Mitsubishi (Part 1): Future revenue growth driven by new pickups and SUVs

Plan to increase production ratio of electrified vehicles to 20% by 2020

2014/08/20

Summary

 The latest developments at Mitsubishi Motors Corporation are reported in two parts (Parts 1 and 2).  This first report focuses on the steps in Mitsubishi's new mid-term business plan titled "New Stage 2016,"for the three fiscal years from April 2014 through March 2017.

 Pickup trucks, sports utility vehicles (SUVs) and crossovers are Mitsubishi's strategic models. The company intends to increase the ratio of these vehicles to total sales volume from 57% in the fiscal year ended in March 2014 (FY 2013) to 63% in FY 2016. Mitsubishi also plans to increase the number of "plug-in hybrid EVs (PHEVs)" to three. This is part of the company's plan to increase the production ratio of electrified vehicles to its total quantity to 20% by 2020.

 In its regional strategies (1) the ASEAN region will remain Mitsubishi's primary source of profit, (2) the recovering business in Europe will be strengthened as the second pillar, and (3) continued efforts will be made to gain a firm profit in Japan and North America. Mitsubishi's business in Europe is recovering quickly in terms of net sales and operating income. The recovery is due largely to the Outlander PHEV that was launched in the FY 2013.

 Mitsubishi is cooperating with several automakers in pursuit of "effective use of Resources through Partnerships to expand Business Opportunity." In June 2011, Mitsubishi and Nissan established a joint-venture, NMKV Co., Ltd., concentrating on mini vehicle business. The joint venture was expanded in 2013 with the participation of Renault. NMKV will play a central role in developing all-new mini vehicle-based global entry models and electric vehicles (EVs).

 Part 2 of the report, which is coming shortly, will focus on Mitsubishi's consolidated financial results, sales and profitability by region, and the capital restructuring plan that was executed in the early part of 2014 along with the resumption of dividend payment.


Related report: Mitsubishi focuses on ASEAN countries to meet FY2013 targets (posted in July 2013)



Strategic vehicle launch plans

Roadmap of strategic vehicle launches

 Mitsubishi intends to increase the sales volume ratio of its strategic vehicle types including pickups, SUVs and crossovers from 57% in FY 2013 to 63% in FY 2016. Among them, the Triton and the Pajero Sport built on the common platform are strategic models and they account for one fourth of Mitsubishi's global sales.
All-new Triton  The Triton is a pickup truck produced in Thailand and sold in over 100 countries except Japan, U.S. and China. The all-new weight-reduced Triton slated for launch in the fall of 2014 features higher fuel efficiency along with a roomy and more comfortable space for the driver.
New Pajero Sport  Slated for launch in FY 2015.
Other models  All-new Delica D:5, Pajero and RVR are slated for launch in or after FY 2015.
 Plug-in hybrid SUVs (compact size, large size) are also slated for launch.

 

 



Beefing up PHEV lineup to increase production ratio of electrified vehicles to 20% in 2020

 Other than strengthening the SUV lineup as outlined above, Mitsubishi has announced plans to increase the production ratio of electrified vehicles from around 2% in the FY 2013 to 5% in the F 2014 and to 20% in the FY 2020.  The plans include increasing the number of available PHEV models from just one (Outlander PHEV) to three.  Mitsubishi has lowered the price of the high-grade version of the i-MiEV (battery capacity 16.0kWh) by JPY 900,000, and the entry-grade version (battery capacity 10.5kWh) by JPY 190,000.

 In May 2014, Mitsubishi and three other automakers, Toyota, Nissan and Honda, embarked on a joint project aimed at promoting the installation of charging infrastructure for electrified vehicles. Their goal is to increase the number of chargers from approximately 5,000 as of March 2014 to 17,000 in Japan within 2014.

