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5. Denso Corporation Business Report FY ended Mar. 2020

Denso Corporation Business Report FY ended Mar. 2020

Business Developments

-On May 24, the Company held a presentation meeting in Tokyo and revealed its forecast that sales of electrification and automated driving related parts will account for over half of its total sales in fiscal year 2025 (ending in March 2026). In particular, the Company plans to more than double its sales of electrification parts from JPY 800 billion in FY 2018 to over JPY 2 trillion in FY 2025, so that the electrification business will lead its overall operations. The presentation meeting is its first to be held separately from an announcement of financial results. (From an article in the Nikkan Jidosha Shimbun on May 25, 2019)

Activities in the Automotive Segment

1) Electrification

Established BluE Nexus
-Denso Corporation (Denso) and Aisin Seiki Co., Ltd. (Aisin) announced they have formally agreed to form a new company to develop and sell driving modules used for electric vehicles. The new company is named BluE Nexus and will be established in April 2019. Electrification requires a driving module package that consists of transaxles, motor-generators, and inverters, which are key components needed for both partially and fully electric vehicles. Aisin and Denso will combine their strengths in electrification to develop a wide range of driving modules and sell them to automakers in Japan and throughout the world. Moreover, BluE Nexus will calibrate them for the diverse needs automakers have for hybrid vehicles (HVs), plug-in hybrid vehicles (PHVs), and electric vehicles(EVs). (From a press release on December 26, 2018)

Toyota’s Hirose Plant Converted to Denso Hirose Plant
-In April 2020, Toyota’s Hirose Plant was converted into the Denso Hirose Plant that subsequently launched operations after the conversion. The plant, along with the Anjo Plant, will engage in R&D activities and production processes for the global electrification sector, working to increase global sales of electrification products that form a competitive product lineup.

Established "Electrification Innovation Center"
-Denso announced on April 5 that it will strengthen its structurer for the development and production of parts for electrified vehicles such as hybrid vehicles. Toyota Motor Corporation’s (Toyota’s) electric parts operations will be consolidated to Denso next spring. Denso will invest about JPY 180 billion by the fiscal year that ends in March 2021 to increase production capacity of power control units (PCUs) and motor generators in and outside Japan. Denso and Toyota predict that demand for electric parts will increase due to tightening fuel efficiency regulations in main countries, and as a group, aim to increase competitiveness of electrified vehicles and parts by optimizing their development and production functions. Denso will invest about JPY 40 billion to establish an Electrification Innovation Center at its Anjo Plant (Anjo City, Aichi Prefecture), which will start operations in May 2020. The new center will include a development building where about 2,000 workers including engineers dispatched from Denso’s head office and Toyota will work, test facilities, and trial production lines. Denso will also invest in its PCU plants in the U.S. and China to boost production, and consider production in other countries. Toyota’s Hirose Plant (Toyota City, Aichi Prefecture), which produces the same PCUs, and development functions for related parts will be transferred to Denso. On April 5, the two companies reached an agreement to sign a transfer agreement. The land, production lines, engineering drawings, and development facilities at the Hirose Plant will be transferred to Denso. The transaction price has not been disclosed. About 1,050 employees of the Hirose Plant and about 570 development engineers will be transferred to Denso on loan. (From an article in the Nikkan Jidosha Shimbun on April 6, 2019)

2) Advanced Safety/Self-Driving

Invested in Uber Advanced Technologies Group
-On April 18, 2019, Toyota Motor Corp., DENSO Corporation and the SoftBank Vision Fund (SVF) announced that they will invest USD 1 billio in Uber Technologies Inc.'s Advanced Technologies Group (Uber ATG). The investment, in a newly formed ATG corporate entity, aims to accelerate the development and commercialization of autonomous ridesharing services. Under the terms, Toyota and DENSO will together invest USD 667 million and SVF will invest USD 333 million, valuing the new Uber ATG entity at USD 7.25 billion on a post-money basis. The transaction is expected to close in Q3 of calendar year 2019. Toyota invested USD 500 million in Uber in August 2018, when the two companies announced their intention to bring pilot-scale deployments of automated Toyota Sienna-based ridesharing vehicles to the Uber ridesharing network in 2021. Today's further investment and expanded partnership builds upon the progress made to date, deepening the companies' collaboration in designing and developing next-generation autonomous vehicle hardware. It will also prepare the companies and industry for mass production and commercialization of autonomous ridesharing vehicles and services. Toyota will also contribute up to an additional USD 300 million over the next three years to help cover the costs related to these activities. (From Toyota press release on April 19, 2019)

