Komatsu Ltd. (OTCPK:KMTUY) Investors Meeting & ESG Meeting Conference December 19, 2023 5:00 AM ET
Company Participants
Yasuji Nishiura – President of CE Marketing Division
Taisuke Kusaba – Chief Technology Officer, President, Development Division
Conference Call Participants
Tsubasa Sasaki – Mitsubishi UFJ Securities
Tomohiko Sano – JPMorgan Securities
Kentaro Maekawa – Nomura Securities
Yuichiro Isayama – Goldman Sachs Japan Co., Ltd.
Takeshi Kitaura – Bloomberg
Yasuji Nishiura
Hello, everyone. I am Yasuji Nishiura, President of CE Marketing Division. I present on the growth strategy and approach to the Latin American market. Latin America is the second largest market for Komatsu following the North America in terms of sales, very important market.
As Hishinuma mentioned before, I have been working in San Diego, Chile until March as a representative of all Latin American operation for three years. So today, I would like to explain the Komatsu’s initiatives in Latin American region.
I will talk on these three points today. Following the overview of Komatsu Latin American business, I will explain new technologies deployment in the Latin American region, mainly in mining technology. And third, I will explain ESG and CSR initiatives in the Latin American region.
This slide shows general information, demand and our sales in the region. As shown on the left, mining equipment related sales in Latin America are substantial and resources are of vital importance. In particular, Chile and Peru account for about one-third of the world’s copper production. So sales and services related to mining equipment for copper mines are the mainstay business.
Commodity prices tend to be volatile. But currently, the prices have been staying high, especially copper is very promising mineral, due to the demand for the electrification of automotives, and we assume that the copper demand will continue to be stable going forward.
But politics in Latin America are not very stable, showing some risks. Left-wing party has been recently gaining momentum in Peru, Argentina, Brazil and Chile. But in Argentina, recently Right-wing, Milei won the present election, but people are suffering from high inflation among others. So, major business concerns are unstable politics and poor security condition.
That said, there are abundant opportunities as well. Besides mining, large scale infrastructure investment plan was announced in Brazil. In Mexico, infrastructure investment has been very robust, including the large railway construction project dubbed as Tren Maya in Maya peninsula. In the middle, construction and mining equipment demand for Komatsu are shown in such an environment.
Top chart shows the construction equipment demand including the middle size excavator and the bulldozer. Brazil is a very large market, accounting for almost half of the entire Latin American demand shown in green. Upper proper part is Latin America except Brazil. Construction equipment is volatile, but mining equipment below is more volatile.
In 2011 and ’12, due to the commodity boom, mining companies invested heavily. The demand hit the bottom in 2016. And in recent years, it has been relatively stable. Unlike the construction equipment, the demand is higher in Chile, Peru and Mexico rather than Brazil in mining equipment.
On the right, Komatsu sales in the Latin American region are shown. Sales have been growing substantially from FY ’20 to ’22. Sales in FY 2022 were $4 billion, and sales are expected to grow farther this year.
In the first half, sales in the Latin American region increased. The top chart shows a feature of Latin American business that 70% of sales are in mining, shown in orange, versus construction, shown in blue. The bottom chart shows a sales mix of equipment and aftermarket of parts and services.
Aftermarket is in the yellow and equipment is in green. Our business model in the Latin American region is to sell large equipment to mining company and secure the sales in the relevant aftermarket. Aftermarket sales have been very stable, and recently, we were able to grow them further.
Next page shows the position of Latin American business in the global business of Komatsu. There may be overlapping information with the previous slide, but the chart on the top shows Latin American demand in red out of the global demand.
As shown here, Latin America demand has been just over 10% in the last two years of the total global demand. This chart shows demand in unit. And in terms of unit, construction equipment volume is higher.
And partly due to this, Latin America accounts for only 10% or 11% of the global demand. However, in terms of sales, global sales of Komatsu increased from ¥2.5 trillion in FY ’18 to ¥3.38 trillion in FY ’23, and sales in Latin America increased from 13% to 18%, up 5 points. This is driven by the growth of mining sales and aftermarket.
As shown on the right bottom, in global, mining sector related sales account for 43%. But in Latin America, as mentioned before, they account for 70%. Mining equipment in yellow is just 16% and parts and service and others account for 54%. This shows the business model of Komatsu that we earn stable sales in aftermarket business. Then how we have delivered the results are shown on the next slide.
Allow me to reflect on our history. Komatsu has quite a long history in Latin America. As you can see here, we started exporting motor graders to Argentina in 1955. The first country Komatsu exported its product to was Argentina in Latin America, not the U.S. nor Southeast Asia. Argentina was the first.
It was also in Latin America that we built our first overseas factory, which was in Brazil in 1975. Perhaps the most epoch-making event in Komatsu’s Latin American business was our investment in distributor in Chile in 1999.
The sales for Chile alone has now grown to about $2.2 billion whereas it was about $200 million when we invested in 1999. So, we have been able to increase sales by 10 times. I believe that Komatsu’s concentrated direct investment in the mining business was a major contributing factor for this.