 

Outlander PHEV
Outlander PHEV
(at the 2014 Automotive Engineering Exposition)
Outlander PHEV
Front motor (upper right) and generator (center bottom) of the Outlander PHEV
(at the 2014 Automotive Engineering Exposition)

 

Expanding availability and sale of electrified vehicles

Sales expansion of PHEVs in overseas markets  The Outlander PHEV sold approximately 9,000 units in Japan and 10,600 units in the Netherlands and other parts of Europe in FY 2013. The company intends to sell 15,000 units in Japan and 30,000 units in Europe and other parts of the world in FY 2014. The supply shortage issue of lithium-ion batteries has been solved and Mitsubishi will start exporting the PHEV to Australia and New Zealand in FY 2014. Export to North America will also start in FY 2015. Mitsubishi is planning to launch the Outlander PHEV in China in 2016. The company is also eyeing local production in China.
 Mitsubishi will introduce PHEV versions of the large-size Pajero SUV and of the RVR compact SUV in or after FY 2015. Production capacity of the PHEV at the Okazaki plant will be doubled to 60,000 units a year by May 2015.
Development of next-generation PHEV technologies  Mitsubishi is working toward the following technical goals: (1) e-EVOLUTION (integration of motor drive and Super All-Wheel Control (S-AWC), integrated vehicle dynamics control system), (2) development of highly-efficient systems and further reduction of CO2 emissions, and (3) their expansion to the SUV series lineup.
Lowering prices of i-MiEV  In November 2013, Mitsubishi introduced the X grade with battery capacity 16.0kWh and cruising range of 180km per charge (in JC08 mode). The price of the X grade i-MiEV was reduced by approximately JPY 900,000 to JPY 2.9 million including 5% consumption tax. The X grade is available for JPY 2.05 million including tax after the application of government subsidy of up to JPY 850,000.
 The price of the entry grade (M grade) with battery capacity of 10.5kWh and cruising range of 120km per charge was also reduced by JPY 190,000 to approximately JPY 2.46 million including 5% consumption tax. The M grade is available for JPY 1.72 million including tax after the application of up to JPY 740,000 government subsidy.
Four automakers join hands for installing EV charging infrastructure
Nippon Charge Service, LLC established  In May 2014, four Japanese automakers, Mitsubishi, Toyota, Nissan and Honda, jointly established Nippon Charge Service, LLC, to promote dissemination of  EV charging infrastructure. Charging station installers are eligible for government grant money when installing a new charging station in public areas such as commercial and lodging facilities. Nippon Charge Service, LLC will pay for the rest of the installation cost. Development Bank of Japan Inc., a government-affiliated financial institution, is likely to invest in the Nippon Charge Service, LLC.
 A charging station installer wishing to benefit from this financial aid program will have its charging stations run, and charging fees collected from the user, by Nippon Charge Service, LLC. This program will cost a vast amount of money for the four automakers. However, the automakers regard it as a sales promotional cost for their next-generation electrified models. They will divide the cost in consideration of their lineup of electrified vehicles.

 

 



Strengthening production and sales in ASEAN region

 Mitsubishi's business strategies under the new mid-term business plan, New Stage 2016, include "maintaining ASEAN business as the primary source of profit" and "reinforcing <Mitsubishi's production base in ASEAN countries."  Thailand has become Mitsubishi's key production site, other than Japan, with 434,000 units produced in FY 2012 (444,000 units produced in Japan) and 391,000 units in FY 2013 (591,000 units in Japan). Mitsubishi plans to strengthen production in the Philippines following Thailand.

 As for sales, Mitsubishi plans to boost sales in the ASEAN region from 243,000 units (accounting for 23.2% of global sales) in FY 2013 to 390,000 units (27.3% of global sales) in FY 2016.