Established J-QuAD DYNAMICS
-Denso Corporation (Denso), Aisin Seiki Co., Ltd. (Aisin), ADVICS Co., Ltd. (ADVICS) and JTEKT Corporation (JTEKT) announced they have formally agreed to form a new company to develop integrated control software that will be used for automated driving, vehicle motion control, and other related functions. The new company is named J-QuAD DYNAMICS and will be established in April 2019. To achieve safe, secure, and widespread automated driving, a more sophisticated integrated vehicle control system is required to coordinate sensors, brakes, and steering systems. The software enables vehicles to better manage acceleration, turning, and braking, which is critical for future mobility solutions. Founded by the four investing companies, the new company will develop software and provide engineering services to accelerate the development of integrated vehicle control systems for automakers in Japan and throughout the world. Aisin, ADVICS, JTEKT, and Denso will combine their unique strengths and technical expertise on automated driving, vehicle motion control, and related functions to develop this software-based solution to meet the needs of their customers today and in the future more efficiently and quickly. (From a press release on December 26, 2018)

Company plans to establish advanced-development center in Tokyo
-On abandoned land at Haneda Airport, the Company plans to establish an advanced-development facility that includes an office building and a maintenance center with a test track in July 2020. This will enable the Company to conduct actual vehicle testing on public roads more quickly and speed up development activities.

Established MIRISE Technologies
-Denso together with Toyota established MIRISE Technologies that will conduct R&D activities on next-generation automotive semiconductors, as well as advanced-development activities. By combining Toyota’s expertise in mobility and Denso’s achievements in automotive solutions, MIRISE will hasten the development of next-generation automotive semiconductors that will be the key to revolutionary technology in electrification and self-driving.

Invested in Metawave Corporation that engages in developing antennae for sending millimeter wave radar data
-Denso announced it led the Series A funding round for Metawave Corporation, a leading startup in Palo Alto, California revolutionizing the future of radar sensing for automated driving and wireless solutions for 5G deployments. Other Series A participants included new Metawave investors, Mirae Asset Capital and NTT DOCOMO Ventures, and existing Metawave investor, BOLD Capital Partners. Denso will harness Metawave’s technologies to accelerate development of a smart radar system for autonomous cars. Metawave’s state-of-the-art analog radar provides longer range, higher resolution, and greater angular accuracy and intelligent object classification compared to traditional radars, allowing OEMs to provide next-generation adaptive cruise control, lane change assist and automated emergency braking. (From a press release on November 5, 2019)

Invested in PiNTeam Holding
-Denso announced that it has taken a stake in PiNTeam Holding GmbH, a German company highly evaluated for its in-vehicle embedded software technology deployed primarily in Europe. With this equity stake, Denso will accelerate the development of basic software that controls in-vehicle electronic control units (ECUs). n the partnership, Denso will combine its technologies related to in-vehicle electronic system control, as well as its expertise in mass production quality and precision, with PiNTeam’s advanced embedded software solutions that meet European standards. This will enable both companies to develop basic software from a global perspective, which will increase its effectiveness. (From a press release on December 17, 2019)

3) Connected

Formed an alliance with Bliq
-Denso announced that it has teamed up with Bliq to bring real-time parking and last mile routing assistance to the next level. By combining Denso’s sensor systems and Bliq’s cloud services for real-time parking, connected cars are now able to detect open parking spaces using built-in sensors and share this information with other drivers in the area. Bliq adds its high-definition parking map data using its Bliq Park cloud service to enrich real-time parking space detections with high-resolution parking geometries. Bliq feeds parking space detections back to its machine learning models in order to predict available parking in advance before the car drivers arrive at the destination. Additionally, other objects of interest, such as traffic signs or lane markers, are analyzed in-vehicle and sent to the Bliq platform to automatically detect changes of the map and to perform real-time updates. Denso’s system provides extensive amounts of data that enables Bliq to provide higher resolution maps with higher quality parking spot detections in real time. (From a press release on March 16, 2020)

Launched joint-development activities on next-generation cockpit systems, with a subsidiary of Qualcomm
-Denso Corporation announced that it will start joint effort in developing next-generation cockpit systems with Qualcomm Technologies, a subsidiary of Qualcomm. Denso aims to develop next-generation integrated cockpit systems by combining Qualcomm Technologies’ information and communication technologies and Denso’s expertise in in-vehicle requirements, functional safety, quality, and security technologies for human-machine interface (HMI) products. Working with Qualcomm Technologies, Denso intends to develop an architecture for systems based on Denso’s Harmony Core integrated cockpit system that can coordinate with external cloud services and new HMI products, which enables car connectivity and advanced safety features such as driver status monitoring, driver and passenger authentication, and improved display operability. (From a press release on January 7, 2020)

