Toyota Motor Corp. Annual Report 2018

Plain-text annual report

Annual Report 2018 Annual Report 2018 Fiscal year ended March 31, 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Table of Contents The Annual Report 2018 is intended to communicate to stakeholders Toyota’s long-term strategies for enhancing its cor- porate value and the ways that it is contributing to the sustainable development of society. More detailed information on Toyota’s ESG-related initiatives is published in the Sustainability Data Book 2018. (Published October 2018) Table of Contents 1 Table of Contents 2 Message from the President 5 Toward the Mobility Society of the Future 5 Management Team Toyota’s Reports and Publications Annual Report 2018 Securities Reports/SEC Filings Financial Results/Operating Results Corporate Governance Reports Sustainability Data Book 2018 Environmental Report 2018 —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 https://www.toyota-global.com/investors/ Sustainability https://www.toyota-global.com/sustainability/ Period Covered: Fiscal 2018 (April 2017 to March 2018) Some of the initiatives in ﬁ scal 2019 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 Sub-menu Jump to speciﬁ c parts within each section Icons The More details and WEB icons found in each section link to related pages of the report and to relevant web pages and PDFs online, respectively. The icon links to video content. * Requires an Internet connection. 1 TOYOTA Annual Report 2018 6 10 12 15 Using Connected Technologies to Expand the Freedom, Safety, and Excitement of a Smart Mobility Society Strengthening Our Competitiveness to Deliver Ever-Better Mobility to Customers around the World Eliminating CO2 Emissions from New Vehicles by 2050: Popularizing Electriﬁ ed Vehicles Making Ever-better Cars: Continuing to Make Cars That Will Be Beloved 17 Developing Our People and Our Cars: GAZOO Racing 18 Steady Progress toward Automated Driving 21 Partner Robots Toyota’s Business Innovation: 23 Organizational Framework, the Toyota Group, External Collaboration, and TPS and Cost Reduction 24 Developing People: The True Source of Toyota’s Competitiveness 25 Message from the CFO 26 Capital Policy 27 Initiatives for Sustainable Growth 29 Corporate Philosophy 30 Corporate Governance 32 Messages from the Outside Directors 35 Toyota Environmental Challenge 2050 and 2030 Milestones 37 Employees 40 Risk Management 41 Compliance 42 Customer First and Quality First Measures 43 Respect for Human Rights and Supply Chain Management Working to Better the World around Us 44 The Toyota Mobility Foundation, Olympic and Paralympic Worldwide Partnerships, Social Contribution Activities 46 Corporate Data 46 At a Glance 47 History 48 Financial Summary 50 Non-Automotive Businesses 51 Corporate Information and Stock Information Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Message from the President Surviving a Once-in-a-Century Period of Profound Transformation Over the past century, an estimated 15 million horses in Electriﬁ cation, automation, connectivity, sharing— the United States were replaced by the same number of technological innovation in these and other areas is cars. We may now be facing a paradigm shift of equal, if advancing rapidly. A contest with new rivals, under not greater, magnitude. Every day, I am reminded anew new rules of competition—not to win or lose, but to that the automotive industry has truly entered a once-in- survive or perish—is now beginning. a-century period of profound transformation. Mobility for All I am determined to transform Toyota from a car- Conversations like these have reafﬁ rmed my belief making company into a mobility company. This means that mobility for all—bringing the joy and freedom of that Toyota will provide all kinds of services related to movement to all people—is the goal that we must transportation to people around the world. work toward as an automotive company. About two years ago, a Paralympian told me some- As we move forward we must also always keep in thing that greatly inﬂ uenced how I think about mobility. mind the importance of creating mobility that will be She said, “Since I lost my future to a car accident, I beloved. People feel a unique attachment to their have hated cars. But today, hearing that Toyota will cars. As a company whose roots are in making cars, sponsor the Paralympic Games, I realized that cars Toyota will therefore remain committed to ensuring could also help rebuild my future.” On another occa- that the mobility it offers will inspire love. sion, Sir Philip Craven, a former President of the International Paralympic Committee and current inde- pendent director of Toyota, told me, “Freedom of movement is key to enabling the physically challenged to more actively participate in society.” Our Real-world Track Record and Virtual-world Potential At the beginning of 2018, we presented the e-Palette Sport Concept in Tokyo. In character, these two mod- Concept Vehicle in Las Vegas and the GR Super els are as different as they could be: the former is 2 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Message from the President designed provide to mobility services, and the latter to Our decades-long production of such much-beloved, be “Fun to Drive.” Both, however, are examples of long-selling models as the Crown and Corolla is part next-generation mobility, featuring such cutting-edge of our real-world track record. Our consistent produc- technologies as electriﬁ cation, automated driving, and tion of better cars at better prices for more customers connectivity. While these are still concept models, we to enjoy using the Toyota Production System is part of have begun equipping mass-market models, such as our real-world track record, too. I myself have sat the new Crown and Corolla Sport launched in Japan behind the wheel on roads around the world with fel- in June, with connected technology. In doing so, we low car lovers and spent my life developing cars that are advancing the full-scale promotion of the spread are safe, reliable, and emotionally appealing—this, of connected cars. Spearheading these efforts are too, is part of our real-world track record. All of these Toyota companies leading the way in developing the achievements have been built through the application virtual world, including Toyota Connected and Toyota of a Genchi Genbutsu (onsite, hands-on experience) Research Institute, the latter of which specializes in approach and ongoing, real-world effort. cutting-edge research into automated driving. Whether we are considering future mobility or design- real world and great potential in the virtual world will, ing current mass-market models, we always start by I think, be a strength going forward. That Toyota boasts both such a track record in the paying close attention to our customers and their needs. Building the necessary customer rapport for We will continue to leverage the strengths we have this takes time and sustained effort. Here, our exten- amassed in the real world while blazing the way for- sive history of working with our customers gives us ward in the virtual world. In doing so, we aim to create a unique advantage. new sources of strength for the future. Uniting the Toyota Group to Take on the Future Perhaps the greatest hindrance to reforms and inno- based on past sales volumes and proﬁ ts and there- vation at Toyota is its experience of past success. fore cannot guarantee future growth. I want to make sure that every model and every region is the absolute In the process of growing to be a full line-up car top priority of someone in the Toyota Group. To place maker with annual global sales of 10 million units, cer- greater priority on the businesses and regions that will tain priorities inadvertently took hold within Toyota. For drive our future growth, we are reorganizing Toyota’s example, developed markets came to be prioritized businesses at the Group-wide level using a perspec- over emerging markets and passenger vehicles over tive we call “home and away.” commercial vehicles. These priorities, however, are 3 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Message from the President Rather than relying just on its own abilities, Toyota is The electronic components and the African market are bringing together the full strength of the Group. We are critical parts of the mobility society of the future. As identifying the strengths that make up each company’s such, we decided to consolidate operations in these “home” turf to increase productivity and reinforce the areas at group companies that consider them home competitive strength of the Group as a whole. turf, thereby raising their priority within the Group. In this urgent time, there is no room for intra-Group com- In June, we announced the consolidation within petition; the future of the Toyota Group depends on DENSO of the Group’s core electronic component enhancing its competitiveness as a united whole. operations as well as an agreement to transfer all sales and marketing operations in Africa to Toyota Tsusho. Both these moves embody our “home and away” approach. Creating the Mobility Society of the Future At the same time, I do not imagine that we can do frameworks, rally like-minded partners, and leverage our everything purely within the Toyota Group alone. respective strengths as we continually take on the future. Having operated this long in the auto industry, working with vast networks of companies, we deeply under- I intend to personally lead the charge, ﬁ ghting along- stand the importance of collaboration. More than ever, side all Toyota Group employees every day to survive we will need the help of a wide range of partners as and thrive in this once-in-a-century period of profound we transform Toyota into a mobility company. transformation. I ask for your continued conﬁ dence and support as we move forward. An acquaintance of mine shared with me some insights on the kinds of thinking and action that the October 2018 coming era will require. As this person saw it, the key to action will not be adherence to precedent, but rath- er speed and disregard for precedent; the leadership needed will not be consensus building, but the ability to rally people behind a cause. We are serious about creating the mobility society of President, Member of the Board of Directors the future. Accordingly, we must look beyond existing Toyota Motor Corporation Akio Toyoda 4 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Management Team Executive Vice President Koji Kobayashi TPS and cost-reduction are Toyota’s backbone. I will pursue them on all fronts. Executive Vice President Didier Leroy I want to bring Energy, Passion, and Fighting spirit to achieve true competitiveness. Executive Vice President Shigeki Terashi It is time to unite globally as one Toyota to realize freedom of movement for all. Executive Vice President Mitsuru Kawai Only by applying human wisdom and skill can we realize the evolution of machines—that’s why I would like to nurture our people. President Akio Toyoda Executive Vice President Moritaka Yoshida I want to continue making beloved cars that are as exciting to watch as they are to ride in. Fellow Gill A. Pratt My personal mission is to help Toyota gain agility while maintaining its strength to improve quality of life for all mankind. Executive Vice President Shigeki Tomoyama The key to realizing mobility services is connected technology. I hope that cars will continue to amaze and inspire for the next 100 years. 5 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Using Connected Technologies to Expand the Freedom, Safety, and Excitement of a Smart Mobility Society As cars rapidly developed and became commonplace in the 20th century, reducing fossil fuel consumption, cutting CO2 emissions to prevent global warming, and preventing air pollution gradually became the major social issues demanding global solutions that they are today. In response, many counties and regions have made plans to shift to electriﬁ ed vehicles, and auto- makers are accelerating the development of such vehicles. Indeed, the electriﬁ cation of cars is an essential part of solving these challenges. At the same time, new social issues are also emerging, such as increased trafﬁ c congestion due to rising population density in urban centers, shrink- ing working populations and increased numbers of mobility-challenged individuals in developed coun- tries due to demographic graying, and deepening logistics crises due to changes in consumer behavior. In the midst of these social changes, the auto industry is entering a once-in-a-century period of profound transformation. Toyota provides freedom of movement—a form of social infrastructure. As such, we are ﬁ rmly determined to contribute to solving social issues by changing the very ways that people, things, and information ﬂ ow through the world. Based on this commitment, Toyota aims to connect cars, people, and communities and thereby create a smart mobility society that offers freedom of move- ment, safety, and excitement for all. Shigeki Tomoyama Executive Vice President 6 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Using Connected Technologies to Expand the Freedom, Safety, and Excitement of a Smart Mobility Society Our Connected Strategy for Realizing Connected Platforms Connecting cars is not only providing new value and services to customers, but creating new modes of use and new roles in society for cars. To stay at the forefront of this evolution, Toyota established the in-house Connected Company in April 2016 and announced its Connected Strategy in November of the same year. This strategy comprises three arrows that we are releasing simultaneously. Toyota’s Connected Strategy 1st Arrow Connect All Cars 2nd Arrow Creation of New Value and Business Revolution 3rd Arrow Creation of New Mobility Services “Connect” all cars and Promote the use of big Collaborate with vari- complete the connected data and contribute to ous industries and IT platform the good of customers companies to produce and society while revo- new mobility services lutionizing Toyota’s own businesses The Start of the Full-Scale Connected Car Rollout 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 (this service was replaced by T-Connect in 2014). In 2005, DCMs were 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, in June 2018, Toyota launched sales in Japan of the new Crown and Corolla Sport with DCMs as standard features for all grades. This marked the start of our full-scale roll out of connected cars. Toyota plans to adopt common standards for its worldwide DCMs by 2019, equip virtually all passen- ger vehicles it sells in Japan and the United States with DCMs by 2020, and steadily equip more vehi- cles with DCMs in other major markets around the world going forward. Connected Technologies: Creating Services That Offer Safety and Peace of Mind to Customers and Society Turning to the second arrow, as the number of con- nected cars on the road increases, so does the big data they generate. Toyota is using this data to con- tribute to the good of customers and society while revolutionizing its own businesses. Aggregate route history maps were made publicly available after the Great East Japan Earthquake, and such data has subsequently been used in evacua- tion, response, and recovery operations following several natural disasters. Furthermore, by analyzing the diverse information collected from cars on the road using big data approaches, we will be able to utilize that information to create and enhance services that provide safety and peace of mind. Making DCMs standard features also makes our online services more convenient and easier to use for our customers. The voice recognition enabled artiﬁ - cial intelligence (AI) virtual agent can understand pas- sengers’ natural speech to set the destination for the navigation system and perform other tasks. Of course, we also have operators standing by 24 hours a day, 365 days a year, to provide more in-depth response to customer requests. By offering virtual (AI) and real-world (operators) service, Toyota seeks to provide what it calls “Human Connected Service.” Route History Maps to the Rescue after Natural Disasters Toyota’s route history maps use aggregate data on where cars have actually been collected from Toyota vehicles equipped with DCMs to provide trafﬁ c information in a map format. The data is constantly updated, and has been used to inform response dur- ing and efforts after natural disasters. Services for Connected Cars Voice Recognition-enabled AI Virtual Agent Our voice-recognition service has evolved into an AI virtual agent. Merely by talking to the agent, users can set the desti- nation for the navigation system, even while the car is moving. Just press talk on the steering wheel and speak The virtual agent analyzes your words and responds Customer Is there a soba restaurant in Nagano with a parking lot? Navigation One such destination found. Should I set it as your destination? Agent What’s the weather like at my destination? What’s radar cruise control? It’s sunny. Weather Using vehicle features A system for cruising at a preset speed that automatically maintains a safe distance from other vehicles. e-Care (Driving Guidance) • Indicator lights turn on when an abnormality occurs ((cid:2)). Vehicle data is then analyzed ((cid:3),(cid:4)) and sent to an operator and the customer’s dealer ((cid:5)). • Using the navigation panel ((cid:6)), customers connect to the e-Care call center ((cid:7)), and an operator provides appropriate driving guidance. • Operators hand over customer response to the customer’s dealer ((cid:8)), which guides the customer through any necessary vehicle servicing ((cid:9)). (cid:6) Operator call screen (cid:7) Call and support Toyota Smart Center (cid:2) Indicator light Car (cid:3) Diagnostic data Big data (cid:5) Data (cid:129) Vehicle data analysis (cid:129) Determine likely cause (cid:4) of abnormality (cid:129) Vehicle operability decision (cid:129) Advice generation (cid:9) Support and guidance Operator (cid:8) Customer response handover Dealer 7 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Using Connected Technologies to Expand the Freedom, Safety, and Excitement of a Smart Mobility Society Accelerating Cross-industry Collaboration as a Mobility Service Platform Provider Under the third arrow, we are accelerating cross- industry collaboration through the Mobility Service Platform (MSPF). Using the MSPF, Toyota is taking an open approach, linking with all kinds of service providers to contribute to the creation of new mobili- ty services. We have already begun a range of collaborative ini- tiatives. In May 2016, Toyota and Uber Technologies Inc. began to consider a partnership in ride-sharing. In 2017, we conducted a pilot program for our Smart Key Box with U.S. car-sharing company Getaround, Inc.; began a partnership with Grab Holdings Inc., the leading ride-hailing service company in Southeast Asia; and began veriﬁ cation testing of connected taxis with the Tokyo Taxi-Hire Association. In 2018, we are working to deepen these and other initiatives in order to create new mobility services and acceler- ate their commercialization. Efforts to Deepen Collaborations in 2018 Expanded Partnership with Grab in the Area Mobility as a Service In June 2018, Toyota concluded an agreement with Grab to strengthen our existing partnership in the area of Mobility as a Service (MaaS) in Southeast Asia and announced our decision to invest US$1 billion (approximately ¥110 billion) in Grab. This expansion is aimed at expanding connected services across Southeast Asia. Speciﬁ cally, we aim to achieve con- nectivity for Grab’s rental car ﬂ eet across the region and to utilize vehicle data collected by the MSPF to roll out driving- data-based automotive insurance as well as ﬁ nancial servic- es for Grab drivers and maintenance services currently under development. Service charge Service Finance Car insurance Mobility Service Platform (MSPF) Telematics insurance Toyota Big Data Center (TBDC) Vehicle data/ Driving behavior data Vehicle management system Dealer Maintenance TOYOTA device TOYOTA device TOYOTA device Maintenance for ride sharing Pilot Testing of AI-based Taxi Dispatch Support System Aiming to Accelerate Service Development for Taxi Industry Transformation Vehicle dispatch service platform Vehicle dispatch data Driver User Toyota, JapanTaxi Co., Ltd., KDDI Corporation, and Accenture Japan Ltd have partnered to develop a taxi dis- patch support system that releases demand projections for taxi services based on a combination of data from taxi ser- vice logs, demographic data, event information and other inputs. Pilot testing of the system has now begun in Tokyo. Going forward, the companies plan to steadily install Toyota’s TransLog data-transmitting driving recorder in more taxis, analyzing visual driving data from these devices to ﬁ nd factors that correlate with taxi demand and then working with the taxi dispatch support system to apply the results of this research. Taxi service log Demographic prediction Mobility Service Platform Use AI to predict taxi demand Big Data Weather Public transport service availability Event TransLog driving image Taxi dispatch App Number of unoccupied taxis Recommended routes to find passengers Taxi Company/ Driver receive on tablet 8 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Using Connected Technologies to Expand the Freedom, Safety, and Excitement of a Smart Mobility Society mobility society that offers freedom of movement, safety, and excitement for all. More details Guardian system, p. 18 Collaboration with Uber We are jointly developing dedicated automated MaaS vehicles for introduction in Uber’s ridesharing service network from 2021. UTI/ATG Ridesharing platform and autonomous driving technology Software updates Data/dispatch Uber autonomous driving system Toyota Guardian System Vehicle control interface Vehicle control system TMC/TRI/TRI-AD Vehicle and automated driving technology Software updates Data MSPF Collect and analyze data NEXT * Guardian is a system designed to monitor, assist, and help safeguard a human driver or an autonomous driving system through the vehicle control interface. Business image of a joint venture company with Softbank Expanding Mobility Services in the Near Future Toyota is analyzing and processing the big data generat- ed by cars to create information that is useful for cus- tomers and a variety of connected services. We want the car to be a seamless extension of customers’ phones and computers, a kind of personal assistant on wheels that is able to anticipate their needs using AI. Based on this concept, we created the e-Palette Concept Vehicle. Using connected and automated driv- ing technologies, the e-Palette will serve as a common mobility platform that meets the needs of a wide range of service providers and business applications, including car-sharing, ride-sharing, parcel delivery, and retail. In other words, a single e-Palette Concept Vehicle could, depending on the time or other conditions, be used for a range of purposes by different operators. This is the vision of mobility service that the e-Palette makes possible. Furthermore, vehicle information constantly gath- ered through the MSPF will help optimize maintenance as well as the collection of data that can be used to anticipate demand for goods and services. Based on such capabilities, we are aiming to achieve the ulti- mate in just-in-time service, in which, when a custom- er summons an e-Palette Concept Vehicle, not only does it set out immediately, but it is already nearby. The technologies and expertise created in the AI-based dispatch system being tested in collabora- tion with JapanTaxi, KDDI, and Accenture are being applied to enhance such demand prediction functions. Creating Automated Driving Mobility Services In August 2018, Toyota and Uber announced an agreement to expand their collaboration with the prin- cipal aim of advancing the development of and bring- ing to market ride-sharing services leveraging automated driving technologies. To this end, Toyota’s Sienna Minivan will be modiﬁ ed to create the initial ﬂ eet of dedicated “Autono-MaaS” (autonomous mobility as a service) vehicles. These Autono-MaaS vehicles will be constantly connected to the MSPF and equipped with both Uber’s autonomous driving system and the Toyota Guardian automated safety support system. By using both systems together, we aim to better monitor vehicle surroundings in real time to realize even safer, more reliable automated driving mobility services. Deployments of these vehicles on the Uber ride-sharing network will begin in 2021. In October 2018, Toyota and SoftBank Corp. agreed to form a strategic partnership to facilitate the creation of new mobility services. The two companies plan to establish a joint venture company, MONET Technologies Corporation, before the end of ﬁ scal 2019. MONET will provide coordination between Toyota’s MSPF and SoftBank’s IoT Platform. By utiliz- ing a wide range of data related to the movement of people and