Strengthening development and production capabilities in ASEAN region

Development function in Thailand  Mitsubishi is strengthening its development function in overseas sites. Its new model development has been conducted chiefly in Japan. The company will transfer the development function closer to where the demand is. This will help develop and produce models that are better fit for the specific market. As a first step of the transfer plan, Mitsubishi will increase the number of development team members in Thailand from 40 to more than a hundred. The development team in Thailand will eventually develop models that will fit for local markets, such as low-cost models for emerging markets in Asia.
Exporting Thai-made Attrage  In July 2013, Mitsubishi launched a Mirage-based compact sedan. The Attrage sedan sold 5,419 units in Thailand before the end of the year. Mitsubishi plans to start exporting the Thai-made Attrage to Southeast Asian markets in 2014. The company also plans to expand the sales to the Middle East and Africa as well.
Acquisition of Ford plant in the Philippines  In March 2014, Mitsubishi announced that Mitsubishi Motors Philippines Corporation (MMPC) had acquired Ford Motor's plant in the Philippines. MMPC will relocate its headquarters and plant to the new site. The company will start production at the Ford's plant from January 2015, and aims to annually produce 100,000 units.
 MMPC currently has capacity to produce 30,000 units a year. It is producing the Lancer EX, Adventure and L300. The plant had become old and Mitsubishi was about to build a new plant. Mitsubishi produced 42,360 units in the Philippines in 2013 with a market share of 20.5%, highest only after Toyota.
Beefing up parts production sites in the Philippines  In June 2014, Mitsubishi announced that it had acquired shares of Asian Transportation Corporation (ATC), a local manufacturer of transmissions and engines, from MMPC and Sojitz Corporation. This has increased Mitsubishi's controlling share to 90%. The transmissions produced by ATC are supplied to Mitsubishi's Thai plant as well.
 Mitsubishi will restructure ATC's manufacturing business and start intensive production of all-new transmissions (likely 6-speed transmissions) in September 2014.
Producing ASX in Malaysia  In January 2014, Mitsubishi started local production of the ASX (called RVR in Japan) at Tan Chong Motor Assemblies Sdn. Bhd., the company's contract assembler in Malaysia. The ASX was released for sale in February as Mitsubishi's first locally assembled model in Malaysia.
Beefing up sales forces
Start of sales in Myanmar  In May 2013, Mitsubishi's first after-sales service shop opened in Yangon for Mitsubishi vehicles in the used car market in Myanmar.
 In October 2013, Mitsubishi Motors announced that it started selling new vehicles in Myanmar with the support rendered by Mitsubishi Corporation. Mitsubishi Motors will import the L200 pickup trucks assembled in Thailand. Mitsubishi Motors will open new dealerships and expand service networks. It will also increase the lineup of Mitsubishi vehicles in Myanmar.
A new sales company in Laos  Mitsubishi had been seeking ways to strengthen sales network in Laos. In December 2013, Mitsubishi signed a contract with KLM Import-Export Sole Co., Ltd. regarding distribution, sales and service for its vehicles in Laos. Mitsubishi vehicles will be sold exclusively by KLM starting with the Triton and the Pajero Sport.
 In December 2013, a dealership inauguration ceremony was held in Laos' capital city of Vientiane. Mitsubishi will increase the number of dealerships and sell many more models including passenger cars.

 

 



Europe as second source of profit thanks to brisk sales of Outlander PHEV

 Mitsubishi has experienced loss-making operations in Europe for three years in a row since FY 2010. In 2012, the company sold car plant in the Netherlands to lessen its financial burdens. As a result, and with the recovery of economy in Europe in general, Mitsubishi's business turned to profitability in FY 2013. Thanks to the steady sales of the Outlander PHEV that was launched in FY 2013, the company intends to boost its sales in Europe from 10,000 units in FY 2013 to 30,000 units in FY 2014.

 In April to June 2014 the net sales increased 1.7-folds to JPY 147.5 billion and operating income increased 2.7-folds to JPY 12.6 billion. The operating income in Europe exceeded that in Asia (JPY 11 billion) and Europe became Mitsubishi's largest source of profit (see Note). Mitsubishi hopes to strengthen the recovering business in Europe as its second source of profit. According to Mitsubishi, the Outlander PHEV is a significantly profitable model in its lineup.

(Note) This refers to the net sales and operating income classified by the geographic location of the customers. Please see Part 2 of the report on Mitsubishi to be posted shortly.

 

North America

 Mitsubishi is experiencing sluggish sales and deficits in its business in North America. However, Mitsubishi will not withdraw from the promising market in the United States.

 In 2011 to 2012, Mitsubishi discontinued production of the Galant and two other U.S.-built models at the Illinois plant. In mid-2012, the plant started production of the Outlander Sport that can be exported outside of North America with plans to increase the plant's working ratio. Mitsubishi saw upswing in its sales in North America in FY 2013 due largely to the strong sales of the all-new Outlander and the Mirage that were launched (imported from Thailand) in July 2013. As a result, Mitsubishi's deficit in North American business was reduced to JPY 3.8 billion. Its sales from April to June 2014 increased sharply by 37% year-over-year at 19,832 units. Mitsubishi aims to recover to a break-even level in North America.