Launched joint-development activities with NTT Communications
-Denso Corporation and NTT Communications Corporation (NTT Com) announced that they will begin validating their jointly developed Vehicle Security Operation Center (V-SOC) technology for monitoring and analyzing vehicle’s security status from January 2020. Denso will provide information security, vehicle communication, and data analysis technologies used in in-vehicle systems, connected vehicles, and MaaS (Mobility as a Service) development. NTT Com will use its technology related to networks, cloud computing, and managed security services as well as latest security technology of the NTT Group. (From a press release on December 16, 2019)

Launched joint-business activities on automotive remote-operation technology, with Ottopia
-Ottopia announced collaboration with Denso Corporation. Denso is interested in a teleoperation solution focused on safety and scalability. Ottopia also announced the launch of its Advanced Teleoperation (ATO) platform, providing both direct and indirect remote control of autonomous vehicles. The Ottopia ATO platform provides this human assistance, offering the safest, most scalable and cyber-secure solution available on the market. Ottopia’s ATO platform offers a unique integration of human operators with patent pending Artificial Intelligence software to set a new safety standard for teleoperation in the automotive industry. The platform also introduces an active safety layer of vehicle-side software that ensures safe operation even in harsh conditions such as lost cellular connection or extreme weather.  (From a press release on June 18, 2019)

Established an innovation-connected center in Texas, USA
-Denso announced that it will invest USD 1.3 million to open the Texas Innovation and Connected Service Center in Plano, Texas, following the recent openings of other Denso R&D centers in Montréal, Canada and Seattle, Washington. Denso will use the state-of-the-art research and development (R&D) lab to innovate connected technologies and vehicle service solutions in support of its long-term plan to create new value in future mobility. Sixty employees from three Denso groups are located at the site, including include Denso International America, Inc. Sales and Engineering; Denso Products and Services Americas, Inc., which focuses on vehicle service parts and tools; and Denso TEN, a Denso subsidiary that produces automotive electronics. With close proximity to Toyota Motor North America, Inc., headquarters, the facility will help strengthen Denso’s longstanding relationship with Toyota. (From a press release on September 17, 2019)

Company started participating in the IVADO Project
-Denso Corporation announced it has become an industry member of the Montreal-based Institute for Data Valorization (IVADO). The Institute fosters collaboration between private and academic researchers to cultivate and expand expertise in cutting-edge fields such as data science, operational research and artificial intelligence (AI). Denso will leverage IVADO's research talent and capabilities to enhance its push into deep learning, data mining, cybersecurity, and more. The announcement supports Denso's long-term plan, which is in part focused on expediting company innovation by broadening its research and development (R&D) capabilities outside of Japan. (From a press release on July 11, 2019)

Established Smart Mobility Ecosystems
-Denso Corporation announced it is investing USD 1.42 million to launch a Smart Mobility Ecosystem in Dublin, Ohio, designed to enhance transportation. In the project, DENSO is working with a coalition of municipal, state, business and academic partners to test and implement infrastructure technologies, create value-added mobility services, and gather previously untapped data vital to road and pedestrian safety and reducing travel times. The company aims to be a key resource for new customers in this domain by leading the development of smart mobility ecosystem. To implement its Smart Mobility Ecosystem, Denso is working with the city of Dublin, that will beta-test a strategically targeted transportation corridor that includes both roundabouts and signalized intersections; Connected Signals, creators of predictive V2I technology; DERQ USA, an AI platform developer that integrates with existing traffic and sensor systems and powers real-time advanced analytics; and No Traffic, an AI-powered traffic signal platform. (From a press release on August 14, 2019)

Established Seattle Innovation Laboratory
-In July 2019, the Company established the Seattle Innovation Laboratory, a satellite R&D center, in Seattle, USA. The center works on onboard computers for gathering and analyzing Denso’s automotive data, technology that enables in-vehicle data to connect to the cloud, and the fusion of advanced IT technology.
 

