Annual Report 2018

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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- Table of Contents porate value and the ways that it is contributing to the sustainable development of society. More detailed information on 1 Table of Contents 2 Message from the President Toyota’s ESG-related initiatives is published in the Sustainability Data Book 2018. 5 Toward the Mobility Society of the Future (Published October 2018) 5 Management Team Using Connected Technologies to Expand the Freedom, Safety, 6 Toyota’s Reports and Publications and Excitement of a Smart Mobility Society Strengthening Our Competitiveness to Deliver Ever-Better Mobility 10 to Customers around the World Annual Report 2018 Eliminating CO2 Emissions from New Vehicles by 2050: 12 Popularizing Electrifi ed Vehicles Making Ever-better Cars: Continuing to Make Cars That Will Be 15 Securities Reports/SEC Filings Beloved 17 Developing Our People and Our Cars: GAZOO Racing Sustainability Data Book 2018 18 Steady Progress toward Automated Driving 21 Partner Robots Financial Results/Operating Results Toyota’s Business Innovation: Environmental Report 2018 23 Organizational Framework, the Toyota Group, External —Toward Toyota Environmental Challenge 2050— Collaboration, and TPS and Cost Reduction 24 Developing People: The True Source of Toyota’s Competitiveness Corporate Governance Reports 25 Message from the CFO 26 Capital Policy 27 Initiatives for Sustainable Growth * Toyota also publishes information on business and sustainability initiatives not included in the above reports and publications via its offi cial website. 29 Corporate Philosophy Investors https://www.toyota-global.com/investors/ 30 Corporate Governance Sustainability https://www.toyota-global.com/sustainability/ 32 Messages from the Outside Directors Period Covered: Fiscal 2018 (April 2017 to March 2018) Some of the initiatives in fi scal 2019 are also included 35 Toyota Environmental Challenge 2050 and 2030 Milestones Scope of Report: Toyota Motor Corporation (TMC)’s own initiatives and examples of those of its domestic and overseas 37 Employees consolidated affi liates, and so on. 40 Risk Management 41 Compliance About the PDF 42 Customer First and Quality First Measures This fi le is an interactive PDF and can be navigated by clicking on the following elements. 43 Respect for Human Rights and Supply Chain Management Jump to the beginning of each of the report’s main sections Working to Better the World around Us Main menu 44 The Toyota Mobility Foundation, Olympic and Paralympic Worldwide Partnerships, Social Contribution Activities Sub-menu Jump to specifi c parts within each section 46 Corporate Data 46 At a Glance The More details and WEB icons found in each section link to 47 History Icons related pages of the report and to relevant web pages and 48 PDFs online, respectively. The icon links to video content. Financial Summary 50 Non-Automotive Businesses * Requires an Internet connection. 51 Corporate Information and Stock Information

1 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 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 independent 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

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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. That Toyota boasts both such a track record in the 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. 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 rather speed and disregard for precedent; the leadership needed will not be consensus building, but the ability to rally people behind a cause. Akio Toyoda 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

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Management Team

Executive Vice President Executive Vice President Executive Vice President Koji Kobayashi Didier Leroy Shigeki Terashi TPS and cost-reduction are I want to bring Energy, Passion, It is time to unite globally as one Toyota’s backbone. I will and Fighting spirit to achieve true Toyota to realize freedom of pursue them on all fronts. competitiveness. movement for all.

Executive Vice President President Mitsuru Kawai Akio Toyoda Only by applying human wisdom and skill can we realize the evolution of machines—that’s why I would like to nurture our people.

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 Executive Vice President Gill A. Pratt Shigeki Tomoyama My personal mission is to help Toyota gain The key to realizing mobility agility while maintaining services is connected technology. its strength to improve I hope that cars will continue to quality of life for all amaze and inspire for the next mankind. 100 years.

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Using Connected Technologies to Expand the Freedom, Safety, and Excitement of a Smart Mobility Society

As cars rapidly developed and became commonplace At the same time, new social issues are also profound transformation. Toyota provides freedom of in the 20th century, reducing fossil fuel consumption, emerging, such as increased trafﬁ c congestion due movement—a form of social infrastructure. As such,

cutting CO2 emissions to prevent global warming, and to rising population density in urban centers, shrink- we are fi rmly determined to contribute to solving preventing air pollution gradually became the major ing working populations and increased numbers of social issues by changing the very ways that people, social issues demanding global solutions that they are mobility-challenged individuals in developed coun- things, and information fl ow through the world. today. In response, many counties and regions have tries due to demographic graying, and deepening Based on this commitment, Toyota aims to connect made plans to shift to electrifi ed vehicles, and auto- logistics crises due to changes in consumer behavior. cars, people, and communities and thereby create makers are accelerating the development of such In the midst of these social changes, the auto a smart mobility society that offers freedom of move- vehicles. Indeed, the electrifi cation of cars is an industry is entering a once-in-a-century period of ment, safety, and excitement for all. essential part of solving these challenges.

Shigeki Tomoyama Executive Vice President

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Using Connected Technologies to Expand the Freedom, Safety, and Excitement of a Smart Mobility Society

Our Connected Strategy for Realizing Route History Maps to the Rescue after Connected Platforms Natural Disasters

Connecting cars is not only providing new value and Toyota’s route history maps use aggregate data on where cars services to customers, but creating new modes of have actually been collected from Toyota vehicles equipped with use and new roles in society for cars. DCMs to provide traffi c information in a map format. The data is To stay at the forefront of this evolution, Toyota constantly updated, and has been used to inform response dur- established the in-house Connected Company in ing and efforts after natural disasters. April 2016 and announced its Connected Strategy in November of the same year. This strategy comprises Toyota plans to adopt common standards for its three arrows that we are releasing simultaneously. worldwide DCMs by 2019, equip virtually all passenger vehicles it sells in Japan and the United States with DCMs by 2020, and steadily equip more vehi- Toyota’s Connected Strategy cles with DCMs in other major markets around the Services for Connected Cars world going forward. 1st Arrow 2nd Arrow 3rd Arrow 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- Connect Creation of Creation of Connected Technologies: Creating nation for the navigation system, even while the car is moving. All Cars New Value New Mobility Services That Offer Safety and Peace of and Business Services Just press talk on the steering wheel and speak The virtual agent analyzes your words and responds Revolution Mind to Customers and Society Navigation Customer Is there a soba restaurant in Agent “Connect” all cars and Promote the use of big Collaborate with vari- One such destination found. Turning to the second arrow, as the number of con- Nagano with a parking lot? Should I set it as your destination? complete the connected data and contribute to ous industries and IT nected cars on the road increases, so does the big platform the good of customers companies to produce Weather What’s the weather like It’s sunny. and society while revo- new mobility services data they generate. Toyota is using this data to con- at my destination? Using vehicle features lutionizing Toyota’s own tribute to the good of customers and society while A system for cruising at a preset speed businesses revolutionizing its own businesses. What’s radar cruise control? that automatically maintains Aggregate route history maps were made publicly a safe distance from other vehicles. available after the Great East Japan Earthquake, and e-Care (Driving Guidance) such data has subsequently been used in evacua- The Start of the Full-Scale Connected • Indicator lights turn on when an abnormality occurs (). Vehicle data is then analyzed (,) and sent to an operator and tion, response, and recovery operations following Car Rollout the customer’s dealer ( ). several natural disasters. • Using the navigation panel (), customers connect to the e-Care call center (), and an operator provides appropriate Furthermore, by analyzing the diverse information driving guidance. Key to the fi rst arrow, connecting all cars, are our collected from cars on the road using big data • Operators hand over customer response to the customer’s dealer (), which guides the customer through any necessary data communication modules (DCMs). In 2002, approaches, we will be able to utilize that information vehicle servicing (). Toyota commercialized its DCMs and launched the to create and enhance services that provide safety Call and support Operator call G-BOOK service for Toyota vehicles (this service was and peace of mind. screen replaced by T-Connect in 2014). In 2005, DCMs Making DCMs standard features also makes our were made a standard feature in Lexus cars, and online services more convenient and easier to use for Toyota Smart Center Operator Toyota launched the G-Link service in Japan before our customers. The voice recognition enabled artifi - Diagnostic data Big data Data Indicator light expanding it to North America and China. As the fi rst cial intelligence (AI) virtual agent can understand pas- • Vehicle data analysis Customer response handover step toward connecting all vehicles, in June 2018, sengers’ natural speech to set the destination for the • Determine likely cause of abnormality Toyota launched sales in Japan of the new Crown navigation system and perform other tasks. Of • Vehicle operability decision and Corolla Sport with DCMs as standard features course, we also have operators standing by 24 hours • Advice generation for all grades. This marked the start of our full-scale a day, 365 days a year, to provide more in-depth Support and guidance Dealer roll out of connected cars. response to customer requests. By offering virtual Car (AI) and real-world (operators) service, Toyota seeks to provide what it calls “Human Connected Service.” 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

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 mobility services. We have already begun a range of collaborative initiatives. 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 accelerate their commercialization.

Efforts to Deepen Collaborations in 2018

Expanded Partnership with Grab in the Area Mobility as a Service Pilot Testing of AI-based Taxi Dispatch Support System Aiming to Accelerate Service Development for Taxi Industry Transformation

Service In June 2018, Toyota concluded an agreement with Grab to Toyota, JapanTaxi Co., Ltd., KDDI Corporation, and Mobility Service charge Vehicle Taxi Mobility Service Platform Taxi strengthen our existing partnership in the area of Mobility as a Platform (MSPF) dispatch Accenture Japan Ltd have partnered to develop a taxi dis- dispatch Finance service Service (MaaS) in Southeast Asia and announced our decision Service service patch support system that releases demand projections for log Big Data App Toyota Use AI to to invest US$1 billion (approximately ¥110 billion) in Grab. Big Data Telematics platform taxi services based on a combination of data from taxi ser- Weather insurance Car predict Number of Center(TBDC) This expansion is aimed at expanding connected services insurance vice logs, demographic data, event information and other Public taxi unoccupied Vehicle transport taxis Taxi Company/ across Southeast Asia. Specifi cally, we aim to achieve con- inputs. Pilot testing of the system has now begun in Tokyo. demand Driver Vehicle data/ dispatch Demographic service nectivity for Grab’s rental car fl eet across the region and to data Going forward, the companies plan to steadily install prediction availability receive Driving Recommended on tablet behavior Vehicle utilize vehicle data collected by the MSPF to roll out driving- Dealer Toyota’s TransLog data-transmitting driving recorder in more Event routes to find data management Maintenance data-based automotive insurance as well as fi nancial servic- system taxis, analyzing visual driving data from these devices to fi nd passengers TransLog es for Grab drivers and maintenance services currently Maintenance factors that correlate with taxi demand and then working driving under development. TOYOTA TOYOTA TOYOTA for ride sharing with the taxi dispatch support system to apply the results of image device device device this research. Driver User

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Using Connected Technologies to Expand the Freedom, Safety, and Excitement of a Smart Mobility Society

mobility society that offers freedom of movement, More details Guardian system, p. 18 Expanding Mobility Services in safety, and excitement for all. the Near Future

Toyota is analyzing and processing the big data generat- Collaboration with Uber ed by cars to create information that is useful for customers and a variety of connected services. We want We are jointly developing dedicated automated MaaS vehicles for introduction in Uber’s ridesharing service network from 2021. the car to be a seamless extension of customers’ phones and computers, a kind of personal assistant on Creating Automated Driving wheels that is able to anticipate their needs using AI. UTI/ATG TMC/TRI/TRI-AD Based on this concept, we created the e-Palette Mobility Services Ridesharing platform Uber Toyota Vehicle and automated Concept Vehicle. Using connected and automated driv- and autonomous autonomous Guardian driving technology driving system System ing technologies, the e-Palette will serve as a common In August 2018, Toyota and Uber announced an driving technology agreement to expand their collaboration with the prin- mobility platform that meets the needs of a wide range Software updates Software updates MSPF of service providers and business applications, including cipal aim of advancing the development of and bring- Data/dispatch Data Collect and car-sharing, ride-sharing, parcel delivery, and retail. ing to market ride-sharing services leveraging analyze data automated driving technologies. To this end, Toyota’s Sienna Minivan will be modifi ed to create the initial Vehicle control interface fl eet of dedicated “Autono-MaaS” (autonomous mobility as a service) vehicles. These Autono-MaaS Vehicle control system NEXT vehicles will be constantly connected to the MSPF and equipped with both Uber’s autonomous driving system and the Toyota Guardian automated safety * Guardian is a system designed to monitor, assist, and help safeguard a human driver or an autonomous driving system through the vehicle control interface. 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 Business image of a joint venture company with Softbank mobility services. Deployments of these vehicles on the Uber ride-sharing network will begin in 2021. In other words, a single e-Palette Concept Vehicle In October 2018, Toyota and SoftBank Corp. could, depending on the time or other conditions, be agreed to form a strategic partnership to facilitate the used for a range of purposes by different operators. creation of new mobility services. The two companies This is the vision of mobility service that the e-Palette plan to establish a joint venture company, MONET makes possible. Technologies Corporation, before the end of fi scal Furthermore, vehicle information constantly gath- 2019. MONET will provide coordination between ered through the MSPF will help optimize maintenance Toyota’s MSPF and SoftBank’s IoT Platform. By utiliz- as well as the collection of data that can be used to ing a wide range of data related to the movement of anticipate demand for goods and services. Based on people and vehicles, MONET will seek to optimally such capabilities, we are aiming to achieve the ulti- balance supply and demand in transportation and mate in just-in-time service, in which, when a custom- launch new MaaS businesses capable of resolving er summons an e-Palette Concept Vehicle, not only mobility-related social issues and creating new value. does it set out immediately, but it is already nearby. Through MONET, we plan to roll out Autono-MaaS The technologies and expertise created in the businesses based on e-Palette by the mid-2020s. AI-based dispatch system being tested in collabora- Toyota is accelerating initiatives as a mobility ser- tion with JapanTaxi, KDDI, and Accenture are being vice platform provider, aiming to create a smart applied to enhance such demand prediction functions. 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

Strengthening Our Competitiveness to Deliver Ever-Better Mobility to Customers around the World

Toyota believes that the true value of mobility is the Furthermore, under the “home and away” closely at Japan’s individual regions. We must freedom it enables. No matter how times change, approach, we will transcend the borders of the understand the desires of and problems faced by the Toyota’s love of cars will never fade. At the same Group’s operations. By developing working relation- people living in each region and work to solve those time, our passion for mobility is not limited to cars. ships with other companies which have same aspira- problems in collaboration with not just our dealers Technologies for making transport easier, more tions with us, we can make an enormous impact in and members of the Toyota Group, but also regional convenient, and more enjoyable for people around this time of immense change. governments and local companies. As such, in the world are evolving, and the value that Toyota If it’s not fun, it’s not a car. As the value consumers January 2018, we reorganized the Japan Sales provides is expanding on numerous fronts. This is seek in cars diversifi es, Toyota will continue to listen Business Group. Also, we changed our domestic why Toyota announced its intention to transform into carefully to its customers, reinforce its competitive- sales policies, moving from a uniform approach a mobility company. ness, and deliver ever-better mobility to even more throughout the country to a focus on individual As Toyota works to reinforce its efforts related to customers. regions, and are speedily carrying out said policies. a wide range of mobility services, its approach of Furthermore, to strengthen our competitiveness seeking to be the “best in town” will be essential. and to create and provide new mobility services, in When creating new services, the business environ- Shifting to a Region-based Approach addition to ongoing business reinforcement efforts, ment, particular challenges, and distributors in each in Japan, Toyota’s Home Market we established Toyota Mobility Service Co., Ltd. in region vary greatly. Toyota must provide cars and April 2018. This new subsidiary will develop and mobility services that are closely tailored to customer Conditions in Japan’s automotive market are expect- provide solution services for corporate customers, lifestyles and regional characteristics and make itself ed to become more diffi cult than ever. The market is connected services using communications devices an indispensable presence in local communities. contracting as a result of such social issues as the in cars, car sharing, and other new services. Seeking to be the best in town is an approach that declining and graying population, urbanization, and Tokyo, in particular, is the earliest adopter of mobil- reinforces competitiveness and thereby leads to rural depopulation. At the same time, the market is ity service, seeing a shift from car ownership to car sustained growth. changing, with increased use of IT, AI, automated usage. Targeting the Tokyo region, we plan to inte- In this way, Toyota’s vision is extremely clear. driving, and other technological innovations, as well grate Tokyo Toyota Motor Co., Ltd., Tokyo Toyopet To achieve this vision with emphasis on speed and as the emergence of new rivals. Motor Sales Co., Ltd., Toyota Tokyo Corolla Co., openness, Toyota is working to reform businesses To adapt to future market changes, Toyota launched Ltd., and Netz Toyota Tokyo Co., Ltd., to form a new throughout the Group—and sometimes extending in 2016 the J-ReBORN Plan under which it has been company in 2019. By effi ciently developing its dealer beyond the Group—based on a “home and away” working to transform the domestic car sales business. network and by concentrating its resources, Toyota perspective. “Home” refers to operations and regions Until now, Toyota’s growth in the Japanese market will continue working to be the best in town. in which we can add value ourselves through Genchi has been based on sales efforts that were focused Genbutsu (onsite, hands-on experience) and in which on channels and uniformly implemented nationwide. we have competitive advantages over our rivals. Going forward, however, we will need to look more “Away,” meanwhile, refers to operations and Didier Leroy regions in which we will work with other companies Changes in Japan’s Market Environment Changes in the Automotive Business Executive Vice President, that have more advantages than we do in terms of • Declining, graying population • Increased use of IT, AI, automated driving, and other technological • Urbanization, rural depopulation innovations Member of the Board of Directors expertise. By reexamining our businesses and effec- Further market contraction • Emergence of new rivals tively allocating management resources to “home” • Expansion of car sharing (non-ownership) and “away” companies, we can increase productivity The speed of market change is an order of magnitude greater than ever before and make the entire Toyota Group more competitive. And, above all, Toyota believes that applying Genchi Genbutsu in their work at more specialized compa- J-ReBORN Plan nies will help our human resources grow and develop. 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

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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- The “One Toyota” Initiative, Focused on Sustainable Growth—From Visitor to Neighbor tries and throughout the continent. Today, Toyota In April 2014, Toyota announced the “One Toyota” ini- United States socially, economically, and culturally; South Africa Motors (Pty) Ltd. serves as a manufactur- tiative aimed at consolidating its regional head offi ce Toyota’s direct investments in the country to date total ing and export base and boasts South Africa’s highest functions in North America. The July 2017 grand approximately US$25 billion, and the Company oper- vehicle production volume. opening of Toyota’s new North American headquarters ates 10 manufacturing assembly facilities, boasts Africa is sometimes called the “last frontier”—as this in Plano, Texas, was the fi rst new opening under the almost 1,500 dealers, and employs approximately appellation suggests, it is a market with enormous initiative. Previously, Toyota’s North American functions 137,000 people nationwide (including direct and indi- potential. Toyota Group company Toyota Tsusho were in four locations—California, Kentucky, Michigan, rect workers and dealer employees). Corporation (TTC) has signifi cant business strength on and New York. Now, the sales management, fi nancial The new North American headquarters in Plano the continent, with a dedicated Africa Division and services, external relations, public relations, and sends the clear message that Toyota is here to stay over 10,000 Group employees in the region. To facilitate greater coordination, Toyota has select- research functions have been consolidated in Plano, and contribute to the community. Toyota is now advancing preparations to transfer all ed a former TTC executive who has a wealth of expe- while purchasing and production engineering have With the opening of the new headquarters, approxi- its sales and marketing operations in African markets rience in local operations as its CEO of Africa region. been consolidated at a Technical Center in Ann Arbor, mately 3,000 employees have relocated from the four to TTC in January 2019. This move embodies our By reinforcing human resource development at both Michigan, and a Production Engineering and previous sites, and Toyota has made about 1,000 new aspiration to be the best in town in the region by con- companies, we will further accelerate businesses Manufacturing Center in Georgetown, Kentucky, respec- hires. Toyota has also committed to investing approxi- centrating operations at TTC, a Group company that in Africa. tively. By strengthening cross-functional coordination, mately US$10 billion in the United States over fi ve has a “home” in Africa. Toyota has created a framework for responding to the years. These funds are being put toward such endeav- needs of North American customers faster in order to ors as the construction of the new headquarters and make ever-better cars that exceed expectations. reinforcing the competitiveness of existing plants. Toyota began operations in the United States 61 Going forward, Toyota will continue to step up its com- years ago, in October 1957, with just a single dealer. petitive strength as “One Toyota” in North America and Today, Toyota’s businesses are deeply rooted in the contribute as a neighbor, aiming to be the best in town. Learning from the “Let’s Do It” Spirit—Collaboration with Suzuki Toyota has learned a great deal over the years through companies’ product open collaboration with competing manufacturers. lineups and encour- Our partnership with Suzuki is one such effort. While aging competition in Toyota has built strong business foundations in the Indian automotive Southeast Asia, it has yet to effectively exercise its market. In May 2018, TMA (External relations, strength in other emerging nations, such as India, we agreed to begin public relations, where Suzuki has utilized its famous “Let’s Do It” spirit discussions related to research) to the fullest and built a solid position. three joint projects in TMS New York, In February 2017, Toyota and Suzuki concluded a such areas as car (Sales HQ) TEMA New York memorandum regarding a business partnership. production and powertrain development assistance. New Headquarters (R&D, manufacturing HQ) Erlanger, Kentucky Moving toward concrete collaboration, in November Toyota will continue to learn from Suzuki’s “Let’s Do TMCC 2017, the two companies agreed to discuss setting It” spirit, working as a member of Indian industry to (Financial & insurance services) Plano, Texas TMMK up a cooperative structure for introducing electric realize a freer, more enjoyable future mobility society. Torrance, California (Production) vehicles in the Indian market around 2020. Then, in Together, we are advancing toward a day when “Made Georgetown, Kentucky March 2018, Toyota and Suzuki concluded a basic in India” cars will be widely loved not only in India, but agreement to supply one another with hybrid and also in Africa and other regions around the world. other vehicles, with the aim of bolstering both