(Note) The Outlander Sport (known as the RVR in Japan) shares the wheelbase with the Outlander but is a five-seat compact SUV about 36cm shorter in overall length. The Outlander (seven-seater) is imported from Japan.

 Mitsubishi plans to launch Renault's D-segment passenger cars and the Outlander PHEV in 2015 to turn around its business in North America. The company is also eyeing selling the Mirage-based small-size Attrage sedan in the United States.

 Mitsubishi announced that it would supply the Attrage to Chrysler in Mexico for five years starting in November 2014. Mitsubishi will sell the Mirage under its own brand.

 

 



Improving efficiency of production and distribution at Nagoya and Mizushima plants

 Mitsubishi is restructuring its global production network since FY 2010. The company started production at its plant in Russia and later at its third plant in Thailand. Mitsubishi also established GAC Mitsubishi Motors Co., Ltd. in China and started production. In 2007, Mitsubishi closed down a plant in Australia and sold a plant in the Netherlands in 2012 as part of its operational rationalization initiatives.

 In Japan, Mitsubishi's Okazaki plant in Nagoya had become old after over 30 years of operation. Mitsubishi will modernize the plant and increase production of the Outlander PHEV. The renovation will be conducted in three phases. When the third phase is completed in January 2015, the production costs (manufacturing and in-house distribution costs) will be reduced by 30%.

 

Painting process
Painting process at Okazaki plant (middle coat process)
Okazaki plant
Sideways conveyor line and unmanned trolleys at Okazaki plant

 

Production improvement at Okazaki (Nagoya) plant

New painting process (2011)  Mitsubishi invested JPY 15 billion to build a new painting line that replaced the then-existing one in the Okazaki plant. The new line started operations in February 2011. It features "waterborne 3 wet coat process" in which the vehicle goes through the drying furnace only once instead of twice. Wall-hanging robots replaced floor-based ones in the new line, and a robotized auto-body carriage system was introduced. These modern features reduce production costs by approximately 30% and the plant's energy consumption by 25%.
New assembly line  Mitsubishi is investing JPY 4.5 billion in refurbishing the assembly line in three phases. The chassis process was renewed in January 2014. The trim process will be revamped in August and the final assembly process in January 2015.
A new-generation chassis process
Shorter line length  The conventional chassis process is built around an overhead conveyor system. The new process is built around a "floor mat conveyor system" riding on large plates having posts. The auto-body is placed sideways on the posts rather than lengthwise so that the distance between two auto-bodies is reduced from 5.6 to only 3.2 meters. As a result, the total line length is reduced by 117 meters from 274 to only 157 meters.
EV battery packs assembled in main line  Assembling the battery pack in a plug-in hybrid vehicle is an additional work that is not required when assembling a non-electrified vehicle. Hence, an extra process was prepared alongside the existing assembly line. Mitsubishi has integrated the additional process into the main line by using the extra space created by the new "floor mat conveyor system."
"Set supply parts (SPS) system"  A complete set of parts per line worker is supplied on an automatically guided vehicle (AGV). This saves the worker from checking parts and keeps from assembling wrong parts. This system was originally developed for Nissan's Oppama plant. The SPS is introduced at Mitsubishi's Okazaki and Mizushima plants.

(Note) The Okazaki plant produced 174,000 vehicles in FY 2013 including 80,000 units of the Outlander, 30,000 units of the Outlander PHEV and 64,000 units of the RVR. Plans for FY 2014 are set at 212,000 units in total including 86,000 units of the Outlander, 50,000 units of the Outlander PHEV and 76,000 units of the RVR.


 Similar production and distribution efficiency improvement was conducted at about the same time at the Mizushima plant where minicars are produced.