Komatsu’s policy has been to invest directly in downstream distributors for mining equipment so that we can build a relationship where we as a manufacturer can talk directly with customers and incorporate their needs into product development, and at the same time, as I have explained, ensure we capture business in the aftermarket.
For construction equipment, we often use leading local distributors, but for mining equipment, we invest directly. We decided on this policy and invested in Chile in 1999 and later in Australia and South Africa, although they are not shown here. Having established a direct distribution business model in Chile, the mining country, since 2009, we have also invested in other neighboring mining countries such as Peru, Colombia, Brazil and Mexico.
Please turn to the next page. I am sure you are all familiar with this, but I would like to talk again about the global mineral production ranking. As I mentioned earlier, Chile and Peru rank first and second in the world in terms of copper, and Mexico is ninth. Amongst other minerals, iron ore is the important one. Brazil is world’s second largest iron ore producer. So Latin America is an extremely resource rich region.
To repeat, we first invested in Chile, followed by the neighboring Peru, then Colombia, Panama and Mexico. Brazil is a very large market for construction equipment as well, and we have a construction equipment manufacturing plant called Suzano plant in Brazil. For construction equipment, we cover this vast country with seven distributors. In Brazil, mining is also a very large industry, and Komatsu directly operates the mining equipment business throughout the country and has made direct investments.
Next, please. Let me touch again upon Komatsu’s business model for mining equipment, which was initiated in Chile. Right now, there are 1,550 mining equipment in operation in Chile. Komatsu knows how every single piece of equipment is operating, at which mine. Here, we are looking at just one country, Chile. We have dump trucks like what you see here. These are electric trucks. By electric, we mean that, they are electric diesel trucks. Diesel engines power the generators, which produce the electricity that drives the truck.
I think it is fair to say that, Komatsu is a world leader in this field. Most of the 1,100 equipment in operation in Chile are these super large trucks of 300 to 400 tons. As you can see in the picture, these are very large pickup trucks. This one is a 400 ton truck, meaning one truck can carry 400 tons. The truck next to it, which appears very small is a rope shovel, an equipment that can load 100 tons at a time. 400 ton loads will fill a 400 ton truck.
This equipment was added to Komatsu’s lineup as a result of the acquisition in 2017 of the former Joy Global, which is now KMC, and it has generated a great deal of synergy in Chile. These kinds of rope shovels, drills and others number approximately 100 units. And then we have 350 bulldozers, graders and others, which we call auxiliary equipment in the mining world. So together, that is a total of 1,550 units.
The important point is that about half of these 1,550 units come with service and maintenance contracts. What this means is that this allows the customer to concentrate on mine development and mining and can leave all machine maintenance work from maintenance, which is done daily to major repairs to Komatsu.
What kind benefits that is spring to the customer? Now these four repairs arises on a daily basis and consumable parts such as bucket teeth are consumed, but the major repair cost is what is called an overhaul. As you can see in this picture, these large components are dismounted, overhauled and then replaced. The number of overhauls is about 1x or 2x to 3x for the life of the equipment, which is typically about 10 years. So that’s how much overhaul costs.
In addition to that, unexpected repairs also occur. This graph only shows overhauls and does not include unexpected repairs. But in reality, in addition to overhauls, various other costs are incurred such as for unexpected repairs and repairs due to poor maintenance, instead of all that, Komatsu offers service maintenance contract where we would bill a fixed amount per working hour, if that results in total costs being reduced for the customer, the customer benefits. And for Komatsu, we can expect a stable income.
The fact that 50% of mining equipment are under service and maintenance contract means that this contract is cost effective for the customer. Customers are very demanding and if we are not cost effective, they would often ask other companies to provide services or do the maintenance in house. Since Komatsu continuously strive to lower costs, we are able to make competitive offers and capture this business.
So how are we going to achieve this competitive dollar per hour offer? There are various factors, but the biggest one is how to reduce the overall cost, which is the most costly. The customers are paying a fixed rate. So how are we going to reduce this large cost? The more cost is reduced, the more Komatsu’s profit will increase for this purpose, we have the Reman business. Reman is a short form of remanufacturing. We have two Reman factories in Chile which we refurbished used components.
What you see here is a wheel motor, which is located within the wheel. We refurbish these motors. We are putting in efforts on a daily basis as to how to remanufacture all the components without changing them to new ones or how to reduce the failure rate of the remanufactured components at the customer’s site.
Technological development is conducted on a daily basis. This is a Reman center in the Northern part of Chile in Antofagasta. It is very large in scale and we built a new plant last year. Besides remanufacturing, we are in charge of all the day to day maintenance of our products. So, it is necessary to have highly skilled engineers working on-site.
This is the graph of the number of Komatsu employees by country. In Chile, we have 9,000, which is number one in the world excluding Japan. Mining equipment operates 24 hours a day, meaning that our maintenance staff will work 24 hours taking shifts. Especially in Chile, equipments are operated at high altitude such 3,000 or 4,000 meters.
So once they go up to the campsite, it’s difficult for them to come down again and change shifts. Normally at these mines, the staff will work for seven days and then come down from the mountains and rest for seven days. We call this a 7×7 shift and this is a normal working schedule.