vehicles, MONET will seek to optimally balance supply and demand in transportation and launch new MaaS businesses capable of resolving mobility-related social issues and creating new value. Through MONET, we plan to roll out Autono-MaaS businesses based on e-Palette by the mid-2020s. Toyota is accelerating initiatives as a mobility ser- vice platform provider, aiming to create a smart 9 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Strengthening Our Competitiveness to Deliver Ever-Better Mobility to Customers around the World Toyota believes that the true value of mobility is the freedom it enables. No matter how times change, Toyota’s love of cars will never fade. At the same time, our passion for mobility is not limited to cars. Technologies for making transport easier, more convenient, and more enjoyable for people around the world are evolving, and the value that Toyota provides is expanding on numerous fronts. This is why Toyota announced its intention to transform into a mobility company. As Toyota works to reinforce its efforts related to a wide range of mobility services, its approach of seeking to be the “best in town” will be essential. When creating new services, the business environ- ment, particular challenges, and distributors in each region vary greatly. Toyota must provide cars and mobility services that are closely tailored to customer lifestyles and regional characteristics and make itself an indispensable presence in local communities. Seeking to be the best in town is an approach that reinforces competitiveness and thereby leads to sustained growth. In this way, Toyota’s vision is extremely clear. To achieve this vision with emphasis on speed and openness, Toyota is working to reform businesses throughout the Group—and sometimes extending beyond the Group—based on a “home and away” perspective. “Home” refers to operations and regions in which we can add value ourselves through Genchi Genbutsu (onsite, hands-on experience) and in which we have competitive advantages over our rivals. “Away,” meanwhile, refers to operations and regions in which we will work with other companies that have more advantages than we do in terms of expertise. By reexamining our businesses and effec- tively allocating management resources to “home” and “away” companies, we can increase productivity and make the entire Toyota Group more competitive. And, above all, Toyota believes that applying Genchi Genbutsu in their work at more specialized compa- nies will help our human resources grow and develop. Furthermore, under the “home and away” approach, we will transcend the borders of the Group’s operations. By developing working relation- ships with other companies which have same aspira- tions with us, we can make an enormous impact in this time of immense change. If it’s not fun, it’s not a car. As the value consumers seek in cars diversiﬁ es, Toyota will continue to listen carefully to its customers, reinforce its competitive- ness, and deliver ever-better mobility to even more customers. Shifting to a Region-based Approach in Japan, Toyota’s Home Market Conditions in Japan’s automotive market are expect- ed to become more difﬁ cult than ever. The market is contracting as a result of such social issues as the declining and graying population, urbanization, and rural depopulation. At the same time, the market is changing, with increased use of IT, AI, automated driving, and other technological innovations, as well as the emergence of new rivals. To adapt to future market changes, Toyota launched in 2016 the J-ReBORN Plan under which it has been working to transform the domestic car sales business. Until now, Toyota’s growth in the Japanese market has been based on sales efforts that were focused on channels and uniformly implemented nationwide. Going forward, however, we will need to look more closely at Japan’s individual regions. We must understand the desires of and problems faced by the people living in each region and work to solve those problems in collaboration with not just our dealers and members of the Toyota Group, but also regional governments and local companies. As such, in January 2018, we reorganized the Japan Sales Business Group. Also, we changed our domestic sales policies, moving from a uniform approach throughout the country to a focus on individual regions, and are speedily carrying out said policies. Furthermore, to strengthen our competitiveness and to create and provide new mobility services, in addition to ongoing business reinforcement efforts, we established Toyota Mobility Service Co., Ltd. in April 2018. This new subsidiary will develop and provide solution services for corporate customers, connected services using communications devices in cars, car sharing, and other new services. Tokyo, in particular, is the earliest adopter of mobil- ity service, seeing a shift from car ownership to car usage. Targeting the Tokyo region, we plan to inte- grate Tokyo Toyota Motor Co., Ltd., Tokyo Toyopet Motor Sales Co., Ltd., Toyota Tokyo Corolla Co., Ltd., and Netz Toyota Tokyo Co., Ltd., to form a new company in 2019. By efﬁ ciently developing its dealer network and by concentrating its resources, Toyota will continue working to be the best in town. Changes in Japan’s Market Environment (cid:129) Declining, graying population (cid:129) Urbanization, rural depopulation Further market contraction Changes in the Automotive Business (cid:129) Increased use of IT, AI, automated driving, and other technological innovations (cid:129) Emergence of new rivals (cid:129) Expansion of car sharing (non-ownership) The speed of market change is an order of magnitude greater than ever before J-ReBORN Plan With an urgency unmatched since our founding, we are pushing forward ambitiously alongside dealers to truly thrive in this period of immense change, for the sake of our future customers’ peace of mind and for the sake of our sustainable future 10 TOYOTA Annual Report 2018 Didier Leroy Executive Vice President, Member of the Board of Directors Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Strengthening Our Competitiveness to Deliver Ever-Better Mobility to Customers around the World Reinforcing Group Competitiveness—Collaboration with Toyota Tsusho Beginning with the export of the Land Cruiser and other models to Africa in the 1950s, Toyota has worked closely with customers in sub-Saharan coun- tries and throughout the continent. Today, Toyota South Africa Motors (Pty) Ltd. serves as a manufactur- ing and export base and boasts South Africa’s highest vehicle production volume. Africa is sometimes called the “last frontier”—as this appellation suggests, it is a market with enormous potential. Toyota Group company Toyota Tsusho Corporation (TTC) has signiﬁ cant business strength on the continent, with a dedicated Africa Division and over 10,000 Group employees in the region. Toyota is now advancing preparations to transfer all its sales and marketing operations in African markets to TTC in January 2019. This move embodies our aspiration to be the best in town in the region by con- centrating operations at TTC, a Group company that has a “home” in Africa. To facilitate greater coordination, Toyota has select- ed a former TTC executive who has a wealth of expe- rience in local operations as its CEO of Africa region. By reinforcing human resource development at both companies, we will further accelerate businesses in Africa. Learning from the “Let’s Do It” Spirit—Collaboration with Suzuki Toyota has learned a great deal over the years through open collaboration with competing manufacturers. Our partnership with Suzuki is one such effort. While Toyota has built strong business foundations in Southeast Asia, it has yet to effectively exercise its strength in other emerging nations, such as India, where Suzuki has utilized its famous “Let’s Do It” spirit to the fullest and built a solid position. In February 2017, Toyota and Suzuki concluded a memorandum regarding a business partnership. Moving toward concrete collaboration, in November 2017, the two companies agreed to discuss setting up a cooperative structure for introducing electric vehicles in the Indian market around 2020. Then, in March 2018, Toyota and Suzuki concluded a basic agreement to supply one another with hybrid and other vehicles, with the aim of bolstering both companies’ product lineups and encour- aging competition in the Indian automotive market. In May 2018, we agreed to begin discussions related to three joint projects in such areas as car production and powertrain development assistance. Toyota will continue to learn from Suzuki’s “Let’s Do It” spirit, working as a member of Indian industry to realize a freer, more enjoyable future mobility society. Together, we are advancing toward a day when “Made in India” cars will be widely loved not only in India, but also in Africa and other regions around the world. The “One Toyota” Initiative, Focused on Sustainable Growth—From Visitor to Neighbor In April 2014, Toyota announced the “One Toyota” ini- tiative aimed at consolidating its regional head ofﬁ ce functions in North America. The July 2017 grand opening of Toyota’s new North American headquarters in Plano, Texas, was the ﬁ rst new opening under the initiative. Previously, Toyota’s North American functions were in four locations—California, Kentucky, Michigan, and New York. Now, the sales management, ﬁ nancial services, external relations, public relations, and research functions have been consolidated in Plano, while purchasing and production engineering have been consolidated at a Technical Center in Ann Arbor, Michigan, and a Production Engineering and Manufacturing Center in Georgetown, Kentucky, respec- tively. By strengthening cross-functional coordination, Toyota has created a framework for responding to the needs of North American customers faster in order to make ever-better cars that exceed expectations. Toyota began operations in the United States 61 years ago, in October 1957, with just a single dealer. Today, Toyota’s businesses are deeply rooted in the United States socially, economically, and culturally; Toyota’s direct investments in the country to date total approximately US$25 billion, and the Company oper- ates 10 manufacturing assembly facilities, boasts almost 1,500 dealers, and employs approximately 137,000 people nationwide (including direct and indi- rect workers and dealer employees). The new North American headquarters in Plano sends the clear message that Toyota is here to stay and contribute to the community. With the opening of the new headquarters, approxi- mately 3,000 employees have relocated from the four previous sites, and Toyota has made about 1,000 new hires. Toyota has also committed to investing approxi- mately US$10 billion in the United States over ﬁ ve years. These funds are being put toward such endeav- ors as the construction of the new headquarters and reinforcing the competitiveness of existing plants. Going forward, Toyota will continue to step up its com- petitive strength as “One Toyota” in North America and contribute as a neighbor, aiming to be the best in town. TMS (Sales HQ) TMCC (Financial & insurance services) Torrance, California TMA (External relations, public relations, research) New York, New York TEMA (R&D, manufacturing HQ) Erlanger, Kentucky New Headquarters Plano, Texas TMMK (Production) Georgetown, Kentucky 11 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Eliminating CO2 Emissions from New Vehicles by 2050: Popularizing Electriﬁ ed Vehicles In December 2017, Toyota announced its plans to sell more than 5.5 million electriﬁ ed vehicles per year globally by 2030. As part of the Toyota Environmental Challenge 2050, launched in 2015 to contribute to the realization of a sustainable society, we set for our- selves the New Vehicle Zero CO2 Emissions Challenge, under which we aim to reduce Toyota’s global aver- age new vehicle CO2 emissions in 2050 by 90% com- pared with the 2010 level. This new initiative to popularize electriﬁ ed vehicles is one of our medium- to long-term measures to achieve this target. Toyota believes that eco-friendly vehicles can best help protect the environment if they are in widespread use. To consistently provide products that meet customer expectations and needs as a mass manu- facturer, a diverse lineup of electriﬁ ed vehicles is essential. At the same time, Toyota is advancing initiatives on all fronts, including technological innova- tion as well as social infrastructure development tai- lored to the energy and usage conditions of speciﬁ c countries and regions. Toyota regards the current once-in-a-century transformation of the automobile industry—including the promotion of electriﬁ cation—as an unparalleled opportunity to deliver new value to customers and expand its business. A New Push to Popularize Electriﬁ ed Vehicles by 2030 Toyota aims to sustainably grow while steadily solidi- fying its business base through the three values of safety and peace of mind, Waku-doki (excitement and exhilaration that wows you), and environmental sustainability. By doing so, we hope to contribute to the creation of a sustainable mobility society and bring smiles to our customers’ faces. Electriﬁ cation will be indispensable to reducing vehicle CO2 emissions and thus addressing global warming, a challenge facing by the entire planet. Toyota is steadily advancing efforts in this area under the Toyota Environmental Challenge 2050 estab- lished in October 2015. In particular, to popularize electriﬁ ed vehicles, Toyota is aiming for at least 50% of all the vehicles it sells globally in 2030 to be electriﬁ ed, and, of those, for more than 10% to be battery electric vehicles (BEVs) or fuel cell electric vehicles (FCEVs). To this end, we have set the following three intermediary targets. First, from 2020 onward, we will advance the full- scale roll-out of BEVs. Speciﬁ cally, we will launch mass-market BEVs developed by Toyota for the Chinese market in 2020, then expand sales to Japan, India, the United States, Europe, and around the globe. We plan to introduce more than 10 BEV mod- els in the ﬁ rst half of the decade. Next, while expanding our lineup of dedicated electriﬁ ed models, such as the Prius and Mirai, we will make electriﬁ ed versions available for other mod- els, as well, aiming to have no models lacking an electriﬁ ed option by around 2025. Basing calculations on our current global sales, by 2030 we aim for annual sales of more than 5.5 million electriﬁ ed vehicles, including hybrid electric vehicles (HEVs), plug-in hybrid vehicles (PHEVs), BEVs, and FCEVs. Of this total, we are aiming for more than 1 mil- lion to be BEVs, FCEVs, or other zero-emission vehicles. In the 20 years since launching the Prius in 1997, Toyota has sold more than 12 million electriﬁ ed vehi- cles around the world, helping to cut CO2 emissions by more than 94 million tons.* Today, Toyota offers 36 electriﬁ ed models in more than 90 countries and regions, maintains an electriﬁ ed vehicle development staff numbering 4,500 within the Company alone, and sells more than 1.5 million of these vehicles each year. These ﬁ gures are a testament to the trust that customers have in these vehicles’ quality, durability, and reliability; customer support for this type of vehi- cle over the years; the vast technological expertise built up by the Group; and Toyota’s successful estab- lishment of electriﬁ ed vehicle mass production tech- nologies in Japan and around the world. The electriﬁ ed vehicle technologies and expertise it has Toyota’s Major Recent Initiatives in Electriﬁ cation Vehicle Electriﬁ cation Milestones June 2018 May 2018 April 2018 Announced a joint next-generation convenience store project with Seven-Eleven Japan to begin in autumn 2019, aimed at greatly reducing CO2 emissions Move to expand fuel cell stacks and high-pressure hydrogen tank production equipment, aiming to increase sales of FCEVs from around 2020 Launched the ﬁ rst Aichi Low-carbon Hydrogen Supply Chain project, aimed at realiz- ing a hydrogen-powered society in cooperation with the Aichi prefectural government, local companies, municipal authorities and other partners February 2018 Announced that sales of electriﬁ ed vehicles in 2017 reached an all-time high, surpass- ing 1.52 million and achieving one of the Toyota Environmental Challenge 2050 targets three years early January 2018 Presented the e-Palette Concept Vehicle, a BEV for mobility services, at CES December 2017 Announced an initiative to popularize electriﬁ ed vehicles from 2020 to 2030 December 2017 Began a feasibility study with Panasonic Corporation of a joint automotive prismatic battery business September 2017 Established EV C.A. Spirit Corporation with Mazda and DENSO to jointly develop technologies for electric vehicles 2030 Electrified vehicles >50% BEV/FCEVs >10% Engine-powered vehicles 1997 World’s first mass-production HEV 2014 FCEVs Around 2025 Electrified versions available for all models 2020 Start of full-scale BEV rollout HEVs 2050 Zero CO2 Emissions Challenge PHEVs FCEVs BEVs 12 TOYOTA Annual Report 2018 1990 2000 2010 2020 2030 2040 2050 Shigeki Terashi Executive Vice President, Member of the Board of Directors Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Eliminating CO2 Emissions from New Vehicles by 2050: Popularizing Electriﬁ ed Vehicles accumulated over the decades are a vital strength of Toyota and will provide a solid foundation for the popularization of electriﬁ ed vehicles going forward. develop applications for our fuel cell technologies in a range of industrial ﬁ elds. More details Hydrogen-related initiatives, p. 14 * As of April 30, 2018 Comprehensive Initiatives Related to Products, Technologies, and Social Infrastructure For Toyota to continue to meet diverse customer needs, it will need to implement robust initiatives cov- ering products, technologies, and social infrastructure. In terms of products, as society undergoes major changes and the needs of customers and markets rapidly diversify, applying technologies in ways that break with convention to diversify our electriﬁ ed vehi- cles will be key their popularization. For example, in BEVs, in addition to mini-, mid- size, and full-size vehicles, we will expand to buses and trucks and work as a Group to create products for a wide range of applications, including commer- cial and sharing services. As for FCEVs, we will expand our lineups of pas- senger and commercial vehicles in the 2020s. Furthermore, working with Group companies, we will In addition, Toyota believes that HEVs, the trailblaz- ers of the electriﬁ ed vehicle ﬁ eld, still have a large role to play. In addition to further enhancing Toyota’s existing hybrid technologies in terms of fuel economy, cost, and driving performance, we will develop a range of new HEV types. These may include, for example, sports models with superb acceleration; high-power models capable of towing camping trail- ers; one-motor, mild hybrid or other types of afford- able hybrids for emerging markets; or models using multi-stage hybrid systems like that in the Lexus LS. More details Powertrains for hybrid vehicle, p. 14 Turning to technologies, Toyota has established a global mass production platform that boasts an annual capacity of more than 1.5 million HEVs. This platform can readily be used to produce other types of electriﬁ ed vehicles, such as BEVs and FCEVs. However, a far vaster and more advanced production network than any that now exists will be needed for the more than 5.5 million electriﬁ ed vehicles a year that Toyota is targeting. In particular, a key factor in the popularization of electriﬁ ed vehicles is batteries. For example, the bat- teries used in BEVs currently on the market already have capacities several tens of times as large as those used in HEVs, yet that capacity needs to be signiﬁ cantly improved if their cruising range is to be on par with that of HEVs. To address this difﬁ culty, in December 2017, Toyota began a feasibility study with Panasonic Corporation of a joint automotive prismatic battery business. Furthermore, Toyota is developing solid- state batteries, aiming to commercialize the technol- ogy by the early 2020s. Compared with conventional batteries, solid-state batteries are expected to be smaller and safer while achieving dramatically improved performance. To realize the improvements in performance, cost, and supply capacity necessary to meet its targets for 2030, Toyota will invest approximately 1.5 trillion yen, bolstering R&D and capital expenditure related to batteries. By doing so, we will accelerate efforts to transform the electriﬁ ed vehicle business to sell more than 5.5 million electriﬁ ed vehicles in 2030. Finally, looking at social infrastructure, we must approach the electriﬁ cation of mobility and problems related to resources and energy comprehensively. Without the establishment of systems for reusing and recycling materials, the ongoing popularization of electriﬁ ed vehicles runs the risk of driving up rare metal prices and increasing industrial waste. Toyota has for some time been involved in the reuse and recycling of HEV batteries. For example, these bat- teries are being used in ﬁ xed electricity storage sys- tems, helping to realize stable energy circulation at power plants and factories. From an energy standpoint, Toyota aims to help create a society that utilizes both electricity and hydrogen. We are advancing a variety of initiatives, including pilot projects aimed at utilizing renewable energy and building a low-carbon society. In the long run, we envision a society that is built on diverse energy sources and that effectively utilizes electricity and hydrogen. To achieve this vision, we are working with the entire Group as well as outside corporate, government, and other partners to help develop a sustainable mobility society. Toyota is currently the electriﬁ ed vehicle market leader; approximately one in two such vehicles sold around the world is a Toyota. Going forward, Toyota will seek to maintain this lead by advancing initiatives related to products and the technologies and social infrastructure that support them. Through these initiatives to popular- ize electriﬁ ed vehicles, together with initiatives related to connected technologies and automated driving leverag- ing AI, we will continue to ambitiously strive toward the realization of the mobility society of the future. Core Technologies Shared Across Electriﬁ ed Vehicles Diversiﬁ ed Electriﬁ ed Vehicles Toyota’s Battery Development Motor, Battery, Inverter = Core technology across electrified vehicles Applied to all electrified vehicles HEV/ PHEVs Bus FCEVs 1925 Public call for Sakichi Battery 1939 Established Battery Research Laboratory Electric motor Battery Inverter (PCU) Engine Engine Charging Fuel cell H 2 Charging Hydrogen tank H2 O2 HEVs PHEVs BEVs FCEVs BEVs e z i s Small home-delivery vehicles Passenger cars HEV FCEV (Bus) Full-size truck 1997 1st-gen. Prius launched (nickel-metal hydride battery) 2003 Lithium-ion batteries l i e c h e V Short-distance use BEV PHEV Personal mobility FCEV Delivery truck Sakichi Toyoda Travel distance Ideal energy storage device High energy density, retains charge, fast charging, low resistance, easy to manufacture, highly durable 2020s Solid-state batteries Metal-air batteries Diversification of HEVs, PHEVs, BEVs, and FCEVs becoming more important Since its founding, Toyota has recognized the importance of and advanced the development of batteries 13 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Eliminating CO2 Emissions from New Vehicles by 2050: Popularizing Electriﬁ ed Vehicles Aiming for a Decarbonized Society in 2050: Leveraging Hydrogen Energy Toyota regards hydrogen as a high-potential future energy source and believes that FCEVs, with their high capacity to contribute to society, are the ulti- mate eco-cars. Toyota’s development of FCEVs began even before the release of the Prius, back in 1992. We released the Mirai in Japan in December 2014 and in the United States and Europe the fol- lowing autumn; currently, we offer the Mirai in a total of eleven countries. In March 2018, Toyota launched the Sora production model FC bus. We expect to introduce over 100 of these buses, mainly within the Tokyo metropolitan area, by the time of the 2020 Tokyo Olympics and Paralympics. To popularize FCEVs, we are aiming for annual global sales of the Mirai and other FCEVs of over 30,000 units from around 2020. Going forward, we plan to expand production facilities for core FCEV components, namely fuel cell stacks and the high- pressure hydrogen fuel tanks to meet growing demand for FCEVs. To realize a sustainable society, it will be impor- tant to effectively use electricity and hydrogen together in order to fully leverage CO2-free renew- able energy sources. Hydrogen allows for the stor- age and efﬁ cient use of electricity derived from ﬂ uctuating natural energy sources. Furthermore, hydrogen can be used as a direct energy source in FCEVs and industrial applications. While hydrogen will thus be highly useful going forward, realizing a hydrogen-powered society will require a great deal of time and investment. In addition, cooperation with a diverse range of stakeholders will be indis- pensable. Toyota performs a leading role in the Hydrogen Council, a global initiative promoting a united vision and long-term goals for the transition to new energy using hydrogen, as well as Japan H2 Mobility, LLC, which aims to develop a network of hydrogen stations across Japan. Through these and other efforts, we are proactively contributing to the creation of a hydrogen-powered society. WEB Toward Realizing a Decarbonized Society in 2050: Use of Hydrogen Energy (Sustainability Data Book 2018, pp. 100-102) Innovating Powertrains to Enhance both Driving and Environmental Performance Toyota’s environmental technology strategy is based on the three pillars of saving energy, using diverse fuels, and the understanding that eco-friendly vehi- cles can best help protect the environment if they are in widespread use. We expect that 90% of the vehicles we sell in 2030 will have conventional engines (as gasoline-powered vehicles, HEVs or PHEVs). As such, to reduce CO2 emissions, the continued improvement of powertrain fuel economy is vital. Accordingly, Toyota is working to achieve both excellent driving performance and excellent environ- mental performance by remaking and signiﬁ cantly evolving its engines, transmissions, and hybrid tech- nology through Toyota New Global Architecture (TNGA), its program of structural innovation aimed at making ever-better cars. Through development under TNGA, we are thoroughly examining all aspects of basic performance for opportunities for improvement, including making components lighter and more compact, creating vehicles with lower centers of gravity, utilizing high-speed combustion in engines, and employing more gears to make transmissions more efﬁ cient. Toyota will continue to use TNGA-based modular development to rapidly bring these powertrains to numerous models. We plan to introduce these new powertrains in 37 variations of 19 models by 2021.