Structuring existing business operations to align with CASE segments

Increasing investment in Aisan Industry
-Denso Corporation (Denso) and Aisan Industry Co., Ltd. (Aisan Industry) announced that they have reached an agreement to discuss the possibility of transferring some of Denso’s automotive parts business to Aisan, and increasing Denso’s stake in Aisan. The two companies are aiming to sign official agreements by autumn of this year after completing procedures for approval from anti-monopoly authorities in and outside Japan. Denso and Aisan Industries are both producing automotive parts, such as fuel pump modules, injectors, and electronic throttles. The two companies intend to integrate duplicated fields to enhance development ability and cost competitiveness, as well as allocate saved management resources to growing fields such as electrification and connected technologies. They will discuss which businesses should be transferred. Denso currently has an 8.7% stake in Aisan Industry, and intends to acquire an additional 28.8% stake in Aisan Industry from Toyota Motor Corporation (all shares held by Toyota). (From an article in the Nikkan Jidosha Shimbun on May 21, 2019)

Consolidated operations into Asmo North Carolina (former Asmo USA operations)
-Denso announced it has now fully integrated its consolidated subsidiary ASMO companies in the U.S. into its North American operations. Denso Manufacturing North Carolina (DMNC), formerly known as ASMO North Carolina, Inc., will become a more integral part of Denso's North America Motors Business group. DMNC's main facility is in Statesville, North Carolina, with additional locations in Greenville, North Carolina; Battle Creek, Michigan; and Ennis, Texas. The integration of Denso's and DMNC's motor businesses promotes collaboration amongst both companies to accelerate the development of advanced technologies and product innovation. With approximately 1,500 employees, DMNC produces blower motors, power seat motors, windshield wiper systems, power window motors, electric power steering motors and pinch sensor assemblies. (From a press release on April 1, 2019)

Forecast for fiscal year ending in March 2021

-The Company is unable to set a sound forecast for its business operations in and outside Japan for the fiscal year ending in March 2021 due to the impact of the coronavirus.

 
Denso announces plans to enhance its software development operations
-Koji Arima, President and CEO of Denso Corporation (Denso), announced its plan to strengthen its software development system at the Tokyo Motor Show 2019 on October 24. The company will increase the number of software engineers from the current 9,000 (including its group companies and subcontract companies) to 12,000 by 2025. The company will establish a system to conduct development 24 hours a day by connecting its development bases across the world, in order to quickly propose leading-edge automotive parts to automakers. Mr. Arima explained the company’s direction of development, such as the advancement of powertrains and heat management for a whole vehicle, and stated that strengthening software development ability is very important to accelerate development. (From an article in the Nikkan Jidosha Shimbun on October 25, 2019)

Denso participates in Mobility as a Service（MaaS）initiative for assisting foreign visitors who come to Japan
-On September 20 Denso Corporation announced that it will join a demonstration project for Mobility as a Service (MaaS) targeting foreign tourists visiting Japan. Denso’s aim is to identify needs of the service operators as well as required technologies and utilize the obtained information to develop related technologies. Denso, ActiveScaler, a California-based U.S. startup in which Denso had made an investment, Nara Kotsu Bus Lines Co., Ltd., and a subsidiary of Dentsu Inc. will offer the “Kururi Nara” service from October to the end of 2019. The service targets Singaporean visitors to Japan. In the project, two applications will be offered to enhance tourist convenience: one to extract images and posts of Nara distributed on social networking services (SNS) using artificial intelligence (AI); and another for smartphones to search, reserve and make payment for most of transport services from Singapore to Nara. The applications will verify whether the areas tourists visited and their period of stay increased. (From an article in the Nikkan Jidosha Shimbun on September 21, 2019)

Major R&D locations in Japan

Product Developments

Joint-development activities with Hitachi Power Devices to improve diodes in order to raise the efficiency of generating power for alternators (generators) by 6%
-On May 23, Denso Corporation announced that it has jointly developed a diode that improves the power generation efficiency of alternators by about 6% with Hitachi Power Semiconductor Device, Ltd. Alternators that Denso manufactures will be gradually equipped with new diodes. DENSO manufactures a total of 25 million alternators annually in more than 10 countries. If all the diodes were replaced with the new diodes, carbon dioxide emissions would be reduced by 30 tons annually. Production of alternators equipped with the new diodes will start for vehicles to be sold in Europe in FY 2019, and will be gradually rolled out to Denso’s plants around the world. (From an article in the Nikkan Jidosha Shimbun on May 24, 2019)

Bi-directional power supply device V2H-discharger
-Denso announced that it has developed “V2H-charger / discharger”, bi-directional power supply device, for EVs and PHVs. In addition to charging EVs and PHVs, the product enables to utilize the electricity stored in vehicles for housing. It is possible to reduce the charging time by double speed charging function and to manage electricity by linking with “HEMS”. (From a press release on May 10, 2019)

-The Company made capital investments during the fiscal year that ended in March 2020 to expand production, streamline operations, develop next-generation products, switch production operations to produce new products, and develop new products.