I also want to mention what is not written here. Another major factor to reduce cost is to avoid major repairs as much as possible meaning that we have to always understand the operating status of the equipment. It is very important to fix the machine before a major breakdown happens.
Komatsu has a system called KOMTRAX, which allows us to capture the operation data of the equipment using GPS. By utilizing this system, we have been accumulating data as to understand what type of signs will lead to what types of failures. More recently, we have started to use AI to further make this process efficient. This means that the system is beneficial for the customers and leads to a very stable income source for Komatsu.
If we have these service contracts, not only are we be able to gain income from services, but all the components will be provided by Komatsu. The customers do not go to third parties to purchase components meaning Komatsu’s profit is going to increase. You can see our KPI in terms of the profitability of this business. We call this absorption ratio. This calculates how much of the total company’s capacity cost is being covered by aftermarket profit.
In the case of Chile, this number is 300%, meaning that profit is 3x of capacity cost. To give you an extreme example, this means that, even if we do not sell even one new equipment, this business model allows us to have good earnings. Competition to sell new equipment is quite fierce. But Komatsu’s business model is that, we will maintain and expand the 1,500 population that we have and capture the aftermarket business.
Next is Brazil. Brazil has mines, but it is also a huge market for construction equipment. There is a lot of activity with its vast territory, mineral resources and infrastructure development. Komatsu’s equipment is also used in agriculture and forestry. You can see the demand for construction equipment by country. This is last year’s data, but Brazil comes in as number four following China, USA and Japan. Brazil offers preferential treatment towards domestic products and tariffs are very high.
Due to these reasons, as was mentioned before, we established the first overseas factory back in 1975. The Company’s name is Komatsu do Brasil, KDB. And the photo is its Suzano plant. Currently about 3,000 units of 34 models are produced in this plant. Products are shipped mainly to Brazil. Small bulldozers are shipped to North America and Europe. And excavators and wheel loaders are shipped to surrounding countries such as Argentina.
We have seven distributors in Brazil, all local. In 2016, we set up our own finance company. I forgot to mention, we also have our own finance companies in Chile and Mexico as well. So that has been about construction sector in Brazil, but turning to the mining sector. Brazil, alongside with Australia is one of the major producers of iron ore. Vale is a large company in this sector.
Mines are concentrated in two areas, Carajás in the North and the Southern area. We are investing in the new plant both in the North and South. In an area close to the Carajás mines at a place called Parauapebas. We are going to build a new repair center, which will be completed next year. In the Southern area, we will be building a new facility for re-mine and re-build for mining equipment components. This will be completed in 2025.
This is the way we have been operating in Latin America. So Latin America is a very active area for mining. This means that in many cases, we have introduced our new technology and innovation into Latin America and then deployed it worldwide.
One example is autonomous trucks. Regarding AHS dump trucks or Autonomous Haulage System trucks, there are probably going to be 700 units of autonomous trucks operating around the world by the end of this fiscal year. And actually, Chile was the first country to adopt the AHS dump truck system. In 2005, we tested the system at Codelco’s Radomiro Tomic mine. And in 2008, we installed the world’s first commercial AHS system at another Codelco mine, Gaby.
Rio Tinto implemented a large number of our Komatsu AHS trucks, especially in Australia. And although it took some time in Latin America, we now have more than 100 units of AHS trucks operating across nine sites.
Especially in Chile, the number of mines that have introduced autonomous trucks has been increasing rapidly over the past three years. Even apart from trucks, we are working on autonomous, remote control and automation in other areas. This is an example of a bulldozer. We call it a teleoperation bulldozer, and it is operated remotely.
Komatsu has a series of ICT equipment, leveraging ICT for medium-sized bulldozers and excavators to provide operator assistance. Even for the unskilled operator, the equipment can automatically break, and in the case of this bulldozer, it can control the blades. Also, for the undercarriage, it can control the slippage of the shoe. Combined with a machine guidance system, we have developed a system that allows the bulldozer to operate without the need for a person to physically be on it.
This is not only Komatsu’s original technology, but the autonomous trucks were also developed together with modular mining system in the U.S. To ensure autonomous operations, virtual reality is key as well. This is a screen that you see on the slide, and we put importance on trying to replicate the job site. So, the simulator is from Immersive Technology, an Australian company that Komatsu acquired several years ago, which offers this technology.
The system enables the female operator in the picture to feel as if she is operating the bulldozer. Incidentally, this is an iron ore mine in Minas Rio, Brazil, owned by Anglo American, a major mining company. The control room is located 2.5 kilometers away from the mine, so naturally, there is no vibration and the operator’s comfort level is very high. This workplace is called a stockpile site. After excavation at the workplace, the trucks transport the material to the crusher, which makes a pile. And this pile must be graded, but there is a risk of collapse.
If a person is doing the grading job, and if he or she falls, it could lead to a fatal accident. It’s quite a dangerous job site. So in the past, the operators needed to be extremely experienced. But even so, because the work was still dangerous, mining companies were saying that they wanted to remove people from the mine. That is why a teleoperated bulldozer was implemented so that people didn’t have to be at the dangerous job site nor ride on the bulldozers physically. This is one example of Komatsu’s commitment to achieving a safe, productive, smart and clean workplace of the future. So this was one example.