* Plans call for expanding sales of such vehicles to approximately 80% of all new vehicles sold in 2023 on a non-consolidated basis (in Japan, the United States, Europe and China). We estimate that the increased fuel economy of the new TNGA power- trains alone will reduce the CO2 emissions from the cars sold by Toyota on a non-consolidated basis in 2023 by at least 18%. * Variations include FF vs. FR layouts, passenger vs. commercial applications, conventional vs. hybrid vehicles, and differences in torque capacity Energy Use in a Sustainable Mobility Society 90% of Toyota Vehicles Sold in 2030 Will Have Conventional Engines Introduction of TNGA Powertrains (as of February 2018) Using electricity and hydrogen for a society built on diversified energy Renewable energy Wind power Solar power City/home BEVs/PHEVs Power storage facilities Electricity grid Hydrogen –Electricity conversion Thermal power Industrial use Fossil fuels Hybrid cars LNG OIL Electrolysis Power-generator unit Biomass Sewage treatment H2 Hydrogen tank High-capacity, long-term storage Hydrogen grid City/home Oil refinery/chemical plant City/home H2 Automotive fuel FCEV cars and buses Chemical plant Energy flow Electricity Hydrogen Fossil fuels 2030 HEVs Electrified vehicles >50% BEV/FCEVs >10% 90% PHEVs FCEVs TNGA powertrains Vehicles with conventional engines s e a s l l i e c h e V THS-II (2.0L) THS-II (1.8L) THS-II (2.5L) 6MT Direct Shift-CVT Multi-stage THS-II Direct Shift-8AT 17 variations of 9 engines 10 variations of 4 transmissions 10 variations of 6 hybrid systems BEVs 3.5 - liter twin-turbo Dynamic Force Engine (2.5L) Dynamic Force Engine (2.0L) 2010 2020 2030 2050 14 TOYOTA Annual Report 2018 Direct Shift-10AT Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Making Ever-better Cars: Continuing to Make Cars That Will Be Beloved The automotive industry is in the midst of a period of profound change. For Toyota to continue to grow going forward, it must, above all, make its cars even more appealing and continue to deliver cars that will enhance users’ lives and be beloved by customers. As information, intelligence, and electriﬁ cation technolo- gies develop, the nature of mobility will surely change, but Toyota will remain committed to ensuring that its cars will be beloved as it makes ever-better cars that are more convenient, safer, and more eco-friendly. To this end, we are implementing structural innova- tion across our global car making business. Namely, we have launched Toyota New Global Architecture (TNGA), under which we are changing our cars from the basic architecture outward to greatly enhance basic performance and product appeal. Building on this foundation, we have also adopted a product- based in-house company system aimed at creating even more distinctive ﬁ nished cars. We will continue to reinforce both TNGA and the product-based in-house company system, aiming to more quickly respond to customer demand. Since its founding, Toyota has made cars in line with its Customer First policy. Through these efforts, it has developed unique methods and values, such as the Toyota Production System (TPS) and Kaizen, which have been passed down as wellsprings of competitive strength. By actively applying these strengths at development and production preparation sites going forward, we will endeavor to make ever- better cars that surpass customer expectations. TNGA So Far TNGA is a program of structural innovation aimed at making ever-better cars, starting by changing their basic architecture. Through TNGA, we are completely remaking the basic frames of our cars while dramatically enhancing design to catch our customers’ eyes and capture their hearts and improving basic perfor- mance to provide a driving experience that custom- ers will want to never end. At the same time, we are advancing total optimization by pursuing smart shar- ing, thereby improving efﬁ ciency and reducing costs. These efforts are greatly increasing our potential to create cars that will be beloved by customers. Building on the foundation provided by TNGA, the in-house companies consider each region’s market needs and consumer preferences to craft distinctive, appealing cars that customers will love. Toyota began its TNGA initiatives with the develop- ment of the fourth-generation Prius (launched in Japan in December 2015) and then applied them to create two other mid-size models, the C-HR and Prius PHV. We next applied TNGA to full-sized mod- els, announcing the Camry and the Lexus LC and LS in 2017 and the Crown and Corolla Sport in 2018. While these cars share TNGA components, the char- acter of each is completely distinct, as is immediately apparent in terms of design and ride. The in-house companies have created these distinctive cars to suit different customer preferences, so that every cus- tomer can ﬁ nd a car they will love. Going forward, we will expand TNGA to compact-class cars, as well, to serve even more customers. Moritaka Yoshida Executive Vice President Making Ever-better Cars: Toyota’s Approach and Structure TNGA Product Roll-out TNGA Individual optimization Making Aspects of cars tailored to customer distinctive cars tastes Total optimization Total Making better optimization products and through practicing smart standardiza- sharing tion In-house Company System Structure Work Process Car creation focused on each car type Decision making by in-house company presidents i i i M d - s z e V e h c e C o m p a n y l T o y o t a C o m p a c t C a r C o m p a n y 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 G A Z O O R a c n g C o m p a n y C a r 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 Planning Design Execution Manufacturing Production engineering One team uniting four functions (cid:129) Faster decision making (cid:129) Streamlined planning/ development (cid:129) Reduced need to re-do work 15 TOYOTA Annual Report 2018 Compact class Lexus (premium class) Full-size class Lexus LC Lexus LS Mid-size class Camry Crown Prius PHV C-HR Corolla Sport Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Making Ever-better Cars: Continuing to Make Cars That Will Be Beloved Until now, we have developed such different cars separately. By implementing TNGA across the Company, however, we are able to more quickly introduce new models. And, by reinvesting the resources saved through these initiatives in further enhancing quality and product appeal, we are accel- erating a virtuous cycle that enables us to deliver ever-better cars even faster. The Next Evolution of Making Ever-better Cars While we have thus made progress, certain areas that still need work have also come to our attention. As a result of our focus on improving performance and product appeal, we have heard from some cus- tomers that, while they can tell that our cars have gotten better, they ﬁ nd the prices rather high. To ensure that we continue to provide cars that will be irreplaceable and beloved by our customers, we will push forward with further cost reductions. For example, we are taking on new initiatives to create individual project-oriented organizations that cover everything from planning to manufacturing and promoting quick judgment and quick decisions to make ever-better cars cheaper, more quickly, and more easily. At the same time, we are utilizing these cross-functional organizations as channels to advance human resource development and imple- ment work style reforms. Furthermore, through alliances with other compa- nies and through our subsidiary Daihatsu Motor Co., Ltd., we are learning more efﬁ cient development methods and steadfastly applying Kaizen to make ever-better cars that exceed customer expectations. We also need mechanisms to ensure, from start to ﬁ nish, that we are making cars that are appealing from the customer’s perspective. We are doing away with the antiquated idea that it is only natural for quali- ty products to be expensive and reforming our devel- opment process to plan products from the customer’s viewpoint, develop them to suit customer needs and regional characteristics, and ﬁ nally produce cars that balance product appeal, speciﬁ cations, and price. Bringing the Toyota Production System to Development The TPS is a system for completely eliminating over- burden and waste to improve productivity within ﬂ ow of things and people. Until now, the TPS has been applied mainly at production sites, where it has been reﬁ ned and developed through many years of use. Now, we are introducing the principles of the TPS at development and manufacturing technology units. One of the motivations behind this move is our strong desire to develop our human resources in these units by having them apply Genchi Genbutsu (onsite, hands-on experience) to think about the cars they are working on and the entire process from development to production preparation. By doing so, we hope that they will learn to completely eliminate waste. As a model project, we have created a team con- sisting mainly of young employees from design and performance evaluation and production preparation units, which develop vehicles, to implement the TPS approach. Each day, the team members meet to identify overburden and waste in the day’s work, come up with ideas for improvement, and immedi- ately put these ideas into action. This initiative has only just begun, but already the team members more deeply understand one another’s work, have identi- ﬁ ed redundancies and other waste in the operations of their units, and are working as one to ﬁ nd opportu- nities for improvement. I think that introducing the TPS in development units will not only help shorten development lead times and reduce costs, but will also contribute greatly to human resource development. We will use these initiatives to help make ever-better cars that will be beloved by customers. Making Ever-better Cars That Will Be Beloved What Customers Love about Cars Fun of driving Comfort Safety Joy of ownership Lifestyle enhancement Cars that will be beloved by each individual customer Making Ever-better Cars Planning and development in line with customer needs and regional characteristics Balance of product appeal, specifications, and price Connected cars Eco-cars Social contribution (commercial vehicles) Luxury vehicles (Lexus) New concept cars Welcab Advanced safety (automated driving) 16 TOYOTA Annual Report 2018 Application of the TPS New initiatives Existing initiatives Planning Development Production preparation Production Customers Introducing the TPS principles Logistics Suppliers Identifying and eliminating waste Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Developing Our People and Our Cars: GAZOO Racing “In an ideal world, machines would work just as we intend them to. But when we actually try to run them, unforeseen results fre- quently prove our human reasoning exceedingly shallow. And there is no better way to test our cars and discover how to improve them than auto racing. Just as Olympic athletes give every last drop of effort to test their strength, in racing, automobiles are pushed to the limit— a point that is contested through progressive improvements and lights up the hearts of motor racing fans.” Through motor sports, Toyota aims to bring excite- ment and joy to customers, fans, and communities around the world. Above all, developing our people and our cars in order to make and deliver ever-better cars is the unwavering core of Toyota motor sports. Motor Sports: In Our Roots The above passage comes from the ﬁ nal work of Toyota founder Kiichiro Toyoda, “Auto Racing and the Japanese Automobile Industry,” written shortly before his death. The demanding environment of competition will drive the development of our people and cars—car- rying on this belief, Toyota competes in a number of types of auto racing. In April 2017, ten years after our ﬁ rst foray into the Nürburgring 24 Hours race, we established GAZOO Racing Company, creating a stronger framework for an ongoing motor sports business and marking the start of a new chapter. The Road Builds the People, and the People Build the Cars One of the major competitions in which Toyota par- ticipates is the FIA World Rally Championship (WRC). Competitors in the WRC drive modiﬁ ed production cars on closed sections of public roads. They race on bumpy unpaved roads, through high-speed cor- ners on high mountain passes, and over icy patches hidden beneath snow. In the words of Toyota presi- dent Akio Toyoda, “Rallying—a form of racing that takes place on all kinds of roads—is the perfect set- ting to develop our people and cars.” We are apply- ing the know-how, technologies, skills, and spirit gained from these competitions to the cars we man- ufacture for sale. Kiichiro Toyoda, Toyota’s founder Toyota also competes in the FIA World Endurance Championship (WEC), comprising the 24 Hours of Le Mans and other endurance races around the world. Toyota ﬁ rst entered the 24 Hours of Le Mans in 1985 and took its ﬁ rst win in 2018, its 20th time compet- ing. Toyota’s two cars started the race at the very front of the pack and held the top two positions all the way to the end. This marks the ﬁ rst time that a Japanese driver in a Japanese car has won Le Mans. In 2016, the Toyota team suffered a mechanical fail- ure just three minutes before the end of the race. In 2017, they ﬁ nished just 8th overall. Going into 2018, they completely revamped their approach. The devel- opment goal was changed from optimal lap time to ensuring that the car could get back to the pit no mat- ter what problems arose—in other words, to survive no matter what. The team created a list of likely prob- lems, and then made them happen on test courses, practicing recovering using the car’s remaining func- tions over and over. Doing so enabled the drivers, mechanics and engineers to push further than ever before and gave rise to Kaizen (improvement) based on Genchi Genbutsu (onsite, hands-on experience). Lastly, Toyota also competes in the 24 Hours of Nürburgring endurance race. This race takes place on the Nürburgring, one of the world’s most difﬁ cult courses. Laid out to resemble ordinary European country roads, the Nürburgring has an exceptionally long circuit of 25 km, narrow track widths, a maxi- mum altitude difference of around 300 m, and more than 170 corners. Toyota’s team in this 24-hour endurance race comprises mainly mechanics and engineers who are regular Toyota employees. In 2014, all three of Toyota’s cars in the race won “best-in-class” awards, including that for the SP-PRO class. The Lexus LFA, in which president Toyoda was a driver, ﬁ nished 13th overall, taking the top position in the SP8 class. Evolving Ever-better Cars Using Development Methods from Racing One of Toyota’s new endeavors is the GR Super Sport Concept. Under this concept, Toyota is using mostly the same main parts and development methods as those employed for the race cars that it competes with in the WEC and applying technologies honed through racing to create a next-generation sports car. Because race cars are expensive, advancing development without making prototypes is funda- mental. We therefore mainly use model-based devel- opment, in which the entire car is considered and simulations are run to determine how each function should run to achieve the desired performance. This approach enhances performance in less time and with fewer people even before prototypes are built. Within the ﬁ nely subdivided organizational structure for mass-market car development, which is opti- mized for efﬁ ciency, this kind of approach—looking at the entire car to optimize each function in concert with all the others—is difﬁ cult to apply. Using model- based development, Toyota aims to further acceler- ate efforts to make ever-better cars. WEB TOYOTA GAZOO Racing President Toyoda (left), the late master driver Hiromu Naruse “I don’t want to be preached to about cars by some- one who doesn’t even know the basics of driving. We test drivers put our lives on the line to make better cars. You’ve got to understand that.” This frank remark in 2002 was the start of a teacher-pupil rela- tionship between the late master driver Hiromu Naruse and Akio Toyoda. Wanting to be able to cor- rectly judge cars, Toyoda joined Naruse’s team and commenced training. In 2007, at Naruse’s sugges- tion, Toyota decided to enter the 24 Hours of Nürburgring endurance race. GAZOO Racing, made up of Toyota employees, competed for the ﬁ rst time that year. It was there that Toyoda, then an executive vice president, ﬁ rst used the pseudonym Morizo to compete as a driver. As Naruse said, “There is no better way to pass on skills and develop people than racing. What’s impor- tant isn’t discussing automaking with words and data, but getting in the actual car, touching it, and discussing with the hands and eyes.” To put this sen- timent into action, Toyota uses modiﬁ ed versions of its production cars in the 24 Hours of Nürburgring endurance race. By understanding the strengths and the areas that need improvement of the base cars, then making them into vehicles that are reliable even in the most extreme driving conditions, we aim to learn precisely what it is that makes a car good. This know-how is then utilized in the GR sports car series. 17 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Steady Progress toward Automated Driving Toyota’s ultimate goal in developing automated driv- ing technologies is not simply to create autonomy for cars, but to create a world in which mobility is safe, convenient, enjoyable, and available to everyone. Safety is our topmost priority as we pursue this goal. We believe that we can enhance safety by building partnerships between drivers and their cars. Even in a future where some driving is automated, we believe that cars will continue to be loved. Toyota believes that safe and fun automated driving technol- ogies have the potential to expand freedom of movement for all and bring cars and people even closer together. Toyota’s Unique Approach to Automated Driving Since the 1990s, Toyota has engaged in automated driving technology research and development aimed at contributing to the complete elimination of trafﬁ c casualties. Today, Toyota is advancing development in this area based on its Mobility Teammate Concept. This concept is an expression of Toyota’s unique approach to automated driving and is built on the belief that people and vehicles can work together in the service of safe, convenient, and efﬁ cient mobility. As implied by the word “teammate,” the inclusion of people is central to this approach, based on our belief that people should have choices. The true value of automated driving technologies, we believe, lies not in the technology itself, but in the social value it creates—helping to create a rich mobility society in which everyone can enjoy safe, convenient, and enjoyable transportation. Moreover, we believe that the most important fac- tor in the development of automated driving is safety. This conviction is in line with our long-held stance of prioritizing the improvement of safety with the ultimate goal of eliminating casualties from trafﬁ c accidents. Achieving this goal will require the development of safe driving systems that are highly effective in real- life situations as quickly as possible and the promo- tion of their uptake as widely as possible. To do this, Toyota is promoting, in parallel, the development of advanced safety technologies and the utilization of insights gained through such development to further develop popularized technologies. We have already put our active safety technologies on the market, packaged as Toyota Safety Sense and Lexus Safety System+. Such packages are now offered as stan- dard or optional features on almost all new Toyota and Lexus models sold in Japan, Europe, and the United States. Furthermore, with the new Lexus LS, the brand ﬂ agship, we have introduced the Lexus Safety System + A, which includes such new fea- tures as Active Steering Assist, a world-ﬁ rst technol- ogy, and Front Cross Trafﬁ c Alert (FCTA), which helps prevent collisions at intersections. In systems for the non-luxury market, as well, we have introduced the second-generation Toyota Safety Sense, featuring expanded hazard detection for a broadened scope of protection against severe accidents. Toyota’s Speciﬁ c Approaches to Automated Driving Under the Mobility Teammate Concept, Toyota is developing automated driving systems based on two approaches: Guardian and Chauffeur. The Guardian approach assumes that a human will drive the car, while automated driving systems oper- ating alongside the driver provide support, such as added braking, acceleration and steering, when needed, for example, when the car is in danger of collision, to protect the car’s passengers and people outside the car. Chauffeur refers to automated driving as deﬁ ned by the U.S. non-proﬁ t SAE International, where the autonomy drives for extended period of time instead of the human driver. The Mobility Teammate Concept offers the freedom of choice by allowing users to enjoy the beneﬁ ts of automated driving technologies 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. Guardian mode will always attempt to protect people both inside and outside the car, wheth- er the human or the automated Chauffeur is driving. TRI Advanced Safety Research Vehicle Demo (YouTube, 3:57) Our Guiding Development Philosophy Developing and Promoting the Use of Advanced Technologies Advanced technologies A u t o m a t e d d r i v i n g t e c h n o l o g i e s N e x t g e n e r a t i o n A d v a n c e d d r i v i n g a s s i s t a n c e t e c h n o l o g i e s N e w L e x u s L S Society with zero traffic accident casualties 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. L e x u s L S S t e p u p (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 T o y o t a S a f e t y S e n s e S t e p u p N e x t g e n e r a t i o n l o w i n g F o l g e n e r a t i o n 18 TOYOTA Annual Report 2018 Gill A. Pratt Fellow Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Steady Progress toward Automated Driving Developing Automated Driving Technologies on Two Complementary Fronts Toyota is advancing the development of automated driving technologies on two fronts: personally owned vehicles (POVs) and Mobility as a Service (MaaS). By offering affordable, on-demand mobility, MaaS will provide platforms that facilitate the road transport of more people around the world—for example, people with disabilities, people who cannot afford to, or prefer not to, own a car—as well as the logistics and commerce that are deeply embedded in, and fun- damental to, everyday life. These on-demand mobility services will transform cities, helping to invigorate economies and make society more efﬁ cient. To expand such possibilities of mobility, Toyota has unveiled e-Palette, a concept vehicle envisioned for the 2030s that is fully electric and speciﬁ cally designed for MaaS applications. MaaS platforms will also produce the vast amounts of data essential to automated driving technologies, helping to reduce the per passenger- mile cost of transportation. Lower costs, in turn, will generate unprecedented consumer demand, provid- ing more data and leading to a virtuous cycle of enhancing mobility, safety, and convenience. As a result, automated driving technologies will develop further and be widely adopted by society and con- sumers. In this way, the introduction of MaaS will help us achieve the important beneﬁ ts of automated driving faster than personal car ownership alone. In terms of evolving POVs, in January 2018, Toyota Research Institute, Inc. (TRI) unveiled its next-gener- ation automated driving research vehicle, Platform 3.0. Built on the Lexus LS 600hL, Platform 3.0 uses a LIDAR* system made by U.S.