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Eliminating CO2 Emissions from New Vehicles by 2050: Popularizing Electriﬁ ed Vehicles

In December 2017, Toyota announced its plans to sell globe. We plan to introduce more than 10 BEV mod- more than 5.5 million electrifi ed vehicles per year A New Push to Popularize Electrifi ed els in the fi rst half of the decade. globally by 2030. As part of the Toyota Environmental Vehicles by 2030 Next, while expanding our lineup of dedicated Challenge 2050, launched in 2015 to contribute to electrifi ed models, such as the Prius and Mirai, we the realization of a sustainable society, we set for our- will make electrifi ed versions available for other mod-

selves the New Vehicle Zero CO2 Emissions Challenge, Toyota aims to sustainably grow while steadily solidi- els, as well, aiming to have no models lacking an under which we aim to reduce Toyota’s global aver- fying its business base through the three values of electriﬁ ed option by around 2025.

age new vehicle CO2 emissions in 2050 by 90% com- safety and peace of mind, Waku-doki (excitement Basing calculations on our current global sales, by pared with the 2010 level. This new initiative to and exhilaration that wows you), and environmental 2030 we aim for annual sales of more than 5.5 million popularize electrifi ed vehicles is one of our medium- sustainability. By doing so, we hope to contribute to electrifi ed vehicles, including hybrid electric vehicles to long-term measures to achieve this target. the creation of a sustainable mobility society and (HEVs), plug-in hybrid vehicles (PHEVs), BEVs, and Toyota believes that eco-friendly vehicles can best bring smiles to our customers’ faces. FCEVs. Of this total, we are aiming for more than 1 mil- help protect the environment if they are in widespread Electrifi cation will be indispensable to reducing lion to be BEVs, FCEVs, or other zero-emission vehicles. use. To consistently provide products that meet vehicle CO2 emissions and thus addressing global In the 20 years since launching the Prius in 1997, customer expectations and needs as a mass manu- warming, a challenge facing by the entire planet. Toyota has sold more than 12 million electrifi ed vehi-

facturer, a diverse lineup of electrifi ed vehicles is Toyota is steadily advancing efforts in this area under cles around the world, helping to cut CO2 emissions essential. At the same time, Toyota is advancing the Toyota Environmental Challenge 2050 estab- by more than 94 million tons.* Today, Toyota offers initiatives on all fronts, including technological innova- lished in October 2015. 36 electrifi ed models in more than 90 countries and tion as well as social infrastructure development tai- In particular, to popularize electrifi ed vehicles, Toyota regions, maintains an electrifi ed vehicle development lored to the energy and usage conditions of specifi c is aiming for at least 50% of all the vehicles it sells staff numbering 4,500 within the Company alone, countries and regions. globally in 2030 to be electrifi ed, and, of those, for and sells more than 1.5 million of these vehicles each Toyota regards the current once-in-a-century more than 10% to be battery electric vehicles (BEVs) year. These fi gures are a testament to the trust that transformation of the automobile industry—including or fuel cell electric vehicles (FCEVs). To this end, we customers have in these vehicles’ quality, durability, the promotion of electrifi cation—as an unparalleled have set the following three intermediary targets. and reliability; customer support for this type of vehi- opportunity to deliver new value to customers and First, from 2020 onward, we will advance the full- cle over the years; the vast technological expertise expand its business. scale roll-out of BEVs. Specifi cally, we will launch built up by the Group; and Toyota’s successful estab- mass-market BEVs developed by Toyota for the lishment of electrifi ed vehicle mass production tech- Chinese market in 2020, then expand sales to Japan, nologies in Japan and around the world. The India, the United States, Europe, and around the electrifi ed vehicle technologies and expertise it has

Toyota’s Major Recent Initiatives in Electriﬁ cation Vehicle Electriﬁ cation Milestones

Announced a joint next-generation convenience store project with Seven-Eleven June 2018 Japan to begin in autumn 2019, aimed at greatly reducing CO2 emissions 2030 Move to expand fuel cell stacks and high-pressure hydrogen tank production May 2018 Electrified vehicles equipment, aiming to increase sales of FCEVs from around 2020 HEVs >50% Shigeki Terashi Launched the fi rst Aichi Low-carbon Hydrogen Supply Chain project, aimed at realiz- Executive Vice President, April 2018 ing a hydrogen-powered society in cooperation with the Aichi prefectural government, BEV/FCEVs local companies, municipal authorities and other partners >10% Member of the Board of Directors 2050 Announced that sales of electrifi ed vehicles in 2017 reached an all-time high, surpass- Around 2025 Engine-powered vehicles Zero CO2 February 2018 ing 1.52 million and achieving one of the Toyota Environmental Challenge 2050 Electrified Emissions targets three years early versions available Challenge for all models January 2018 Presented the e-Palette Concept Vehicle, a BEV for mobility services, at CES 2020 Start of PHEVs December 2017 Announced an initiative to popularize electrifi ed vehicles from 2020 to 2030 1997 full-scale World’s first 2014 Began a feasibility study with Panasonic Corporation of a joint automotive prismatic BEV rollout December 2017 mass-production FCEVs battery business HEV FCEVs Established EV C.A. Spirit Corporation with Mazda and DENSO to jointly develop September 2017 technologies for electric vehicles BEVs 12 1990 2000 2010 2020 2030 2040 2050 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

Eliminating CO2 Emissions from New Vehicles by 2050: Popularizing Electrifi ed Vehicles accumulated over the decades are a vital strength of develop applications for our fuel cell technologies in In particular, a key factor in the popularization of electrifi ed vehicles runs the risk of driving up rare Toyota and will provide a solid foundation for the a range of industrial fi elds. electrifi ed vehicles is batteries. For example, the bat- metal prices and increasing industrial waste. Toyota popularization of electrifi ed vehicles going forward. teries used in BEVs currently on the market already has for some time been involved in the reuse and More details Hydrogen-related initiatives, p. 14 have capacities several tens of times as large as recycling of HEV batteries. For example, these bat- * As of April 30, 2018 those used in HEVs, yet that capacity needs to be teries are being used in fi xed electricity storage sys- In addition, Toyota believes that HEVs, the trailblaz- signifi cantly improved if their cruising range is to be tems, helping to realize stable energy circulation at Comprehensive Initiatives Related to ers of the electrifi ed vehicle fi eld, still have a large role on par with that of HEVs. power plants and factories. Products, Technologies, and to play. In addition to further enhancing Toyota’s To address this diffi culty, in December 2017, From an energy standpoint, Toyota aims to help Social Infrastructure existing hybrid technologies in terms of fuel economy, Toyota began a feasibility study with Panasonic create a society that utilizes both electricity and cost, and driving performance, we will develop a Corporation of a joint automotive prismatic battery hydrogen. We are advancing a variety of initiatives, For Toyota to continue to meet diverse customer range of new HEV types. These may include, for business. Furthermore, Toyota is developing solid- including pilot projects aimed at utilizing renewable needs, it will need to implement robust initiatives cov- example, sports models with superb acceleration; state batteries, aiming to commercialize the technol- energy and building a low-carbon society. In the long ering products, technologies, and social infrastructure. high-power models capable of towing camping trail- ogy by the early 2020s. Compared with conventional run, we envision a society that is built on diverse In terms of products, as society undergoes major ers; one-motor, mild hybrid or other types of afford- batteries, solid-state batteries are expected to be energy sources and that effectively utilizes electricity changes and the needs of customers and markets able hybrids for emerging markets; or models using smaller and safer while achieving dramatically and hydrogen. To achieve this vision, we are working rapidly diversify, applying technologies in ways that multi-stage hybrid systems like that in the Lexus LS. improved performance. with the entire Group as well as outside corporate, break with convention to diversify our electrifi ed vehi- To realize the improvements in performance, cost, government, and other partners to help develop a More details Powertrains for hybrid vehicle, p. 14 cles will be key their popularization. and supply capacity necessary to meet its targets for sustainable mobility society. For example, in BEVs, in addition to mini-, mid- 2030, Toyota will invest approximately 1.5 trillion yen, Toyota is currently the electrifi ed vehicle market leader; size, and full-size vehicles, we will expand to buses Turning to technologies, Toyota has established a bolstering R&D and capital expenditure related to approximately one in two such vehicles sold around the and trucks and work as a Group to create products global mass production platform that boasts an batteries. By doing so, we will accelerate efforts to world is a Toyota. Going forward, Toyota will seek to for a wide range of applications, including commer- annual capacity of more than 1.5 million HEVs. This transform the electrifi ed vehicle business to sell more maintain this lead by advancing initiatives related to cial and sharing services. platform can readily be used to produce other types than 5.5 million electrifi ed vehicles in 2030. products and the technologies and social infrastructure As for FCEVs, we will expand our lineups of pas- of electrifi ed vehicles, such as BEVs and FCEVs. Finally, looking at social infrastructure, we must that support them. Through these initiatives to popular- senger and commercial vehicles in the 2020s. However, a far vaster and more advanced production approach the electrifi cation of mobility and problems ize electrifi ed vehicles, together with initiatives related to Furthermore, working with Group companies, we will network than any that now exists will be needed for related to resources and energy comprehensively. connected technologies and automated driving leverag- the more than 5.5 million electrifi ed vehicles a year Without the establishment of systems for reusing and ing AI, we will continue to ambitiously strive toward the that Toyota is targeting. recycling materials, the ongoing popularization of 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 HEV/ FCEVs 1925 Public call for Sakichi Battery = Core technology across Applied to all electrified vehicles PHEVs Bus electrified vehicles 1939 Established Battery Research Laboratory

Engine Passenger cars 1997 1st-gen. Prius launched (nickel-metal hydride battery) BEVs Electric HEVs FCEV (Bus) HEV Full-size truck 2003 Lithium-ion batteries motor Small home-delivery vehicles Engine Charging PHEVs Short-distance use 2020s Solid-state Sakichi Toyoda Battery size Vehicle batteries Charging BEV FCEV Delivery truck BEVs PHEV Ideal energy storage device Fuel cell Hydrogen tank High energy density, retains charge, fast charging, Metal-air batteries Inverter Personal mobility H2 Travel distance low resistance, easy to manufacture, highly durable (PCU) H2 FCEVs

O2 Since its founding, Toyota has recognized the importance of and advanced the development of batteries Diversification of HEVs, PHEVs, BEVs, and FCEVs becoming more important 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

Eliminating CO2 Emissions from New Vehicles by 2050: Popularizing Electriﬁ ed Vehicles

Aiming for a Decarbonized Society in 2050: To realize a sustainable society, it will be impor- Innovating Powertrains to Enhance both Driving and and more compact, creating vehicles with lower Leveraging Hydrogen Energy tant to effectively use electricity and hydrogen Environmental Performance centers of gravity, utilizing high-speed combustion together in order to fully leverage CO2-free renew- in engines, and employing more gears to make Toyota regards hydrogen as a high-potential future able energy sources. Hydrogen allows for the stor- Toyota’s environmental technology strategy is based transmissions more effi cient. energy source and believes that FCEVs, with their age and effi cient use of electricity derived from on the three pillars of saving energy, using diverse Toyota will continue to use TNGA-based modular high capacity to contribute to society, are the ulti- fl uctuating natural energy sources. Furthermore, fuels, and the understanding that eco-friendly vehi- development to rapidly bring these powertrains to mate eco-cars. Toyota’s development of FCEVs hydrogen can be used as a direct energy source in cles can best help protect the environment if they numerous models. We plan to introduce these new began even before the release of the Prius, back in FCEVs and industrial applications. While hydrogen are in widespread use. We expect that 90% of the powertrains in 37 variations of 19 models by 2021.* 1992. We released the Mirai in Japan in December will thus be highly useful going forward, realizing a vehicles we sell in 2030 will have conventional Plans call for expanding sales of such vehicles to 2014 and in the United States and Europe the fol- hydrogen-powered society will require a great deal engines (as gasoline-powered vehicles, HEVs or approximately 80% of all new vehicles sold in 2023 lowing autumn; currently, we offer the Mirai in a total of time and investment. In addition, cooperation PHEVs). As such, to reduce CO2 emissions, the on a non-consolidated basis (in Japan, the United of eleven countries. In March 2018, Toyota with a diverse range of stakeholders will be indis- continued improvement of powertrain fuel economy States, Europe and China). We estimate that the launched the Sora production model FC bus. We pensable. Toyota performs a leading role in the is vital. increased fuel economy of the new TNGA power-

expect to introduce over 100 of these buses, mainly Hydrogen Council, a global initiative promoting Accordingly, Toyota is working to achieve both trains alone will reduce the CO2 emissions from the within the Tokyo metropolitan area, by the time of a united vision and long-term goals for the transition excellent driving performance and excellent environ- cars sold by Toyota on a non-consolidated basis in the 2020 Tokyo Olympics and Paralympics. to new energy using hydrogen, as well as Japan H2 mental performance by remaking and signiﬁ cantly 2023 by at least 18%. To popularize FCEVs, we are aiming for annual Mobility, LLC, which aims to develop a network of evolving its engines, transmissions, and hybrid tech- global sales of the Mirai and other FCEVs of over hydrogen stations across Japan. Through these and nology through Toyota New Global Architecture * Variations include FF vs. FR layouts, passenger vs. commercial 30,000 units from around 2020. Going forward, we other efforts, we are proactively contributing to the (TNGA), its program of structural innovation aimed applications, conventional vs. hybrid vehicles, and differences in torque capacity plan to expand production facilities for core FCEV creation of a hydrogen-powered society. at making ever-better cars. Through development components, namely fuel cell stacks and the high- Toward Realizing a Decarbonized Society in 2050: under TNGA, we are thoroughly examining all pressure hydrogen fuel tanks to meet growing WEB Use of Hydrogen Energy (Sustainability Data Book 2018, aspects of basic performance for opportunities for demand for FCEVs. pp. 100-102) improvement, including making components lighter

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)

THS-II Direct 6MT THS-II (2.5L) Shift-CVT Using electricity and hydrogen for a society built on diversified energy 2030 HEVs (2.0L) Multi-stage THS-II Direct Electrified vehicles THS-II Shift-8AT BEVs/PHEVs (1.8L) >50%

Power storage facilities BEV/FCEVs Thermal power Renewable Wind power energy Electricity grid Fossil fuels >10% TNGA 17 variations of 9 engines Solar power City/home Industrial use LNG Hydrogen powertrains 10 variations of 4 transmissions –Electricity Hybrid cars OIL Vehicles with conversion PHEVs 10 variations of 6 hybrid systems Electrolysis Power-generator unit sales Vehicle conventional Biomass 90% H2 engines Hydrogen grid City/home Oil refinery/chemical plant Hydrogen tank High-capacity, FCEV cars Chemical plant long-term storage FCEVs Direct Sewage treatment H2 and buses City/home Energy flow Automotive fuel Electricity Hydrogen Fossil fuels 3.5-liter Shift-10AT twin-turbo BEVs Dynamic Force Dynamic Force Engine (2.5L) Engine (2.0L) 2010 2020 2030 2050

14 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

Making Ever-better Cars: Continuing to Make Cars That Will Be Beloved

The automotive industry is in the midst of a period of Since its founding, Toyota has made cars in line advancing total optimization by pursuing smart shar- profound change. For Toyota to continue to grow with its Customer First policy. Through these efforts, ing, thereby improving effi ciency and reducing costs. going forward, it must, above all, make its cars even it has developed unique methods and values, such These efforts are greatly increasing our potential to more appealing and continue to deliver cars that will as the Toyota Production System (TPS) and Kaizen, create cars that will be beloved by customers. enhance users’ lives and be beloved by customers. As which have been passed down as wellsprings of Building on the foundation provided by TNGA, the information, intelligence, and electrifi cation technolo- competitive strength. By actively applying these in-house companies consider each region’s market gies develop, the nature of mobility will surely change, strengths at development and production preparation needs and consumer preferences to craft distinctive, but Toyota will remain committed to ensuring that its sites going forward, we will endeavor to make ever- appealing cars that customers will love. cars will be beloved as it makes ever-better cars that better cars that surpass customer expectations. Toyota began its TNGA initiatives with the develop- are more convenient, safer, and more eco-friendly. ment of the fourth-generation Prius (launched in To this end, we are implementing structural innova- Japan in December 2015) and then applied them to tion across our global car making business. Namely, create two other mid-size models, the C-HR and we have launched Toyota New Global Architecture TNGA So Far Prius PHV. We next applied TNGA to full-sized mod- (TNGA), under which we are changing our cars from els, announcing the Camry and the Lexus LC and LS the basic architecture outward to greatly enhance in 2017 and the Crown and Corolla Sport in 2018. basic performance and product appeal. Building on TNGA is a program of structural innovation aimed at While these cars share TNGA components, the char- this foundation, we have also adopted a product- making ever-better cars, starting by changing their acter of each is completely distinct, as is immediately based in-house company system aimed at creating basic architecture. Through TNGA, we are completely apparent in terms of design and ride. The in-house even more distinctive fi nished cars. We will continue remaking the basic frames of our cars while dramatically companies have created these distinctive cars to suit to reinforce both TNGA and the product-based enhancing design to catch our customers’ eyes and different customer preferences, so that every cus- in-house company system, aiming to more quickly capture their hearts and improving basic perfor- tomer can fi nd a car they will love. Going forward, we respond to customer demand. mance to provide a driving experience that custom- will expand TNGA to compact-class cars, as well, to Moritaka Yoshida ers will want to never end. At the same time, we are serve even more customers. Executive Vice President

Making Ever-better Cars: Toyota’s Approach and Structure TNGA Product Roll-out

TNGA Compact In-house Company System class Structure Work Process Individual Aspects of Car creation focused on each car type Decision making by in-house company presidents Lexus optimization cars tailored (premium class)

Making to customer Toyota Compact Car Company Mid-size Vehicle Company CV Company Co. Lexus International GAZOO Racing Company Car Company Emerging-market Compact distinctive cars tastes Full-size Lexus LC Lexus LS Planning Design One team class uniting four Total optimization Total functions Making better optimization Execution • Faster decision making Mid-size Camry Crown • Streamlined planning/ products and through class development practicing smart standardiza- Production • Reduced need to Manufacturing engineering sharing tion re-do work Corolla Prius PHV C-HR Sport

15 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

Making Ever-better Cars: Continuing to Make Cars That Will Be Beloved

Until now, we have developed such different cars push forward with further cost reductions. regional characteristics, and fi nally produce cars that As a model project, we have created a team con- separately. By implementing TNGA across the For example, we are taking on new initiatives to balance product appeal, specifi cations, and price. sisting mainly of young employees from design and Company, however, we are able to more quickly create individual project-oriented organizations that performance evaluation and production preparation introduce new models. And, by reinvesting the cover everything from planning to manufacturing and units, which develop vehicles, to implement the TPS resources saved through these initiatives in further promoting quick judgment and quick decisions to approach. Each day, the team members meet to Bringing the Toyota Production System enhancing quality and product appeal, we are accel- make ever-better cars cheaper, more quickly, and identify overburden and waste in the day’s work, erating a virtuous cycle that enables us to deliver more easily. At the same time, we are utilizing these to Development come up with ideas for improvement, and immedi- ever-better cars even faster. cross-functional organizations as channels to ately put these ideas into action. This initiative has advance human resource development and imple- The TPS is a system for completely eliminating over- only just begun, but already the team members more ment work style reforms. burden and waste to improve productivity within fl ow deeply understand one another’s work, have identi- Furthermore, through alliances with other compa- of things and people. Until now, the TPS has been fi ed redundancies and other waste in the operations The Next Evolution of Making nies and through our subsidiary Daihatsu Motor Co., applied mainly at production sites, where it has been of their units, and are working as one to fi nd opportu- Ever-better Cars Ltd., we are learning more effi cient development refi ned and developed through many years of use. nities for improvement. methods and steadfastly applying Kaizen to make Now, we are introducing the principles of the TPS at I think that introducing the TPS in development While we have thus made progress, certain areas ever-better cars that exceed customer expectations. development and manufacturing technology units. units will not only help shorten development lead that still need work have also come to our attention. We also need mechanisms to ensure, from start to One of the motivations behind this move is our strong times and reduce costs, but will also contribute As a result of our focus on improving performance fi nish, that we are making cars that are appealing desire to develop our human resources in these units greatly to human resource development. We will use and product appeal, we have heard from some cus- from the customer’s perspective. We are doing away by having them apply Genchi Genbutsu (onsite, these initiatives to help make ever-better cars that will tomers that, while they can tell that our cars have with the antiquated idea that it is only natural for quali- hands-on experience) to think about the cars they are be beloved by customers. gotten better, they fi nd the prices rather high. To ty products to be expensive and reforming our devel- working on and the entire process from development ensure that we continue to provide cars that will be opment process to plan products from the customer’s to production preparation. By doing so, we hope that irreplaceable and beloved by our customers, we will viewpoint, develop them to suit customer needs and they will learn to completely eliminate waste.