The third example is about underground hard rock. And here I would like to talk about our TBM, Tunnel Boring Machine. In the conventional underground mining process to excavate minerals such as gold and copper, a drill jumbo is used to drill a hole horizontally. Then the hole is filled with dynamite then blasted and then the materials are loaded and transported. Then after, measures are taken to support the ceiling to prevent it from collapsing. Because it involves the use of explosives, it is a very dangerous process. You need to evacuate people, too.
Komatsu is trying to innovate this process by introducing new technology based off three key words, no blasting, no batch and no diesel. That is what mining TBM is all about. In fact, Komatsu started the TBM business from 1964 and units have been shipped to Japan, China, as well as Taiwan and other countries. The total of about 2,000 TBM units have been shipped to date, which were used for tunnel excavation for railroads and roads. However, this is our first attempt to use TBMs in a mining operation. The TBMs just needed to go straight in digging tunnels for conventional applications such as railroads and roadways.
In the case of mining however, tunnels must be excavated both vertically and horizontally. So the machine must be able to turn and move in reverse. That is why we developed a new TBM. The first mining TBM has been assembled at Komatsu’s Osaka plant and is now undergoing testing. The machine will be disassembled and taken to Chile where it will start operations at the Chuquicamata Mine in Chile from 2025.
Next page, please. Sorry for running so long. I will be quick with the last two pages. I would like to touch upon ESG a little, from the employees and social standpoint. Here is a program in Chile called the ReInventarse program. It has been running for about 10 years now in Chile, and it was initiated by an employee there. Many of young prisoners, who are in juvenile reformatories used to be in poverty or were in challenging environments that led them to commit crimes, in support of their social reintegration, we have established a tie up with the Chilean Government to help them acquire skills at Komatsu’s plant.
In the past 10 years, Komatsu has directly hired 40 graduates of the program. Of course, there have also been cases in which graduates have gone to work for other companies of their own choice. Two years ago in December 2021, we received an award from the United Nations on human rights. We are also conducting CSR activities in Brazil.
Next slide, please. We have 9,000 employees in Chile, but our employee base is male-dominated because of the harsh conditions at the mine site. However, as we would like to promote diversity, we are conducting various activities in several countries. In Chile, for example, we have a program to nurture the next generation of female leaders at the management level. And in Peru, there was this fascinating example where a 400 ton truck was assembled, solely by a team of 11 women. In this regard, we are engaged in activities to foster engineers.
Apologies for running long. This concludes my presentation. Thank you for your attention.
Question-And-Answer Session
Operator
Thank you very much. Now I would like to begin Q&A session.
Tsubasa Sasaki
I am Sasaki at Mitsubishi UFJ Securities. I have two quick questions. First, the success in Chile is commendable. Then how can you repeat the success of Chile in other regions in Latin America? Sales in Chile are already $2 billion. But as shown on Page 6, other countries also have great potential market. So let me know the strategy or your thought on how you horizontally expand the Chilean success to other regions? This is my first question.
Yasuji Nishiura
Let me explain using this map. As you mentioned, we are exactly trying to deploy the success in Chile in other countries. In the neighboring country of Peru, we developed the same business model through the entity with 40% share and Mitsui has 60%. In Peru, we deployed the same business model and received order for a large fleet of mining equipment, and signed multiple service agreements. Absorption ratio has gone up to about 200%.
We invested in Colombia and Mexico in the same format. I was the President of Komatsu Holdings South America shown here, and this company oversees the entire Latin America. And I was concurrently serving as a board member of the companies in those countries and have been promoting to deploy the Chilean success case in other countries. I think the potential is still very large, and we’ll try to grow in Mexico, Colombia and other countries as well.
Tsubasa Sasaki
Second, looking at the chart on Page 6, I was reminded of the prominence of the mid to long-term growth market of Brazil. Would you tell us again why Brazil is such a huge market with strong growth for construction equipment? Compared to the GDP, I think this is extremely large market. So I would appreciate if you explain the market structure among others?
Yasuji Nishiura
Brazil has a huge population with mines and agriculture. And recently, they have been making heavy infrastructure investment, and the demand for construction equipment has been rapidly growing. However, investment by private sector is still small and the investment depends more on the public sector. But we began to see the growth private investment. So Brazil will continue to grow, though they might undergo some fluctuation. Such a huge population is an important factor. It was very clear. Thank you very much.
Operator
Next Mr. Sano. Over to you.
Tomohiko Sano
I am Sano of JPMorgan Securities. I have one question about Chile. From 1999, when Komatsu owned DB was established to the year when you were working in Chile, out of the total mining demand of 100, 200 or maybe less. How did the market share of Komatsu evolve? Would you describe them in chronological order? Going forward, please let us know how there will change with AHS and the TPM, which will serve as game changers to change the competitive landscape?