-based Luminar Technologies to “see” 200 meters in all directions, making it one of the most perceptive automated driv- ing research vehicles on the road. On top of being highly functional, the vehicle’s cameras and other sensors are arranged in a compact package styled to harmonize with the design of the Lexus LS. The integrated packaging of the automated driving equip- ment also makes it easy to reproduce and adapt in order to build a ﬂ eet at scale. * LIDAR: Short for light detection and ranging. Technologies or devices that use lasers to gather 3D information about the surrounding environment. Three Types of Intelligence and Initiatives Aimed at Commercialization Realizing automated driving will require three types of intelligence. The ﬁ rst is driving intelligence, entailing tech- nologies to accurately understand the vehicle’s position and ﬁ nd safe routes. The second is connected intelli- gence technology to transmit vast volumes of data about constantly changing road and trafﬁ c conditions to and from cars. The last is interactive intelligence, based on Toyota’s belief that, in addition to improving the tech- nologies themselves, it is vital to optimize the user inter- face to maximize automated driving technologies’ usability. TRI is advancing research on all three types of intelligence toward the creation of systems that enable people and cars to work together. Achieving fully autonomous driving will require deep learning using data on the surrounding environment pro- vided by autonomous sensors, such as cameras, RADAR, and LIDAR, to learn how to avoid collisions. Chainer, a neural network platform developed by Preferred Networks, in which Toyota is an investor, will provide one of the necessary deep learning frameworks. Chainer was written using CUDA, a computing platform that runs on graphics processing units (GPUs) devel- oped by the major GPU manufacturer NVIDIA. To accelerate the development of intelligence soft- ware, in March 2018, Toyota established Toyota Research Institute Advanced Development (TRI-AD) in Tokyo. Applying the ideas of the Toyota Production System (TPS) to software development, TRI-AD is creating an integrated software development model spanning research to commercialization. Furthermore, in the advanced development of automated driving technologies, Toyota has invested in ALBERT Inc., aiming to accelerate technological development by reinforcing big data analytic processes. As for the creation of systems that enable people and cars to work together, we are studying such questions as how to create user interfaces that enable the safe transition from human-controlled to system-controlled driving, actively using simulated experiments to test our ideas. These initiatives reﬂ ect TRI’s human-centric approach. TRI-AD is advancing automated driving research using Highway Teammate research vehicles, which we aim to commercialize by around 2020. These vehicles will enable driver-supervised automated driving on expressways that includes merging onto and exiting expressways, maintaining and changing lanes, and maintaining appropriate distance from other vehicles. Testing of Highway Teammate vehicles for use on Japan’s Metropolitan Expressway and other particu- larly difﬁ cult-to-drive types of expressway is ongoing. Approach to Developing Automated Driving Technologies Intelligence in Driving: The Potential of Deep Learning in Recognition Technology n o i t a m o t u a f o l e v e L Level 4 Level 3 Level 2 Fully automated driving Transport services (MaaS) Personally owned vehicles (POVs) Gradual improvement Platform 3.0, Next-Generation Automated Driving Research Vehicle Limited (Local laws; road, traffic, and environmental conditions; speed; driver; etc.) Limitless Developing POVs and transport services in parallel (Recognition) 100％ 70％ Previous technologies Deep learning AI technology (deep learning) Recognition using data on entire surroundings Source: NVIDIA Source: Google Previous technologies Works with less data, but recognition is limited Learns features from vast volumes of images Data volume Using big data Recognizes only the edges of white lines (cannot detect if edges are blurred) Recognizes only individual features 19 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Steady Progress toward Automated Driving (3) Strengthen collaboration within the Toyota Group in the domains of research and advanced development. (4) Recruit and employ top-level engineers globally while cultivating and coordinating the strong talent within the Toyota Group. WEB TRI-AD TRI Establishes Corporate Venture Capital Fund In July 2017, TRI established Toyota AI Ventures (TAIV), a venture capital fund to invest in start-ups. TAIV invests in recently established promising start- ups in the ﬁ elds of artiﬁ cial intelligence, data and cloud technology, autonomous mobility, and robot- ics. In just its ﬁ rst year, TAIV invested in 11 start-ups in the United States, the United Kingdom, and Israel. In July 2018, TAIV unveiled a “call for innovation” global program to support start-ups in partnership with TRI. This program is designed to spur entrepre- neurial innovation by identifying key technology gaps and putting out a call for solutions from start- ups. Promising start-ups in the areas of the identi- ﬁ ed gaps will have the opportunity to secure from $500,000 to $2,000,000 in venture capital funding from TAIV as well as the possibility of partnering on a proof of concept project with TRI. Going forward, TAIV will boldly take on difﬁ cult 1,000-member Intelligence Software Development Company Launched Doctors Pratt (left) and Kuffner Toyota established Toyota Research Institute- Advanced Development (TRI-AD), a new, Tokyo- based company, to accelerate its advanced development of automated driving technologies. The new company will be funded by Toyota, Aisin Seiki Co., Ltd., and DENSO Corporation, which have con- cluded a memorandum of understanding to invest a total of more than ¥300 billion in development. Dr. James Kuffner, former Chief Technology Ofﬁ cer of TRI, will lead TRI-AD as its CEO. The new compa- ny is targeting a staff of approximately 1,000 employ- ees, comprising staff sourced from Toyota, TRI, Aisin, and DENSO along with new hires. A next-generation company test model, the company is formulating new ways of doing work and internal rules, including making English its internal business language. TRI-AD is applying the Toyota Production System (TPS) approach to software development in order to achieve the following key objectives. (1) Create a smooth software pipeline from research to commercialization, leveraging data-handling capabilities. (2) Strengthen coordination with TRI and efﬁ ciently link research results to product development. challenges, expanding collaboration with and support for highly motivated entrepreneurs. WEB TAIV TRI to Open Automated Vehicle Test Facility in Michigan TRI is building a new automated vehicle test course on a 60-acre site within the existing test course of Michigan Technical Resource Park (MITRP) in Ottawa Lake, Michigan. The new facility will be used to safely replicate demanding “edge case” driving scenarios that are too dangerous to perform on public roads, accelerating the development of Guardian Mode research vehicles. The course will include models of congested urban environments, slick surfaces, entrance and exit ramps, and a four- lane divided highway. for use in developing and testing automated driving systems designed to ensure the stability of auto- mated vehicles in myriad situations that are not always testable in the real world. Developed by the CVC, it is open source and hosted on GitHub.2 CARLA offers a multitude of realistic environmental conditions and is designed to be extended and easily modiﬁ ed to ﬁ t speciﬁ c project needs. 1. Open source: A model of software development in which the source code is made broadly available for use and distribution by third parties. 2. GitHub: A web-based software development platform. Users can upload and publish their work (such as program code or design data), enabling collaborative review with the millions of developers on the platform and project management. TRI Supporting the Development of Open-Source Automated Driving Simulator TRI has donated $100,000 to the Computer Vision Center (CVC) at the Universitat Autònoma de Barcelona to promote the development of Car Learning to Act (CARLA), an open source1 automat- ed driving simulator. CARLA is a simulation platform The Toyota AI Ventures team and its portfolio companies visited TMNA headquarters in Plano, TX to participate in the ﬁ rst-ever Toyota Startup Summit. 20 TOYOTA Annual Report 2018 TRI Accelerating Robotics Research Using Simulators TRI is accelerating robotics research—one of the purposes of its establishment—by actively utilizing experiments run with simulators. Many robots cur- rently in use are controlled using visual information. Toyota is adding force and touch sensors to allow robots to better understand their contact with other objects and more precisely adjust the force they apply. Through this research, we hope to quickly move toward a world where indoor robots assist people in daily life. Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Solutions for the Problems Facing a Graying Society: Partner Robots Since the announcement of its development vision in 2007, Toyota has been applying its technology and know-how developed for industrial robots used in vehicle manufacturing to create partner robots that offer support for everyday living, work- ing to bring these robots to market. So-called ser- vice robots for non-industrial use include robots designed to inspect infrastructure or provide emer- gency response. Toyota, however, is focusing on partner robots that work closely with people to provide support for living. Japan is rapidly graying, and its working-age population is decreasing. Because of these shifts, the burden on the work- ing-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, “freedom of mobility for all, and the joy of self-reli- ance,” Toyota is working to bring to market prod- ucts that can facilitate medical care, nursing, and independent living. Developing Core Technologies and Advancing Commercialization Based on Real, On-site Needs Gleaned through Ongoing Testing Rehabilitation Robot: Welwalk WW-1000 The Welwalk WW-1000 is designed to aid in the gait training of patients with lower limb paralysis due to stroke or other factors. The robot offers a range of rehabilitation sup- port functions based on motor learn- ing theory, including the ability to adjust the difﬁ culty level of gait train- ing to suit the patient and to provide feedback about the patient’s gait characteristics. From May 2017, we began accepting rental orders for the robot from medical institutions, aiming to rent out 100 units. In September 2017, we began coordinating with companies that have strengths in the medical ﬁ eld to supply the robots to hospitals and other facilities. Social Robot: Pocobee Human Support Robot: HSR Humanoid Robot: T-HR3 Pocobee is designed to delay the onset and progression of dementia and reduce the burden on caregiv- ers, all increasingly important issues in light of the forecast increase in Japan’s number of individuals with dementia. Veriﬁ cation tests of Pocobee have been ongoing since 2016 at the National Center for Geriatrics and Gerontology. Going forward, to help users maintain their health, we will enhance Pocobee’s functions that provide goal-oriented encouragement to users to do more based on their individual abilities. By having caregivers and robots work together, we hope to safely increase the activity of the elderly and improve their vital functions while helping to alleviate the burden on caregivers. The human support robot (HSR) can perform such basic tasks as picking up, fetching, and handing over objects and is being developed and tested for use in such areas as main- taining senior independence and health management. Since 2015, Toyota has provided this robot to universities and other research institutions as a platform in order to foster a development com- munity and accelerate development through open innovation. The HSR was selected as a stan- dard platform for the RoboCup@ Home competition at RoboCup2017 Nagoya Japan, and will be provided as the platform robot for the World Robot Summit 2018 and 2020 Partner Robot Challenge. In November 2017, Toyota announced the T-HR3 humanoid robot. Controlled remotely by a human operator, the entire body of this robot moves smoothly using Torque Servo technology. The T-HR3 is a partner robot suit- ed for use in ordinary living environ- ments. Able to perform ﬁ ne hand and arm movements, walk like a human, and retain its balance using its entire body, the robot is being developed to safely work alongside humans in a range of scenarios, such as the home and medical insti- tutions, in order to provide gentle support for everyday living. In the future, we hope to expand its applications to include work at disaster sites, construction sites, and even in space. Commercialization Schedule and Development Status 2018 Around 2020 Gait training robot The rehabilitation robot Welwalk WW-1000 received medical device certiﬁ cation in November 2016. Rental of the robot began in autumn 2017. Social robot We are developing and testing the robot with the aim of both improving the vital functions of elderly users and reducing the burden on caregivers, working to quickly bring it to commercialization. Target areas Senior Life Support, Medical Support Independence 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 using Genchi Genbutsu (onsite, hands-on experience). Medical Support Human support robot (HSR) We are creating a development community based on open innovation to accelerate technological development and testing aimed at commercialization. Independence Support Development Pilot testing Commercialization 21 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Connectivity, automated driving, and electriﬁ cation are expanding the possibilities of cars Toyota works closely with customers to understand their needs and wants, striving to enhance the freedom and fun of Mobility for All 22 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Toyota’s Business Innovation: Organizational Framework, the Toyota Group, External Collaboration, and TPS and Cost Reduction There Is Always a Better Way: Revising Our Organizations and Businesses To further advance the goals of making ever-better cars and human resource development, Toyota has been revising its organizational framework and exec- utive lineup. In terms of organizational framework, Toyota introduced region-based management in 2011, followed by a business unit system in 2013. To place greater priority on our Customer First policy and facilitate quick judgment, quick decisions and quick action based on Genchi Genbutsu (onsite, hands-on experience), in April 2016 we established product-based in-house companies, considerably changing the orientation of our business structure from a focus on functions to a focus on products. In September 2017, we established a new company, EV C.A. Spirit, to advance the development of basic structural technologies for electric vehicles via an approach that is open to the participation of other companies. Through these and other measures, we have proactively advanced business innovation. Toyota has also been working to appoint diverse human resources to the right positions in its execu- tive lineup. Transcending practices of the past, efforts have included appointing our ﬁ rst non-Japanese executive vice president in 2015 and ﬁ rst executive vice president whose career began on the factory ﬂ oor in 2017. Today, the global Toyota Group* sells more than 10 million new vehicles per year. While maintaining and developing Toyota’s existing businesses, we must boldly move forward to transform into a mobility company. Reﬂ ecting the Toyota Group’s determination to take on this era of profound transformation, in 2018 Toyota moved up the timing for changing its execu- tive lineup from April to January. To transform the roles and awareness of executives, we revised the position of executives within the Company and, from the perspective of putting the right people in the right places, appointed people with high levels of exper- tise, regardless of time with the company or age. Going forward, all executives and employees will continue to take on new challenges, acting with the constant awareness that there is always a better way. * Toyota Group (16 companies): A corporate group centered on Toyota Motor Corporation and the company from which it emerged, Toyota Industries Corporation. The Group comprises Toyota Industries Corporation, Aichi Steel Corporation, JTEKT Corporation, Toyota Auto Body Co., Ltd., Toyota Tsusho Corporation, Aisin Seiki Co., Ltd., DENSO Corporation, Toyota Boshoku Corporation, Towa Real Estate Co., Ltd., Toyota Central R&D Labs., Inc., Toyota Motor East Japan, Inc., Toyoda Gosei Co., Ltd., Hino Motors, Ltd., Daihatsu Motor Co., Ltd., Toyota Housing Corporation, and Toyota Motor Kyushu, Inc. Speed and Openness, Home and Away With the advance of electriﬁ cation, automation, con- nectivity, and other technologies, the automotive industry has now entered a new phase of coopera- tion and competition that is transcending industry lines. At the same time, the global automotive market is expected to see continued expansion, chieﬂ y in emerging nations and regions, such as Africa. In order to bring together the strengths of the whole Group and effectively use resources in this era of pro- found transformation, we are applying a “home and away” perspective as we rebuild the business struc- ture of the Toyota Group as a whole. “Home” refers to operations and regions in which we can add value ourselves through Genchi Genbutsu (onsite, hands-on experience) and in which we have competitive advantages over our rivals. “Away,” meanwhile, refers to operations and regions in which we will work with other companies that have more advantages than we do. Rather than advancing alone, Toyota is bringing together the full strength of the Group. We aim to identify the strengths that make up each company’s “home” turf to increase productivity and thereby reinforce the com- petitive strength of the Group as a whole. Our approach to alliances with partners outside the Group is the same. Rather than seeking equity-based business scale expansion, we aim to realize a better mobility society through speedy, open collaboration with partners who share our aspirations. Returning to Our Fundamentals to Blaze the Trail Forward Toyota strives to efﬁ ciently and quickly produce vehi- cles of sound quality, one at a time, that fully satisfy Major Actions to Strengthen the Toyota Group from 2016 to Present June 2018 May 2018 Toyota and DENSO reach basic agreement to consolidate their electronic component operations at DENSO Toyota and Toyota Tsusho reach basic agreement to consider the transfer of all Toyota’s sales and marketing operations in African markets to Toyota Tsusho Toyota Autoparts Philippines, Inc. is made a subsidiary of Aisin to strengthen its competitiveness in the manual transmission business March 2018 Toyota Research Institute-Advanced Development, funded by Toyota, Aisin, and DENSO, is established to accelerate the advanced development of automated driving technologies September 2017 EV C.A. Spirit Corporation, funded by Mazda, DENSO, and Toyota, is established to jointly develop technologies for electric vehicles * Subaru, Suzuki, Daihatsu and Hino joined the project effective December 28, 2017 December 2016 Toyota and Daihatsu launch Emerging-market Compact Car Company January 2016 Toyota makes Daihatsu a wholly owned subsidiary to strengthen small car operations 23 TOYOTA Annual Report 2018 customer requirements. Underlying these efforts is the Toyota Production System (TPS). The TPS is based on the two concepts of Jidoka (automation with a human touch) and Just-in-Time. Jidoka entails that when a problem occurs, the equipment stops immediately, preventing the production of defective products. Just-in-Time means that, in each process, only what is needed, when it is needed, and in the amount needed is produced or transported. The complete elimination of waste, achieved by applying these two pillars, improves productivity, ultimately reducing costs. In this era of profound transformation for the auto- motive industry, we must anticipate customer needs to provide more personalized mobility services more directly and in real time. In other words, we must cre- ate a world in which the services that are needed are provided when needed and as needed. This is pre- cisely the essence of Just-in-Time. The TPS and its approach to cost reduction are wellsprings of competitive strength and unique advantages for Toyota. Thoroughly honing these strengths will be essential to Toyota’s future survival. In January 2018, we established the TPS Group with the aims of redoubling TPS efforts outside of manufacturing divisions and enhancing competitive strength and productivity. In June, we placed our logistics division within the TPS Group. We are accel- erating Company-wide initiatives that position the TPS as the core of corporate management. Toyota Production System Jidoka Just-in-Time (automation with a human touch) Quality must be built in during the manufacturing process Making or transporting only what is needed, when it is needed, and in the amount needed Cost reduction through the complete elimination of waste More details Bringing the Toyota Production System to Development, p. 16 More details Applying the TPS and Accelerating Business Innovation, p. 37 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Developing People: The True Source of Toyota’s Competitiveness The heart and spirit of Toyota’s manufacturing is the Toyota Way, and its method of creating things is the Toyota Production System. Unwaveringly applying these basic tenets in our global operations, we have made prioritizing quality, reducing costs, and improv- ing productivity our mission as we constantly work to mass-produce ever-better cars at lower cost. Toyota’s dedication to developing its people makes attaining these goals possible and is the true source of the Company’s competitiveness. To get through this once- in-a-century period of profound transformation and continue growing, it is imperative that we continually nurture our people, creating strong manufacturing teams that can handle each difﬁ culty and change by taking on challenges with skill and perseverance. The Toyota Production System (TPS) is based on the concepts of Jidoka (automation with a human touch) and Just-in-Time. Aiming to make only what is needed, when it is needed, and in the amount need- ed and to make ever-better products at lower cost, we work to reduce costs through the complete elimi- nation of waste. At Toyota, we believe that if we’re not moving forward, we’re moving backward, and that what comes after Kaizen (improvement) is Kaizen—in other words, Kaizen never ends. Accordingly, developing human resources who can independently identify issues, think of solutions, and continuously work toward improvement is essential. For Toyota, Jidoka means that a machine must come to a safe stop whenever an abnormality occurs. Achieving Jidoka therefore requires building and improving systems by hand until they are reliable and safe. First, human engineers meticulously build each new line component by hand to exacting stan- dards, then, through incremental Kaizen, steadily simplify its operations. Eventually, the value added by the line’s human operators disappears, such that any operator can use the line to produce the same result. Only then is the Jidoka mechanism incorporated into actual production lines. Through the repetition of this process, machinery becomes simpler and less expensive and maintenance becomes less time con- suming and costly, enabling the creation of simple, slim, ﬂ exible lines that are adaptable to ﬂ uctuations in production volume. The work done by hand in this process is the bed- rock of engineering skill. Machines and robots do not think for themselves or evolve on their own. Rather, they evolve as we transfer our skills and craftsman- ship to them. As shown in the example of the callig- raphy robot, below, before transferring skills to machines or robots, it is essential to ﬁ rst develop them in