Making Ever-better Cars That Will Be Beloved Application of the TPS New initiatives Existing initiatives What Customers Making Ever-better Cars

Love about Cars Planning and development in line with customer needs Production Production and regional characteristics Planning Developmentpreparation Customers Balance of product appeal, specifications, and price Fun of driving Connected cars

Logistics Comfort Safety Cars that Luxury vehicles Welcab will be beloved (Lexus) Introducing the TPS principles by each individual Eco-cars Suppliers customer Advanced safety New concept Joy of Lifestyle (automated cars Social contribution ownership enhancement driving) (commercial vehicles) Identifying and eliminating waste

16 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

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.” Kiichiro Toyoda, Toyota’s founder President Toyoda (left), the late master driver Hiromu Naruse

Through motor sports, Toyota aims to bring excite- Toyota also competes in the FIA World Endurance Evolving Ever-better Cars Using ment and joy to customers, fans, and communities Championship (WEC), comprising the 24 Hours of Le “I don’t want to be preached to about cars by some- Development Methods from Racing around the world. Above all, developing our people Mans and other endurance races around the world. one who doesn’t even know the basics of driving. We and our cars in order to make and deliver ever-better Toyota fi rst entered the 24 Hours of Le Mans in 1985 One of Toyota’s new endeavors is the GR Super Sport test drivers put our lives on the line to make better cars is the unwavering core of Toyota motor sports. and took its fi rst win in 2018, its 20th time compet- Concept. Under this concept, Toyota is using mostly ing. Toyota’s two cars started the race at the very the same main parts and development methods as cars. You’ve got to understand that.” This frank front of the pack and held the top two positions all those employed for the race cars that it competes remark in 2002 was the start of a teacher-pupil rela- Motor Sports: In Our Roots the way to the end. This marks the fi rst time that a with in the WEC and applying technologies honed tionship between the late master driver Hiromu Japanese driver in a Japanese car has won Le Mans. through racing to create a next-generation sports car. The above passage comes from the fi nal work of In 2016, the Toyota team suffered a mechanical fail- Because race cars are expensive, advancing Naruse and Akio Toyoda. Wanting to be able to cor- Toyota founder Kiichiro Toyoda, “Auto Racing and ure just three minutes before the end of the race. In development without making prototypes is funda- rectly judge cars, Toyoda joined Naruse’s team and 2017, they fi nished just 8th overall. Going into 2018, the Japanese Automobile Industry,” written shortly mental. We therefore mainly use model-based devel- commenced training. In 2007, at Naruse’s sugges- before his death. they completely revamped their approach. The development, in which the entire car is considered and The demanding environment of competition will opment goal was changed from optimal lap time to simulations are run to determine how each function tion, Toyota decided to enter the 24 Hours of drive the development of our people and cars—car- ensuring that the car could get back to the pit no mat- should run to achieve the desired performance. This Nürburgring endurance race. GAZOO Racing, made ter what problems arose—in other words, to survive rying on this belief, Toyota competes in a number of approach enhances performance in less time and up of Toyota employees, competed for the fi rst time types of auto racing. no matter what. The team created a list of likely prob- with fewer people even before prototypes are built. In April 2017, ten years after our fi rst foray into the lems, and then made them happen on test courses, Within the fi nely subdivided organizational structure that year. It was there that Toyoda, then an executive Nürburgring 24 Hours race, we established GAZOO practicing recovering using the car’s remaining func- for mass-market car development, which is opti- vice president, fi rst used the pseudonym Morizo to tions over and over. Doing so enabled the drivers, Racing Company, creating a stronger framework for mized for effi ciency, this kind of approach—looking compete as a driver. an ongoing motor sports business and marking the mechanics and engineers to push further than ever at the entire car to optimize each function in concert start of a new chapter. before and gave rise to Kaizen (improvement) based with all the others—is diffi cult to apply. Using model- As Naruse said, “There is no better way to pass on on Genchi Genbutsu (onsite, hands-on experience). based development, Toyota aims to further acceler- skills and develop people than racing. What’s impor- Lastly, Toyota also competes in the 24 Hours of The Road Builds the People, ate efforts to make ever-better cars. tant isn’t discussing automaking with words and Nürburgring endurance race. This race takes place and the People Build the Cars on the Nürburgring, one of the world’s most diffi cult data, but getting in the actual car, touching it, and One of the major competitions in which Toyota par- courses. Laid out to resemble ordinary European discussing with the hands and eyes.” To put this sen- country roads, the Nürburgring has an exceptionally ticipates is the FIA World Rally Championship (WRC). timent into action, Toyota uses modifi ed versions of Competitors in the WRC drive modifi ed production long circuit of 25 km, narrow track widths, a maxi- its production cars in the 24 Hours of Nürburgring cars on closed sections of public roads. They race mum altitude difference of around 300 m, and more on bumpy unpaved roads, through high-speed cor- than 170 corners. Toyota’s team in this 24-hour endurance race. By understanding the strengths and endurance race comprises mainly mechanics and ners on high mountain passes, and over icy patches the areas that need improvement of the base cars, hidden beneath snow. In the words of Toyota presi- engineers who are regular Toyota employees. In then making them into vehicles that are reliable even dent Akio Toyoda, “Rallying—a form of racing that 2014, all three of Toyota’s cars in the race won takes place on all kinds of roads—is the perfect set- “best-in-class” awards, including that for the in the most extreme driving conditions, we aim to SP-PRO class. The Lexus LFA, in which president ting to develop our people and cars.” We are apply- learn precisely what it is that makes a car good. This ing the know-how, technologies, skills, and spirit Toyoda was a driver, fi nished 13th overall, taking the know-how is then utilized in the GR sports car series. gained from these competitions to the cars we man- top position in the SP8 class. WEB TOYOTA GAZOO Racing ufacture for sale.

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

Steady Progress toward Automated Driving

Toyota’s ultimate goal in developing automated driv- Achieving this goal will require the development of ing technologies is not simply to create autonomy for safe driving systems that are highly effective in real- Toyota’s Specifi c Approaches to cars, but to create a world in which mobility is safe, life situations as quickly as possible and the promo- Automated Driving convenient, enjoyable, and available to everyone. tion of their uptake as widely as possible. To do this, Safety is our topmost priority as we pursue this goal. Toyota is promoting, in parallel, the development of Under the Mobility Teammate Concept, Toyota is We believe that we can enhance safety by building advanced safety technologies and the utilization of developing automated driving systems based on two partnerships between drivers and their cars. insights gained through such development to further approaches: Guardian and Chauffeur. Even in a future where some driving is automated, develop popularized technologies. We have already The Guardian approach assumes that a human will we believe that cars will continue to be loved. Toyota put our active safety technologies on the market, drive the car, while automated driving systems oper- believes that safe and fun automated driving technol- packaged as Toyota Safety Sense and Lexus Safety ating alongside the driver provide support, such as ogies have the potential to expand freedom of System+. Such packages are now offered as stan- added braking, acceleration and steering, when movement for all and bring cars and people even dard or optional features on almost all new Toyota needed, for example, when the car is in danger of closer together. and Lexus models sold in Japan, Europe, and the collision, to protect the car’s passengers and people United States. Furthermore, with the new Lexus LS, outside the car. Chauffeur refers to automated driving the brand fl agship, we have introduced the Lexus as defi ned by the U.S. non-profi t SAE International, Toyota’s Unique Approach to Safety System + A, which includes such new fea- where the autonomy drives for extended period of Automated Driving tures as Active Steering Assist, a world-fi rst technol- time instead of the human driver. ogy, and Front Cross Traffi c Alert (FCTA), which helps The Mobility Teammate Concept offers the freedom Since the 1990s, Toyota has engaged in automated prevent collisions at intersections. In systems for the of choice by allowing users to enjoy the benefi ts of driving technology research and development aimed non-luxury market, as well, we have introduced the automated driving technologies while still allowing at contributing to the complete elimination of traffi c second-generation Toyota Safety Sense, featuring them to drive safely, enjoyably and freely when they casualties. Today, Toyota is advancing development expanded hazard detection for a broadened scope wish. Drivers will be able to choose Chauffeur mode in this area based on its Mobility Teammate Concept. of protection against severe accidents. for some situations, such as expressway and long- This concept is an expression of Toyota’s unique distance travel. Guardian mode will always attempt to approach to automated driving and is built on the protect people both inside and outside the car, wheth- belief that people and vehicles can work together in er the human or the automated Chauffeur is driving. the service of safe, convenient, and effi cient mobility. TRI Advanced Safety Research Vehicle Demo As implied by the word “teammate,” the inclusion (YouTube, 3:57) of people is central to this approach, based on our belief that people should have choices. The true Our Guiding Developing and Promoting the Use of Advanced Technologies Gill A. Pratt value of automated driving technologies, we believe, Development Philosophy Fellow lies not in the technology itself, but in the social value Automated driving technologies it creates—helping to create a rich mobility society in Advanced Advanced driving which everyone can enjoy safe, convenient, and technologies assistance technologies Next generation Society with zero traffic accident enjoyable transportation. New Lexus LS casualties Moreover, we believe that the most important fac- Lexus LS Step up tor in the development of automated driving is safety. s)NTEGRATE This conviction is in line with our long-held stance of Toyota’s unique approach to automated driving is built on s2EDUCESIZE prioritizing the improvement of safety with the ultimate s2EDUCECOST Following the belief people and vehicles generation goal of eliminating casualties from traffi c accidents. can work together in the ser- Next generation Toyota vice of safe, convenient, and Popularized Safety Sense Step up effi cient mobility. technologies

18 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

Steady Progress toward Automated Driving

Developing Automated generate unprecedented consumer demand, provid- To accelerate the development of intelligence soft- ing more data and leading to a virtuous cycle of Three Types of Intelligence and Initiatives ware, in March 2018, Toyota established Toyota Driving Technologies on enhancing mobility, safety, and convenience. As a Aimed at Commercialization Research Institute Advanced Development (TRI-AD) Two Complementary Fronts result, automated driving technologies will develop in Tokyo. Applying the ideas of the Toyota Production Toyota is advancing the development of automated further and be widely adopted by society and con- Realizing automated driving will require three types of System (TPS) to software development, TRI-AD is driving technologies on two fronts: personally owned sumers. In this way, the introduction of MaaS will intelligence. The fi rst is driving intelligence, entailing tech- creating an integrated software development model vehicles (POVs) and Mobility as a Service (MaaS). help us achieve the important benefi ts of automated nologies to accurately understand the vehicle’s position spanning research to commercialization. Furthermore, By offering affordable, on-demand mobility, MaaS driving faster than personal car ownership alone. and fi nd safe routes. The second is connected intelli- in the advanced development of automated driving will provide platforms that facilitate the road transport In terms of evolving POVs, in January 2018, Toyota gence technology to transmit vast volumes of data technologies, Toyota has invested in ALBERT Inc., of more people around the world—for example, Research Institute, Inc. (TRI) unveiled its next-gener- about constantly changing road and traffi c conditions to aiming to accelerate technological development by people with disabilities, people who cannot afford to, ation automated driving research vehicle, Platform and from cars. The last is interactive intelligence, based reinforcing big data analytic processes. or prefer not to, own a car—as well as the logistics 3.0. Built on the Lexus LS 600hL, Platform 3.0 uses on Toyota’s belief that, in addition to improving the tech- As for the creation of systems that enable people and commerce that are deeply embedded in, and fun- a LIDAR* system made by U.S.-based Luminar nologies themselves, it is vital to optimize the user inter- and cars to work together, we are studying such damental to, everyday life. These on-demand mobility Technologies to “see” 200 meters in all directions, face to maximize automated driving technologies’ questions as how to create user interfaces that services will transform cities, helping to invigorate making it one of the most perceptive automated driv- usability. TRI is advancing research on all three types of enable the safe transition from human-controlled to economies and make society more effi cient. To ing research vehicles on the road. On top of being intelligence toward the creation of systems that enable system-controlled driving, actively using simulated expand such possibilities of mobility, Toyota has highly functional, the vehicle’s cameras and other people and cars to work together. experiments to test our ideas. These initiatives refl ect unveiled e-Palette, a concept vehicle envisioned for sensors are arranged in a compact package styled Achieving fully autonomous driving will require deep TRI’s human-centric approach. the 2030s that is fully electric and specifi cally to harmonize with the design of the Lexus LS. The learning using data on the surrounding environment pro- TRI-AD is advancing automated driving research designed for MaaS applications. integrated packaging of the automated driving equip- vided by autonomous sensors, such as cameras, using Highway Teammate research vehicles, which we MaaS platforms will also produce the vast ment also makes it easy to reproduce and adapt in RADAR, and LIDAR, to learn how to avoid collisions. aim to commercialize by around 2020. These vehicles amounts of data essential to automated driving order to build a fl eet at scale. Chainer, a neural network platform developed by will enable driver-supervised automated driving on technologies, helping to reduce the per passenger- Preferred Networks, in which Toyota is an investor, will expressways that includes merging onto and exiting * LIDAR: Short for light detection and ranging. Technologies or devices that expressways, maintaining and changing lanes, and mile cost of transportation. Lower costs, in turn, will use lasers to gather 3D information about the surrounding environment. provide one of the necessary deep learning frameworks. Chainer was written using CUDA, a computing platform maintaining appropriate distance from other vehicles. that runs on graphics processing units (GPUs) devel- Testing of Highway Teammate vehicles for use on oped by the major GPU manufacturer NVIDIA. Japan’s Metropolitan Expressway and other particularly 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

Deep (Recognition) AI technology (deep learning) Fully automated learning driving 100％ Recognition Learns Level 4 Personally owned using data features on entire Transport services vehicles (POVs) from vast surroundings volumes of (MaaS) 70％ images Level 3 Previous Source: NVIDIA Source: Google technologies

Previous technologies Works with less data, Level 2 but recognition is limited

Level of automation Gradual improvement Platform 3.0, Next-Generation Automated Recognizes only Recognizes Driving Research Vehicle the edges of only individual (Local laws; road, traffic, and environmental conditions; speed; driver; etc.) white lines Limited Limitless features Data volume Using (cannot detect big data if edges are Developing POVs and transport services in parallel blurred)

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

Steady Progress toward Automated Driving

for use in developing and testing automated driving 1,000-member Intelligence Software (3) Strengthen collaboration within the Toyota Group challenges, expanding collaboration with and Development Company Launched in the domains of research and advanced support for highly motivated entrepreneurs. systems designed to ensure the stability of auto- development. mated vehicles in myriad situations that are not WEB (4) Recruit and employ top-level engineers globally TAIV always testable in the real world. Developed by the while cultivating and coordinating the strong CVC, it is open source and hosted on GitHub.2 talent within the Toyota Group. CARLA offers a multitude of realistic environmental conditions and is designed to be extended and WEB TRI-AD TRI to Open Automated Vehicle easily modifi ed to fi t specifi c project needs. Test Facility in Michigan 1. Open source: A model of software development in which the TRI is building a new automated vehicle test course source code is made broadly available for use and distribution by third on a 60-acre site within the existing test course of parties. TRI Establishes Corporate Michigan Technical Resource Park (MITRP) in 2. GitHub: A web-based software development platform. Users can Venture Capital Fund Ottawa Lake, Michigan. The new facility will be used upload and publish their work (such as program code or design data), enabling collaborative review with the millions of developers to safely replicate demanding “edge case” driving In July 2017, TRI established Toyota AI Ventures on the platform and project management. (TAIV), a venture capital fund to invest in start-ups. scenarios that are too dangerous to perform on Doctors Pratt (left) and Kuffner TAIV invests in recently established promising start- public roads, accelerating the development of ups in the fi elds of artifi cial intelligence, data and Guardian Mode research vehicles. The course will Toyota established Toyota Research Institute- cloud technology, autonomous mobility, and robot- include models of congested urban environments, Advanced Development (TRI-AD), a new, Tokyo- ics. In just its fi rst year, TAIV invested in 11 start-ups slick surfaces, entrance and exit ramps, and a four- based company, to accelerate its advanced in the United States, the United Kingdom, and lane divided highway. development of automated driving technologies. The Israel. new company will be funded by Toyota, Aisin Seiki In July 2018, TAIV unveiled a “call for innovation” Co., Ltd., and DENSO Corporation, which have con- global program to support start-ups in partnership cluded a memorandum of understanding to invest with TRI. This program is designed to spur entrepre- a total of more than ¥300 billion in development. neurial innovation by identifying key technology Dr. James Kuffner, former Chief Technology Offi cer gaps and putting out a call for solutions from start- of TRI, will lead TRI-AD as its CEO. The new compa- ups. Promising start-ups in the areas of the identi- ny is targeting a staff of approximately 1,000 employ- fi ed gaps will have the opportunity to secure from TRI Accelerating Robotics ees, comprising staff sourced from Toyota, TRI, Aisin, $500,000 to $2,000,000 in venture capital funding Research Using Simulators and DENSO along with new hires. A next-generation from TAIV as well as the possibility of partnering on company test model, the company is formulating TRI is accelerating robotics research—one of the a proof of concept project with TRI. new ways of doing work and internal rules, including purposes of its establishment—by actively utilizing Going forward, TAIV will boldly take on diffi cult making English its internal business language. experiments run with simulators. Many robots currently in use are controlled using visual information. TRI-AD is applying the Toyota Production System TRI Supporting the Development of (TPS) approach to software development in order to Open-Source Automated Driving Simulator Toyota is adding force and touch sensors to allow achieve the following key objectives. robots to better understand their contact with other (1) Create a smooth software pipeline from research TRI has donated $100,000 to the Computer Vision objects and more precisely adjust the force they to commercialization, leveraging data-handling Center (CVC) at the Universitat Autònoma de apply. Through this research, we hope to quickly capabilities. Barcelona to promote the development of Car move toward a world where indoor robots assist 1 (2) Strengthen coordination with TRI and effi ciently The Toyota AI Ventures team and its portfolio companies Learning to Act (CARLA), an open source automat- people in daily life. link research results to product development. visited TMNA headquarters in Plano, TX to participate in the ed driving simulator. CARLA is a simulation platform fi rst-ever Toyota Startup Summit.