Forecast for fiscal year ending in March 2021

-Due to the coronavirus pandemic, capital investment spending (new facilities, expansions, retirement of assets, etc.) has not been determined.

Capital Investments in Japan

Expanded the Hokkaido Plant of a subsidiary to increase production of semiconductor sensors
-Denso Corporation announced that its fully-owned subsidiary, Denso Hokkaido Corporation, will expand its plant to strengthen production capacity for semiconductor sensors used for automotive engines, air conditioning systems, and brake systems. Demand for semiconductor sensors is expected to grow in accordance with the electrification of automotive parts. About JPY 11 billion will be invested through 2025 in order to strengthen the Denso Group’s competitiveness. The construction work for expansion will start in July 2020 and be completed in June 2021. Production is planned to start in October 2021. The total floor area of the Hokkaido Plant will increase from the current 34,300 square meters to about 52,650 square meters, and the number of employees will be increased from about 1,000 to 1,150 in 2025. (From an article in the Nikkan Jidosha Shimbun on September 27, 2019)

Capital Investments Outside Japan

<India>
-On October 14th, the government of Gujarat signed a memorandum to expand the production plant of Automotive Electronics Power Private Limited (AEPPL) that was jointly established by Suzuki, Toshiba, and Denso. The memorandum enables the plant to increase the production of lithium batteries. AEPPL will invest in the plant located in its Bacharaji in two phases. The first phase will be an investment of INR 12.5 billion (JPY 19.0 billion) to be completed by the end of 2020 for installing equipment to produce battery packs and modules. Around 1,000 local employees will be hired. The second phase involves an investment of INR 37.2 billion (JPY 57.0 billion) to be completed by 2025 to enable the plant to produce 30 million battery cells a year.

<Mexico>
-Mexico-Now reported that Denso Corporation is investing USD 6.7 million to add 15,000 square meters to its facilities in Frontera, Mexico. Work on the expansion will begin in early August and is expected to be completed in 8-12 months in order to be inaugurated in the summer of 2020. The Frontera plant was established in 2001, and currently has 975 employees. The expansion is expected to create 500 new jobs. (Mexico-Now article on July 23, 2019)

-Denso announced that it will expand its plant in Apodaca, Mexico by adding 500 new jobs to bring its workforce there to 5,000 employees. The Apodaca plant manufactures products such as air conditioning panels and dashboards for the automotive industry, supplying OEMs such as Volkswagen and Toyota. In addition to its plant in Apodaca, Denso has another plant in Guadeloupe with 750 employees and a warehouse in Silao with more than 1,400 employees. (From multiple sources on April 11, 2019)

<China>
-On April 26, seven major parts suppliers affiliated with Toyota Motor Corporation announced their consolidated financial results for fiscal year 2018 (ended in March 2019). Although all the suppliers recorded a revenue increase, six of the companies other than Toyoda Gosei Co., Ltd. reported an operating profit decline partly due to increases in depreciation and labor expenses. Despite severe requests for a price-cut from customers, the parts suppliers will continue to make investments at high levels in line with Toyota’s CASE strategy in order to tap into a rise in demand for parts in the future. Denso Corporation’s operating profit for FY 2018 decreased about 20%. This is, however, largely attributed to temporary factors like a conservative estimation on quality-related costs. Denso projects growth in both revenue and profit for FY 2019. Aisin Seiki Co., Ltd.’s revenue for FY 2018 was an all-time high. However, its operating profit decreased due to increases in fixed costs such as depreciation and quality-related costs. Aisin projects a decline in operating profit for FY 2019 due to mounting depreciation and production preparation costs, as well as an unlikely rise in sales of automatic transmissions owing to the sluggish Chinese market. JTEKT Corporation projects an increase in revenue for FY 2019 owing to brisk sales of steering parts made by Fuji Kiko Co., Ltd., which it turned into a consolidated subsidiary. JTEKT will step up efforts to improve profitability in its struggling bearing business and productivity in back-office operations. (From an article in the Nikkan Jidosha Shimbun on Saturday, April 27, 2019)