people. Craftsmanship is achieved by learning the basic principles of manufacturing through manual work, then applying them on the factory ﬂ oor to steadily make improvements. Employees continually hone their craftsmanship while striving to weave the insights and techniques that doing so provides into machines to create new technologies and manufac- turing methods that, in turn, lead to new insights that improve their skills. This virtuous cycle of improve- ment in both human skills and technologies is the essence of Toyota’s Jidoka. I think that advancing Jidoka in this way helps to reinforce both our manu- facturing competitiveness and human resource development. Human wisdom and ingenuity is indispensable to delivering ever-better cars to customers. Going for- ward, we will maintain our thoroughgoing dedication to constantly developing human resources who can think independently and implement Kaizen. Mitsuru Kawai Executive Vice President Creating by Hand: The Foundation of Engineering Skill Human Skill (Craftsmanship) Is Necessary to Teach the Robot to Write Beautifully Virtuous Cycle of Skills and Technologies Building Production Lines by Hand (cid:129) Learning the basic principles of manufacturing (cid:129) Applying them on-site Accumulation of Kaizen Craftsmanship Jidoka / Karakuri* Simple, slim, ﬂ exible lines * Karakuri refers to mechanisms that do not use electricity or other energy sources No calligraphy experience With calligraphy experience Striving to create new technologies and manufacturing methods Human Robot Robot being trained 24 TOYOTA Annual Report 2018 Virtuous Cycle Skill Technology Craftsman- ship Digitization, automation, mass- production Reinforcing manufacturing competitive- ness and human resource development Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Message from the CFO My role as CFO and advisor to the president is to keep watch over Toyota’s overall management, maintain daily communication with the president, come up with ways to realize the president’s aspirations, priorities, and strategies, and give directions as appropriate. Sustainably increasing corporate value is the duty of all companies. As a mobility company, Toyota is facing a once-in-a-century period of profound trans- formation and therefore must advance aggressive forward-looking investment and business model innovation. Given this, I would like to share some of my thoughts on the factors that will be important to maintain and increase corporate value going forward. Raising the Value of Our Human Resources A company’s true value lies not in its factories, machinery, or other physical assets, but in the people who use them. One of my favorite sayings is from Shingen Takeda, a prominent 16th century lord and general, and literally translates as “people are the stone walls.” In other words, just as rocks of various shapes and sizes can together form a strong stone wall, developing and effectively deploying human resources with diverse values and expertise is essen- tial to building a strong company. Management determines the Company’s strategy and explains the hurdles that must be overcome to bring out the best efforts of employees so that every- one at Toyota will work hard and support one another as a team. Employees hone their respective expertise and carry out their responsibilities as professionals. Such daily efforts are the essential elements of increasing corporate value and the foundation that supports Toyota. Koji Kobayashi Executive Vice President, Member of the Board of Directors President Toyoda (center) and vice presidents (from left) Tomoyama, Kawai, Leroy, Kobayashi, Terashi, and Yoshida Cost Reduction, the TPS, and Next- generation Investment Maximizing Group Competitiveness Cost reduction and the Toyota Production System (TPS) are Toyota’s core strengths and traditions, handed down from our predecessors. However, I think that the true essence has not fully inﬁ ltrated Toyota at a more fundamental level. Examining costs means examining actions. We carefully scrutinize all costs, from each pencil used by each individual all the way up to major projects, using the full extent of our knowledge and abilities to deter- mine which parts of our actions are wasteful so that we can improve them. When I visit Toyota’s worksites and talk with employees, I do my utmost to encour- age them each to develop an awareness of costs and a concrete view of the value appropriation for speciﬁ c things and actions. By implementing such activities globally, we are securing the funds to sus- tainably invest in electriﬁ cation, automation, connec- tivity, and other next-generation technologies and to accelerate investment in partner companies and start-ups. The Toyota Group has grown by building on the foun- dation laid by Kiichiro Toyoda and constantly pushing to do better. The strength of the Toyota Group is in its shared set of basic values. As we prepare to take on new rivals in as-yet unknown arenas, it is more impor- tant than ever to return to the roots of the Group and gather our full strength. By having each Group com- pany focus on its particular areas of expertise, we will further enhance our competitiveness. To do this, we are rebuilding our existing frameworks. I think that the common values shared by the companies of the Group are what will enable the success of the “home and away” strategy espoused by President Toyoda. To achieve this strategy, we will reduce consolidated ﬁ xed costs, streamline development and investment, reinforce cost competitiveness, and advance human resource development to achieve greater results from the efforts of the Group’s employees and thereby increase the corporate value of the Group as a whole. Going forward, I will be sure to report the yearly progress and results of such initiatives to our inves- tors and shareholders. 25 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toward the Mobility Society of the Future Management Team Connectivity Marketing Electriﬁ cation Ever-better Cars GAZOO Racing Automated Driving Partner Robots Business Innovation Developing People Message from the CFO Capital Policy Capital Policy Financial Strategy Three Pillars The three pillars of Toyota’s ﬁ nancial strategy are sta- bility, growth, and efﬁ ciency. By maintaining adequate stability while pursuing growth and efﬁ ciency over the medium and long terms, we aim to build a robust ﬁ nancial foundation to support sustainable growth. 1. Stability: Securing Liquidity Having experienced ﬁ nancial crises and the Great East Japan Earthquake, in order to ensure business continuity in any business environment, we maintain a sufﬁ cient level of liquidity to cover half a year of both ﬁ xed costs in the automotive business and reﬁ - nancing requirements in the ﬁ nancial services business. Ample liquidity is essential to maintaining a full line-up in each region and retaining the ability to respond to all options and opportunities in this era of profound trans- formation in mobility. As such, it is a vital part of the foun- dation supporting the creation of corporate value. Dividend per Share and Net Income (cid:2) Interim dividend (cid:2) Year-end dividend (cid:3) Net income (right axis) 2. Growth: Aggressive Forward-looking Investment The auto industry is on the verge of a once-in-a-cen- tury turning point. We believe that technological inno- vation in such areas as connected technologies, automated driving, sharing, and electriﬁ cation will be key to the mobility of the future. Every year, we spend more than 1 trillion yen on R&D. By enhancing efﬁ - ciency in existing areas, we are strategically increas- ing the portion of R&D spending allotted to cutting-edge ﬁ elds like the above. Furthermore, we are investing in new initiatives. Examples of such investment include the establishment of TRI-AD, which is funded by Toyota, DENSO and Aisin; investment in start-ups through the Mirai Creation Fund and Toyota AI Ventures; and investment in such busi- ness partners as Grab, ALBERT, and Uber. 3. Efﬁ ciency: Enhancing Capital Efﬁ ciency Using cost reduction and the thorough application of the TPS, we are reinforcing the proﬁ t structure and securing funds to invest in advanced and cutting- edge technologies. development in existing ﬁ elds, making equipment more compact, shortening processes, and facilitating faster response to changes in production quantities. Furthermore, in addition to sustainably increasing ROE by repurchasing shares, we are strengthening invest- ment management by regularly evaluating the rationality of our strategic shareholdings in terms of the needs of our business strategies and economic utility. In these ways, we are striving to enhance capital efﬁ ciency. Diversifying Our Funding Base To diversify our means of funding, in 2015 Toyota issued approximately 500 billion yen in Model AA class shares to raise funds for long-term R&D activi- ties and build a base of medium- and long-term shareholders. The funds raised are being invested in R&D related to advanced and cutting-edge technolo- gies, such as fuel cells, infrastructure, information technology, and highly intelligent mobility. In capital expenditure other than R&D expenses, as In 2018, we issued 2 billion U.S. dollars in international well, we are carefully assigning priority to individual projects and tracking their progress while advancing measures to improve productivity, such as streamlining straight bonds, our ﬁ rst ever such offer overseas. The proceeds are being used as operating capital and for capital expenditure. Through such measures, we are diversifying our funding base to ensure that we can respond on all fronts to new challenges and opportuni- ties in this time of profound transformation in mobility. Shareholder Return We prioritize shareholder return as part of our capital policy. In principle, shareholder return is determined on the basis of net income. We strive to maintain stable and sustainable divi- dend payments based on a benchmark consolidated dividend payout ratio of 30% while considering such factors as our ﬁ nancial results, investment plans, and liquidity. For the ﬁ scal year ended March 31, 2018, we paid an annual dividend of 220 yen per share. We ﬂ exibly consider the repurchase of shares in light of long-term capital efﬁ ciency and changes in our business environment. For the ﬁ scal year ended March 31, 2018, we paid out 549.9 billion yen for the repurchase of shares, resulting in a total of 74 million shares acquired. Combined with dividends, this brought the total annual shareholder return to 1.2 tril- lion yen, for a consolidated payout ratio of 48.1%. Going forward, we will strive to further improve net income and ensure ongoing shareholder return through dividends and share repurchases. (Yen) 250 200 150 100 50 0 100 35 65 45 25 20 50 30 20 50 20 30 90 60 30 200 125 75 165 100 65 210 110 210 110 220220 120 100 100 100 Total Shareholder Return and Total Return Ratio (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 (Billions of yen) 2,500 2,000 1,500 1,000 500 0 -500 1,400 1,200 1,000 800 600 400 200 0 Repurchase in connection with the disposition of shares to Toyota Mobility Foundation 180.0 180.0 522.9 Repurchase in connection with the issuance of First Series Model AA Class Shares 1,800 349.9 293.3 631.3 ’15/3 924.6 42.5% 639.3 2.4 645.5 449.9 4.9 627.5 549.9 7.4 1,200.1 642.6 ’16/3 ’17/3 ’18/3 1,287.2 1,082.4 1,200.1 55.6% 59.1% 48.1% (Years ended) ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 (Years ended) ’14/3 Total amount of payment (billions of yen) Payout ratio* 313.5 141.1 156.8 157.7 285.0 522.9 631.3 645.5 627.5 642.6 — 67.4% 38.4% 55.6% 29.6% 28.7% 29.0% 28.3% 34.6% 26.1% Total shareholder return*1 (billions of yen) Total return ratio*1, 2 702.9 38.5% * 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. 26 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Initiatives for Sustainable Growth Toyota strives to implement a positive cycle of making ever-better cars that exceed customer expectations, enriching lives of communities, being rewarded with the smiles of customers and communities and thus rein- forcing 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 Fruit Ever-Better Cars Fruit Enriching Lives of Communities Trunk Stable Base of Business Roots Toyota Values The Five Main Principles of Toyoda The Guiding Principles at Toyota The Toyota Way Strategic Shifts Electriﬁ cation Information (Connectivity) Intelligence (Automated driving, AI) Zero CCO2 emissiions 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 Supporting sports Waku-doki (excitement and exhilaration that wows you) Vehicle development Recycling Renewable energy MIRAI (FCEV) Prius PHV Lexus Net popositiveve society y in harmonony with naturere Working toward a hydrogen society FC buses Motor sports 27 TOYOTA Annual Report 2018 citement inging g Brin he exc the of cars o the w rs to world onder and New won Ne exhilar aration Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Initiatives for Sustainable Growth Toyota’s Approach to Sustainable Growth In cooperation with global society, Toyota is working to contribute to the sustainable development of soci- ety and the planet through its business activities. At the root of these efforts are the Five Main Principles of Toyoda, passed down as the core of Toyota’s corpo- rate management, and the Guiding Principles, which lay out how Toyota should be as a company. Based on our experiences with the 2008 global ﬁ nancial cri- sis and the series of recalls in 2010, in 2011 we announced the Toyota Global Vision, which lays out what the Company should strive for going forward. This approach and these values align with the aims of the United Nations Sustainable Development Goals (SDGs), promulgated in January 2016. In particular, Toyota is using its strengths to help to solve global social issues by reducing trafﬁ c casualties (contribut- ing to SDG 3), building sustainable cities and commu- nities and improving mobility (SDG 11), and taking action to address climate change (SDG 13). Toyota regards addressing environmental issues as an especially key aspect of sustainability. To help achieve the Paris Agreement goal of keeping global warming below 2°C, we are promoting initiatives under the Toyota Environmental Challenge 2050. In 2018, we established medium-term goals under the Challenge and are ambitiously working to effect posi- tive change for the environment. Furthermore, Toyota places value on all stakehold- ers in the management of its businesses and strives to maintain and develop sound relationships with stakeholders through open, fair communication in order to contribute to the sustainable development of society and the planet. As our businesses develop, our communications with stakeholders also broaden and deepen. By working always hand-in-hand with stakeholders and growing together, Toyota consis- tently provides its three forms of value. WEB Stakeholder Engagement (Sustainability Data Book 2018, p. 73) Toyota’s Implementation Framework As the automotive industry faces a once-in-a-century period of profound transformation, quicker decision making and greater operational efﬁ ciency than ever before are essential. At the same time, stakeholder expectations are rising with regard to non-ﬁ nancial issues, particularly environmental (E), social (S), and governance (G) issues. To respond to these changes, Toyota established the Sustainability Meeting in 2018. Chaired by the chief risk ofﬁ cer, the meeting’s members include Outside Directors and Outside Audit & Supervisory Board Members. The meeting discusses non- ﬁ nancial considerations from a range of angles and examines the overall direction of management. Under the Sustainability Meeting, we have also set up an ESG Committee, in which the operating ofﬁ - cers in charge lead discussions aimed at promptly solving speciﬁ c issues. Helping Solve Global Social Problems Together with Our Stakeholders Implementation Framework Selected Initiatives Aimed at Contributing to the SDGs Reducing trafﬁ c casualties (SDG 3) Improved mobility and sustainable urban development (SDG 11) Addressing climate change (SDG 13) Active safety using Toyota Safety Sense (cid:129) The number of vehicles with Toyota Safety Sense has surpassed 8 million globally (as of April 2018) Realizing a prosperous mobility society while eliminating dispari- ties in mobility through the Toyota Mobility Fund. (cid:129) Example: Project to promote the shift to multiple transportation modes in Vietnam Toyota Environment Challenge 2050: New Vehicle Zero CO2 Emissions Challenge (cid:129) Accelerate development with the goal of selling more than 5.5 million elec- triﬁ ed vehicles in 2030 (including more than 1 million BEVs and FCEVs) 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 Shareholders’ Meeting Board of Directors Sustainability Meeting Chairman: Chief Risk Ofﬁ cer (Executive Vice Shareholders President) Attendees: Outside Directors, full-time and Outside Audit & Supervisory Board Members, relevant ofﬁ cers Disclosure Committee ESG Committee • Disclosure control systems • Environmental, social, and gover- nance issues • Risk management Business partners Customers 28 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Corporate Philosophy The Guiding Principles at Toyota and Their Implementation The Five Main Principles of Toyoda have been passed down since Toyota’s founding as the core of its management. These principles embody the think- ing of the Toyota Group’s founder, Sakichi Toyoda. In 1992, they were reorganized in light of changes in society and business structure to create the Guiding Principles at Toyota. The Guiding Principles at Toyota lay out the kind of company we want to be. Building on this, the Toyota Way 2001 (hereinafter called the “Toyota Way”) was established in 2001, laying out values and business practices that everyone working at Toyota around the world should embrace. The Toyota Way thus clearly articulates and facilitates the global sharing of values and practices that had previously been passed down only as implicit knowledge. The Toyota Way’s main pillars are the concepts of continuous improvement and respect for people, with the keywords of taking on challenges, Kaizen, and Genchi Genbutsu (onsite, hands-on experience) under the former and respect and teamwork under the latter. Continuous improvement means never being satisﬁ ed with the status quo and always doing our utmost to create even greater added value. Respect for people entails respect for all our stake- holders and working to achieve business success by promoting the growth of employees. Rewarded with a Smile by Exceeding Your Expectations. The Toyota Global Vision The Toyota Global Vision, published in March 2011, was created through exhaustive, Company-wide reexamination and discussion of the kind of company that Toyota aspires to be and the values that it esteems in light of the Company’s losses following the global economic crisis of 2008 and the series of recalls in 2010. We are implementing a positive cycle of making ever-better cars that exceed customer expectations, enriching lives of communities, being rewarded with the smiles of customers and commu- nities and thus reinforcing our stable base of busi- ness. By maintaining and enhancing this cycle, we aim to continuously provide value to society in the forms of safety and peace of mind, environmental sustainability and Waku-doki (excitement and exhila- ration that wows you) while enhancing Toyota’s cor- porate value. WEB Corporate Principles (Sustainability Data Book 2018, 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. 29 TOYOTA Annual Report 2018 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 Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us 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 Sustainability Meeting and reported to the Board of Directors. Business Execution and Supervision 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 rapid, unprecedented 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. 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 operating ofﬁ cers as business execution. In 2018, to accelerate business execution in con- cert with other personnel and organizational changes, we moved up the timing for changing the operating ofﬁ cer lineup from April to January, revised the struc- ture of our corporate management-related divisions, and reorganized the Japan Sales Business Group, shifting from a focus on channels to a focus on regions. These efforts have yielded a business 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 (More than half of the Members are 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 (including outside directors) Audit Decision making and management oversight Submission/Report Supervise Operating Ofﬁ cers Operational Execution Audit Head Ofﬁ ce Business Units In-house companies Supervise Sustainability Meeting Governance and risk management Suggestion Executive Appointment Meeting/ Executive Compensation Meeting International Advisory Board Labor-Management Council/ Joint Labor-Management Round Table Conference Advice Dialogue Audit Submission/Report Submission/Report Disclosure Committee Disclosure control systems Internal Auditing Department Internal control systems framework able to make decisions at points closer to customers and front-line workplaces. The operating ofﬁ cers—mainly the president and executive vice presidents, to whom authority is dele- gated by the Board of Directors—work closely with the business units (the in-house companies and Business Planning & Operation Unit) to realize prompt decision making and move forward with initiatives toward sustainable growth and the medium- to long- term improvement of corporate value. As part of the management oversight of operations, the Sustainability Meeting deliberates the corporate governance structure under which such initiatives are carried out. 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. Initiatives to Reinforce Corporate Governance 2003 Reduced the number of directors (from 58 to 27) Established the position of managing ofﬁ cer (equivalent to operating ofﬁ cer) 2011 Reduced the number of directors (from 27 to 11) Established the position of senior managing ofﬁ cer 2013 Appointed outside directors 2015 Appointed a non-Japanese executive vice president Implemented measures to comply with the Corporate Governance Code 2016 Adopted the in-house company system 2017 Clariﬁ ed the roles of the directors and operating ofﬁ cers 2018 Established the Sustainability Meeting 30 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Corporate Governance Board of Directors 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. Audit & Supervisory Board 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 rele- vant 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 limited to the scope determined by resolution of the Shareholders’ Meeting and decided by the Board of Directors with reference to proposals submitted by the Executive Compensation 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 members of the Board of Directors, including its outside members 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 2018, these evaluations found that the Board was effective. The insights gleaned from these evaluations regarding accelerating decision making and business execution oversight are being used in ﬁ scal 2019 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 imple- menting internal controls are functioning autono- mously and enhancing said controls as necessary. The ﬁ ndings of these inspections are reviewed by the Sustainability Meeting and Board of Directors. Corporate Structure (as of June 14, 2018) Institutional design Company with an Audit & Supervisory Board Directors (Outside directors) Audit & Supervisory Board Members (Outside members) 9 (3) 6 (3) Term of ofﬁ ce for directors 1 year Voluntary committees Executive Appointment Meeting Executive Compensation Meeting Public accounting ﬁ rm PricewaterhouseCoopers Aarata LLC WEB Corporate Governance Report 31 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Respect for Human Rights and SCM Working to Better the World around Us Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Messages from the Outside Directors Messages from the Outside Directors MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeessssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeesssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssss ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooommmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm ttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttthhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhheeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuutttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiirrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrreeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeecccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccctttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttoooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooorrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrsssssssssssssssssssssssssssssssssssssssssssssssssssssssssss Remaining Irreplaceable by Leading the Way to the Mobility Society of the Future The Five Keywords of the Toyota Way Are the Core of Future Success The Boldness, Steadfastness, and Courage to Thrive over the Next Century Teiko Kudo Sir Philip Craven Ikuro Sugawara The auto industry is at a once-in-a-century turning point. Serving as an outside director at such a time is a tremendous responsibility, but the chance to push forward as part of the Toyota team is also very rewarding. I feel a strong afﬁ nity with Toyota’s approach of maintaining its monozukuri (manufacturing) core while incorporating technological innovations and continuously evolving as well as its aspiration as a mobility company to create a world where everyone can move about freely and enjoyably. As an outside director, I will represent the perspectives of Toyota’s broad range of stakeholders, including shareholders, users, and soci- ety at large. By doing so, I will strive to help ensure that Toyota will continue to play a major part in sustainable global development and provide irreplaceable value to society over the next 100 years. At the Ordinary General Shareholders’ Meeting I experienced the indomitable spirit of Toyota both from the shareholders and also from the senior executives. What attracted me to work with Toyota? It is this human spirit, this passion and the basic principles which underpin TMC and are so fundamental to its future success. From my experience, if you choose to ignore the basic principles upon which you are founded, you will be in trouble sooner rather than later. These principles are laid out in the ﬁ ve keywords of the Toyota Way. The spirit of Challenge leading to the creation of opportunities and Kaizen, continual improvement, are crucial in the 21st century. Genchi Genbutsu—get to the root cause, the source—then we can move forward together. Respect is not a given right but has to be earned by everyone. And,Teamwork—always giving to the team and the team then gives back to you! It is great to be on board! 