Yasuji Nishiura
Yes. When Komatsu invested in 1999, Caterpillar was a major player, with Finning, a Canadian dealer which covers Chile as well. But recently, Komatsu invested and developed human resources. And Komatsu became a number one player in the share of value with more than 50%. That is the current market share. And in the share of volume, Caterpillar and Komatsu are almost on a par. But as Komatsu has a larger share in the large dump truck and rope shovel, Komatsu has the number one position in terms of value.
Tomohiko Sano
How about going forward?
Yasuji Nishiura
Going forward, in AHS, every time, we are competing with Caterpillar. So we do not think that Komatsu can take 100% share, and customers would prefer a healthy competition. But customers especially appreciate the high utilization of Komatsu equipment in Highlands. We need to compete with peers including Caterpillar in AHS and other technologies. But Komatsu would like to win competitions with the total competitiveness of equipment system remain as I explained and HR investment, and we like to maintain the high market share going forward.
Operator
Next, Maekawa please.
Kentaro Maekawa
I’m Maekawa of Nomura Securities. I have two questions. On Page 3, when I refer to the mining equipment demand since FY ’12, demand has not surpassed the level in FY ’12. But in your sales, you have surpassed the level of FY ’12, and currently, the mining grid investment has been stable and that has reduced the productivity compared to the past. Compared to FY ’12, please explain why the mining business has become so stable, maybe partly because of the different proportion of parts and the services? This is my first question.
Yasuji Nishiura
As I mentioned, in the peak period of FY ’11 and ’12, customers globally made substantial investment. Equipments sold in this period are still in operation and they are the revenue source of our current aftermarket business. And now customers are considering their replacement. But it is also related to decarbonization, as it will be covered in the next presentation by Kusaba. Customers are waiting to see how the trend for mining equipment decarbonization will develop. In a way, they are trying to extend the life of equipment.
Komatsu is examining the direction of decarbonization with customers, whether it moves for battery or hydrogen and others. The revenue in these parts and services have been on the rise, but the sales of new equipment have also been stable as well as the aftermarket sales and their expansion. In around 2000, the sales of equipment were one-off, but now the ratio of service contract has increased. So after the sales of one equipment, the lifetime aftermarket sales that Komatsu can capture, their pie has expanded, and that contributed to the growth in the last 10 years.
Kentaro Maekawa
Thank you. The second question is about development. You mentioned earlier about synergies with acquired companies in the area of unmanned systems. Since you mentioned TBM in underground hard rock development, I was wondering if you are also using the conventional construction technology. Please talk about the realization of synergy in underground hard rock.
Yasuji Nishiura
We have introduced to you the TBM, a machine used in underground hard rock, as the most innovative and epoch-making product. This machine has a diameter of 5.8 meters, meaning, it can only be used in large block caving mines. For smaller mines or mines that use smaller diameter methods, this type of drill jumbo with a low profile LHD will continue to be used for some time.
Against this backdrop, Komatsu machines and/or technologies are being incorporated into the products of KMC, the former Joy Global, which we acquired. This hybrid LHD, for example, uses a diesel engine to drive the motor with improvements in fuel efficiency by 20% to 30%. This comes from the surface wheel loader technology.
We have also been incorporating Komatsu axles and alike. The horizontal drill called A Jumbo usually has a hose attached to it, and maintenance of this hose or oil leaks from the hose is a headache for customers. Komatsu has developed a jumbo drill with the holes internally enclosed, and is in the process of introducing it to the market.
In addition, we are in the process of acquiring an underground hard rock company, GHH. This has already been announced, and is undergoing review by the authorities. We think this will further expand our product range and expand our volume in underground hard rock.
Kentaro Maekawa
Thank you. One more. Are there synergies in technological development with Joy Global? Or are the synergies more in the area of sales?
Yasuji Nishiura
Joy Global had a great variety of technologies. We had KOMTRAX Technology in the area of construction equipment. But in terms of generating useful or valuable data for our customers from that or collecting big data and analyzing that big data to provide reports to help customers improve their productivity, Joy Global had a lot of technology and human resources in that regard. Also, Joy Global, as a company specializing in mining and listed on the U.S. stock exchange had a very rich pool of human resources, which was another reason it made it an attractive acquisition for Komatsu.
Operator
Thank you. Since time is limited, we will take one question each from Mr. Isayama and Mr. Kitaura.
Yuichiro Isayama
Thank you. Of the ¥3 billion, how much is KMC sales. There seems to be strong growth in parts and services. Has the acquisition had an unexpectedly large impact or is it because the existing installed base has grown and parts and services have also grown just for Komatsu products? Since you have explained rope shovels and such, I am wondering which is a bigger factor? I’d be happy to hear a quantitative answer as to how much is Joy Global.
About a quarter is your global and about three quarters are conventional Komatsu. Is the growth rate the same? Both are growing. One of the biggest synergies is that we can provide both main loaders and trucks to our customers as one-stop shop.
Also we said we built a new remand center that was built on a large plot of land right next to KMC’s existing remanufacturing shop, allowing products from each other to be handled. That was another form of realized synergies. Thank you.
Yasuji Nishiura
Since we have been working on integration post Joy Global acquisition, the definition of what originated where is becoming less clear, so the answer is based on approximate figures.
