markets in which Toyota operates; (ii) ﬂ uctuations in cur- ings, government proceedings and investigations; (vii) political and economic instability in the achievements or ﬁ nancial position is contained in Toyota’s annual report on Form 20-F, which is rency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar, markets in which Toyota operates; (viii) Toyota’s ability to timely develop and achieve market on ﬁ le with the United States Securities and Exchange Commission. the euro, the Australian dollar, the Russian ruble, the Canadian dollar and the British pound, and acceptance of new products that meet customer demand; (ix) any damage to Toyota’s brand interest rates ﬂ uctuations; (iii) changes in funding environment in ﬁ nancial markets and increased image; (x) Toyota’s reliance on various suppliers for the provision of supplies; (xi) increases in competition in the ﬁ nancial services industry; (iv) Toyota’s ability to market and distribute effectively; prices of raw materials; (xii) Toyota’s reliance on various digital and information technologies; (xiii) WEB SEC Filling 51 TOYOTA Annual Report 2017

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