32 TOYOTA Annual Report 2018 Over the past century, global competition has whittled down the number of companies in the auto industry to just a few major players. In just the past few years, however, a number of companies from other ﬁ elds have entered the industry in quick succession. This is because the scope of the industry is rapidly expanding, reﬂ ecting a change in the very deﬁ nition of an automobile—from a means of transport with an engine and four wheels to a mobile space providing comfort and serving as an information hub. To survive the next century, Toyota will need the boldness to let go of its past successes and move forward, the steadfastness to safe- guard the sources of its true strength, and the courage to leap into new, unfamiliar ﬁ elds, like mobility as a service (MaaS). Bringing to bear my experience in government and an unfettered perspective, I will do my utmost to contribute to the creation of such a new Toyota. Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Corporate Governance Board of Directors and Audit & Supervisory Board Members (As of June 14, 2018) Chairman of the Board of Directors Member of the Board of Directors Member of the Board of Directors Apr. 1969 Joined TMC Jun. 1998 Member of the Board of Directors of TMC Jun. 2001 Managing Director of TMC Jun. 2003 Senior Managing Director of TMC Jun. 2005 Executive Vice President of TMC Jun. 2012 Vice Chairman of TMC Jun. 2013 Chairman of TMC (to present) Takeshi Uchiyamada [Position and areas of responsibility] Frontier Research Center (Chairman) Koji Kobayashi [Position and areas of responsibility] Chief Financial Ofﬁ cer Chief Risk Ofﬁ cer Apr. 1972 Joined TMC Jun. 2004 Executive Director of DENSO Corporation Jun. 2007 Senior Executive Director, Member of the Board of Directors of DENSO Corporation Jun. 2010 Executive Vice President of DENSO Corporation Jun. 2015 Vice Chairman of DENSO Corporation Feb. 2016 Advisor of TMC Apr. 2017 Senior Advisor of TMC Jan. 2018 Executive Vice President of TMC (to present) Jan. 2018 Member of the Board of Directors of DENSO Corporation Jun. 2018 Retired as Member of the Board of Directors of DENSO Corporation Jun. 2018 Member of the Board of Directors and Executive Vice President of TMC (to present) Ikuro Sugawara Outside and Independent Director Apr. 1981 Joined Ministry of International Trade and Industry Jul. 2010 Director-General of the Industrial Science and Technology Policy and Environment Bureau, Ministry of Economy, Trade and Industry Sep. 2012 Director-General of the Manufacturing Industries Bureau, Ministry of Economy, Trade and Industry Jun. 2013 Director-General of the Economic and Industrial Policy Bureau, Ministry of Economy, Trade and Industry Jul. 2015 Vice-Minister of Ministry of Economy, Trade and Industry Jul. 2017 Retired from the Ministry of Economy, Trade and Industry Aug. 2017 Special Advisor to the Cabinet (to present) Jun. 2018 Outside Member of the Board of Directors of TMC (to present) Vice Chairman of the Board of Directors Member of the Board of Directors Apr. 1977 Joined Toyota Motor Sales Co., Ltd. Jun. 2007 Managing Ofﬁ cer of TMC Sep. 2007 President of Toyota Motor North America, Inc. Jun. 2009 Retired as President of Toyota Motor North America, Inc. Apr. 2012 Senior Managing Ofﬁ cer of TMC Jun. 2015 Member of the Board of Directors and Senior Managing Ofﬁ cer of TMC Apr. 2017 Vice Chairman of TMC (to present) Shigeru Hayakawa President, Member of the Board of Directors Apr. 1984 Joined TMC Jun. 2000 Member of the Board of Directors of TMC Jun. 2002 Managing Director of TMC Jun. 2003 Senior Managing Director of TMC Jun. 2005 Executive Vice President of TMC Jun. 2009 President of TMC (to present) Akio Toyoda Didier Leroy [Position and areas of responsibility] Business Planning & Operation (President) Chief Competitive Ofﬁ cer Shigeki Terashi [Position and areas of responsibility] Advanced R&D and Engineering Company (President) Powertrain Company (Chairman) Chief Safety Technology Ofﬁ cer Sep. 1982 Joined Renault S.A. Aug. 1998 Retired from Renault S.A. Sep. 1998 Joined Toyota Motor Manufacturing France S.A.S. Sep. 1998 Vice President of Toyota Motor Manufacturing France S.A.S. Jan. 2005 President of Toyota Motor Manufacturing France S.A.S. Jun. 2007 Managing Ofﬁ cer of TMC Jul. 2007 Executive Vice President of Toyota Motor Europe NV/SA Jul. 2009 Chairman of Toyota Motor Manufacturing France S.A.S. Jun. 2010 President of Toyota Motor Europe NV/SA Jul. 2010 Retired as Chairman of Toyota Motor Manufacturing France S.A.S. Apr. 2011 President and CEO of Toyota Motor Europe NV/SA Apr. 2012 Senior Managing Ofﬁ cer of TMC Apr. 2015 Chairman of Toyota Motor Europe NV/SA (to present) Jun. 2015 Member of the Board of Directors and Executive Vice President of TMC Jun. 2017 Member of the Board of Directors and Executive Vice President of TMC (to present) Sir Philip Craven Outside and Independent Director Oct. 1998 President of the International Wheelchair Basketball Federation Dec. 2001 President of the International Paralympic Committee Jul. 2002 Retired as President of the International Wheelchair Basketball Federation Sep. 2017 Retired as President of the International Paralympic Committee Jun. 2018 Outside Member of the Board of Directors of TMC (to present) Apr. 1980 Joined TMC Jun. 2008 Managing Ofﬁ cer of TMC Jun. 2008 Executive Vice President of Toyota Motor Engineering & Manufacturing North America, Inc. Apr. 1987 Joined Sumitomo Bank Apr. 2014 Executive Ofﬁ cer of Sumitomo Mitsui Banking Corporation Apr. 2017 Managing Executive Ofﬁ cer of Sumitomo Mitsui Banking Corporation (to present) May 2011 President and COO of Toyota Motor Engineering & Manufacturing Jun. 2018 Outside Member of the Board of Directors of TMC (to present) North America, Inc. Apr. 2012 President and CEO of Toyota Motor Engineering & Manufacturing North America, Inc. Apr. 2012 President and COO of Toyota Motor North America, Inc. Apr. 2013 Retired as President and CEO of Toyota Motor Engineering & Manufacturing North America, Inc. Apr. 2013 Retired as President and COO of Toyota Motor North America, Inc. Apr. 2013 Senior Managing Ofﬁ cer of TMC Jun. 2013 Member of the Board of Directors and Senior Managing Ofﬁ cer of TMC Jun. 2015 Executive Vice President of TMC Jun. 2017 Member of the Board of Directors and Executive Vice President of Teiko Kudo Outside and Independent Director TMC (to present) 33 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Corporate Governance Board of Directors and Audit & Supervisory Board Members (As of June 14, 2018) Full-Time Audit & Supervisory Board Members Outside Audit & Supervisory Board Members Oct. 1972 Joined TMC Jun. 2007 President of Toyota Motor Corporation Australia Ltd. May 2014 Chairman of Toyota Motor Corporation Australia Ltd. Dec. 2017 Retired as Chairman of Toyota Motor Corporation Australia Ltd. Jun. 2018 Audit & Supervisory Board Member of TMC (to present) Apr. 1970 Joined the Fuji Bank, Limited Dec. 1973 Retired from the Fuji Bank, Limited Apr. 1977 Assistant Lecturer of Faculty of Business and Commerce of Keio University Apr. 1982 Associate Professor of Faculty of Business and Commerce of Keio University Apr. 1993 Professor of Faculty of Business and Commerce of Keio University Jun. 2011 Outside Audit & Supervisory Board Member of TMC (to present) Apr. 2013 Professor Emeritus of Keio University (to present) Masahide Yasuda Yoko Wake Outside and Independent Member Apr. 1975 Joined TMC Jan. 2009 President of Toyota Motor (China) Investment Co., Ltd. Jun. 2009 Managing Ofﬁ cer of TMC Apr. 2011 Retired as President of Toyota Motor (China) Investment Co., Ltd. Jun. 2011 Audit & Supervisory Board Member of TMC (to present) Jul. 2012 Prosecutor-General Jul. 2014 Retired from Prosecutor-General Sep. 2014 Registered as Attorney Jun. 2015 Outside Audit & Supervisory Board Member of TMC (to present) Masahiro Kato Hiroshi Ozu Outside and Independent Member Apr. 1983 Joined TMC Jun. 2015 Audit & Supervisory Board Member of TMC (to present) Yoshiyuki Kagawa Nobuyuki Hirano Outside and Independent Member Apr. 1974 Joined Mitsubishi Bank Jun. 2001 Executive Ofﬁ cer of The Bank of Tokyo-Mitsubishi, Ltd. Oct. 2005 Director of Mitsubishi UFJ Financial Group, Inc. Jan. 2006 Managing Director of The Bank of Tokyo-Mitsubishi UFJ, Ltd. Oct. 2008 Senior Managing Director of The Bank of Tokyo-Mitsubishi UFJ, Ltd. Jun. 2009 Deputy President of The Bank of Tokyo-Mitsubishi UFJ, Ltd. Jun. 2009 Managing Ofﬁ cer of Mitsubishi UFJ Financial Group, Inc. Oct. 2010 Deputy President of Mitsubishi UFJ Financial Group, Inc. Apr. 2012 President of The Bank of Tokyo-Mitsubishi UFJ, Ltd. Apr. 2012 Director of Mitsubishi UFJ Financial Group, Inc. Apr. 2013 President & CEO of Mitsubishi UFJ Financial Group, Inc. Jun. 2015 Director, President & Group CEO of Mitsubishi UFJ Financial Group, Inc. (to present) Apr. 2016 Chairman of the Board of Directors of Bank of Tokyo-Mitsubishi UFJ, Ltd. Apr. 2018 Company name changed from The Bank of Tokyo-Mitsubishi UFJ, Ltd. to MUFG Bank, Ltd. Jun. 2018 Outside Audit & Supervisory Board Member of TMC (to present) 34 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Toyota Environmental Challenge 2050 and 2030 Milestone Toyota Environmental Challenge 2050 Toyota has long carried out a wide range of initiatives 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 attribut- able to automobiles to zero, we have set ourselves six challenges aimed at helping to build a sustainable world through initiatives that will positively impact the earth and society. Achieving the Toyota Environmental Challenge 2050: The 2030 Milestone In December 2017, Toyota announced a new medium- to long-term initiative centered on the development and rollout of electriﬁ ed vehicles to help realize the targets of the Toyota Environmental Challenge 2050. This initiative will focus on popularizing electriﬁ ed vehicles in the decade from 2020 to 2030. The 2030 Milestone indicates the progress we aim to have made as of 2030 toward the six challenges of the Toyota Environmental Challenge 2050. We are advancing these initiatives in concert with the Toyota Environmental Action Plan, which lays out speciﬁ c action plans and targets for every ﬁ ve-year period, to contribute to the realization of a sustainable society. Milestones for 2030, on the Way to Achieving the Toyota Environmental Challenge 2050 Toyota Environmental Challenge 2050 Challenge 1 New Vehicle Zero CO2 Emissions Challenge Reduce global average CO2 emissions during operation from new vehicles by 90% from Toyota’s 2010 global level Toyota Environmental Challenge 2050 Challenge 2 Life Cycle Zero CO2 Emissions Challenge Completely eliminate all CO2 emissions from the entire vehicle life cycle 2030 Milestone Toyota Environmental Challenge 2050 Challenge 3 Plant Zero CO2 Emissions Challenge (cid:129) Reduce CO2 emissions by 25% or more over the entire vehicle life cycle compared Achieve zero CO2 emissions at all plants worldwide by 2050 2030 Milestone to 2013 levels by promoting activities for the milestones of Challenges 1 and 3 and initiatives 2030 Milestone (cid:129) Record annual global sales of more than 5.5 million electriﬁ ed vehicles, including more than 1 million zero-emission vehicles (BEVs and FCEVs) 35% or more from 2010 levels Reduce global average CO2 emissions from new vehicles (g-CO2/km) (note that this is an estimate and results may vary depending on market conditions) Toyota Environmental Challenge 2050 Challenge 4 Challenge of Minimizing and Optimizing Water Usage Minimize water usage and implement water discharge management based on individual local situations 2030 Milestone (cid:129) Implement measures, on a priority basis, in the regions where the water environment is consid- ered to have a large impact Water quantity: Complete measures at the 4 challenge-focused plants Water quality: Complete impact assessments and countermeasures at all of the 22 in North America, Asia, and South Africa plants where used water is discharged directly into rivers in North America, Asia, and Europe (cid:129) Disclose information appropriately and communicate actively with local communities and suppliers with support from stakeholders, such as suppliers, energy providers, infrastructure developers, governments, and customers (cid:129) Reduce CO2 emissions from global plants by 35% compared to 2013 levels 2050 2030 2030 MILESTONE MILESTONE Toyota Environmental Challenge 2050 Challenge 5 Challenge of Establishing a Recycling-based Society and Systems Promote global deployment of end-of-life vehicle treatment and recycling technologies and systems developed in Japan 2030 Milestones (cid:129) Complete establishment of battery collection and recycling systems globally (cid:129) Complete set up of 30 model facilities for appropriate treatment and recycling of end-of-life vehicles 35 TOYOTA Annual Report 2018 Toyota Environmental Challenge 2050 Challenge 6 Challenge of Establishing a Future Society in Harmony with Nature Connect nature conservation activities beyond the Toyota Group and its business partners among communities, with the world, to the future 2030 Milestone (cid:129) Realize “Plants in Harmony with Nature”—12 in Japan and 7 overseas— as well as implement activities to harmonize with nature in all regions where Toyota operates in collaboration with local communities and companies (cid:129) Contribute to biodiversity conservation activities in collaboration with NGOs and others (cid:129) Expand initiatives both in-house and outside to foster environmentally conscious persons responsible for the future Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Toyota Environmental Challenge 2050 and 2030 Milestone Key Fiscal 2018 Initiatives under Toyota Environmental Challenge 2050 New Vehicle Zero CO2 Emissions Challenge Challenge of Minimizing and Optimizing Water Usage Challenge of Establishing a Future Society in Harmony with Nature 20th Anniversary of the Prius’s Launch Since its launch in 1997 as the world’s ﬁ rst mass-produced hybrid pas- senger vehicle, the Prius has continued to blaze the trail forward. 2017 marked the 20th anniversary of the Prius’s launch. The name “Prius,” derived from the Latin for “to go before,” was chosen to embody the idea of a vehicle that will help shape the future of the Earth. The Prius has gained the support of millions of customers with whom this idea res- onates. Based on the concept that eco-friendly vehicles can best con- tribute to society if they are in widespread use, through the Prius and the other electriﬁ ed vehicles that have inherited its environmental technolo- gies, we will strive to contribute to the global environment alongside the customers who use these vehicles. The Toyota Water Environment Policy—Helping Achieve Our Aquatic Environment Challenge Globally While the speciﬁ c issues and ways of addressing them vary by region, Toyota has created the Toyota Water Environment Policy to help it accom- plish the challenge it has set itself with regard to the aquatic environment. The Toyota Water Environment Policy promotes activities aimed at eval- uating and minimizing Toyota’s 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. We take action on three fronts—the pursuit of environmental technologies, community-root- ed operations, and cooperation with society—and strive to be the best factory in the region and thus contribute to regional prosperity. The Heritage and Future of Toyota Hybrid Technologies The Toyota Hybrid System (THS) used in the ﬁ rst-generation Prius evolved into the THS II and, later, its use was expanded to other models. Toyota positions hybrid technologies as core technologies as it develops a range of electriﬁ ed vehicles, including PHEVs, BEVs, and FCEVs. Prius Sales Annual sales (left axis) Cumulative sales (right axis) Fourth-generation Prius Debuted December 2015 Fuel economy: JC08 test cycle 34.0–40.8 km/l (Millions of vehicles) Third-generation Prius Debuted May 2009 Fuel economy: JC08 test cycle 30.4–32.6 km/l 4.23 million Second-generation Prius Debuted September 2003 Fuel economy: JC08 test cycle 27.0–29.6 km/l Fuel economy: 10.15 test cycle 30.0–35.5 km/l 3 million 1 1 million First-generation Prius Debuted December 1997 Fuel economy: 10.15 test cycle 28.0–31.0 km/l ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 0.6 0.5 0.4 0.3 0.2 0.1 0 5 5 4 3 2 1 0 Rigorous Reduction of Water Consumption Based on evaluations of the impact of water usage volume on the water environment, we designated four plants in three regions as challenge- focused plants and are advancing related initiatives at said plants. Rigorous Cleaning of All Water before Discharge We are working to maintain and control the water quality of our water discharge, not only maintaining strict legal compliance, but setting volun- tary control standards that are even more stringent than those speciﬁ ed by laws and regulations. In ﬁ scal 2018, we designated 22 water-quality challenge-focused plants in three regions. Toyota Water Environment Policy Toyota prioritizes the sustainability of water resources and aims to create an affluent society to ensure that sound aquatic environments can be shared by future generations. Being the best factory in the region to contribute to the whole community’s prosperity I N OUT Rigorous reduction of water consumption Rigorous cleaning of all water before discharge Minimize water intake at each factory and utilize rainwater to minimize impact on local water sources Make a positive impact on the environment by making wastewater cleaner than the body into which it is discharged (January–March) 36 TOYOTA Annual Report 2018 Five-year Partnership with IUCN to Enhance Data on Global Threats to Biodiversity Toyota began a ﬁ ve-year partnership with the International Union for Conservation of Nature (IUCN)1 in May 2016 to raise awareness of the present biodi- versity crisis. Under the partnership, we are providing annual grants of approximately US$1.2 million to sup- port the broadening of the IUCN Red List of Threatened Species™.2 With this support, the IUCN will conduct extinc- tion risk assessments for more than 28,000 species, approximately 35% of all species requiring such assessment. This represents a major step toward the IUCN’s goal of gaining a comprehensive view of the conser- vation status of earth’s biodiversity. 1. The International Union for Conservation of Nature: Founded in 1948 as an international initia- tive, the IUCN is a global nature conservation network comprising nations, government agen- cies, non-governmental organizations, and other organizations 2. The IUCN Red List of Threatened Species™ is a global inventory of the conservation status of species that is managed by the international organization IUCN Five-Year Partnership with WWF for the Living Asian Forest Project In July 2016, Toyota and the World Wide Fund for Nature (WWF) 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 partnership, Toyota has donat- ed US$1 million a year since 2016 and offered other forms of support to the Living Asian Forest Project. The Living Asian Forest Project is reinforc- ing existing WWF initiatives to conserve tropical rainforests and biodiver- sity in Southeast Asia and helping develop new conservation initiatives. WEB Environmental Report 2018 © naturepl.com / Mark Carwardine / WWF © naturepl.com / Mark Carwardine / WWF Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Employees Toyota prioritizes respect for people, aiming to pro- vide 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, together with considerations for regional characteristics, 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 peo- ple, but to customer satisfaction and social contri- bution and thus to the sustainable growth of both the company and society. 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) is the foundation of this program. 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 essential to utilize the wisdom of our people to make constant improvements. At the same time, while employees bring a wide range of cultures and customs, to make ever-better cars and carry out our Customer First policy, all employees must share certain values. 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 subordi- nates and junior colleagues to build mutually beneﬁ - cial learning relationships in the course of daily work (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. Toyota’s Approach to OJT OJT Personnel system In tandem with OJT Off-the-job training 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. Applying the TPS and Accelerating Business Innovation The Toyota Production System (TPS) is based on the concepts of Jidoka (automation with a human touch) and Just-in-Time and aims to completely eliminate waste and steadily reduce costs. To promote TPS- related activities on a company-wide basis, bridging pro- duction, administrative and engineering departments, Toyota created the TPS Group in January 2018. To make work in administrative and engineering divisions better, more cost effective, and more timely, we are beginning by applying a similar approach to that taken at production sites, ﬁ nding ways to achieve more consistent and standardized operations. Using concepts from production processes, we are creating workﬂ ow charts for these divisions to determine where information is getting backed up so that we can remove bottlenecks and reduce lead times. By applying TPS principles to administrative and engineering divisions, as at production sites, we are reducing lead times, promoting rapid problem solv- ing, and strengthening our organizations. These efforts are helping promote business innovation. Furthermore, we have newly identiﬁ ed seven types of waste at administrative and engineering divisions* and are advancing company-wide efforts to change mindsets and implement improvement measures. For example, with the support of the TPS Group, the Accounting Division has taken stock of end-of-period accounting operations to identify waste and advance improvement. We are steadily implementing similar initiatives in all divisions and broadly sharing success- ful examples as we work toward the application of the TPS, a strength of Toyota, throughout the Company. * The seven types of waste at administrative and engineering divisions: Non-value-adding activities related to meetings, consensus-building, documen- tation, coordination, supervisors’ pridefulness, over- reliance on routine, and lack of follow through. WEB Employees (Human Resource Development, Sustainability Data Book 2018, p. 61) 37 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us 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 identify new issues. 