Annual Report 2018｜Toward the Mobility Society of the Future

Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

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.

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

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

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

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

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

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 particu- larly diffi cult-to-drive types of expressway is ongoing.

Approach to Developing Automated Driving Technologies Intelligence in Driving: The Potential of Deep Learning in Recognition Technology

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 inves- tors and shareholders. 25 TOYOTA Annual Report 2018 Table of Contents Message from the President Toward the Mobility Society of the Future Initiatives for Sustainable Growth Corporate Data

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