Operator
Mr. Kitaura, this is the last question.
Takeshi Kitaura
This is Kitaura from Bloomberg. I’d like to ask about the TBM mentioned earlier. Focusing on Latin America, I’d like to know, what is the ratio of the surface and underground mining equipment market at this point in time? And although I think, it will depend on whether you will introduce smaller products in the future, how much upside do you envision with TBM? If sales are 100 now, are we talking about ending for 200? I’d like to ask about that, including the timing of the transition from surface to underground mining.
Yasuji Nishiura
To start with, KMC and Komatsu are latecomers to the underground mining market. So the share of underground mining is not very large at this point in time. It is not zero, but it is a very small portion of the 4 billion mentioned earlier. We are developing new products such as this TBM to expand this segment. So potential is great but it is still smaller at this point.
However with regard to the TBM, a customer called Codelco decided to take on a new challenge together with us on AHS, Autonomous Haulage System. This was successful and has become a big business globally for Komatsu as well. Mining customers are generally conservative and do not immediately jump to new methods, so we would like to create successful cases here.
Takeshi Kitaura
In terms of actual copper production, do you have an idea of what the ratio is now between surface and underground?
Yasuji Nishiura
I’m sorry. I don’t have the data with me. But I think that in terms of copper production, the surface is much larger than the underground in Latin America. However, looking at Codelco’s Chuquicamata, it was originally a surface mine, but they have taken most of what can be mined easily, and it will cost too much to continue surface mining, so they are shifting to underground. In that sense, I think it is the underground that will grow in the future.
Takeshi Kitaura
Thank you very much.
Operator
Thank you, Mr. Kitaura. This concludes our explanation. Thank you.
Taisuke Kusaba
I started to work in the current position from this April. I’m Taisuke Kusaba. Today, I’d like to speak on the title of development parts towards carbon neutrality and present the update. This is a mutual management plan of Komatsu, which may already be familiar to you. We started in April 2022, and it is now in the second year.
In this plan, we have three pillars of accelerate the growth by means of innovation, maximize earnings power, and enhance corporate resilience. Regarding accelerating the growth by means of innovation, we are taking on the challenge of creating value of products and solutions for the carbon neutrality of construction and mining equipment.
I mean, the rising awareness for carbon neutrality, we have launched electric micro excavators, mini excavators, and midsized excavators in the market. And we have also been continuing activities such as the development of electrification of ultra dump trucks for mines and power agnostics. Today, I’d like to update the information in this presentation.
This slide shows a recent global movement. First, EU decided to allow sales of new cars that use synthetic fuel as an exception, in March 2023. They began to change policy slightly recently as they have been against the passenger cars with internal combustion engine, including hybrid, before.
In North America, as you know, Inflation Reduction Act, IRA, was enacted and relevant tax benefit are offered. Various manufacturers have been launching the production bases in North America.
Meanwhile, in Japan, government announced ¥15 trillion investment plan for public and private sectors over the next 15 years, as a basic hydrogen strategy. We began to see movement including this.
And in COP28, hydrogen and ammonia attracted attention, and the related initiatives have been accelerating gradually. Especially, as I mentioned about EU first, allowing the use of synthetic fuels, we think that the world started to pursue the realistic solution for carbon neutrality.
This is also familiar slide, road map of Komatsu for achieving carbon neutrality. Komatsu committed to reducing emissions by 50% in 2030 toward achieving carbon neutrality in 2050. And we have been continuing activities to attain these targets steadily.
Key factors are shown on the right, reductions from product improvement, in blue, and reduction from solution improvement in green. We work on products and solutions, as I explained in the three pillars of innovation first. Regarding the products improvement, we will achieve them through electrification, transition to hybrid and use of synthetic fuels with internal combustion engine, as mentioned before.
Regarding the solution improvement, through Smart Construction, we will improve customers’ efficiency on-site. Improvement of on-site efficiency leads to less fuel consumption, and naturally, that directly links to carbon neutrality. So, we will work on these two fronts in parallel.
This slide is updated from one we showed last year or two years ago. As shown in the left top, active use of carbon neutral fuel at an RE stage in light yellow was added in the updated version. As shown in the example of EU before, since we began to pursue the realistic solution, we need to develop product with existing internal combustion engine to adapt to these fuels, and these developments are ongoing.
I would like to make it clear to avoid misunderstanding that, carbon-neutral fuels would not be zero CO2 emission. But as you may know, compared to the conventional diesel engine carbon emission will be drastically reduced. So please make note that, what I mean is a cleaner fuel with lower carbon emissions.
As customer sites are in diverse environment, we like to continue our activities and development based on the road map to provide products and solutions for customers. And we would like to move forward by sharing the road map for carbon neutrality on-site with customers. This may be also a very familiar slide for you.
But this is the most important one. Through two-pronged approach of improvement in products and solutions will provide safe, highly productive, smart and clean workplace of the future. This is the ultimate goal of Kumatsu. In the process, we will promote digital transformation and as a part of initiatives for clean workplace, we work on the carbon neutrality as well.