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 Innovation Toyota is advancing work style innovation to improve productivity and support employees seeking to contin- ue working by providing child care or nursing care for a family member. In October 2016, we expanded our remote working program 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 remote working program was available only to employees with childcare or nursing care responsibilities, all employees that meet certain condi- tions can request the permission of their supervisors to use the FTL system. As of March 31, 2018, of the approximately 13,200 employees who qualify for the FTL system, approximately 3,300 are using it. We have received a great deal of positive feedback from users of the program 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. From April 2018, we have been introducing a new partial remote working program for assistant staff members.* We are advancing initiatives aimed at reforming work styles throughout our workplaces. * Available only for employees with childcare or nursing care responsibilities Since 2016, 1,100 managers have begun posting “Ikuboss declarations” related to diversity manage- ment via the Group intranet. These declarations, which include information about workplace initiatives and messages to subordinates, are helping to foster a culture of mutual support for the work and success of diverse employees. In 2018, we are implementing diversity management training for employees who have been newly promoted as managers. Furthermore, in addition to such training for managers, we are implementing “Emotional Barrier- free Training” for young employees to deepen under- standing of LGBT individuals, wheelchair users and other people often discriminated against. We are advancing these and other initiatives with the aim of practicing diversity management in all Group workplaces. 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. Toyota’s employees in managerial positions are lead- ing diversity management initiatives to create work- places where diverse human resources can thrive. At Toyota, we call a boss who can carry out diversity management, Ikuboss. 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 ample consider- ation to the quality of both their own and their subor- dinates’ private lives. 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. 3. Development framework and education programs We are allocating human resources and developing executives globally. Our development of human 38 TOYOTA Annual Report 2018 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 implementing a program similar to GLOBAL 21 for employees of TMC in Japan. 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 June 2018, three of the Group’s six regional headquarters were 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). We are also advancing the localization of manage- ment posts. This is enabling us to quickly process feedback from customers and workplaces in each region and utilize such information in management decision making. Overseas Executive Positions Held by Local Employees (%) Fiscal year 2014 2015 2016 2017 2018 Local employees 64.7 62.9 62.6 65.8 67.8 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 2018, p. 65) LGBT Diversity Management Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Employees Taking the Initiative at Each Workplace Putting Child Care-related Work Style Innovation into Practice Let’s Change Toyota! The Start of Reforms at the Individual Level Report from a Roundtable Held by the Process Quality Innovation Division Making the Desire for Change a Reality The Future Project Department: Soliciting Ideas within Toyota for Co-Creation Toyota has no future if it just keeps doing the same things—spurred by this sentiment and sense of urgency communicated by top manage- ment, bottom-up reforms led by front-line staff are getting under way. As one example of an initiative based on an open-minded, pro-action approach, a group of employees applied the Genchi Genbutsu (onsite, hands-on experience) principle to humbly learn from the methods of another company. By doing so, we were able to achieve a level of preci- sion and speed in development that we had not reached before. Thinking outside the bounds of existing methods, we went back to the basics, starting by focusing on ﬁ guring out what it is that customers are really looking for. From there, everyone put their heads together, expand- ing the scope of our activities across business areas and functions to arrive at solutions. By sharing such initiatives in which each individual takes a proactive role and by learning from one another, we are working to change the old methods that we have taken for granted. Activities like these are now starting at all kinds of workplaces across Toyota, regardless of organization or individual position. To be rewarded with the smiles of customers and to create the mobility society of the future, we understand that every employee will have to change, and we are putting the full strength of the company into accelerating reforms that involve every employee. Since its establishment in 2012, the Future Project Department has advanced Future Scenario & Concept (FSC) activities as one of its main functions. These activities entail drawing up future scenarios and then planning and proposing services and business models to enable freer urban mobility. Now, under the Breakthrough-project (B-project), the department is going a step beyond FSC activities, not only ﬁ nding ideas from across the company, but aiming to provide incubation to develop them and shepherd them all the way to commercialization and the cre- ation of exit strategies. Speciﬁ cally, driven individuals can sign up to participate in “B Dojo” study meetings outside normal work hours to develop their ideas and draft proposals. The division then selects the most promising proposals to take into the incubation phase. As part of this idea creation process, we ask the divisions to which these projects are likely to be handed off after incubation to help come up with exit strategies. Until now, the Future Project Department’s new initiatives have mostly involved outside partners. The B-project, however, is an attempt to co-create new value by connecting with people who want to make something new both in and outside Toyota. This is why Toyota has named the project “Breakthrough.” One-month Parental Leave for Fathers Hidemasa Komatsu, Design Department What I Learned from Using Work-Life Balance Support Programs Tomoko Motohashi, Purchasing Planning Division My household consists of myself, my wife, and my daughter. My wife and I both work. When my daughter was about nine months old, I used the parental leave system for about a month. During my leave, I took full charge of the care of our daughter, which helped give my wife peace of mind, knowing that I could handle things if something happened and she couldn’t be there. Although it was only a month, it was thus an important experience for me and for my family. Because I took parental leave, my wife, who had been away from work since before our daughter was born, was able to go back sooner, which I think will be beneﬁ cial for her career. My parental leave also provided a chance to really experience the world outside the parameters of the company. I was reminded that the values that hold true within the company aren’t everything, and that it is essential to look at the real world when engaging in manufacturing. In this sense, my leave was extremely valuable for me as a father and as someone involved in manufacturing. I very much hope to see further reforms to work systems and styles so that it will be easy and unremark- able for anyone to take this kind of leave. Starting when I was pregnant with my ﬁ rstborn, I took three years off before returning to work. When I found out I was going to have a child, I was incredibly happy. At the same time, though, no one at my work- place had ever used the support systems for working parents. I couldn’t see how I would be able to keep working and thought about resigning. Seeing my unease, my boss recommended that I use the systems and try to adjust my work style, so I decided to give it a try. When I ﬁ rst came back to work, I used the shortened working hours system. My husband helped me handle emergencies, like when our child suddenly developed a fever and had to be picked up from daycare. Even so, there were never enough hours in the day, and I wasn’t able to give as much as wanted to work or to childcare. I came close to throw- ing in the towel many times. I then decided to use the full-time telecom- muting system, which freed me from the pressure of having to leave work by a set time every day. I was the ﬁ rst at my workplace to use this system, but, with the support of my family and colleagues, I was able to continue working. It was often hard, but I realized that time management is the key to working while raising children. I also strive to break down my everyday work into speciﬁ c tasks, prepare effectively, and identify the important tasks to focus on. For me, these realizations are irreplaceable experiences, and I will continue to give my all to improve various aspects of my work. 39 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Risk Management Fundamental Approach Organization and Structure Toyota has been working to reinforce its risk manage- ment systems since the series of recall issues in 2010. In June 2010, Toyota established the Risk Management Committee (now the Sustainability Meeting and ESG Committee) and appointed risk managers for the global group and each business division as part of global measures to prevent and mitigate the impact of risks that could arise in the course of business activities. Appointment of Risk Management Personnel Toyota has appointed a global chief risk ofﬁ cer (CRO) to head global risk management. The global CRO is charged with handling major risks and coordinating and directing the response to major emergencies on a global basis. Beneath the global CRO are regional CROs appointed to oversee speciﬁ c regions, and each region has its own risk management structure. Within the head ofﬁ ce (accounting, purchasing, etc.), risk management is assigned by function to chief ofﬁ cers and risk managers, while in each in- house company, risk management is assigned to the company president and company risk managers. Furthermore, the regional head ofﬁ ces and individual sections coordinate and cooperate with one another on risk management. Implementation Framework Shareholders’ Meeting Sustainability Meeting ESG Committee Respective regions Regional CROs Regional functions Respective head ofﬁ ce sections Respective companies Chief Ofﬁ cers Presidents Collaboration Collaboration Secretariats for functions Companies’ risk managers Sustainability Meeting and ESG Committee The ESG Committee is responsible for global risk management. Meeting participants comprehensively identify risks to business activities, review and report on major current risk items in order to promote pre- ventive action. The results of the ESG Committee’s activities are reported to the Sustainability Meeting, which provides oversight of related operations. In addition, the meeting advances special mea- sures related to information security and business continuity management (BCM), areas in which the level of risk corporations face has been growing in recent years. Risks related to Toyota’s businesses and other fac- tors that could signiﬁ cantly impact the decisions of investors are listed in Toyota’s Form 20-F under the categories Industry and Business Risks; Financial Market and Economic Risks; and Regulatory, Legal, Political, and Other Risks. WEB Risk Management (Sustainability Data Book 2018, p. 139) WEB Form 20-F for the year ended March 31, 2018 Information Security Initiatives Cyber attacks are growing more sophisticated and complex. Their corporate targets have expanded from conﬁ dential information and information sys- tems to include systems that control plants and vehicles, such as those for on-board devices. Information security is thus an increasingly impor- tant priority for Toyota. Toyota considers ensuring the safety and peace of mind of its customers as well as protecting its customers’ personal information and other assets to be its social responsibility. Accordingly, we are advancing a range of initiatives to reinforce infor- mation security from the perspectives of gover- nance and risk management. Business and Other Risks Industry and Business Risks (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 (cid:129) Toyota’s success is signiﬁ cantly impacted by its ability to 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 and information technologies Financial Market and Economic Risks (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 In June 2016, Toyota established an Information Security Policy that clearly lays out Toyota’s basic approach to information security and related initia- tives to facilitate united information security initia- tives by TMC and its consolidated subsidiaries. WEB Information Security Policy Key Points of Our Information Security Policy (Toyota’s Basic Approach) 1. Compliance 2. Maintenance of stable business infrastructure 3. Providing safe products and services 4. Contribution to the establishment of safe cyberspace 5. Information security management 40 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Compliance Fundamental Approach Organization and Structure Checks to Enhance Compliance The Guiding Principles at Toyota state that Toyota shall “honor the language and spirit of the law of every nation and undertake open and fair business activities to be a good corporate citizen of the world.” Toyota believes that by adhering to this principle in its actions, it can fulﬁ ll its corporate social responsibility and ensure compliance. 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- cation and other means of human resource develop- ment. Toyota has also established consultation hotlines; any concerns that are reported to said 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 The Sustainability Meeting discusses the expectations of stakeholders and responses to various social issues. In particular, the meeting deliberates on mat- ters related to corporate governance and compliance. In ﬁ scal 2009, Toyota began implementing internal checks to enhance its compliance structure. In ﬁ scal 2010 these checks were extended to subsidiaries in and outside Japan. Since then, these checks have been carried out and improved upon every year. Results are reported to the Sustainability Meeting and used as a basis for further improvement. By incorpo- rating improvement initiatives into each year’s action plans, we ensure that these checks lead to ongoing positive action. Moreover, Toyota holds meetings with subsidiaries in order to keep track of their compliance efforts and provide them support as needed. WEB Compliance (Sustainability Data Book 2018, p. 143) Implementation Framework Shareholders’ Meeting Board of Directors Sustainability Meeting Chairman: Chief Risk Ofﬁ cer (Executive Vice President) Frequency: Twice a year Governance, risk management ESG Committee Activity Diagram Within Toyota (HQ) Secretariat and specialized divisions Individual divisions Self- inspections Incorporation into policy A P C D 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 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 Ensuring Compliance To ensure that awareness of compliance extends from top management all the way to each and every employee, Toyota conducts training pro- grams for directors and executives, managers, and new hires as well as Company-wide e-learning programs. In addition to standard legal topics, such as labor law, antimonopoly law, and subcontracting law, we conduct seminars covering bribery preven- tion, personal information protection, the Product Liability Act, and other topics. Around 1,000 employees attended these seminars in ﬁ scal 2018. In addition, based on speciﬁ c needs, the Legal Division conducts on-site seminars on a wide range of topics at individual divisions. Main Training Themes to Date (cid:129) Contracts (cid:129) The Product Liability Act (cid:129) The Act against (cid:129) Bribery prevention Unjustiﬁ able Premiums and (cid:129) Export operations Misleading Representations management (cid:129) Intellectual property (cid:129) Subcontracting law (trademarks) (cid:129) Copyright (cid:129) Conﬁ dentiality management (cid:129) The Act on the Protection (cid:129) Labor of Personal Information (cid:129) Antimonopoly law (cid:129) Taxes (cid:129) Insider trading regulations (cid:129) Safety and health 41 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Customer First and Quality First Measures Fundamental Approach The origins of Toyota’s Customer First and Quality First principles lie in the Five Main Principles of Toyoda, which embody the thinking of Sakichi Toyoda, and the spirit of audit and improvement espoused by Kiichiro Toyoda. Since its foundation, Toyota has built a corporate culture that focuses par- ticular attention on customer-pleasing quality and continuous Kaizen (improvement) achieved through Genchi Genbutsu (onsite, hands-on experience). In accordance with our commitment to quality as stated in the Toyota Global Vision, each employee in each ﬁ eld maintains a constant and strong awareness of issues and a sense of ownership, striving to continu- ously implement Kaizen and collaborating closely with personnel in other ﬁ elds to enhance customer safety, peace of mind, and satisfaction. Initiatives to Improve Quality Toyota sees quality as the combination of product quality, sales and service quality, and, as the founda- tion supporting these, the quality of the work per- formed by each employee. We believe that our products and services can only gain the conﬁ dence of customers when all employees engaged in every process, from development, pur- chasing, production, and sales to after-sales service, build in quality, coordinate with one another across processes, and implement the quality assurance cycle. Quality starts with the spirit of audit and improve- ment. Through continuous improvement based on repeated implementation of the PDCA cycle, Toyota pursues ever-higher quality—this is the unchanging core of Toyota’s manufacturing. Customer First Measures The essence of Toyota’s principle of Customer First is providing customers with products and services that bring smiles to their faces. Toyota aims to provide cars that achieve superior environmental, safety, and quality performance without sacriﬁ cing driving perfor- mance or other aspects of the intrinsic appeal of cars, at an affordable price. We humbly and openly accept information provided by our dealers and cus- tomer feedback received at customer assistance centers, taking such input to heart and utilizing it to make ever-better cars. After-sales Services Measures To bring smiles to the faces of as many customers as possible, it is essential to realize both better cars and better services. Customer car use requires regular ser- vicing, inspections, and repairs following breakdowns or accidents. After-sales service provides safety, peace of mind, and comfort to customers at these times, supporting the Toyota and Lexus brands. In recent years, the average duration of car use has been lengthening. In ﬁ scal 2018, the average length of use of passenger vehicles in Japan (excluding mini-vehicles) was 12.9 years, 1.3 years longer than a decade earlier. Accordingly, the role of after-sales service is becoming increasingly important. More than 100 million Toyota vehicles are currently in use worldwide, and each one is irreplaceable to a cus- tomer. Toyota strives to provide ever-better services in accordance with the 3S Spirit (Seikaku + Shinsetsu = Shinrai, meaning Accuracy + Caring = Trust) to ensure that customers will be highly satisﬁ ed with their vehicles. WEB Customer First and Quality First Measures (Sustainability Data Book 2018, p. 20) Maintaining Focus on the Series of Recall Issues Training Centers Develop Global Service Engineers February 24, the anniversary of the day that President Akio Toyoda attended U.S. Congressional hearings held to investigate the series of recall issues that occurred in 2010, has been designated Toyota Restart Day. We have created mechanisms and are taking measures to raise awareness in order to keep the lessons learned from the series of recall issues fresh. Customer Quality Learning Center In 2014, Toyota established the Customer Quality Learning Centers to convey the experiences and lessons learned from the series of recall issues to future generations of employees. With exhibits that appeal to the ﬁ ve senses, such as actual examples of faulty parts and vehicle simulators, these centers serve an important educational role, especially for new employees who did not experience the events ﬁ rsthand. The content of the cen- ters is updated every year to cover the most recent quality issues. Toyota has established approximately 30 Customer Quality Learning Centers globally (as of March 31, 2018). Storytelling Activities Employees who experienced the 2010 series of recall issues take on the role of storyteller to convey the facts and lessons learned from those events at their own work sites. The number of employees who experienced the recall issues ﬁ rsthand decreas- es every year, but it is important to keep the experiences and les- sons learned alive. To this end, starting in 2017, this initiative was expanded Company-wide to train the next generation of storytell- ers and thereby keep the lessons learned from fading. The Tajimi Service Center provides training on vehicle servicing technologies and body repair and paint to service technicians from dealers in Japan and distributors worldwide. Opened in July 2013, the Tajimi Service Center is fully equipped classrooms, practice areas, and drive evaluation courses with a variety of road conditions on a vast 187,000 m2 site. In ﬁ scal 2018, approximately 2,200 staff from 26 locations in Japan and overseas trained at the center, bringing the center’s cumulative total number of training alumni to approximately 9,800. Research and development of new technologies for the ser- vice, repair, and painting of new vehicles equipped with cutting- edge technologies is also concentrated at the center. As a global training facility, the center enables staff who come to the center for training improve their knowledge and skills, helping build a solid foundation for reinforcing global competitiveness in service technology. Service Technology Training Process r e t n e C e c v r e S i i m i j a T Region Country Regional affiliate/trading company Europe, Africa, the Caribbean, Oceania, some Asian countries (Outside the above regions/countries) Regional affiliate/trading company Distributors under regional affiliate Distributors in each country (Japan) Dealers Dealers Dealers Implementation at the Tajimi Service Center Implementation by training alumni in each region/country Tajimi Service Center 42 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Respect for Human Rights and Supply Chain Management Respect for Human Rights Fundamental Approach The Guiding Principles at Toyota, Toyota’s CSR poli- cy, and the Toyota Code of Conduct state that Toyota shall respect the human rights and other rights of all people. Moreover, the Toyota Way, based on the Guiding Principles at Toyota, lays out the values that all employees working at Toyota should embrace. The two pillars of the Toyota Way are Continuous Improvement and Respect for People. Respect for People entails respect for all stakeholders as well as respect for the character and abilities of employees as individuals. It also facilitates self actualization by linking the personal growth of employees to Company performance. The Toyota Way is a set of shared values for all our afﬁ liates around the world. Referencing each nation’s laws and customs as well as international guidelines and norms, such as the Universal Declaration of Human Rights and the United Nations Guiding Principles on Business and Human Rights, we pro- mote a range of activities to ensure that employees can work with peace of mind and thrive while aiming always to meet the expectations of our stakeholders. We strive to ensure that these values are put into practice throughout Toyota’s global business activi- ties, including at subsidiaries and suppliers. Organization We hold Sustainability Meetings to discuss such top- ics as human rights issues, keeping in mind the expectations of our stakeholders. These meetings serve to secure structures that enable the sustainable growth of both the Company and society by gather- ing relevant information and strengthening and revis- ing relevant measures. Initiatives Related to Conﬂ ict Minerals Collaboration with Suppliers Toyota has adopted the Policies and Approaches to Conﬂ ict Minerals Issues, which it applies as a set of guidelines when tackling conﬂ ict mineral-related issues. Please see the page below for information about activities in 2017. WEB Toyota’s Approaches to Conﬂ ict Minerals Issues (Sustainability Data Book 2018, p. 45) Sharing and Applying Policies on Respect for Human Rights Toyota Subsidiaries Suppliers Dealers CSR Policy: Contribution towards Sustainable Development Toyota Supplier CSR Guidelines