20 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

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 Developing Core Technologies and Advancing Commercialization Based on Real, On-site Needs Gleaned through Ongoing Testing and know-how developed for industrial robots used in vehicle manufacturing to create partner robots that offer support for everyday living, working to bring these robots to market. So-called service robots for non-industrial use include robots designed to inspect 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, Rehabilitation Robot: Welwalk Social Robot: Pocobee Human Support Robot: HSR Humanoid Robot: T-HR3 and its working-age population is decreasing. WW-1000 Because of these shifts, the burden on the work- The Welwalk WW-1000 is designed Pocobee is designed to delay the The human support robot (HSR) can In November 2017, Toyota ing-age population of supporting the elderly is to aid in the gait training of patients onset and progression of dementia perform such basic tasks as picking announced the T-HR3 humanoid forecast to balloon to approximately three times with lower limb paralysis due to and reduce the burden on caregiv- up, fetching, and handing over robot. Controlled remotely by a the 2000 level by 2050. Toyota aims to use partner stroke or other factors. The robot ers, all increasingly important issues objects and is being developed and human operator, the entire body of robots to instead keep this burden at around the offers a range of rehabilitation sup- in light of the forecast increase in tested for use in such areas as main- this robot moves smoothly using Japan’s number of individuals with taining senior independence and Torque Servo technology. 2000 level. port functions based on motor learn- dementia. Verifi cation tests of health management. The T-HR3 is a partner robot suit- Under its vision for partner robot technology, ing theory, including the ability to adjust the diffi culty level of gait train- Pocobee have been ongoing since Since 2015, Toyota has provided ed for use in ordinary living environ- “freedom of mobility for all, and the joy of self-reli- 2016 at the National Center for this robot to universities and other ments. Able to perform fi ne hand ing to suit the patient and to provide Geriatrics and Gerontology. Going research institutions as a platform in and arm movements, walk like a ance,” Toyota is working to bring to market prod- feedback about the patient’s gait ucts that can facilitate medical care, nursing, and forward, to help users maintain their order to foster a development com- human, and retain its balance using characteristics. health, we will enhance Pocobee’s munity and accelerate development its entire body, the robot is being independent living. From May 2017, we began functions that provide goal-oriented through open innovation. developed to safely work alongside accepting rental orders for the robot encouragement to users to do more The HSR was selected as a stan- humans in a range of scenarios, from medical institutions, aiming to based on their individual abilities. dard platform for the RoboCup@ such as the home and medical insti- rent out 100 units. In September By having caregivers and robots Home competition at RoboCup2017 tutions, in order to provide gentle 2017, we began coordinating with work together, we hope to safely Nagoya Japan, and will be provided support for everyday living. companies that have strengths in the increase the activity of the elderly as the platform robot for the World In the future, we hope to expand medical fi eld to supply the robots to and improve their vital functions Robot Summit 2018 and 2020 its applications to include work at hospitals and other facilities. while helping to alleviate the burden Partner Robot Challenge. disaster sites, construction sites, and on caregivers. even in space.

Commercialization Schedule and Development Status 2018 Around 2020 Target areas

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. Senior Life Support, Medical Support

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. 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

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

developing Toyota’s existing businesses, we must boldly lines. At the same time, the global automotive market customer requirements. Underlying these efforts is There Is Always a Better Way: Revising move forward to transform into a mobility company. is expected to see continued expansion, chiefl y in the Toyota Production System (TPS). The TPS is Our Organizations and Businesses Refl ecting the Toyota Group’s determination to emerging nations and regions, such as Africa. In based on the two concepts of Jidoka (automation take on this era of profound transformation, in 2018 order to bring together the strengths of the whole with a human touch) and Just-in-Time. Jidoka entails To further advance the goals of making ever-better Toyota moved up the timing for changing its execu- Group and effectively use resources in this era of pro- that when a problem occurs, the equipment stops cars and human resource development, Toyota has tive lineup from April to January. To transform the found transformation, we are applying a “home and immediately, preventing the production of defective been revising its organizational framework and exec- roles and awareness of executives, we revised the away” perspective as we rebuild the business struc- products. Just-in-Time means that, in each process, utive lineup. In terms of organizational framework, position of executives within the Company and, from ture of the Toyota Group as a whole. only what is needed, when it is needed, and in the Toyota introduced region-based management in the perspective of putting the right people in the right “Home” refers to operations and regions in which amount needed is produced or transported. The 2011, followed by a business unit system in 2013. To places, appointed people with high levels of exper- we can add value ourselves through Genchi complete elimination of waste, achieved by applying place greater priority on our Customer First policy tise, regardless of time with the company or age. Genbutsu (onsite, hands-on experience) and in which these two pillars, improves productivity, ultimately and facilitate quick judgment, quick decisions and Going forward, all executives and employees will we have competitive advantages over our rivals. reducing costs. quick action based on Genchi Genbutsu (onsite, continue to take on new challenges, acting with the “Away,” meanwhile, refers to operations and regions In this era of profound transformation for the auto- hands-on experience), in April 2016 we established constant awareness that there is always a better way. in which we will work with other companies that have motive industry, we must anticipate customer needs product-based in-house companies, considerably more advantages than we do. to provide more personalized mobility services more changing the orientation of our business structure * Toyota Group (16 companies): A corporate group centered on Toyota Rather than advancing alone, Toyota is bringing directly and in real time. In other words, we must cre- from a focus on functions to a focus on products. In Motor Corporation and the company from which it emerged, Toyota together the full strength of the Group. We aim to identify ate a world in which the services that are needed are September 2017, we established a new company, Industries Corporation. The Group comprises Toyota Industries the strengths that make up each company’s “home” turf provided when needed and as needed. This is pre- EV C.A. Spirit, to advance the development of basic Corporation, Aichi Steel Corporation, JTEKT Corporation, Toyota Auto Body Co., Ltd., Toyota Tsusho Corporation, Aisin Seiki Co., to increase productivity and thereby reinforce the com- cisely the essence of Just-in-Time. structural technologies for electric vehicles via an Ltd., DENSO Corporation, Toyota Boshoku Corporation, Towa Real petitive strength of the Group as a whole. The TPS and its approach to cost reduction are approach that is open to the participation of other Estate Co., Ltd., Toyota Central R&D Labs., Inc., Toyota Motor East Our approach to alliances with partners outside the wellsprings of competitive strength and unique companies. Through these and other measures, we Japan, Inc., Toyoda Gosei Co., Ltd., Hino Motors, Ltd., Daihatsu Group is the same. Rather than seeking equity-based advantages for Toyota. Thoroughly honing these have proactively advanced business innovation. Motor Co., Ltd., Toyota Housing Corporation, and Toyota Motor business scale expansion, we aim to realize a better strengths will be essential to Toyota’s future survival. Toyota has also been working to appoint diverse Kyushu, Inc. mobility society through speedy, open collaboration In January 2018, we established the TPS Group human resources to the right positions in its execu- with partners who share our aspirations. with the aims of redoubling TPS efforts outside of tive lineup. Transcending practices of the past, efforts Speed and Openness, Home and Away manufacturing divisions and enhancing competitive have included appointing our fi rst non-Japanese strength and productivity. In June, we placed our executive vice president in 2015 and fi rst executive Returning to Our Fundamentals to Blaze logistics division within the TPS Group. We are accel- vice president whose career began on the factory With the advance of electrifi cation, automation, con- the Trail Forward erating Company-wide initiatives that position the fl oor in 2017. nectivity, and other technologies, the automotive TPS as the core of corporate management. Today, the global Toyota Group* sells more than 10 industry has now entered a new phase of coopera- Toyota strives to effi ciently and quickly produce vehi- million new vehicles per year. While maintaining and tion and competition that is transcending industry cles of sound quality, one at a time, that fully satisfy Toyota Production System

Jidoka Just-in-Time Major Actions to Strengthen the Toyota Group from 2016 to Present (automation with a Making or transporting Toyota and DENSO reach basic agreement to consolidate their electronic component operations at DENSO human touch) only what is needed, June 2018 Toyota and Toyota Tsusho reach basic agreement to consider the transfer of all Toyota’s sales and marketing operations in Quality must be built in when it is needed, and in African markets to Toyota Tsusho during the manufacturing the amount needed process May 2018 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 Cost reduction through the complete elimination of waste 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 Bringing the Toyota Production System to More details December 2016 Toyota and Daihatsu launch Emerging-market Compact Car Company Development, p. 16 Applying the TPS and Accelerating Business January 2016 Toyota makes Daihatsu a wholly owned subsidiary to strengthen small car operations More details Innovation, p. 37 23 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

Developing People: The True Source of Toyota’s Competitiveness

The heart and spirit of Toyota’s manufacturing is the Kaizen—in other words, Kaizen never ends. they evolve as we transfer our skills and craftsman- Toyota Way, and its method of creating things is the Accordingly, developing human resources who can ship to them. As shown in the example of the callig- Toyota Production System. Unwaveringly applying independently identify issues, think of solutions, and raphy robot, below, before transferring skills to these basic tenets in our global operations, we have continuously work toward improvement is essential. machines or robots, it is essential to fi rst develop made prioritizing quality, reducing costs, and improv- For Toyota, Jidoka means that a machine must them in people. ing productivity our mission as we constantly work to come to a safe stop whenever an abnormality Craftsmanship is achieved by learning the basic mass-produce ever-better cars at lower cost. Toyota’s occurs. Achieving Jidoka therefore requires building principles of manufacturing through manual work, dedication to developing its people makes attaining and improving systems by hand until they are reliable then applying them on the factory fl oor to steadily these goals possible and is the true source of the and safe. First, human engineers meticulously build make improvements. Employees continually hone Company’s competitiveness. To get through this once- each new line component by hand to exacting stan- their craftsmanship while striving to weave the in-a-century period of profound transformation and dards, then, through incremental Kaizen, steadily insights and techniques that doing so provides into continue growing, it is imperative that we continually simplify its operations. Eventually, the value added by machines to create new technologies and manufac- nurture our people, creating strong manufacturing the line’s human operators disappears, such that any turing methods that, in turn, lead to new insights that teams that can handle each diffi culty and change by operator can use the line to produce the same result. improve their skills. This virtuous cycle of improve- taking on challenges with skill and perseverance. Only then is the Jidoka mechanism incorporated into ment in both human skills and technologies is the The Toyota Production System (TPS) is based on actual production lines. Through the repetition of this essence of Toyota’s Jidoka. I think that advancing the concepts of Jidoka (automation with a human process, machinery becomes simpler and less Jidoka in this way helps to reinforce both our manu- touch) and Just-in-Time. Aiming to make only what is expensive and maintenance becomes less time con- facturing competitiveness and human resource needed, when it is needed, and in the amount need- suming and costly, enabling the creation of simple, development. ed and to make ever-better products at lower cost, slim, fl exible lines that are adaptable to fl uctuations in Human wisdom and ingenuity is indispensable to we work to reduce costs through the complete elimi- production volume. delivering ever-better cars to customers. Going for- Mitsuru Kawai nation of waste. At Toyota, we believe that if we’re The work done by hand in this process is the bed- ward, we will maintain our thoroughgoing dedication Executive Vice President not moving forward, we’re moving backward, and rock of engineering skill. Machines and robots do not to constantly developing human resources who can that what comes after Kaizen (improvement) is think for themselves or evolve on their own. Rather, think independently and implement Kaizen.

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

No calligraphy With calligraphy Striving to create new technologies Building Production Lines by Hand experience experience and manufacturing methods • Learning the basic principles of manufacturing • Applying them on-site Virtuous Cycle

Human Skill Technology Accumulation of Kaizen

Craftsmanship Digitization, Robot Craftsman- automation, ship mass- production

Jidoka / Karakuri*

Robot being trained

Simple, slim, ﬂ exible lines Reinforcing manufacturing competitiveness and human resource development * Karakuri refers to mechanisms that do not use electricity or other energy sources 24 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 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 transformation 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, President Toyoda (center) and vice presidents (from left) Tomoyama, Kawai, Leroy, Kobayashi, Terashi, and Yoshida machinery, or other physical assets, but in the people who use them. One of my favorite sayings is from Cost Reduction, the TPS, and Next- Shingen Takeda, a prominent 16th century lord and Maximizing Group Competitiveness general, and literally translates as “people are the generation Investment stone walls.” In other words, just as rocks of various shapes and sizes can together form a strong stone Cost reduction and the Toyota Production System The Toyota Group has grown by building on the foun- wall, developing and effectively deploying human (TPS) are Toyota’s core strengths and traditions, dation laid by Kiichiro Toyoda and constantly pushing resources with diverse values and expertise is essen- handed down from our predecessors. However, I to do better. The strength of the Toyota Group is in its tial to building a strong company. think that the true essence has not fully infi ltrated shared set of basic values. As we prepare to take on Management determines the Company’s strategy Toyota at a more fundamental level. new rivals in as-yet unknown arenas, it is more impor- and explains the hurdles that must be overcome to Examining costs means examining actions. We tant than ever to return to the roots of the Group and bring out the best efforts of employees so that every- carefully scrutinize all costs, from each pencil used by gather our full strength. By having each Group com- one at Toyota will work hard and support one another each individual all the way up to major projects, using pany focus on its particular areas of expertise, we will as a team. Employees hone their respective expertise the full extent of our knowledge and abilities to deter- further enhance our competitiveness. To do this, we and carry out their responsibilities as professionals. mine which parts of our actions are wasteful so that are rebuilding our existing frameworks. I think that the Such daily efforts are the essential elements of we can improve them. When I visit Toyota’s worksites common values shared by the companies of the Koji Kobayashi increasing corporate value and the foundation that and talk with employees, I do my utmost to encour- Group are what will enable the success of the “home Executive Vice President, supports Toyota. age them each to develop an awareness of costs and away” strategy espoused by President Toyoda. Member of the Board of Directors and a concrete view of the value appropriation for To achieve this strategy, we will reduce consolidated specifi c things and actions. By implementing such fi xed costs, streamline development and investment, activities globally, we are securing the funds to sus- reinforce cost competitiveness, and advance human tainably invest in electrifi cation, automation, connec- resource development to achieve greater results from tivity, and other next-generation technologies and to the efforts of the Group’s employees and thereby accelerate investment in partner companies and increase the corporate value of the Group as a whole. start-ups. Going forward, I will be sure to report the yearly progress and results of such initiatives to our investors 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

Capital Policy

Financial Strategy 2. Growth: Aggressive Forward-looking Investment development in existing fi elds, making equipment diversifying our funding base to ensure that we can The auto industry is on the verge of a once-in-a-cen- more compact, shortening processes, and facilitating respond on all fronts to new challenges and opportuni- tury turning point. We believe that technological inno- faster response to changes in production quantities. ties in this time of profound transformation in mobility. Three Pillars vation in such areas as connected technologies, Furthermore, in addition to sustainably increasing ROE automated driving, sharing, and electrifi cation will be by repurchasing shares, we are strengthening invest- Shareholder Return key to the mobility of the future. Every year, we spend ment management by regularly evaluating the rationality We prioritize shareholder return as part of our capital The three pillars of Toyota’s fi nancial strategy are sta- more than 1 trillion yen on R&D. By enhancing effi - of our strategic shareholdings in terms of the needs of policy. In principle, shareholder return is determined bility, growth, and effi ciency. By maintaining adequate ciency in existing areas, we are strategically increas- our business strategies and economic utility. In these on the basis of net income. stability while pursuing growth and effi ciency over the ing the portion of R&D spending allotted to ways, we are striving to enhance capital effi ciency. We strive to maintain stable and sustainable divi- medium and long terms, we aim to build a robust cutting-edge fi elds like the above. dend payments based on a benchmark consolidated fi nancial foundation to support sustainable growth. Furthermore, we are investing in new initiatives. dividend payout ratio of 30% while considering such Examples of such investment include the establishment Diversifying Our Funding Base factors as our fi nancial results, investment plans, and 1. Stability: Securing Liquidity of TRI-AD, which is funded by Toyota, DENSO and Aisin; liquidity. For the fi scal year ended March 31, 2018, Having experienced fi nancial crises and the Great investment in start-ups through the Mirai Creation Fund we paid an annual dividend of 220 yen per share. East Japan Earthquake, in order to ensure business and Toyota AI Ventures; and investment in such busi- To diversify our means of funding, in 2015 Toyota We fl exibly consider the repurchase of shares in continuity in any business environment, we maintain ness partners as Grab, ALBERT, and Uber. issued approximately 500 billion yen in Model AA light of long-term capital effi ciency and changes in a suffi cient level of liquidity to cover half a year of class shares to raise funds for long-term R&D activi- our business environment. For the fi scal year ended both fi xed costs in the automotive business and refi - 3. Effi ciency: Enhancing Capital Effi ciency ties and build a base of medium- and long-term March 31, 2018, we paid out 549.9 billion yen for the nancing requirements in the fi nancial services business. Using cost reduction and the thorough application of shareholders. The funds raised are being invested in repurchase of shares, resulting in a total of 74 million Ample liquidity is essential to maintaining a full line-up the TPS, we are reinforcing the profi t structure and R&D related to advanced and cutting-edge technolo- shares acquired. Combined with dividends, this in each region and retaining the ability to respond to all securing funds to invest in advanced and cutting- gies, such as fuel cells, infrastructure, information brought the total annual shareholder return to 1.2 tril- options and opportunities in this era of profound trans- edge technologies. technology, and highly intelligent mobility. lion yen, for a consolidated payout ratio of 48.1%. formation in mobility. As such, it is a vital part of the foun- In capital expenditure other than R&D expenses, as In 2018, we issued 2 billion U.S. dollars in international Going forward, we will strive to further improve net dation supporting the creation of corporate value. well, we are carefully assigning priority to individual straight bonds, our fi rst ever such offer overseas. The income and ensure ongoing shareholder return projects and tracking their progress while advancing proceeds are being used as operating capital and for through dividends and share repurchases. measures to improve productivity, such as streamlining capital expenditure. Through such measures, we are

Dividend per Share and Net Income Total Shareholder Return and Total Return Ratio Interim dividend Year-end dividend Net income (right axis) Total amount of dividends (common shares) Total amount of dividends (First Series Model AA Class Shares) Share repurchase for shareholder returns Share repurchase to avoid dilution of common shares (Yen) (Billions of yen) (Billions of yen) 250 2,500 1,600 210 200 220 1,400 Repurchase in connection with 349.9 200 210 165 2,000 the issuance of First1,800 Series Repurchase in connection with 1,200 Model AA Class Shares the disposition of shares to 150 110 110 120 1,500 1,000 Toyota Mobility Foundation 125 639.3 549.9 100 100 90 100 1,000 800 449.9 180.0 293.3 35 600 50 50 50 500 180.0 2.4 4.9 7.4 1,200.1 45 60 100 100 100 25 75 400 65 30 30 65 0 20 20 30 0 631.3 645.5 642.6 200 522.9 627.5 20 -500 0 (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 ’15/3 ’16/3 ’17/3 ’18/3 Total amount of payment Total shareholder 313.5 141.1 156.8 157.7 285.0 522.9 631.3 645.5 627.5 642.6 702.9 924.6 1,287.2 1,082.4 1,200.1 (billions of yen) return*1 (billions of yen) Payout ratio* — 67.4% 38.4% 55.6% 29.6% 28.7% 29.0% 28.3% 34.6% 26.1% Total return ratio*1, 2 38.5% 42.5% 55.6% 59.1% 48.1% * Payout ratio: This is the ratio of (i) the amount of dividend per common share to (ii) net income attributable to Toyota Motor Corporation per common share. *1 Excluding repurchase made to avoid dilution of common shares. *2 Total Return Ratio: This is the ratio of (i) the sum of dividends on both common shares and the First Series Model AA Class Shares and the amount of repurchase of common shares for shareholder return to (ii) net income attributable to Toyota Motor Corporation. 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, Even as the business environment transforms and new challenges arise, Toyota will leverage the qualities, enriching lives of communities, being rewarded with the smiles of customers and communities and thus rein- honed over time, that make it unique as it shifts to a longer term strategic perspective in order to maintain and forcing its stable base of business. Through this cycle, Toyota aims to grow sustainably in concert with society. 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 The Value Toyota Creates Environment Changes Strategic Shifts Elimination of Freedom of traffic accident mobilitym for everyone casualtiess Individual desires/ Electriﬁ cation Safety and Societal demands Peace of Mind Lifestyle changes