For horizontal access, besides the previous access of level of automation and autonomous operation, we added another axis of the green arrow of also the products for improvement of equipment efficiency and reduction of carbon emissions through electrification, among others. Through these three axes, we achieved the carbon neutrality.
As we may have shown you before, these are the four challenges that need to be overcome. This has not changed. We are working to solve these challenges and make improvements to our products toward carbon neutrality. First, in the upper left corner, we talked about performance. And here, power density becomes a critical issue.
For this, we will collaborate with battery manufacturers, and we’d like to provide products with the necessary output power and endurance. Also on the right, it says durability. We’d like to ensure our products are able to withstand vibration levels when used in harsh environment also as shown on the lower left, our customers use our products in a variety of harsh environments, so it is very important that we make machines that can withstand such conditions and have no problems.
The other important factor is cost. It is very important to make constant efforts to ensure that prices are optimized. We’d like to become a company that can make appropriate proposals on that front, including supply infrastructure. Next, please.
These are electric construction equipment that were introduced to the market this fiscal year. As some of you may know, we have launched the PC30E/33E-6 electric mini excavators equipped with lithium-ion batteries in Japan and Europe, which are model changes from the PC30E-5 electric mini excavators launched in fiscal 2019.
In addition, we plan to introduce to the Japanese market the PCO5E-1 electric micro excavator, which employs the same system as a PCO1E-1 launched in Japan last fiscal year as a rental machine.
For medium-sized construction equipment, upper right and lower left, we plan to launch the PC200LCE/210LCE-11 electric excavator in Japan and Europe and the PC138E-11 in Japan. They combine a highly efficient hydraulic system with a large capacity battery to achieve long hour operation and the same work performance as current models. Next please.
In addition to batteries, we are also continuing to promote research and development for hydrogen. Compared to smaller construction equipment that leads electrification for medium large construction equipment, SECURING sufficient machine output power and operating time is necessary, as well as power source with higher energy density.
For that, we are conducting R&D of next generation power sources, including hydrogen fuel cells and hydrogen engines. We have installed a fuel cell in a medium sized hydraulic excavator and conducted a demonstration experiment with PoC and were able to operate it without any difference from diesel or battery powered machines. Although this was at the level of demonstration experiment, we’d like to use the knowledge gained from this to take the project to the next phase.
We are also continuing to promote research and development of various power sources for dump trucks. The middle photo shows a fuel cell bench test facility. This test has been done with a small power output fuels. We are also planning to conduct bench tests of large capacity fuel cells for super large dump trucks for mines.
At the same time, we are developing simulation and other technologies to speed up system development, ensure quality and reliability, visualize the fuel cell systems when installed in vehicles.
For hydrogen engines, as we show at the bottom, we have succeeded in commercializing a 250 kilowatt mixed fuel hydrogen engine develop with Denyo, which is now in operation and being used in production at our Oyama Plant. This engine is capable of generating power with up to 50% hydrogen mixed in with the fuel, reducing CO2 emissions by up to 50%. We are also researching and developing an internal combustion engine that can be powered by 100% hydrogen.
Next, of the product and solutions, which I mentioned at the beginning, I’d like to briefly talk about the product part. As we have said many times, new power sources must achieve higher production efficiency while ensuring quality and reliability that meet customer expectations. We need to tackle the four challenges I mentioned earlier. However, some of these issues will take time to resolve, so we will give thought to achieving good balance and proceed as shown here.
At the top of the list are the non-internal combustion engines, which are the battery powered vehicles I mentioned earlier and the fuel cell vehicles in green. At the bottom is the internal combustion engine, which is the Hydrogen mixed fuel engine. We are using that as a generator. Below that, in blue, we are working on 100% hydrogen engine that burns only hydrogen.
The blue arrow in the middle coming out of the bridge technology box in the upper left corner include hybrid diesel electric trolley and cable. This area is called bridge technology because they act as a bridge toward carbon neutrality in the future while still being able to use diesel engines. We are also working on this kind of bridge technology using diesel engine vehicles.
As shown in red at the bottom, as for carbon neutral fuel, we think it is necessary to develop diesel engines with improved efficiency not using existing engines. As you know, we have technology surrounding diesel engines, so we will further advance this technology and will improve fuel efficiency. And by combining this with carbon neutral fuel, we will further reduce CO2 emissions.
In the pink box, it says CO2 capture technology. If we can use carbon-neutral fuel with diesel engines and equip these with carbon-capture equipment, we think we can offer products that can achieve carbon neutrality. Toward this end, we are conducting research activities.
It says here HVO fuel. This is a paraffinic fuel produced from renewable raw materials such as corrosive oils, animal fat, waste, vegetable fats and residues. We can reduce CO2 emissions up to 90% just by using it.
Currently, we have confirmed that the internal combustion engine that Komatsu is developing does not need any modifications for filling this fuel. This means that without additional investment, we can reduce CO2 emissions. There is a possibility that we can reduce emissions by using this technology. So this was the approach through products.
Next slide please. In terms of approaching this issue through products, I think energy or fuel will be very important. This slide shows what is quite apparent, but on the right hand side, it shows the products that I have been talking about. The fuel that is used in these products will be of the utmost importance.