Dealer CSR Guidelines (Japan) Consolidated Compliance Program Improvement requests to suppliers as necessary Self-checks Training 43 TOYOTA Annual Report 2018 Since its establishment, Toyota has worked closely with its suppliers in its manufacturing businesses. As part of these efforts, Toyota has globally imple- mented its Basic Purchasing Policies in accordance with a spirit of mutual beneﬁ t based on mutual trust. While maintaining close relationships with longstand- ing and new partners alike, we are promoting initia- tives in line with our Customer First policy. In recent years, interest in the social responsibility of companies, including their supply chains, is increasing. Toyota will continue to contribute to the sustainability of society and the earth by working with suppliers to ensure compliance, promote respect for human rights, and reduce negative environmental impact. Toyota Supplier CSR Guidelines Based on the belief that collaboration with suppliers on CSR issues is important, Toyota established the Toyota Supplier CSR Guidelines in February 2009. Toyota suppliers are requested to implement their own CSR activities based on the guidelines and develop their own CSR policies and guidelines for their respective suppliers. WEB Toyota Supplier CSR Guidelines Toyota Green Purchasing Guidelines Toyota purchases a wide range of materials, parts, and equipment from many different suppliers. We col- laborate with suppliers to implement environmental initiatives using the Toyota Green Purchasing Guidelines. WEB Toyota Green Purchasing Guidelines Example Activities (cid:129) Dialogue with executives of suppliers (cid:129) Independent efforts by suppliers (CSR lectures, CSR workshops, volunteering) (cid:129) Improving awareness and knowledge among all employees, including buyers, through seminars and other internal training WEB Collaboration with Suppliers (Sustainability Data Book 2018, p. 49) Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Working to Better the World around Us Based on a philosophy of contributing to soci- ety through the manufacture of automobiles, Toyota endeavors to contribute to sustainable development. Toyota seeks to make ever-better cars in order to bring happiness to customers. At the same time, Toyota implements a wide range of activities, such as fostering initiatives related to mobility through the Toyota Mobility Foundation, sponsoring sporting events—including the Olympic Games, Paralympic Games and Special Olympics—and promoting social contribution activities. All of these efforts are aimed at realizing the mobility society of the future and richer lifestyles. Toyota will continue to contribute to the real- ization of a prosperous mobility society with greater happiness for all. The Toyota Mobility Foundation: Supporting Ideas and Initiatives to Enrich Mobility Established by Toyota in August 2014, the Toyota Mobility Foundation (TMF) aims to enable more peo- ple to go more places by sharing TMF knowledge, partnering with others, and innovating to build a more joyful mobile society. Currently, TMF’s global initiatives support diversifying transportation in Thailand, Vietnam, India and Brazil and providing better freedom of mobility in remote mountain- ous communities in Japan(Photo (cid:2)). Additionally, TMF is conducting a challenge prize competition to incorpo- rate smart technology into mobility devices for people with lower-limb paralysis. Finally, TMF’s research efforts include a breadth of mobility topics from hydrogen to trafﬁ c ﬂ ow optimization using artiﬁ cial intelligence. Going forward, in addition to improving existing ini- tiatives, TMF plans to expand them to other cities facing similar mobility challenges. Alongside their partners, TMF plans to leverage insights gained from current projects to advance future initiatives to help solve mobility issues around the world. WEB Toyota Mobility Foundation Themes of the Toyota Mobility Foundation’s Initiatives Motorization/ Public Transport Developed countries Theme Personal Mobility Vulnerable populations such as people with disabilities, senior citizens, and others Maturation Harmony in Mobility Traffic flow optimization Diversification of transportation Improving overall convenience Reducing social costs (congestion, pollution, accidents) CO2 PARK & RIDE Emerging countries Disaster response Energy (hydrogen supply chain) Olympic and Paralympic Worldwide Partnerships Taking Our Founding Principle of Social Contribution Global In 2015, aiming to use sports to create a peaceful and inclusive society and to use mobility to contribute to the realization of a sustainable society, Toyota formed a part- nership with the International Olympic Committee (IOC) and International Paralympic Committee (IPC) in the areas of vehicles, mobility services, and mobility solu- tions, making it the ﬁ rst Worldwide Olympic and Paralympic Partner in the mobility category. Through the Olympic and Paralympic Games, Toyota is aiming to achieve the following goals: “Ever Better MOBILITY FOR ALL,” “Ever Better SOCIETY” and “Ever Better TOYOTA.” Toyota is carrying out initia- tives in the areas of mobility, sports, and social issues, aiming to realize a society in which everyone can participate and strive. At the Tokyo 2020 Games, Toyota aims to provide mobility solutions that go beyond its conventional framework of supplying vehicles based on three pil- lars: 1. Mobility for all, 2. Sustainability centered on the realization of a hydrogen-powered society (envi- ronment and safety), and 3. Transportation support leveraging the Toyota Production System for those involved in the games. WEB Olympic Games, Paralympic Games and Special Olympics (Sustainability Data Book 2018, p. 34) 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 people’s lives. Kiichiro and his team, who together built Toyota’s automotive business, kept this spirit of social contribution alive after Sakichi’s death, espous- ing the concepts of contributing to the development and welfare 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 (Photo (cid:3)), 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. Going forward, Toyota will continue striving to sup- port volunteering and to sustain automotive and manufacturing cultures. WEB Social Contribution Activities (cid:2) Providing mobility in remote mountainous communities (cid:3) Forest of Toyota hands-on nature program 44 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Initiatives for Sustainable Growth Corporate Philosophy Corporate Governance Messages from the Outside Directors Toyota Environmental Challenge Employees Risk Management Compliance Customer First and Quality First Respect for Human Rights and SCM Working to Better the World around Us Working to Better the World around Us “Team Morii” (YouTube, Japanese with English Subtitles, 12:35) Developing a More Advanced Sit-Ski with a World-Class Athlete Toyota supported more than 50 athletes from about 20 countries, including ﬁ ve to involve tens of employees, who formed “Team Morii.” Working toward ideal Toyota employee athletes, at the Olympic and Paralympic Winter Games performance at speeds of more than 100 km/h, Team Morii created a sit-ski that PyeongChang 2018 in South Korea. Together, these athletes comprised is 15% lighter than and three times as rigid as Morii’s previous model. Team mem- “Team Toyota.” bers were inspired by the uncompromising striving of the world-class athlete, “Team Toyota” included 25 athletes from 12 countries who competed in the commenting that the experience helped them step up the mindset they bring to PyeongChang 2018 Paralympic Winter Games. One of these was Para alpine making cars. skier Taiki Morii. A world-class athlete, Morii was already a four-time veteran of the Paralympic Winter Games, with a total of four medals from three of the Based on a commitment to support the creation of a more inclusive and sus- Harnessing Ideas from around the World for Innovative Assistive Mobility Devices for People with Lower-limb Paralysis In November 2017, the Toyota Mobility Foundation launched the Mobility Unlimited Challenge. Working in partnership with Nesta’s*1 Challenge Prize Centre,*2 a UK-based non-proﬁ t organization, the Mobility Unlimited Challenge uses a competition format to develop assistive devices that improve the mobility and independence of people with lower-limb paralysis. The Challenge asks innovators around the world to incor- porate smart technologies into their devices and requires co-creation with end-users to ensure the devices address their needs. Five teams will be select- ed as ﬁ nalists in early 2019, and the winning team will be announced in the summer of 2020. *1 Nesta: An innovation foundation that backs new ideas to tackle the big challenges of our time. It is a UK charity that works all over the world. To ﬁ nd out more visit www.nesta. org.uk *2 Challenge Prize Centre: A body within Nesta that utilizes challenge prizes to stimulate and speed up problem-solving activity on some of the most difﬁ cult challenges we face in Games. Looking for new challenges, he came to work at Toyota in 2014. tainable society in which everyone can challenge their impossible in order to society. There, Toyota’s desire to use its technological capabilities honed by making cars and other products to develop better sporting equipment aligned with Morii’s improve the lives of its customers and society as a whole, Toyota is promoting its “Start Your Impossible” global corporate campaign. The spirit of the Olympics drive to take home the gold. In July 2015, with sights set on PyeongChang 2018, and Paralympics, representing the tireless pushing of limits and coming together Toyota began the joint development of a new sit-ski, working with Morii and across national borders, has much in common with Toyota’s corporate culture wheelchair manufacturer Nissin Medical Industries Co., Ltd. Toyota handled the of Kaizen (improvement) and respect for people. We want movement to present design of the sit-ski frame and link mechanism, which move in a way similar to a not an impediment, but the possibility of fulﬁ lling dreams. Based on this desire, car suspension, as well as experiments aimed at reducing air resistance. we will continue working to provide a wide range of mobility solutions. Beginning with just a handful of individuals, by the end, the endeavor had grown Mobility Unlimited Challenge Launch Film (YouTube, 1:58) WEB Mobility Unlimited Challenge 45 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Corporate Data At a Glance History Financial Summary Non-Automotive Business Corporate/Stock Information At a Glance Global Perspective/Data by Region Number of Plants and Manufacturing Companies* (As of March 31, 2018) Distributors* (As of March 31, 2018) R&D Sites* (As of March 31, 2018) *Number of bases for Toyota and Lexus brands Europe 8 29 3 Asia excluding Japan Japan 24 21 4 17 — 6 North America 10 5 3 Other 8 114 0 Financial Highlights for the Year Ended March 31, 2018 (Consolidated) The second of each pair of ﬁ gures is the year-on-year change. Total Vehicle Sales 8,964 thousand -7 thousand Net Revenues ¥29,379.5 billion +6.5 % Operating Income ¥2,399.8 billion +20.3% Total Liquid Assets (net) ¥8,025.9 billion +¥262.9 billion Total Shareholder Return (max) ¥1,200.1 billion +¥117.7 billion R&D Expenses ¥1,064.2 billion +¥26.7 billion Net Income ¥2,493.9 billion + 36.2% Capital Expenditures ¥1,302.7 billion +¥90.9 billion 46 TOYOTA Annual Report 2018 Number of Employees 369,124 (Consolidated, as of March 31, 2018) Other Asia Europe North America Japan Total Vehicle Production 8,964,133 (Consolidated, FY 2018) Total Vehicle Sales 8,964,394 (Consolidated, FY 2018) Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Corporate Data At a Glance History Financial Summary Non-Automotive Business Corporate/Stock Information History Founding and entry into the automobile industry Establishing the Toyota identity Leaping forward as a global corporation Toward the mobility society of the future Domestic/Overseas Vehicle Production (Thousands of units) (Including Daihatsu and Hino brands since 2002) (cid:2) Domestic (cid:2) Overseas 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) (cid:3) Labor disputes (1950) (cid:3) Toyota Motor and Toyota Motor Sales merged (cid:3) Recall issues (2009–2010) (cid:3) TRI established (2016) History of Toyota (cid:3) Toyota Motor Co., Ltd. established (1937) (cid:3) Total Quality Control (TQC) introduced (1961) (cid:3) Toyoda Model AA passenger car launched (1936) (cid:3) Kanban method adopted (1963) (cid:3) Five Main Principles of Toyoda (cid:3) The Toyota Production System established established (1935) with TMC (1982) (cid:3) NUMMI, a joint corporation with GM, established in the U.S. (1984) (cid:3) Losses (FY 2009) (cid:3) Prius launched (1997) (cid:3) MIRAI launched (2014) (cid:3) The Toyota Way 2001 adopted (2001) (cid:3) Toyota Environmental Challenge 2050 established (2015) (cid:3) Guiding Principles at Toyota adopted (1992) (cid:3) Toyota Global Vision adopted (2011) Major World Events (cid:3) World War II (1939-1945) (cid:3) Rapid economic growth period in Japan (1960s-1970s) (cid:3) Berlin Wall comes down (1989) (cid:3) U.S.-Japan trade friction (1980s) (cid:3) The Great East Japan Earthquake, Thailand ﬂ oods (2011) (cid:3) The 2008 ﬁ nancial crisis (2008) (cid:3) Oil crisis (1973 & 1979) (cid:3) Rio Earth Summit (1992) (cid:3) Trade friction surrounding cars (1990s) (cid:3) Tighter control on exhaust emissions (1970s) (cid:3) Kyoto Protocol adopted (1997) (cid:3) UN SDGs adopted (2015) (cid:3) Paris Agreement adopted (2015) 47 TOYOTA Annual Report 2018 WEB 75 Years of Toyota Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Corporate Data At a Glance History Financial Summary Non-Automotive Business Corporate/Stock Information Financial Summary (Consolidated) Fiscal years ended March 31 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Consolidated Vehicle Sales (thousands of units) 7,567 7,237 7,308 7,352 8,871 9,116 8,972 8,681 8,971 8,964 Foreign Exchange Rates (Average) Yen to US Dollar Rate Yen to Euro Rate 101 144 93 131 86 113 79 109 83 107 100 134 110 139 120 133 108 119 111 130 Net Revenues (billions of yen) 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 29,379.5 Operating Income (Loss) (billions of yen) (461.0) Income (Loss) before Income Taxes (billions of yen) (560.4) Net Income (Loss) (Note 1) (billions of yen) (437.0) Common Shares Cash Dividends (billions of yen) 313.5 Cash Dividends per Share Payout Ratio (yen) (%) Value of Shares Repurchased [shareholder return] (Note 2) (billions of yen) 100 — — 147.5 291.4 209.4 141.1 45 67.4 — R&D Expenses (billions of yen) 904.0 725.3 Depreciation Expenses (Note 3) (billions of yen) 1,072.1 1,032.0 Capital Expenditures (Note 3) (billions of yen) 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 2,399.8 432.8 1,403.6 2,441.0 2,892.8 2,983.3 2,193.8 2,620.4 283.5 157.7 50 55.6 — 779.8 732.9 706.7 962.1 1,823.1 2,173.3 2,312.6 1,831.1 2,493.9 285.0 522.9 631.3 645.5 627.5 642.6 90 29.6 165 28.7 200 29.0 210 28.3 210 34.6 — 180.0 293.3 639.3 449.9 220 26.1 549.9 (maximum) 807.4 727.3 910.5 1,004.5 1,055.6 1,037.5 1,064.2 775.9 806.2 885.1 893.2 964.4 852.7 1,000.7 1,177.4 1,292.5 1,211.8 1,302.7 Total Liquid Assets (Note 4) (billions of yen) 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 9,372.1 Total Assets (billions of yen) 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 50,308.2 Toyota Motor Corporation Shareholders’ Equity (billions of yen) 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 18,735.9 Return on Equity Return on Asset (%) (%) (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 13.7 5.0 (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 WEB SEC Filing 48 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Corporate Data At a Glance History Financial Summary Non-Automotive Business Corporate/Stock Information Financial Summary (Consolidated) Consolidated Vehicle Sales Net Revenues Operating Income (Thousands of units) 10,000 9,116 8,972 8,681 8,971 8,964 8,000 6,000 4,000 2,000 0 (Billions of yen) 30,000 25,000 25,691.9 27,234.5 28,403.1 27,597.1 29,379.5 20,000 15,000 10,000 5,000 0 (cid:2)(cid:2) Operating income (cid:3)(cid:3) Operating income ratio (Right scale) (Billions of yen) 3,000 2,853.9 2,750.5 （%） 12.0 2,500 2,000 1,500 1,000 500 0 2,292.1 10.1 8.9 10.0 2,399.8 10.0 1,994.3 8.2 8.0 7.2 6.0 4.0 2.0 0 FY 2014 2015 2016 2017 2018 FY 2014 2015 2016 2017 2018 FY 2014 2015 2016 2017 2018 Net Income R&D Expenses Capital Expenditures (cid:2)(cid:2) Net income (cid:3)(cid:3) Net income ratio (Right scale) (cid:2)(cid:2) R&D expenses (cid:3)(cid:3) Ratio to net revenues (Right scale) (cid:2)(cid:2) Capital expenditures (cid:2)(cid:2) Depreciation expenses (Billions of yen) 2,500 2,493.9 （%） 10.0 (Billions of yen) 1,200 （%） 6.0 (Billions of yen) 1,500 2,312.6 2,173.3 1,823.1 7.1 8.1 8.0 1,831.1 6.6 2,000 1,500 1,000 500 0 8.5 8.0 1,000 1,004.5 910.5 1,055.6 1,037.5 1,064.2 3.5 3.7 3.7 3.8 3.6 6.0 4.0 2.0 0 800 600 400 200 0 5.0 4.0 3.0 2.0 1.0 0 1,250 1,292.5 1,302.7 1,177.4 1,211.8 1,000 1,000.7 885.1 893.2 964.4 775.9 806.2 750 500 250 0 FY 2014 2015 2016 2017 2018 FY 2014 2015 2016 2017 2018 FY 2014 2015 2016 2017 2018 49 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Corporate Data At a Glance History Financial Summary Non-Automotive Business Corporate/Stock Information Non-Automotive Businesses Financial Services Housing Services Toyota Financial Services Corporation provides ﬁ nan- cial services, mainly auto loans and leasing, to more than 26,000,000 customers across its network, which spans more than 35 countries and regions. In ﬁ scal 2017, the ﬁ nancial services business recorded net revenues of ¥2,017.0 billion and operating income of ¥285.5 billion. Toyota’s ﬁ nancial services center mainly on sales ﬁ nancing, which serves as a tool to promote car sales. At the same time, we are working in new busi- ness areas to realize a better future mobility society. The basic role of the ﬁ nancial services business is to enable more customers to use our cars. We do our utmost to fulﬁ ll that role by promoting digitization, developing and offering new ﬁ nancial products, and expanding our network to countries where the auto- motive market is growing. For example, in ﬁ scal 2017, we established and began sales at a ﬁ nancial services company in Ireland. Furthermore, with the automotive industry undergo- ing major changes, we are implementing initiatives to improve customers’ lifestyles and the convenience of society as a whole by expanding our value chain to create added value through ﬁ nancial services across the car life cycle, from manufacture to disposal. In addition, to help customers realize the joy and freedom of movement through ﬁ nancial services, we are partnering with such ridesharing companies as Uber Technologies, Inc. and Grab Holdings Inc. and working to apply the big data provided by cars in the telematics car insurance business. Going forward, we will continue to develop and provide ﬁ nancial services in line with customer needs and local market characteristics to help enrich cus- tomers’ lives. WEB Toyota Financial Services Corporation Toyota Housing Corporation operates a range of housing-related businesses, including detached house construction as well as condominium develop- ment and housing renovations. Under the brand vision “Sincerely for You,” we strive to deliver peace of mind during construction, after construction, and through support in order to help customers realize their ideal lifestyles. The mainstay detached house construction business has a sales area covering 29 of Japan’s prefectures, with three factories across the country. In ﬁ scal 2017, the housing services business sold 16,222 units on a consolidated basis and gener- ated net revenues of ¥547.9 billion. In response to the popularization of net zero ener- gy houses (ZEH), we are adopting various solutions that meet ZEH thermal insulation speciﬁ cations as standard features. Moreover, we have recently received recognition under the Good Design Award. As these examples show, we are providing housing that realizes high quality in terms both of basic performance and design. At the same time, the KenBiKenJu Laboratory, a next-generation housing research facility that brings together technologies from across the Toyota Group, is researching new services that leverage IoT and AI and developing advanced technologies to create housing that meets the needs of working women and enable seniors to enjoy rich, active lives. In 2017, Toyota Housing made Misawa Homes Co., Ltd. a consolidated subsidiary. Working together in such areas as condominium marketing, the two companies are actively building a solid track record. Going forward, we will continue to realize synergies in a range of ﬁ elds, such as community development and overseas businesses, working to accelerate the progress of both companies’ growth strategies and provide customers with better products and services. WEB Toyota Housing Corporation (Japanese language only) A Network Spanning More Than 35 Countries and Regions Net Zero Energy House (ZEH) Insulate (cid:4) Insulating exterior walls, roofs, and floors (cid:5) Insulating windows and doors Reduce (cid:6) Smart Airs (cid:7) High-efficiency AC units (cid:8) High-efficiency water heater (cid:9) Pure 24 Central (cid:10) LED lighting (cid:11) HeMS Pro Generate (cid:2) Solar power (cid:3) ENE-FARM type 5 generator Power company Sensor- enabled power distribution board Toyota Smart Center Smartphone Tablet 50 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Corporate Data At a Glance History Financial Summary Non-Automotive Business Corporate/Stock Information Corporate Information and Stock Information (As of March 31 2018) 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: 606 Afﬁ liates accounted for by the equity method: 57 369,124 (Parent company: 74,890) 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 353,073,500 shares 632,418 100 shares Japan: Tokyo, Nagoya Overseas: 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 240 Greenwich Street, New York, NY 10286, U.S.A. Tel: +1 (0) 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: 1-4-18, Koraku, Bunkyo-ku, Tokyo 112-8701, Japan Tel: (03) 3817-7111 Fax: (03) 3817-9092 U.S.A. Toyota Motor North America, Inc. U.K. 6565 Headquarters Drive, Plano, TX 75024, U.S.A. Tel: +1 (0) 469-292-4000 irteam@tma.toyota.com Toyota Motor Europe, London Ofﬁ ce Second Floor, Caroline House, 55-57 High Holborn, London WC1V 6DX, U.K. Tel: +44 (0) 207-290-8500 irteam@toyota-europe.com Major Shareholders (Top 10) Name Japan Trustee Service Bank, Ltd. Toyota Industries Corporation The Master Trust Bank of Japan, Ltd. State Street Bank and Trust Company (Standing Proxy: Settlement & Cleaning Services Division, Mizuho Bank, Ltd.) Nippon Life Insurance Company 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. Tokio Marine & Nichido Fire Insurance Co., Ltd. Common shares (1,000 shares) First series Model AA class shares (1,000 shares) Total (1,000 shares) 381,087 232,037 172,408 119,497 110,834 89,784 77,287 58,811 58,234 51,045 180 — — — 560 — — — — — 381,267 232,037 172,408 119,497 111,394 89,784 77,287 58,811 58,234 51,045 Percentage of Shareholding (%) 12.89 7.85 5.83 4.04 3.77 3.04 2.61 1.99 1.97 1.73 Note: The percentage of shareholding is calculated after deducting the number of shares of treasury stock (353,073 thousand shares) from the total number of shares issued. Ownership Breakdown Individuals, etc. (including treasury stock): 761,620 thousand shares (23.00%) Other corporate entities: 693,984 thousand shares (20.97%) Financial institutions, brokerages: 1,125,334 thousand shares (34.00%) Foreign corporate entities and others: 729,158 thousand shares (22.03%) Note: Ratio indicates the share of ownership to the total number of shares issued. 51 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data Toyota is a Worldwide Olympic/Paralympic Partner in the category of vehicles, mobility ser- vices and mobility solutions. Cautionary Statement with Respect to Forward-Looking Statements This report contains forward-looking statements that reﬂ ect Toyota’s plans and expectations. (v) Toyota’s ability to realize production efﬁ ciencies and to implement capital expenditures at the (xiii) fuel shortages or interruptions in electricity, transportation systems, labor strikes, work stop- These forward-looking statements are not guarantees of future performance and involve known levels and times planned by management; (vi) changes in the laws, regulations and government pages or other interruptions to, or difﬁ culties in, the employment of labor in the major markets 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- where Toyota purchases materials, components and supplies for the production of its products 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 or 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; WEB SEC Filling 52 TOYOTA Annual Report 2018

Continue reading text version or see original annual report in PDF format above