Toyota Safety Sense Environmental (Collision Avoidance Integrated Safety problems Support Package) Management Concept Fruit Fruit Enriching Welcab Ever-Better Raising awareness of road safety and ecological driving Urbanization Cars Lives of Communities Information Personal mobility (Connectivity) Automated driving Mobility Service Platform (MSPF) ITS Connect Trunk (road/car and car/car Ever-Better Cars communications) Human Support Enriching Lives of Robot Stable Base Communities Supporting sports of Business Environmental initiatives Technological Environmental Waku-doki innovation Passing down Toyota Production (excitement and exhilaration Sustainability expertise System (TPS) that wows you)

Intelligent Vehicle development technologies Zero COC 2 emissiions Roots Toyota Values Intelligence (Automated driving, AI) Recycling The Five Main Principles of Toyoda Renewable MIRAI (FCEV) Prius PHV Lexus Briningingg IoT The Guiding Principles at Toyota energy thehe exccitement The Toyota Way Net popositiveve ofo carsrs to societyy the wworld in harmonony Working toward a hydrogen society Robotics with naturere Motor sports FC buses NewNe wononder and exhilararation

27 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

(SDGs), promulgated in January 2016. In particular, stakeholders through open, fair communication in issues, particularly environmental (E), social (S), and Toyota’s Approach to Sustainable Toyota is using its strengths to help to solve global order to contribute to the sustainable development of governance (G) issues. Growth social issues by reducing traffi c casualties (contribut- society and the planet. As our businesses develop, To respond to these changes, Toyota established ing to SDG 3), building sustainable cities and commu- our communications with stakeholders also broaden the Sustainability Meeting in 2018. Chaired by the In cooperation with global society, Toyota is working nities and improving mobility (SDG 11), and taking and deepen. By working always hand-in-hand with chief risk offi cer, the meeting’s members include to contribute to the sustainable development of soci- action to address climate change (SDG 13). stakeholders and growing together, Toyota consis- Outside Directors and Outside Audit & Supervisory ety and the planet through its business activities. At Toyota regards addressing environmental issues as tently provides its three forms of value. Board Members. The meeting discusses non- the root of these efforts are the Five Main Principles of an especially key aspect of sustainability. To help fi nancial considerations from a range of angles and WEB Stakeholder Engagement (Sustainability Data Book 2018, Toyoda, passed down as the core of Toyota’s corpo- achieve the Paris Agreement goal of keeping global p. 73) examines the overall direction of management. rate management, and the Guiding Principles, which warming below 2°C, we are promoting initiatives Under the Sustainability Meeting, we have also set lay out how Toyota should be as a company. Based under the Toyota Environmental Challenge 2050. In Toyota’s Implementation Framework up an ESG Committee, in which the operating offi - on our experiences with the 2008 global fi nancial cri- 2018, we established medium-term goals under the As the automotive industry faces a once-in-a-century cers in charge lead discussions aimed at promptly sis and the series of recalls in 2010, in 2011 we Challenge and are ambitiously working to effect posi- period of profound transformation, quicker decision solving specifi c issues. announced the Toyota Global Vision, which lays out tive change for the environment. making and greater operational effi ciency than ever what the Company should strive for going forward. Furthermore, Toyota places value on all stakehold- before are essential. At the same time, stakeholder This approach and these values align with the aims ers in the management of its businesses and strives expectations are rising with regard to non-fi nancial of the United Nations Sustainable Development Goals to maintain and develop sound relationships with

Helping Solve Global Social Problems Together with Our Stakeholders Implementation Framework Local communities Global society Media National and local governments Shareholders’ Meeting

NPOs/NGOs Economic organizations International organizations Industry Board of Directors Waku-doki organizations Environmental (excitement and Academic Sustainability exhilaration that communities Safety and Peace of Mind wows you) Employees Research Sustainability Meeting institutions Chairman: Chief Risk Ofﬁ cer (Executive Vice Business Shareholders President) partners Customers Attendees: Outside Directors, full-time and Outside Audit & Supervisory Board Members, Selected Initiatives Aimed at Contributing to the SDGs relevant ofﬁ cers

Reducing trafﬁ c Active safety using Toyota Safety Sense casualties • The number of vehicles with Toyota Safety Sense has surpassed Disclosure ESG Committee (SDG 3) 8 million globally (as of April 2018) Committee

Improved mobility Realizing a prosperous mobility society while eliminating dispari- • Environmental, and sustainable ties in mobility through the Toyota Mobility Fund. • Disclosure control social, and gover- urban development • Example: Project to promote the shift to multiple transportation systems nance issues (SDG 11) modes in Vietnam • Risk management

Toyota Environment Challenge 2050: New Vehicle Zero CO2 Addressing Emissions Challenge climate change (SDG 13) • 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)

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

world should embrace. The Toyota Way thus clearly Rewarded with a Smile by Exceeding aim to continuously provide value to society in the The Guiding Principles at Toyota and articulates and facilitates the global sharing of values Your Expectations. forms of safety and peace of mind, environmental Their Implementation and practices that had previously been passed down The Toyota Global Vision sustainability and Waku-doki (excitement and exhila- only as implicit knowledge. ration that wows you) while enhancing Toyota’s cor- The Five Main Principles of Toyoda have been The Toyota Way’s main pillars are the concepts of The Toyota Global Vision, published in March 2011, porate value. passed down since Toyota’s founding as the core of continuous improvement and respect for people, with was created through exhaustive, Company-wide its management. These principles embody the think- the keywords of taking on challenges, Kaizen, and reexamination and discussion of the kind of company ing of the Toyota Group’s founder, Sakichi Toyoda. In Genchi Genbutsu (onsite, hands-on experience) that Toyota aspires to be and the values that it 1992, they were reorganized in light of changes in under the former and respect and teamwork under esteems in light of the Company’s losses following society and business structure to create the Guiding the latter. Continuous improvement means never the global economic crisis of 2008 and the series of Principles at Toyota. being satisﬁ ed with the status quo and always doing recalls in 2010. We are implementing a positive cycle The Guiding Principles at Toyota lay out the kind of our utmost to create even greater added value. of making ever-better cars that exceed customer company we want to be. Building on this, the Toyota Respect for people entails respect for all our stake- expectations, enriching lives of communities, being Way 2001 (hereinafter called the “Toyota Way”) was holders and working to achieve business success by rewarded with the smiles of customers and commu- established in 2001, laying out values and business promoting the growth of employees. nities and thus reinforcing our stable base of busi- WEB Corporate Principles practices that everyone working at Toyota around the ness. By maintaining and enhancing this cycle, we (Sustainability Data Book 2018, p. 5)

The Two Pillars and Five Keywords of the Toyota Way Toyota Global Vision

Enriching Lives of Rewarded with a smile Ever-Better Cars Communities Fruit Develop vehicles which Fruit Contribute to communities by exceeding your expectations exceed customer expectations Continuous Contribute to the future of mobility Improvement Toyota will lead the way to the future of mobility, Respect for People enriching lives around the world with the safest and most responsible ways of moving people. Sustainable Growth Challenge Through our commitment to quality, We form a long-term vision, meeting challenges with courage and constant innovation and respect for the planet, creativity to realize our dreams. we aim to exceed expectations Respect Stable Base of Kaizen Trunk Business We respect others, make every effort We improve our business operations and be rewarded with a smile. to understand each other, take continuously, always driving for Roots Toyota Values responsibility and do our best to innovation and evolution. We will meet challenging goals build mutual trust. The Five Main Principles of Toyoda / Genchi Genbutsu by engaging the talent and passion of people, The Guiding Principles at Toyota / Teamwork The Toyota Way We practice genchi genbutsu... go We stimulate personal and profes- to the source to ﬁ nd the facts to who believe there is always a better way. WEB Toyota Global Vision sional growth, share the opportuni- make correct decisions, build con- ties of development and maximize sensus and achieve goals at our individual and team performance. best speed. 29 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’s Corporate Governance (Emphasizing Frontline Operations + Multidirectional Monitoring) Fundamental Approach 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. Toyota regards sustainable growth and the stable, long-term enhancement of corporate value as essen- Shareholders’ Meeting tial management priorities. Building positive relation- Appointment ships with all stakeholders (including shareholders, Appointment customers, business partners, local communities, and employees) and consistently providing products that satisfy customers are key to addressing these Board of Directors Executive Appointment Meeting/ Audit & Supervisory Board (including outside directors) priorities. To this end, Toyota constantly seeks to (More than half of the Members are outside Suggestion Executive Compensation Meeting enhance corporate governance. Moreover, the Audit & Supervisory Board Members) Audit Decision making and management oversight Company complies with the general principles of the Corporate Governance Code promulgated in June Submission/Report Supervise 2015. The specifi cs of these efforts are discussed by Operating Offi cers External Accounting Auditor the Sustainability Meeting and reported to the Board Operational Execution of Directors. International Advisory Board Audit for consolidated fi nancial Business Units Advice statements and internal control Audit Head Offi ce over fi nancial reporting In-house companies Labor-Management Council/ Business Execution and Supervision Dialogue Joint Labor-Management Round Table Conference Supervise

Sustainability Meeting With the aim of achieving the Toyota Global Vision, Audit Toyota has been implementing ongoing revisions in Governance and risk management its operational framework in order to quickly respond Submission/Report Submission/Report to the rapid, unprecedented changes occurring in the Disclosure Committee Internal Auditing Department external environment. Toyota introduced region- Disclosure control systems Internal control systems based management in 2011, followed by the business 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 framework able to make decisions at points closer to governance structure under which such initiatives are Initiatives to Reinforce Corporate Governance delineated the roles of the Members of the Board of customers and front-line workplaces. carried out. Reduced the number of directors (from 58 to 27) Directors as decision making and oversight, and the The operating offi cers—mainly the president and Toyota has also established an International 2003 Established the position of managing offi cer (equivalent to operating offi cer) role of operating offi cers as business execution. executive vice presidents, to whom authority is dele- Advisory Board, comprising experts from around the Reduced the number of directors (from 27 to 11) 2011 In 2018, to accelerate business execution in con- gated by the Board of Directors—work closely with world. The board provides advice on management Established the position of senior managing offi cer cert with other personnel and organizational changes, the business units (the in-house companies and issues from a global perspective as needed. Toyota 2013 Appointed outside directors we moved up the timing for changing the operating Business Planning & Operation Unit) to realize prompt also deliberates on and monitors management and Appointed a non-Japanese executive vice president offi cer lineup from April to January, revised the struc- decision making and move forward with initiatives corporate conduct from the diverse stakeholder per- 2015 Implemented measures to comply with the Corporate ture of our corporate management-related divisions, toward sustainable growth and the medium- to long- spectives provided by a wide variety of meetings, Governance Code 2016 Adopted the in-house company system and reorganized the Japan Sales Business Group, term improvement of corporate value. As part of the such as the Labor-Management Council/Joint Labor- 2017 Clarifi ed the roles of the directors and operating offi cers shifting from a focus on channels to a focus on management oversight of operations, the Management Round Table Conference. 2018 Established the Sustainability Meeting regions. These efforts have yielded a business Sustainability Meeting deliberates the corporate 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

(including three outside members) play a key role in scope determined by resolution of the Shareholders’ Fundamental Approach to and Board of Directors Toyota’s corporate governance by undertaking audits Meeting and decided by the Board of Directors with in line with the audit policies and plans established by reference to proposals submitted by the Executive Maintenance of Internal Control Systems said board. Toyota’s appointments to the Audit & Compensation Meeting, half the members of which Toyota’s Board of Directors comprises nine members, Supervisory Board are based on the belief that candi- are Outside Members of the Board of Directors. Basic Stance on System for Ensuring Appropriate three of whom are outside members. The Members dates must offer broad-ranging experience and Remuneration for Audit & Supervisory Board Business Operations of the Board of Directors are selected based on com- insight, particularly in their respective fi elds of exper- Members consists only of fi xed basic payments and Toyota and its subsidiaries work to foster a sound prehensive consideration of suitability with the aim of tise, and be able to audit business execution and does not include bonuses. As a result, this remunera- corporate culture based on the Guiding Principles at ensuring prompt, appropriate decision making and advise management from a fair and neutral stand- tion is not readily impacted by business performance, Toyota and the Toyota Code of Conduct. Toyota inte- appointing the right person to the right position. point. Toyota’s Executive Appointment Meeting, half helping to ensure independence from management. grates the principles of problem identifi cation and Toyota believes that it is crucial to appoint individuals the members of which are Outside Members of the Remuneration for Audit & Supervisory Board Kaizen into its operational processes and continuous- who comprehend and are capable of putting into Board of Directors, makes recommendations to the Members is determined by the Audit & Supervisory ly strives to develop employees who will put these practice its core concepts of making ever-better cars Audit & Supervisory Board regarding such appoint- Board within the scope determined by resolution of principles into practice. and Genchi Genbutsu (onsite, hands-on experience). ments. Three individuals, all of whom are registered the Shareholders’ Meeting. Moreover, these individuals must be able to contrib- as independent offi cers with the relevant fi nancial System to Ensure Appropriate Operations ute to decision making aimed at sustainable growth instruments exchanges, have been appointed as Toyota endeavors to maintain and properly operate a Analysis and Evaluation of the into the future. Toyota’s Executive Appointment Outside Audit & Supervisory Board Members. When system for ensuring the appropriateness of business Meeting, half the members of which are Outside selecting Outside Audit & Supervisory Board Effectiveness of the Board of Directors operations as a corporate group in accordance with Members of the Board of Directors, makes recom- Members, Toyota considers candidates in line with its Basic Policies on Establishing Internal Controls. mendations to the Board of Directors regarding such the requirements set forth in the Companies Act as Based on instruction given by the Chairman of the Each fi scal year, Toyota inspects the maintenance appointments. In order to ensure that outside per- well as the standards of independence established by Board of Directors, the Secretariat of the Board of and implementation of internal controls to confi rm spectives are adequately refl ected in management the relevant fi nancial instruments exchanges. Directors conducts quantitative analyses of the exe- that the organizational units responsible for imple- decision making, the Company has three Outside cution of the Board of Directors’ duties, followed by a menting internal controls are functioning autono- Members of the Board of Directors, all of whom are Remuneration of Members of the Board survey of the members of the Board of Directors and mously and enhancing said controls as necessary. registered as independent offi cers with the relevant of Directors and Audit & Supervisory Audit & Supervisory Board on the execution of such The fi ndings of these inspections are reviewed by the fi nancial instruments exchanges. When selecting Board Members duties and its oversight. Furthermore, based on the Sustainability Meeting and Board of Directors. Outside Directors who will serve as independent offi - results of this survey, the secretariat conducts individ- cers, Toyota considers candidates in line with the Basic remuneration and bonuses for Members of the ual interviews with the members of the Board of Corporate Structure (as of June 14, 2018) requirements set forth in the Companies Act and the Board of Directors are effectively linked to corporate Directors, including its outside members and the Institutional design Company with an Audit & Supervisory Board standards of independence established by the rele- performance while refl ecting individual job responsi- Outside Members of the Audit & Supervisory Board. Directors vant fi nancial instruments exchanges. Toyota’s bilities and performance. Remuneration standards in The Secretariat of the Board of Directors compiles 9 (3) (Outside directors) Outside Members of the Board of Directors draw on each member’s home country are also taken into the results of these efforts and presents them to the their broad experience and insight, including their account when determining remuneration amounts Chairman of the Board of Directors, after which they Audit & Supervisory Board and methods. Bonuses are paid based on the rele- are reported to and discussed by the Board of Members 6 (3) respective fi elds of expertise, to inform decision mak- (Outside members) ing from a perspective that is independent of busi- vant fi scal year’s consolidated operating income, Directors. In fi scal 2018, these evaluations found that Term of offi ce for directors 1 year ness execution. comprehensively taking into account dividends, the the Board was effective. The insights gleaned from Executive Appointment Meeting levels of bonuses for employees, trends at other these evaluations regarding accelerating decision Voluntary committees Executive Compensation Meeting companies, medium- to long-term business perfor- making and business execution oversight are being Public accounting fi rm PricewaterhouseCoopers Aarata LLC Audit & Supervisory Board mance and past remuneration. Because the role of used in fi scal 2019 to further improve effectiveness. Outside Members of the Board of Directors includes monitoring and supervising management from an WEB Corporate Governance Report Toyota has adopted an Audit & Supervisory Board independent standpoint, they are not paid bonuses. system. The six Audit & Supervisory Board Members Director remuneration and bonuses are limited to the 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 MMessagesessages fromfrom thethe OutsideOutside DirectorsDirectors 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 MessagesMessages ffromrom tthehe OOutsideutside DDirectorsirectors

Remaining Irreplaceable by Leading the Way The Five Keywords of the Toyota Way Are the The Boldness, Steadfastness, and Courage to the Mobility Society of the Future Core of Future Success 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 At the Ordinary General Shareholders’ Meeting I experienced the Over the past century, global competition has whittled down the an outside director at such a time is a tremendous responsibility, but indomitable spirit of Toyota both from the shareholders and also from number of companies in the auto industry to just a few major players. the chance to push forward as part of the Toyota team is also very the senior executives. In just the past few years, however, a number of companies from rewarding. What attracted me to work with Toyota? It is this human spirit, this other fi elds have entered the industry in quick succession. This is I feel a strong affi nity with Toyota’s approach of maintaining its passion and the basic principles which underpin TMC and are so because the scope of the industry is rapidly expanding, refl ecting a monozukuri (manufacturing) core while incorporating technological fundamental to its future success. change in the very defi nition of an automobile—from a means of innovations and continuously evolving as well as its aspiration as a From my experience, if you choose to ignore the basic principles upon transport with an engine and four wheels to a mobile space providing mobility company to create a world where everyone can move about which you are founded, you will be in trouble sooner rather than later. comfort and serving as an information hub. freely and enjoyably. These principles are laid out in the fi ve keywords of the Toyota Way. To survive the next century, Toyota will need the boldness to let go As an outside director, I will represent the perspectives of Toyota’s The spirit of Challenge leading to the creation of opportunities and of its past successes and move forward, the steadfastness to safe- broad range of stakeholders, including shareholders, users, and soci- Kaizen, continual improvement, are crucial in the 21st century. guard the sources of its true strength, and the courage to leap into ety at large. By doing so, I will strive to help ensure that Toyota will Genchi Genbutsu—get to the root cause, the source—then we can new, unfamiliar fi elds, like mobility as a service (MaaS). Bringing to continue to play a major part in sustainable global development and move forward together. Respect is not a given right but has to be bear my experience in government and an unfettered perspective, I provide irreplaceable value to society over the next 100 years. earned by everyone. And,Teamwork—always giving to the team and will do my utmost to contribute to the creation of such a new Toyota. the team then gives back to you! It is great to be on board!