 

Production and distribution efficiency improvement at Mizushima plant

Introduction of SPS  The SPS system installed at Okazaki plant was also installed at the Mizushima plant when production of the Mitsubishi eK Wagon and Nissan Dayz mini cars started. The two cars were developed by NMKV that was jointly formed by Mitsubishi and Nissan. The AGV system is yet to be introduced.
New parts pickup system  Parts deliveries to the plant was usually handled by suppliers. Mitsubishi changed this method, and picked up some of the parts using its own vehicles. The new pickup method enables mixed transportation of heavy parts and light but bulky parts that used to be transported separately. This has led to 25% reduction in transportation costs.
Four lines reduced to only two  In January 2014, Mitsubishi reduced the number of lines at Mizushima plant from four to only two. Two of the four production lines were for non-mini vehicles. The two lines for mini vehicles and commercial vehicles had become old and were taken down. The plant is capable of producing both the ordinary-sized (non-mini) vehicles and mini vehicles on the two lines that are originally used for producing ordinary-sized vehicles.
"Live-in" parts suppliers  The removal of two lines has created space available for new usage. Mitsubishi is inviting parts manufacturers to move their manufacturing facilities to the Mizushima plant. This is expected to reduce the distribution and inventory costs that are borne by the automaker while reducing the production lead time. Mitsubishi expects that the space will be used for making large and bulky parts such as exterior plastic parts, stamped items, glazing, underfloor fuel piping, etc.

 

 



Cooperation with Nissan and other automakers

 Mitsubishi's new mid-term business plan calls for "effective use of resources through business partnerships" aimed at structural reform and stable business foundation.  In June 2011, Mitsubishi and Nissan formed a mini vehicle manufacturing joint-venture, NMKV. Their partnership was expanded with the participation of Renault.
 NMKV will develop global entry cars and all-new electric vehicles based on its mini vehicles. Renault will supply D-segment passenger cars  to Mitsubishi. The D-segment passenger car will substitute for the Galant whose production in the United States ended. Mitsubishi is also interested in receiving C-segment passenger cars that will succeed to the Lancer from Renault. According to Mitsubishi, however, rebadging Renault's vehicles is not the best idea as the company wants to produce them in Russia and China as well.

Extensive cooperation with Renault-Nissan Alliance

 In November 2013, Mitsubishi and the Renault-Nissan Alliance agreed to explore the possibility of new projects achievable through sharing products, technologies and production capacities.
 Mitsubishi and Nissan will extend the range of their partnership at NMKV and study the feasibility of jointly developing new global entry cars including electric vehicles. The new global models will be based on the platform of the mini vehicles that are sold in Japan. The mini vehicle platform developed by NMKV can be designed for production outside Japan as well if it is slightly modified.
Mitsubishi and the Renault-Nissan Alliance have plans to share technologies and products related to electrified vehicles and the latest platforms.
 Mitsubishi and Renault will study the possibility of developing two all-new Mitsubishi-brand sedans based on Renault vehicles based on the following conditions:
 1) The first sedan to be launched in D-segment markets in the U.S. and Canada (competing with Toyota Camry and Honda Accord) and manufactured at Renault-Samsung plant in Busan, South Korea (for export to the U.S. under Free Trade Agreement (FTA) between the U.S. and Korea).
 2) The second sedan to be launched globally in C-segment markets. Production site is yet to be decided.
(Notes) 1. Mitsubishi is receiving supplies from Nissan of the Lancer Cargo (Nissan AD), Delica D:3 (Nissan NV200), Proudia (Nissan Fuga) and Dignity (Nissan Cima).
2. The two companies also discussed the possibility of jointly developing next pickup trucks. But pickup trucks are their strategic products and talks ended without reaching an agreement. They are launching their respective pickup trucks in 2014.

 

Collaboration with other automakers

PSA  Joint operations in Russia including the production of the Mitsubishi Outlander and the Pajero Sport.
 Mitsubishi supplies compact SUVs to PSA (Peugeot 4008, Citroen C4 Aircross).
 Mitsubishi supplies the i-MiEV as the Peugeot iOn and Citroen C-Zero.
Suzuki  Mitsubishi receives supplies of the Suzuki Solio and selling them as Mitsubishi Delica D:2.
 Mitsubishi's production of commercial mini vehicles ended in FY 2013. In February 2014, Mitsubishi launched the Minicab Truck, Minicab Van, and the wagon type passenger car called the Town Box, all supplied by Suzuki.

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