32 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

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 Apr. 1972 Joined TMC Apr. 1981 Joined Ministry of International Trade and Industry Jun. 1998 Member of the Board of Directors of TMC Jun. 2004 Executive Director of DENSO Corporation Jul. 2010 Director-General of the Industrial Science and Technology Policy Jun. 2001 Managing Director of TMC Jun. 2007 Senior Executive Director, Member of the Board of Directors of and Environment Bureau, Ministry of Economy, Trade and Industry Jun. 2003 Senior Managing Director of TMC DENSO Corporation Sep. 2012 Director-General of the Manufacturing Industries Bureau, Ministry Jun. 2005 Executive Vice President of TMC Jun. 2010 Executive Vice President of DENSO Corporation of Economy, Trade and Industry Jun. 2012 Vice Chairman of TMC Jun. 2015 Vice Chairman of DENSO Corporation Jun. 2013 Director-General of the Economic and Industrial Policy Bureau, Jun. 2013 Chairman of TMC (to present) Feb. 2016 Advisor of TMC Ministry of Economy, Trade and Industry Apr. 2017 Senior Advisor of TMC Jul. 2015 Vice-Minister of Ministry of Economy, Trade and Industry Jan. 2018 Executive Vice President of TMC (to present) Jul. 2017 Retired from the Ministry of Economy, Trade and Industry Jan. 2018 Member of the Board of Directors of DENSO Corporation Aug. 2017 Special Advisor to the Cabinet (to present) Takeshi Uchiyamada Koji Kobayashi Jun. 2018 Retired as Member of the Board of Directors of Ikuro Sugawara Jun. 2018 Outside Member of the Board of Directors of TMC (to present) [Position and areas of [Position and areas of DENSO Corporation Outside and responsibility] responsibility] Jun. 2018 Member of the Board of Directors and Executive Vice President Independent Director Frontier Research Center Chief Financial Ofﬁ cer of TMC (to present) (Chairman) Chief Risk Ofﬁ cer

Vice Chairman of the Board of Directors Member of the Board of Directors

Apr. 1977 Joined Toyota Motor Sales Co., Ltd. Sep. 1982 Joined Renault S.A. Oct. 1998 President of the International Wheelchair Basketball Federation Jun. 2007 Managing Offi cer of TMC Aug. 1998 Retired from Renault S.A. Dec. 2001 President of the International Paralympic Committee Sep. 2007 President of Toyota Motor North America, Inc. Sep. 1998 Joined Toyota Motor Manufacturing France S.A.S. Jul. 2002 Retired as President of the International Wheelchair Basketball Jun. 2009 Retired as President of Toyota Motor North America, Inc. Sep. 1998 Vice President of Toyota Motor Manufacturing France S.A.S. Federation Apr. 2012 Senior Managing Offi cer of TMC Jan. 2005 President of Toyota Motor Manufacturing France S.A.S. Sep. 2017 Retired as President of the International Paralympic Committee Jun. 2015 Member of the Board of Directors and Senior Managing Offi cer Jun. 2007 Managing Offi cer of TMC Jun. 2018 Outside Member of the Board of Directors of TMC (to present) of TMC Jul. 2007 Executive Vice President of Toyota Motor Europe NV/SA Apr. 2017 Vice Chairman of TMC (to present) 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. Shigeru Hayakawa Didier Leroy Apr. 2011 President and CEO of Toyota Motor Europe NV/SA Sir Philip Craven [Position and areas of Apr. 2012 Senior Managing Offi cer of TMC Outside and responsibility] Apr. 2015 Chairman of Toyota Motor Europe NV/SA (to present) Independent Director Business Planning & Jun. 2015 Member of the Board of Directors and Executive Vice President Operation (President) Chief Competitive Offi cer of TMC Jun. 2017 Member of the Board of Directors and Executive Vice President of TMC (to present) President, Member of the Board of Directors

Apr. 1984 Joined TMC Apr. 1980 Joined TMC Apr. 1987 Joined Sumitomo Bank Jun. 2000 Member of the Board of Directors of TMC Jun. 2008 Managing Offi cer of TMC Apr. 2014 Executive Offi cer of Sumitomo Mitsui Banking Corporation Jun. 2002 Managing Director of TMC Jun. 2008 Executive Vice President of Toyota Motor Engineering & Apr. 2017 Managing Executive Offi cer of Sumitomo Mitsui Banking Jun. 2003 Senior Managing Director of TMC Manufacturing North America, Inc. Corporation (to present) Jun. 2005 Executive Vice President of TMC May 2011 President and COO of Toyota Motor Engineering & Manufacturing Jun. 2018 Outside Member of the Board of Directors of TMC (to present) Jun. 2009 President 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 & Akio Toyoda Shigeki Terashi Manufacturing North America, Inc. Teiko Kudo Apr. 2013 Retired as President and COO of Toyota Motor North America, Inc. [Position and areas of Outside and responsibility] Apr. 2013 Senior Managing Offi cer of TMC Independent Director Advanced R&D and Jun. 2013 Member of the Board of Directors and Senior Managing Offi cer Engineering Company of TMC (President) Jun. 2015 Executive Vice President of TMC Powertrain Company (Chairman) Jun. 2017 Member of the Board of Directors and Executive Vice President of Chief Safety Technology TMC (to present) Offi cer 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

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 Apr. 1970 Joined the Fuji Bank, Limited Jun. 2007 President of Toyota Motor Corporation Australia Ltd. Dec. 1973 Retired from the Fuji Bank, Limited May 2014 Chairman of Toyota Motor Corporation Australia Ltd. Apr. 1977 Assistant Lecturer of Faculty of Business and Commerce of Dec. 2017 Retired as Chairman of Toyota Motor Corporation Australia Ltd. Keio University Jun. 2018 Audit & Supervisory Board Member of TMC (to present) 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 Jul. 2012 Prosecutor-General Jan. 2009 President of Toyota Motor (China) Investment Co., Ltd. Jul. 2014 Retired from Prosecutor-General Jun. 2009 Managing Ofﬁ cer of TMC Sep. 2014 Registered as Attorney Apr. 2011 Retired as President of Toyota Motor (China) Investment Co., Ltd. Jun. 2015 Outside Audit & Supervisory Board Member of TMC (to present) Jun. 2011 Audit & Supervisory Board Member of TMC (to present)

Masahiro Kato Hiroshi Ozu Outside and Independent Member

Apr. 1983 Joined TMC Apr. 1974 Joined Mitsubishi Bank Jun. 2015 Audit & Supervisory Board Member of TMC (to present) 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. Yoshiyuki Kagawa Nobuyuki Hirano Apr. 2013 President & CEO of Mitsubishi UFJ Financial Group, Inc. Outside and Jun. 2015 Director, President & Group CEO of Mitsubishi UFJ Independent Member 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

Toyota Environmental Challenge 2050 Achieving the Toyota Environmental Challenge 2050: The 2030 Milestone Toyota has long carried out a wide range of initiatives aimed at addressing a host of mounting environmental In December 2017, Toyota announced a new medium- to long-term initiative centered on the development and problems, including extreme weather phenomena attributable to greenhouse gases, biodiversity loss due to rollout of electrifi ed vehicles to help realize the targets of the Toyota Environmental Challenge 2050. This initiative development, and water shortages due to population growth. Toyota announced the Toyota Environmental will focus on popularizing electrifi ed vehicles in the decade from 2020 to 2030. The 2030 Milestone indicates Challenge 2050 in October 2015. In addition to continuing efforts to reduce the environmental burden attribut- the progress we aim to have made as of 2030 toward the six challenges of the Toyota Environmental Challenge able to automobiles to zero, we have set ourselves six challenges aimed at helping to build a sustainable world 2050. We are advancing these initiatives in concert with the Toyota Environmental Action Plan, which lays out through initiatives that will positively impact the earth and society. 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 Toyota Environmental Challenge 2050 the Toyota Environmental Challenge 2050 Challenge 2

Life Cycle Zero CO2 Emissions Challenge Toyota Environmental Challenge 2050 Toyota Environmental Challenge 2050

Challenge 1 Completely eliminate all CO2 emissions from the entire vehicle life cycle Challenge 3

New Vehicle Zero CO2 Emissions Challenge 2030 Milestone Plant Zero CO2 Emissions Challenge

Reduce global average CO2 emissions during operation from Achieve zero CO2 emissions at all plants worldwide by 2050 new vehicles by 90% from Toyota’s 2010 global level • Reduce CO2 emissions by 25% or more over the entire vehicle life cycle compared

2030 Milestone to 2013 levels by promoting activities for the milestones of Challenges 1 and 3 and initiatives 2030 Milestone with support from stakeholders, such as suppliers, energy providers, infrastructure developers, • Record annual global sales of more than million electriﬁ ed vehicles, governments, and customers 5.5 • Reduce CO2 emissions from global plants by 35% compared to 2013 levels including more than 1 million zero-emission vehicles (BEVs and FCEVs) 2050 Reduce global average CO2 emissions from new vehicles (g-CO2/km)

35% or more from 2010 levels (note that this is an estimate and results may vary depending on market conditions)

Toyota Environmental Challenge 2050 2030 Toyota Environmental Challenge 2050 Challenge 4 MILESTONE Challenge 6 Challenge of Minimizing and Optimizing Water Usage Challenge of Establishing a Future Society in Minimize water usage and implement water discharge management Harmony with Nature based on individual local situations Toyota Environmental Challenge 2050 Connect nature conservation activities beyond the Toyota Group and 2030 Milestone Challenge 5 its business partners among communities, with the world, to the future • Implement measures, on a priority basis, in the regions where the water environment is consid- Challenge of Establishing a Recycling-based Society 2030 Milestone ered to have a large impact and Systems

Promote global deployment of end-of-life vehicle treatment Water quantity: Complete measures at the challenge-focused plants • Realize “Plants in Harmony with Nature”— in Japan and overseas— 4 and recycling technologies and systems developed in Japan 12 7 in North America, Asia, and South Africa as well as implement activities to harmonize with nature in all regions where Toyota operates in 2030 Milestones collaboration with local communities and companies Water quality: Complete impact assessments and countermeasures at all of the 22 • Contribute to biodiversity conservation activities in collaboration with NGOs and others • Complete establishment of battery collection and recycling systems globally • Expand initiatives both in-house and outside to foster environmentally plants where used water is discharged directly into rivers in North America, Asia, and Europe • Complete set up of 30 model facilities for appropriate treatment and recycling of conscious persons responsible for the future • Disclose information appropriately and communicate actively with end-of-life vehicles local communities and suppliers 35 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

Key Fiscal 2018 Initiatives under Toyota Environmental Challenge 2050

Challenge of Minimizing and Optimizing Challenge of Establishing a Future Society in New Vehicle Zero CO2 Emissions Challenge Water Usage Harmony with Nature

20th Anniversary of the Prius’s Launch The Toyota Water Environment Policy—Helping Achieve Five-year Partnership with IUCN to Enhance Data Since its launch in 1997 as the world’s fi rst mass-produced hybrid pas- Our Aquatic Environment Challenge Globally on Global Threats to Biodiversity senger vehicle, the Prius has continued to blaze the trail forward. 2017 While the specifi c issues and ways of addressing them vary by region, Toyota began a fi ve-year partnership with the marked the 20th anniversary of the Prius’s launch. The name “Prius,” Toyota has created the Toyota Water Environment Policy to help it accom- International Union for Conservation of Nature (IUCN)1 derived from the Latin for “to go before,” was chosen to embody the plish the challenge it has set itself with regard to the aquatic environment. in May 2016 to raise awareness of the present biodi- idea of a vehicle that will help shape the future of the Earth. The Prius The Toyota Water Environment Policy promotes activities aimed at eval- versity crisis. Under the partnership, we are providing has gained the support of millions of customers with whom this idea res- uating and minimizing Toyota’s impact on the natural aquatic environment annual grants of approximately US$1.2 million to sup- onates. Based on the concept that eco-friendly vehicles can best con- in terms of both input, by rigorously reducing the amount of water it uses, port the broadening of the IUCN Red List of tribute to society if they are in widespread use, through the Prius and the and output, by rigorously cleaning water it has used. We take action on Threatened Species™.2 With this support, the IUCN will conduct extinc- other electrifi ed vehicles that have inherited its environmental technolo- three fronts—the pursuit of environmental technologies, community-root- tion risk assessments for more than 28,000 species, approximately 35% gies, we will strive to contribute to the global environment alongside the ed operations, and cooperation with society—and strive to be the best of all species requiring such assessment. This represents a major step customers who use these vehicles. factory in the region and thus contribute to regional prosperity. toward the IUCN’s goal of gaining a comprehensive view of the conservation status of earth’s biodiversity. The Heritage and Future of Toyota Hybrid Technologies Rigorous Reduction of Water Consumption The Toyota Hybrid System (THS) used in the fi rst-generation Prius Based on evaluations of the impact of water usage volume on the water 1. The International Union for Conservation of Nature: Founded in 1948 as an international initiative, the IUCN is a global nature conservation network comprising nations, government agen- evolved into the THS II and, later, its use was expanded to other models. environment, we designated four plants in three regions as challenge- cies, non-governmental organizations, and other organizations Toyota positions hybrid technologies as core technologies as it develops focused plants and are advancing related initiatives at said plants. 2. The IUCN Red List of Threatened Species™ is a global inventory of the conservation status of a range of electrifi ed vehicles, including PHEVs, BEVs, and FCEVs. species that is managed by the international organization IUCN Rigorous Cleaning of All Water before Discharge We are working to maintain and control the water quality of our water Five-Year Partnership with WWF for the Living Asian Forest Project Fourth-generation Prius Debuted December 2015 discharge, not only maintaining strict legal compliance, but setting volun- In July 2016, Toyota and the World Wide Fund for Nature (WWF) began Fuel economy: JC08 test cycle Prius Sales 34.0–40.8 km/l tary control standards that are even more stringent than those specifi ed a fi ve-year partnership aimed at accelerating the globe’s transition to Annual sales (left axis) Cumulative sales (right axis) by laws and regulations. In fi scal 2018, we designated 22 water-quality sustainability. Toyota is the fi rst car company and the fi rst Japanese (Millions of vehicles) Third-generation Prius challenge-focused plants in three regions. company to sign a Global Corporate Partnership agreement with WWF. Debuted May 2009 0.6 Fuel economy: JC08 5 To help conserve biodiversity under the partnership, Toyota has donat- test cycle 4.23 million ed US$1 million a year since 2016 and offered other forms of support to 30.4–32.6 km/l Toyota Water Environment Policy 0.5 the Living Asian Forest Project. The Living Asian Forest Project is reinforc- 4 Toyota prioritizes the sustainability of water resources and aims to create an affluent society Second-generation Prius to ensure that sound aquatic environments can be shared by future generations. ing existing WWF initiatives to conserve tropical rainforests and biodiver- Debuted September 2003 3 million 0.4 Fuel economy: JC08 test cycle Being the best factory in the region sity in Southeast Asia and helping develop new conservation initiatives. 27.0–29.6 km/l to contribute to the whole community’s prosperity Fuel economy: 10.15 test cycle 3 First-generation 30.0–35.5 km/l 0.3 Prius Debuted December 1997 2 IN OUT 0.2 Fuel economy: 10.15 test cycle 1 million 28.0–31.0 km/l 1 0.1 Rigorous reduction of water consumption Rigorous cleaning of all water before discharge

Minimize water intake at each factory Make a positive impact on the environment and utilize rainwater to minimize impact by making wastewater cleaner than 0 0 on local water sources the body into which it is discharged ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 © naturepl.comnaturepl.com / MarkMark CarwardineCarwardine / WWFWWF (January–March) WEB Environmental Report 2018 36 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 prioritizes respect for people, aiming to pro- Toyota believes that this approach leads not only To this end, Toyota is implementing human vide employees with opportunities to make social to management that operates with respect for peo- resource development aimed at sustainable growth Applying the TPS and contributions and realize self actualization through ple, but to customer satisfaction and social contri- through a global educational program centered on Accelerating Business Innovation their work and to allow them to exercise their ability bution and thus to the sustainable growth of both the application of the Toyota Way. On-the-job training to think, create, and take action. the company and society. (OJT) is the foundation of this program. The Toyota Production System (TPS) is based on the To achieve this goal, a relationship of mutual concepts of Jidoka (automation with a human touch) trust and mutual responsibility between labor and Fundamental Approach regarding On the Job Training and Just-in-Time and aims to completely eliminate management is essential. In such a relationship, Human Resource Development Human Resource Development Rooted waste and steadily reduce costs. To promote TPS- the company places the highest priority on ensur- Toyota is committed to developing human resources related activities on a company-wide basis, bridging pro- in Genchi Genbutsu ing stable employment for its employees and pro- in accordance with its philosophy that monozukuri duction, administrative and engineering departments, actively strives to improve labor conditions, while (manufacturing) is about developing people. In order In line with Toyota’s concept of Genchi Genbutsu Toyota created the TPS Group in January 2018. employees do their utmost to enhance the pros- to sustain growth, it is essential to utilize the wisdom (onsite, hands-on experience), we believe that the To make work in administrative and engineering perity of the company. This philosophy is shared by of our people to make constant improvements. workplace is the basis for human resource develop- divisions better, more cost effective, and more timely, all Toyota affi liates around the world and, together At the same time, while employees bring a wide ment at Toyota. Being mentored by supervisors and we are beginning by applying a similar approach to with considerations for regional characteristics, is range of cultures and customs, to make ever-better senior colleagues and, in turn, mentoring subordi- that taken at production sites, fi nding ways to achieve refl ected and implemented in Toyota’s manage- cars and carry out our Customer First policy, all nates and junior colleagues to build mutually benefi - more consistent and standardized operations. Using ment and policies. employees must share certain values. cial learning relationships in the course of daily work concepts from production processes, we are creating (OJT) provide the basic experiences that drive profes- workfl ow charts for these divisions to determine WEB Toyota Way 2001 sional growth. In addition, to supplement OJT, Toyota where information is getting backed up so that we offers a variety of off-the-job training programs. can remove bottlenecks and reduce lead times. By applying TPS principles to administrative and Toyota’s Approach to OJT engineering divisions, as at production sites, we are reducing lead times, promoting rapid problem solving, and strengthening our organizations. These OJT efforts are helping promote business innovation. Furthermore, we have newly identifi ed seven types of waste at administrative and engineering divisions* In tandem with OJT and are advancing company-wide efforts to change Personnel Off-the-job mindsets and implement improvement measures. For system training 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 Sharing the Values of initiatives in all divisions and broadly sharing success- the Toyota Way Globally ful examples as we work toward the application of the TPS, a strength of Toyota, throughout the Company. We have organized job skills and techniques into a framework that we call Global Content to help Toyota * The seven types of waste at administrative and employees around the world understand and prac- engineering divisions: Non-value-adding activities tice the Toyota Way as a shared set of values and related to meetings, consensus-building, documen- ways of thinking. Global Content is utilized by Toyota tation, coordination, supervisors’ pridefulness, over- employees through both on- and off-the-job training reliance on routine, and lack of follow through. in Japan and overseas.

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

Promoting Diversity and Inclusion Since 2016, 1,100 managers have begun posting resources at overseas affi liates is based on education Toyota has positioned the promotion of diversity Work Style Innovation “Ikuboss declarations” related to diversity manage- conducted by affi liates in each region, with OJT at and inclusion in the workplace as an important ment via the Group intranet. These declarations, Toyota Motor Corporation (TMC) so that participants management strategy. We are working to create which include information about workplace initiatives can learn Toyota-style ways of working. In addition, workplaces where human resources with diverse Toyota is advancing work style innovation to improve and messages to subordinates, are helping to foster we are implementing a program similar to GLOBAL abilities and values can thrive and each individual productivity and support employees seeking to contin- a culture of mutual support for the work and success 21 for employees of TMC in Japan. can achieve positive self actualization. ue working by providing child care or nursing care for a of diverse employees. Diverse perspectives help to generate novel family member. In October 2016, we expanded our In 2018, we are implementing diversity management Localizing the Management of ideas and identify new issues. Toyota aims to use remote working program with the introduction of the training for employees who have been newly promoted these contributions to help enhance its competi- Free Time & Location (FTL) system. By adopting more as managers. Furthermore, in addition to such training Overseas Affi liates tiveness and make ever-better cars. fl exible work styles, Toyota aims to make the most of for managers, we are implementing “Emotional Barrier- each individual’s abilities and maximize results. While free Training” for young employees to deepen under- Taking a long-term perspective, Toyota seeks to the previous remote working program was available standing of LGBT individuals, wheelchair users and localize the management of its overseas affi liates, only to employees with childcare or nursing care other people often discriminated against. with deciding what to do as the role of TMC in Japan responsibilities, all employees that meet certain condi- We are advancing these and other initiatives with and deciding how to do it the role of local affi liates. tions can request the permission of their supervisors to the aim of practicing diversity management in all In principle, chief offi cers and other executives use the FTL system. As of March 31, 2018, of the Group workplaces. responsible for operations in overseas regions are approximately 13,200 employees who qualify for the stationed in their respective regions as part of efforts FTL system, approximately 3,300 are using it. to create a management system closely rooted in We have received a great deal of positive feedback Developing Executives Globally local communities. from users of the program already, with employees We also actively hire and promote local human commenting, for example, that the system has made resources. As of June 2018, three of the Group’s six them more aware of time and thus more effi cient The GLOBAL 21 program is aimed at developing regional headquarters were led by non-Japanese when working, and that they have more time to executives globally. The program serves to enable chief offi cers, and TMC’s top management includes spend with family. outstanding human resources from around the world seven non-Japanese nationals (of whom one is an Gender From April 2018, we have been introducing a new to obtain the skills and discernment expected of Outside Member of the Board of Directors). partial remote working program for assistant staff global-level Toyota executives and to fully realize their We are also advancing the localization of manage- members.* We are advancing initiatives aimed at individual strengths in their respective roles. The pro- ment posts. This is enabling us to quickly process Nationality Age reforming work styles throughout our workplaces. gram consists of the following three pillars. feedback from customers and workplaces in each Diversity region and utilize such information in management & * Available only for employees with childcare or nursing care responsibilities 1. Ensuring understanding of our management decision making. philosophy and the expectations of executives Inclusion Overseas Executive Positions Held by Childcare/ We are applying the Toyota Way and Toyota Global Local Employees (%) Nursing LGBT Diversity Management Vision, incorporating them into global personnel eval- care uation systems and education. Fiscal year 2014 2015 2016 2017 2018 Local 64.7 62.9 62.6 65.8 67.8 Toyota’s employees in managerial positions are lead- 2. Personnel management employees Disability ing diversity management initiatives to create work- We are unifying evaluation standards and processes places where diverse human resources can thrive. At globally to ensure fairness and consistency. Our main Non-Japanese Executives in Charge of Toyota, we call a boss who can carry out diversity evaluation criteria are individuals’ ability to set tasks, Operations in Overseas Regions management, Ikuboss. We are working to develop carry out tasks, manage their organization, and effec- Region Name Title supervisors who understand and support the values tively utilize human resources as well as the level of North America Region James E. Lentz Senior Managing Offi cer and career goals of subordinates, taking a fl exible trust and respect that others have for them. Europe Region Johan van Zyl Senior Managing Offi cer approach to management to produce results at the Latin America & Steve St. Angelo Senior Managing Offi cer organizational level while also giving ample consider- 3. Development framework and education programs Caribbean Region ation to the quality of both their own and their subor- We are allocating human resources and developing Employees dinates’ private lives. executives globally. Our development of human WEB (Diversity & Inclusion, Sustainability Data Book 2018, p. 65) 38 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

Taking the Initiative at Each Workplace Putting Child Care-related Work Style Innovation into Practice

Let’s Change Toyota! Toyota has no future if it just keeps doing the same things—spurred by One-month Parental My household consists of myself, my wife, and my daughter. My wife The Start of Reforms at this sentiment and sense of urgency communicated by top manage- Leave for Fathers and I both work. When my daughter was about nine months old, I used ment, bottom-up reforms led by front-line staff are getting under way. the parental leave system for about a month. the Individual Level As one example of an initiative based on an open-minded, pro-action Hidemasa Komatsu, During my leave, I took full charge of the care of our daughter, which Report from a Roundtable Held approach, a group of employees applied the Genchi Genbutsu (onsite, Design Department helped give my wife peace of mind, knowing that I could handle things if by the Process Quality hands-on experience) principle to humbly learn from the methods of something happened and she couldn’t be there. Although it was only a another company. By doing so, we were able to achieve a level of preci- month, it was thus an important experience for me and for my family. Innovation Division sion and speed in development that we had not reached before. Because I took parental leave, my wife, who had been away from work Thinking outside the bounds of existing methods, we went back to the since before our daughter was born, was able to go back sooner, which basics, starting by focusing on ﬁ guring out what it is that customers are I think will be beneﬁ cial for her career. really looking for. From there, everyone put their heads together, expand- My parental leave also provided a chance to really experience the ing the scope of our activities across business areas and functions to world outside the parameters of the company. I was reminded that the arrive at solutions. By sharing such initiatives in which each individual values that hold true within the company aren’t everything, and that it is takes a proactive role and by learning from one another, we are working essential to look at the real world when engaging in manufacturing. In to change the old methods that we have taken for granted. this sense, my leave was extremely valuable for me as a father and as Activities like these are now starting at all kinds of workplaces across someone involved in manufacturing. I very much hope to see further Toyota, regardless of organization or individual position. To be rewarded reforms to work systems and styles so that it will be easy and unremark- with the smiles of customers and to create the mobility society of the able for anyone to take this kind of leave. 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.

Making the Desire for Since its establishment in 2012, the Future Project Department has What I Learned from Starting when I was pregnant with my fi rstborn, I took three years off Change a Reality advanced Future Scenario & Concept (FSC) activities as one of its main Using Work-Life Balance before returning to work. When I found out I was going to have a child, I functions. These activities entail drawing up future scenarios and then was incredibly happy. At the same time, though, no one at my work- The Future Project Department: planning and proposing services and business models to enable freer Support Programs place had ever used the support systems for working parents. I couldn’t Soliciting Ideas within Toyota urban mobility. Now, under the Breakthrough-project (B-project), the Tomoko Motohashi, see how I would be able to keep working and thought about resigning. for Co-Creation department is going a step beyond FSC activities, not only fi nding ideas Purchasing Planning Division Seeing my unease, my boss recommended that I use the systems and from across the company, but aiming to provide incubation to develop try to adjust my work style, so I decided to give it a try. them and shepherd them all the way to commercialization and the cre- When I fi rst came back to work, I used the shortened working hours ation of exit strategies. system. My husband helped me handle emergencies, like when our Specifi cally, driven individuals can sign up to participate in “B Dojo” child suddenly developed a fever and had to be picked up from daycare. study meetings outside normal work hours to develop their ideas and Even so, there were never enough hours in the day, and I wasn’t able to draft proposals. The division then selects the most promising proposals give as much as wanted to work or to childcare. I came close to throw- to take into the incubation phase. As part of this idea creation process, ing in the towel many times. I then decided to use the full-time telecom- we ask the divisions to which these projects are likely to be handed off muting system, which freed me from the pressure of having to leave after incubation to help come up with exit strategies. Until now, the work by a set time every day. I was the fi rst at my workplace to use this Future Project Department’s new initiatives have mostly involved outside system, but, with the support of my family and colleagues, I was able to partners. The B-project, however, is an attempt to co-create new value continue working. by connecting with people who want to make something new both in It was often hard, but I realized that time management is the key to and outside Toyota. This is why Toyota has named the project working while raising children. I also strive to break down my everyday “Breakthrough.” 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

Sustainability Meeting and ESG Committee Business and Other Risks Fundamental Approach Organization and Structure The ESG Committee is responsible for global risk Industry and Business Risks management. Meeting participants comprehensively • The worldwide automotive market is highly competitive identify risks to business activities, review and report • The worldwide automotive industry is highly volatile Toyota has been working to reinforce its risk manage- Appointment of Risk Management Personnel • Toyota’s future success depends on its ability to offer on major current risk items in order to promote pre- ment systems since the series of recall issues in Toyota has appointed a global chief risk offi cer (CRO) new, innovative and competitively priced products that ventive action. The results of the ESG Committee’s meet customer demand on a timely basis 2010. In June 2010, Toyota established the Risk to head global risk management. The global CRO is activities are reported to the Sustainability Meeting, • Toyota’s ability to market and distribute effectively is an Management Committee (now the Sustainability charged with handling major risks and coordinating integral part of Toyota’s successful sales which provides oversight of related operations. Meeting and ESG Committee) and appointed risk and directing the response to major emergencies on • Toyota’s success is signifi cantly impacted by its ability to In addition, the meeting advances special mea- maintain and develop its brand image managers for the global group and each business a global basis. sures related to information security and business • Toyota relies on suppliers for the provision of certain sup- division as part of global measures to prevent and Beneath the global CRO are regional CROs plies, including parts, components, and raw materials continuity management (BCM), areas in which the • The worldwide fi nancial services industry is highly mitigate the impact of risks that could arise in the appointed to oversee specifi c regions, and each level of risk corporations face has been growing in competitive course of business activities. region has its own risk management structure. • Toyota’s operations and vehicles rely on various digital recent years. Within the head offi ce (accounting, purchasing, and information technologies Risks related to Toyota’s businesses and other fac- etc.), risk management is assigned by function to Financial Market and Economic Risks tors that could signifi cantly impact the decisions of chief offi cers and risk managers, while in each in- • Toyota’s operations are subject to currency and interest investors are listed in Toyota’s Form 20-F under the rate fl uctuations house company, risk management is assigned to the categories Industry and Business Risks; Financial • High prices of raw materials and strong pressure on Toyota’s company president and company risk managers. suppliers could negatively impact Toyota’s profi tability Market and Economic Risks; and Regulatory, Legal, Furthermore, the regional head offi ces and individual • A downturn in the fi nancial markets could adversely Political, and Other Risks. affect Toyota’s ability to raise capital sections coordinate and cooperate with one another Regulatory, Legal, Political, and Other Risks on risk management. WEB Risk Management (Sustainability Data Book 2018, p. 139) • The automotive industry is subject to various governmental regulations WEB Form 20-F for the year ended March 31, 2018 • Toyota may become subject to various legal proceedings • Toyota may be adversely affected by natural calamities, political and economic instability, fuel shortages or interruptions Implementation Framework in social infrastructure, wars, terrorism, and labor strikes Shareholders’ Meeting

Information Security Initiatives In June 2016, Toyota established an Information Sustainability Meeting Cyber attacks are growing more sophisticated and Security Policy that clearly lays out Toyota’s basic complex. Their corporate targets have expanded approach to information security and related initia- from confi dential information and information sys- tives to facilitate united information security initia- ESG Committee tems to include systems that control plants and tives by TMC and its consolidated subsidiaries. vehicles, such as those for on-board devices. Information security is thus an increasingly impor- WEB Information Security Policy Respective head Respective Respective regions offi ce sections companies tant priority for Toyota. Toyota considers ensuring the safety and peace Key Points of Our Information Security Policy (Toyota’s Basic Approach) Regional CROs Chief Offi cers Presidents of mind of its customers as well as protecting its customers’ personal information and other assets 1. Compliance Collaboration Collaboration to be its social responsibility. Accordingly, we are 2. Maintenance of stable business infrastructure Secretariats for Companies’ risk Regional functions 3. Providing safe products and services functions managers advancing a range of initiatives to reinforce information security from the perspectives of gover- 4. Contribution to the establishment of safe nance and risk management. 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

Results are reported to the Sustainability Meeting and Fundamental Approach Organization and Structure Checks to Enhance Compliance used as a basis for further improvement. By incorporating improvement initiatives into each year’s action plans, we ensure that these checks lead to ongoing The Guiding Principles at Toyota state that Toyota The Sustainability Meeting discusses the expectations In fi scal 2009, Toyota began implementing internal positive action. shall “honor the language and spirit of the law of of stakeholders and responses to various social checks to enhance its compliance structure. In fi scal Moreover, Toyota holds meetings with subsidiaries every nation and undertake open and fair business issues. In particular, the meeting deliberates on mat- 2010 these checks were extended to subsidiaries in in order to keep track of their compliance efforts and activities to be a good corporate citizen of the world.” ters related to corporate governance and compliance. and outside Japan. Since then, these checks have provide them support as needed. Toyota believes that by adhering to this principle in its been carried out and improved upon every year. actions, it can fulfi ll its corporate social responsibility WEB Compliance (Sustainability Data Book 2018, p. 143) and ensure compliance. In accordance with its basic internal control poli- Activity Diagram cies, Toyota promotes initiatives centered on the con- Implementation Framework struction of frameworks, including the adoption and Shareholders’ Meeting Within Toyota (HQ) Distribution and Subsidiary Second-tier Subsidiary enforcement of the Code of Conduct as well as edu- collection of cation and other means of human resource develop- Secretariat and inspection sheets Self- Incorporation Self- Incorporation ment. Toyota has also established consultation Board of Directors specialized divisions inspections into policy inspections into policy hotlines; any concerns that are reported to said are Individual

Divisions managing subsidiaries P P assiduously addressed to ensure that no potential divisions Feedback problem is overlooked. Sustainability Meeting AD AD Chairman: Chief Risk Offi cer Self- Incorporation Support for inspections into policy Toyota Code of Conduct (Executive Vice President) improvement Frequency: Twice a year C C The Toyota Code of Conduct (adopted in 1998 and P revised in March 2006) outlines the basic frame of Governance, risk management Self improvement Self improvement mind that all Toyota personnel should adopt and sets AD forth concrete guidelines to assist them in upholding the Guiding Principles at Toyota and doing their part ESG Committee C to ensure that Toyota carries out its corporate social Self improvement 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 Ensuring Compliance lives both at work and in the community. Main Training Themes to Date To ensure that awareness of compliance extends Liability Act, and other topics. Around 1,000 • Contracts • The Product Liability Act WEB from top management all the way to each and employees attended these seminars in fi scal 2018. Toyota Code of Conduct • The Act against • Bribery prevention every employee, Toyota conducts training pro- In addition, based on specifi c needs, the Legal Unjustifi able Premiums and • Export operations grams for directors and executives, managers, and Division conducts on-site seminars on a wide Misleading Representations management new hires as well as Company-wide e-learning range of topics at individual divisions. • Intellectual property • Subcontracting law programs. (trademarks) • Copyright In addition to standard legal topics, such as • Confi dentiality management • The Act on the Protection labor law, antimonopoly law, and subcontracting • Labor of Personal Information law, we conduct seminars covering bribery preven- • Antimonopoly law • Taxes tion, personal information protection, the Product • Insider trading regulations • 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 to Improve Quality Customer First Measures or accidents. After-sales service provides safety, peace Fundamental Approach Toyota sees quality as the combination of product The essence of Toyota’s principle of Customer First is of mind, and comfort to customers at these times, quality, sales and service quality, and, as the founda- providing customers with products and services that supporting the Toyota and Lexus brands. tion supporting these, the quality of the work per- bring smiles to their faces. Toyota aims to provide In recent years, the average duration of car use has The origins of Toyota’s Customer First and Quality formed by each employee. cars that achieve superior environmental, safety, and been lengthening. In fi scal 2018, the average length First principles lie in the Five Main Principles of We believe that our products and services can only quality performance without sacrifi cing driving perfor- of use of passenger vehicles in Japan (excluding Toyoda, which embody the thinking of Sakichi gain the confi dence of customers when all employees mance or other aspects of the intrinsic appeal of mini-vehicles) was 12.9 years, 1.3 years longer than Toyoda, and the spirit of audit and improvement engaged in every process, from development, pur- cars, at an affordable price. We humbly and openly a decade earlier. Accordingly, the role of after-sales espoused by Kiichiro Toyoda. Since its foundation, chasing, production, and sales to after-sales service, accept information provided by our dealers and cus- service is becoming increasingly important. More Toyota has built a corporate culture that focuses par- build in quality, coordinate with one another across tomer feedback received at customer assistance than 100 million Toyota vehicles are currently in use ticular attention on customer-pleasing quality and processes, and implement the quality assurance cycle. centers, taking such input to heart and utilizing it to worldwide, and each one is irreplaceable to a cus- continuous Kaizen (improvement) achieved through Quality starts with the spirit of audit and improve- make ever-better cars. tomer. Toyota strives to provide ever-better services Genchi Genbutsu (onsite, hands-on experience). In ment. Through continuous improvement based on in accordance with the 3S Spirit (Seikaku + Shinsetsu accordance with our commitment to quality as stated repeated implementation of the PDCA cycle, Toyota After-sales Services Measures = Shinrai, meaning Accuracy + Caring = Trust) to in the Toyota Global Vision, each employee in each pursues ever-higher quality—this is the unchanging To bring smiles to the faces of as many customers as ensure that customers will be highly satisfi ed with fi eld maintains a constant and strong awareness of core of Toyota’s manufacturing. possible, it is essential to realize both better cars and their vehicles. issues and a sense of ownership, striving to continu- better services. Customer car use requires regular ser- ously implement Kaizen and collaborating closely with WEB Customer First and Quality First Measures vicing, inspections, and repairs following breakdowns (Sustainability Data Book 2018, p. 20) personnel in other fi elds to enhance customer safety, peace of mind, and satisfaction.

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 Tajimi Service Center provides training on vehicle servicing technologies and body repair and paint to service technicians the series of recall issues that occurred in 2010, has been designated Toyota Restart Day. We have created mechanisms and from dealers in Japan and distributors worldwide. are taking measures to raise awareness in order to keep the lessons learned from the series of recall issues fresh. Opened in July 2013, the Tajimi Service Center is fully equipped Research and development of new technologies for the ser- Customer Quality Learning Center Storytelling Activities classrooms, practice areas, and drive evaluation courses with a vice, repair, and painting of new vehicles equipped with cutting- In 2014, Toyota established the Customer Quality Learning Employees who experienced the 2010 series of recall issues take variety of road conditions on a vast 187,000 m2 site. In fi scal edge technologies is also concentrated at the center. As a Centers to convey the experiences and lessons learned from the on the role of storyteller to convey the facts and lessons learned 2018, approximately 2,200 staff from 26 locations in Japan and global training facility, the center enables staff who come to the series of recall issues to future generations of employees. With from those events at their own work sites. The number of overseas trained at the center, bringing the center’s cumulative center for training improve their knowledge and skills, helping exhibits that appeal to the fi ve senses, such as actual examples employees who experienced the recall issues fi rsthand decreas- total number of training alumni to approximately 9,800. build a solid foundation for reinforcing global competitiveness in of faulty parts and vehicle simulators, these centers serve an es every year, but it is important to keep the experiences and les- service technology. important educational role, especially for new employees who sons learned alive. To this end, starting in 2017, this initiative was did not experience the events fi rsthand. The content of the cen- expanded Company-wide to train the next generation of storytell- ters is updated every year to cover the most recent quality ers and thereby keep the lessons learned from fading. issues. Toyota has established approximately 30 Customer Quality Learning Centers globally (as of March 31, 2018). Service Technology Training Process

Region Country

Regional affiliate/trading company Regional affiliate/trading company Europe, Africa, the Caribbean, Dealers Distributors under regional affiliate Oceania, some Asian countries

Distributors in (Outside the above regions/countries) Dealers each country

Tajimi Service Center (Japan) 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

We strive to ensure that these values are put into Respect for Human Rights practice throughout Toyota’s global business activities, including at subsidiaries and suppliers. Fundamental Approach The Guiding Principles at Toyota, Toyota’s CSR poli- Organization cy, and the Toyota Code of Conduct state that Toyota We hold Sustainability Meetings to discuss such top- shall respect the human rights and other rights of all ics as human rights issues, keeping in mind the people. Moreover, the Toyota Way, based on the expectations of our stakeholders. These meetings Guiding Principles at Toyota, lays out the values that serve to secure structures that enable the sustainable all employees working at Toyota should embrace. growth of both the Company and society by gather- The two pillars of the Toyota Way are Continuous ing relevant information and strengthening and revis- Improvement and Respect for People. Respect for ing relevant measures. People entails respect for all stakeholders as well as Toyota Green Purchasing Guidelines respect for the character and abilities of employees Toyota purchases a wide range of materials, parts, Initiatives Related to Confl ict Minerals Collaboration with Suppliers as individuals. It also facilitates self actualization by and equipment from many different suppliers. We col- linking the personal growth of employees to laborate with suppliers to implement environmental Company performance. Toyota has adopted the Policies and Approaches to Since its establishment, Toyota has worked closely initiatives using the Toyota Green Purchasing The Toyota Way is a set of shared values for all our Confl ict Minerals Issues, which it applies as a set of with its suppliers in its manufacturing businesses. Guidelines. affi liates around the world. Referencing each nation’s guidelines when tackling confl ict mineral-related As part of these efforts, Toyota has globally imple- laws and customs as well as international guidelines issues. mented its Basic Purchasing Policies in accordance WEB Toyota Green Purchasing Guidelines and norms, such as the Universal Declaration of Please see the page below for information about with a spirit of mutual benefi t based on mutual trust. Human Rights and the United Nations Guiding activities in 2017. While maintaining close relationships with longstand- Example Activities Principles on Business and Human Rights, we pro- ing and new partners alike, we are promoting initia- • Dialogue with executives of suppliers Toyota’s Approaches to Confl ict Minerals Issues mote a range of activities to ensure that employees WEB tives in line with our Customer First policy. (Sustainability Data Book 2018, p. 45) • Independent efforts by suppliers (CSR lectures, can work with peace of mind and thrive while aiming In recent years, interest in the social responsibility of CSR workshops, volunteering) always to meet the expectations of our stakeholders. companies, including their supply chains, is increasing. • Improving awareness and knowledge among all Toyota will continue to contribute to the sustainability employees, including buyers, through seminars and of society and the earth by working with suppliers to Sharing and Applying Policies on Respect for Human Rights other internal training ensure compliance, promote respect for human rights, Collaboration with Suppliers (Sustainability Data Book Toyota Subsidiaries Suppliers Dealers and reduce negative environmental impact. WEB 2018, p. 49)

Toyota Supplier CSR Guidelines CSR Policy: Contribution towards Based on the belief that collaboration with suppliers Sustainable Development Toyota Supplier Dealer CSR Guidelines on CSR issues is important, Toyota established the CSR Guidelines (Japan) Toyota Supplier CSR Guidelines in February 2009. Toyota suppliers are requested to implement their Improvement requests own CSR activities based on the guidelines and to suppliers as develop their own CSR policies and guidelines for Consolidated Compliance Program necessary their respective suppliers. Self-checks WEB Toyota Supplier CSR Guidelines Training 43 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

Based on a philosophy of contributing to soci- The Toyota Mobility Foundation: Olympic and Paralympic Worldwide Taking Our Founding Principle of ety through the manufacture of automobiles, Supporting Ideas and Initiatives Toyota endeavors to contribute to sustainable Partnerships Social Contribution Global to Enrich Mobility development. Toyota seeks to make ever-better cars in Established by Toyota in August 2014, the Toyota In 2015, aiming to use sports to create a peaceful and Toyota has a long history of social contribution that order to bring happiness to customers. At the Mobility Foundation (TMF) aims to enable more peo- inclusive society and to use mobility to contribute to the traces back to the desire of Sakichi Toyoda—the same time, Toyota implements a wide range of ple to go more places by sharing TMF knowledge, realization of a sustainable society, Toyota formed a part- father of Toyota Motor Corporation’s founder, Kiichiro activities, such as fostering initiatives related to partnering with others, and innovating to build a more nership with the International Olympic Committee (IOC) Toyoda—to support inventions that would enrich mobility through the Toyota Mobility Foundation, joyful mobile society. and International Paralympic Committee (IPC) in the people’s lives. Kiichiro and his team, who together sponsoring sporting events—including the Currently, TMF’s global initiatives support diversifying areas of vehicles, mobility services, and mobility solu- built Toyota’s automotive business, kept this spirit of Olympic Games, Paralympic Games and Special transportation in Thailand, Vietnam, India and Brazil and tions, making it the fi rst Worldwide Olympic and social contribution alive after Sakichi’s death, espous- Olympics—and promoting social contribution providing better freedom of mobility in remote mountain- Paralympic Partner in the mobility category. ing the concepts of contributing to the development activities. All of these efforts are aimed at ous communities in Japan(Photo ). Additionally, TMF Through the Olympic and Paralympic Games, Toyota and welfare of the country and remembering to realizing the mobility society of the future and is conducting a challenge prize competition to incorpo- is aiming to achieve the following goals: “Ever Better always be grateful. These concepts were eventually richer lifestyles. rate smart technology into mobility devices for people MOBILITY FOR ALL,” “Ever Better SOCIETY” and woven into the Five Main Principles of Toyoda, the Toyota will continue to contribute to the real- with lower-limb paralysis. Finally, TMF’s research efforts “Ever Better TOYOTA.” Toyota is carrying out initia- Guiding Principles at Toyota, and the Toyota Global ization of a prosperous mobility society with include a breadth of mobility topics from hydrogen to tives in the areas of mobility, sports, and social Vision. In these various forms, this spirit of social greater happiness for all. traffi c fl ow optimization using artifi cial intelligence. issues, aiming to realize a society in which everyone contribution has been handed down to today. Going forward, in addition to improving existing ini- can participate and strive. In addition to contributions made through its busi- tiatives, TMF plans to expand them to other cities At the Tokyo 2020 Games, Toyota aims to provide nesses, Toyota is pursuing social contribution in three facing similar mobility challenges. Alongside their mobility solutions that go beyond its conventional designated global priority fi elds: the environment partners, TMF plans to leverage insights gained from framework of supplying vehicles based on three pil- (Photo ), traffi c safety, and education. We are also current projects to advance future initiatives to help lars: 1. Mobility for all, 2. Sustainability centered on promoting activities in social, cultural, and other fi elds solve mobility issues around the world. the realization of a hydrogen-powered society (envi- to meet the social needs of specifi c countries and ronment and safety), and 3. Transportation support regions, utilizing our technologies, expertise, and WEB Toyota Mobility Foundation leveraging the Toyota Production System for those other resources to proactively advance initiatives. Themes of the Toyota Mobility Foundation’s Initiatives involved in the games. Going forward, Toyota will continue striving to support volunteering and to sustain automotive and Motorization/ WEB Olympic Games, Paralympic Games and Theme Special Olympics (Sustainability Data Book 2018, p. 34) manufacturing cultures. Public Transport

WEB Social Contribution Activities Developed Personal Mobility countries Vulnerable populations such as people with disabilities, senior citizens, and others Disaster Energy response (hydrogen Maturation Harmony in Mobility supply chain) Traffic flow optimization Diversification of transportation Improving overall PARK & RIDE convenience

Reducing social costs Emerging (congestion, pollution, CO2 countries accidents)

Providing mobility in remote mountainous communities 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

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 “Team Morii” a UK-based non-profi t organization, the Mobility (YouTube, Japanese with English Subtitles, 12:35) 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 Developing a More Advanced Sit-Ski with a World-Class Athlete requires co-creation with end-users to ensure the devices address their needs. Five teams will be select- 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 ed as fi nalists in early 2019, and the winning team will 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 be announced in the summer of 2020. 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, *1 Nesta: An innovation foundation that backs new ideas to tackle the big challenges of our time. It is a UK charity that “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 works all over the world. To fi nd out more visit www.nesta. PyeongChang 2018 Paralympic Winter Games. One of these was Para alpine making cars. org.uk skier Taiki Morii. A world-class athlete, Morii was already a four-time veteran of *2 Challenge Prize Centre: A body within Nesta that utilizes challenge prizes to stimulate and speed up problem-solving 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- 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 improve the lives of its customers and society as a whole, Toyota is promoting Mobility Unlimited cars and other products to develop better sporting equipment aligned with Morii’s its “Start Your Impossible” global corporate campaign. The spirit of the Olympics Challenge Launch Film 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 (YouTube, 1:58) 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 WEB Mobility Unlimited wheelchair manufacturer Nissin Medical Industries Co., Ltd. Toyota handled the of Kaizen (improvement) and respect for people. We want movement to present Challenge 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

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

Number of Plants and Global Perspective/Data by Region Distributors* R&D Sites* Number of Employees Manufacturing Companies* (As of March 31, 2018) (As of March 31, 2018) (As of March 31, 2018) *Number of bases for Toyota and Lexus brands 369,124 (Consolidated, as of March 31, 2018)

Other North Asia Europe America Europe Japan North Asia Japan 10 America 8 excluding Japan 29 24 17 5 3 Total Vehicle Production 3 21 — Other 8,964,133 (Consolidated, FY 2018) 4 6 8 114 0

Financial Highlights Total Vehicle Sales Net Revenues Operating Income Net Income Total Vehicle Sales for the Year Ended 8,964,394 8,964 thousand ¥29,379.5 billion ¥2,399.8 billion ¥2,493.9 billion March 31, 2018 (Consolidated, FY 2018) (Consolidated) -7 thousand +6.5% +20.3% +36.2%

The second of each pair of Total Liquid Assets (net) Total Shareholder Return (max) R&D Expenses Capital Expenditures ﬁ gures is the year-on-year change. ¥8,025.9 billion ¥1,200.1 billion ¥1,064.2 billion ¥1,302.7 billion +¥262.9 billion +¥117.7 billion +¥26.7 billion +¥90.9 billion

46 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

History

Founding and entry Establishing Leaping forward as Toward the mobility into the automobile the Toyota identity a global corporation society of the future industry

Domestic/Overseas Vehicle Production (Thousands of units) (Including Daihatsu and Hino brands since 2002) Domestic Overseas

Toyoda Model AA passenger Toyopet Crown launched Corolla launched Celica launched Soarer launched Lexus LS400 launched Prius launched (1997) MIRAI launched (2014) car launched (1936) (1955) (1966) (1970) (1981) (1989)

Labor disputes (1950) Toyota Motor and Toyota Motor Sales merged Recall issues (2009–2010) TRI established (2016) with TMC (1982) Toyota Motor Co., Ltd. established (1937) Total Quality Control (TQC) introduced (1961) Losses (FY 2009) History of Toyota Toyoda Model AA passenger car launched (1936) Kanban method adopted (1963) NUMMI, a joint corporation Prius launched (1997) MIRAI launched (2014) with GM, established in The Toyota Way 2001 adopted (2001) Toyota Environmental Challenge 2050 the U.S. (1984) Five Main Principles of Toyoda The Toyota Production System established established (2015) established (1935) Guiding Principles at Toyota adopted (1992) Toyota Global Vision adopted (2011)

The Great East Japan Earthquake, Berlin Wall comes down (1989) Rapid economic growth period Thailand ﬂ oods (2011) Major in Japan (1960s-1970s) U.S.-Japan trade friction (1980s) The 2008 ﬁ nancial crisis (2008) World War II (1939-1945) World Oil crisis (1973 & 1979) Rio Earth Summit (1992) UN SDGs adopted (2015) Events Trade friction surrounding cars (1990s) Paris Agreement adopted Tighter control on exhaust emissions (1970s) Kyoto Protocol adopted (1997) (2015)

WEB 75 Years of Toyota 47 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)

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 Yen to US Dollar Rate 101 93 86 79 83 100 110 120 108 111 Exchange Rates Yen to Euro Rate 144 131 113 109 107 134 139 133 119 130 (Average) 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) 147.5 468.2 355.6 1,320.8 2,292.1 2,750.5 2,853.9 1,994.3 2,399.8

Income (Loss) before Income Taxes (billions of yen) (560.4) 291.4 563.2 432.8 1,403.6 2,441.0 2,892.8 2,983.3 2,193.8 2,620.4

Net Income (Loss) (Note 1) (billions of yen) (437.0) 209.4 408.1 283.5 962.1 1,823.1 2,173.3 2,312.6 1,831.1 2,493.9

Common Cash Dividends (billions of yen) 313.5 141.1 156.8 157.7 285.0 522.9 631.3 645.5 627.5 642.6 Shares Cash Dividends per Share (yen) 100 45 50 50 90 165 200 210 210 220

Payout Ratio (%) — 67.4 38.4 55.6 29.6 28.7 29.0 28.3 34.6 26.1

Value of Shares Repurchased 549.9 (billions of yen) — — — — — 180.0 293.3 639.3 449.9 [shareholder return] (Note 2) (maximum)

R&D Expenses (billions of yen) 904.0 725.3 730.3 779.8 807.4 910.5 1,004.5 1,055.6 1,037.5 1,064.2

Depreciation Expenses (Note 3) (billions of yen)1,072.1 1,032.0 812.3 732.9 727.3 775.9 806.2 885.1 893.2 964.4

Capital Expenditures (Note 3) (billions of yen) 1,302.5 579.0 642.3 706.7 852.7 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 (%) (4.0) 2.1 3.9 2.7 8.5 13.7 13.9 13.8 10.6 13.7

Return on Asset (%) (1.4) 0.7 1.4 0.9 2.9 4.7 4.9 4.9 3.8 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

˾˾ Operating income bb Operating income ratio (Right scale)

(Thousands of units) (Billions of yen) (Billions of yen) （%） 10,000 30,000 29,379.5 3,000 12.0 28,403.1 2,853.9 27,597.1 2,750.5 9,116 8,972 8,971 8,964 27,234.5 8,681 25,691.9 25,000 2,500 10.0 10.0 8,000 2,399.8 2,292.1 10.1 8.9 20,000 2,000 1,994.3 8.2 8.0 6,000 7.2 15,000 1,500 6.0

4,000 10,000 1,000 4.0

2,000 5,000 500 2.0

0 0 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

˾˾ Net income bb Net income ratio (Right scale) ˾˾ R&D expenses bb Ratio to net revenues (Right scale) ˾˾ Capital expenditures ˾˾ Depreciation expenses

(Billions of yen) （%） (Billions of yen) （%） (Billions of yen) 2,500 2,493.9 10.0 1,200 6.0 1,500 2,312.6 1,064.2 2,173.3 1,055.6 1,037.5 1,292.5 1,302.7 8.5 1,000 1,004.5 5.0 1,250 1,211.8 2,000 8.1 8.0 1,177.4 910.5 1,823.1 8.0 1,831.1 7.1 800 4.0 1,000 1,000.7 6.6 1,500 6.0 3.7 3.7 3.8 3.6 3.5 964.4 600 3.0 750 885.1 893.2 806.2 1,000 4.0 775.9 400 2.0 500

500 2.0 200 1.0 250

0 0 0 0 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- Furthermore, with the automotive industry undergo- Toyota Housing Corporation operates a range of that realizes high quality in terms both of basic cial services, mainly auto loans and leasing, to more ing major changes, we are implementing initiatives to housing-related businesses, including detached performance and design. At the same time, the than 26,000,000 customers across its network, improve customers’ lifestyles and the convenience of house construction as well as condominium develop- KenBiKenJu Laboratory, a next-generation housing which spans more than 35 countries and regions. In society as a whole by expanding our value chain to ment and housing renovations. Under the brand research facility that brings together technologies fi scal 2017, the fi nancial services business recorded create added value through fi nancial services across vision “Sincerely for You,” we strive to deliver peace from across the Toyota Group, is researching new net revenues of ¥2,017.0 billion and operating the car life cycle, from manufacture to disposal. of mind during construction, after construction, and services that leverage IoT and AI and developing income of ¥285.5 billion. In addition, to help customers realize the joy and through support in order to help customers realize advanced technologies to create housing that meets Toyota’s fi nancial services center mainly on sales freedom of movement through fi nancial services, we their ideal lifestyles. The mainstay detached house the needs of working women and enable seniors to fi nancing, which serves as a tool to promote car are partnering with such ridesharing companies as construction business has a sales area covering 29 enjoy rich, active lives. sales. At the same time, we are working in new busi- Uber Technologies, Inc. and Grab Holdings Inc. and of Japan’s prefectures, with three factories across the In 2017, Toyota Housing made Misawa Homes ness areas to realize a better future mobility society. working to apply the big data provided by cars in the country. In fi scal 2017, the housing services business Co., Ltd. a consolidated subsidiary. Working together The basic role of the fi nancial services business is telematics car insurance business. sold 16,222 units on a consolidated basis and gener- in such areas as condominium marketing, the two to enable more customers to use our cars. We do Going forward, we will continue to develop and ated net revenues of ¥547.9 billion. companies are actively building a solid track record. our utmost to fulfi ll that role by promoting digitization, provide fi nancial services in line with customer needs In response to the popularization of net zero ener- Going forward, we will continue to realize synergies in developing and offering new fi nancial products, and and local market characteristics to help enrich cus- gy houses (ZEH), we are adopting various solutions a range of fi elds, such as community development expanding our network to countries where the auto- tomers’ lives. that meet ZEH thermal insulation specifi cations as and overseas businesses, working to accelerate the motive market is growing. For example, in fi scal standard features. Moreover, we have recently progress of both companies’ growth strategies and 2017, we established and began sales at a fi nancial WEB Toyota Financial Services Corporation received recognition under the Good Design Award. provide customers with better products and services. services company in Ireland. As these examples show, we are providing housing WEB Toyota Housing Corporation (Japanese language only)

A Network Spanning More Than 35 Countries and Regions Net Zero Energy House (ZEH)

Insulating exterior walls, roofs, and floors Insulate Insulating windows and doors Toyota Smart Airs Pure 24 Central Smart Reduce High-efficiency AC units LED lighting Center High-efficiency water heater HeMS Pro

Solar power Generate ENE-FARM type 5 generator Sensor- Smartphone enabled power Power distribution company board

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 Major Shareholders (Top 10) Company Name Toyota Motor Corporation First series Established August 28, 1937 Common Model AA class Percentage of Common Stock ¥635.4 billion shares shares Total Shareholding Name (1,000 shares) (1,000 shares) (1,000 shares) (%) Fiscal Year-End March 31 Japan Trustee Service Bank, Ltd. 381,087 180 381,267 12.89 Public Accounting Firm PricewaterhouseCoopers Aarata LLC Number of Afﬁ liates Consolidated subsidiaries: 606 Toyota Industries Corporation 232,037 — 232,037 7.85 Afﬁ liates accounted for by the equity method: 57 The Master Trust Bank of Japan, Ltd. 172,408 — 172,408 5.83 State Street Bank and Trust Company (Standing Proxy: Number of Employees 369,124 (Parent company: 74,890) 119,497 — 119,497 4.04 Corporate Website Corporate information: http://www.toyota-global.com Settlement & Cleaning Services Division, Mizuho Bank, Ltd.) IR information: http://www.toyota-global.com/investors Nippon Life Insurance Company 110,834 560 111,394 3.77 DENSO Corporation 89,784 — 89,784 3.04 Stock Data JP Morgan Chase Bank, N.A. Number of Shares Authorized 10,000,000,000 shares (Standing Proxy: Settlement & Cleaning Services Division, 77,287 — 77,287 2.61 Mizuho Bank, Ltd.) Number of Shares Issued Common shares: 3,262,997,492 shares Mitsui Sumitomo Insurance Company, Limited 58,811 — 58,811 1.99 First series Model AA class shares: 47,100,000 shares Number of Treasury Stock 353,073,500 shares Trust & Custody Services Bank, Ltd. 58,234 — 58,234 1.97 Number of Shareholders 632,418 Tokio Marine & Nichido Fire Insurance Co., Ltd. 51,045 — 51,045 1.73

Number of Shares per Trading Unit 100 shares Note: The percentage of shareholding is calculated after deducting the number of shares of treasury stock (353,073 thousand shares) from the total Stock Listings Japan: Tokyo, Nagoya number of shares issued. Overseas: New York, London Securities Code Japan: 7203 American Depositary Receipts (ADRs) Ratio: 1 ADR=2 Common Stock Symbol: TM Transfer Agent in Japan Mitsubishi UFJ Trust and Banking Corporation 1-1, Nikko-cho, Fuchu City, Tokyo 183-0044, Japan Japan toll-free: (0120) 232-711 Ownership Breakdown 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 Individuals, etc. Financial institutions, U.S. toll-free: (888) 269-2377, (888) BNY-ADRS (including treasury stock): brokerages: Depositary Receipt: http://www.adrbnymellon.com 761,620 thousand shares 1,125,334 thousand shares Transfer Agent: https://www-us.computershare.com/investor (23.00%) (34.00%)

Contact Points for Investors Japan Toyota City Head Offi ce: 1, Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan Other corporate entities: Tel: (0565) 28-2121 Fax: (0565) 23-5721 693,984 thousand shares Tokyo Head Offi ce: 1-4-18, Koraku, Bunkyo-ku, Tokyo 112-8701, Japan (20.97%) Foreign corporate entities Tel: (03) 3817-7111 Fax: (03) 3817-9092 and others: U.S.A. Toyota Motor North America, Inc. 729,158 thousand shares 6565 Headquarters Drive, Plano, TX 75024, U.S.A. Tel: +1 (0) 469-292-4000 [email protected] (22.03%) U.K. Toyota Motor Europe, London Offi ce Note: Ratio indicates the share of ownership to the total number of shares issued. Second Floor, Caroline House, 55-57 High Holborn, London WC1V 6DX, U.K. Tel: +44 (0) 207-290-8500 [email protected] 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 services 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 WEB 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; SEC Filling 52 TOYOTA Annual Report 2018