We do not think any type of fuel or if it is, electricity or any type of battery will suffice to ensure carbon neutrality, we will have to be able to recommend what will be the best energy source. As part of the solution we provide to our customers, we should be able to recommend what is the best combination of fuel and equipment to reduce CO2 emissions for a certain customer site.
And at the same time, we should be able to explain improved through the system, what should be the total cost for the customer. We think as manufacturers, this is a very critical factor and we are proceeding in R&D with these aspects in mind. This is what we want to achieve by the so called well-to-wheel approach.
Next slide please. I will briefly explain about charging facilities. Automobiles can be driven to charging stations. But as you know, it is very difficult for construction machinery to drive to these stations. This means that, it is necessary to prepare individual charging stations infrastructure.
For micro excavators of one ton or less, they are equipped with Honda’s Mobile Power Pack. The concept is to replace these batteries. It can also be easily charged using a household outlet. We are aiming to disseminate our electric excavators and at same time develop a network for the civil engineering and construction industries with Honda, using their Mobile Power Pack.
Batteries are expensive, but we can expect cost reduction and further enhancement of convenience and work efficiency, if we can share batteries or charging infrastructure at construction sites. As for larger equipment, such as electric mini excavators, the medium-sized ones, the onboard battery has to be charged rather than replacing it.
This means that battery vehicles will need additional equipment, so it is important to introduce both machinery and charging infrastructure into the market. Specifically for customers who are have sites located in mountainous areas chargers with power storage functions will be necessary, we are conducting R&D so that these type of options can be introduced.
Next slide, please. So far, I have talked about products, but I would like to touch upon what we are doing with solutions. You may be familiar with Smart Construction, but that’s what I’m going to talk about. In 2013, we introduced ICT construction equipment, i.e., ICT bulldozers and from 2014, ICT hydraulic excavators. Then in February 2015, we launched Smart Construction, which is a service to support our customer construction processes in terms of both products and solutions.
Regarding Smart Construction, we have learned a lot from working with our customers. Taking advantage of that learning, we are evolving Smart Construction speedily to improve the efficiency of our customers’ workplaces. We started with digitization and progressed gradually. There is a certain flow at a customer’s workplace from the beginning to the end, so just digitizing part of the processes vertically made it hard to present the value we can offer.
Therefore, the concept of digital transformation Smart Construction was to connect these processes horizontally to enable digital transformation. We are striving to further evolve to the next level through this effort. Next page please.
This page is explaining DX Smart Construction. By adopting ICT construction equipment, fuel consumption can be reduced. But other than that, due to the ICT functionalities, construction work can be done accurately and speedily, which in turn increases efficiency.
Dump truck fuel consumption can be reduced by using applications such as Smart Construction Design and Smart Construction Fleet. It’s been made possible to look at and improve efficiency of in various areas in advance in the digital world.
In addition, Smart Construction Simulation and Smart Construction Dashboard can be used for simulation purposes to minimize and optimize total soil transportation distance, and to accurately determine the quantity of soil to be transported and minimize rework. This will of course increase the efficiency of the customer’s workplace and reduce CO2 emissions, which I believe is very promising.
We are currently working with EARTHBRAIN to visualize how much CO2 emissions can be reduced through the introduction of digital transformation Smart Construction compared to conventional construction methods. We hope that we can visualize the results soon and share them with our customers. Next slide, please.
We are back on the slide that I showed you at the beginning. That is all for today’s explanation regarding the development path towards carbon neutrality. I would like to reiterate that Komatsu will focus on both products and solutions as we continue to move forward with a sense of speed toward the 2050 targets. Next page, please.
That is all from me. Thank you for your attention.
Operator
Thank you very much. So first, we’ll take questions from the people in the room.
Kentaro Maekawa
I’m Maekawa from Nomura Securities. I have two questions. You have been introducing electric excavators into the market and offering it through rental as well. What type of response are you getting in terms of the needs to electrification? On the other hand, you talked about bridge technology. There is a possibility that customers focusing on more practical solutions, so I am assuming that you will have to address the full range of solutions, meaning you proceed on electrification, at the same time, offer bridge technology. Can you elaborate more on how the customers’ interest is about this issue?
Taisuke Kusaba
Thank you very much. To your first question about needs and the response that we are getting. So, as I have mentioned before, we have started to introduce this technology on an experimental level and then gradually deploying it into the market. Our assumption was that the initial market for electric equipment will first start in Europe with small utility equipment, so we started to address this market.
At the same time, we thought that the same type of market will be coming up in Japan and we started to take initiatives as well. In North America, we have started to offer middle sized excavators for the customers to try out.
From our North American customers, they are operators actually. We had very positive feedbacks. Some of the customers said that the impression was that electric isn’t that much different from diesel.
However, to answer your question about the needs, whether there is a market out there for construction equipment, it’s very difficult to say. This is because there will be a certain level of cost increase and it is still not visible how this cost is going to be absorbed whether it’d be by us, the customers or governments.
If this point is not visible, it is difficult to connect this to market creation. However, as I have explained about the situation in each of the countries, Komatsu will monitor the status of each region. At the same time, we will observe the status of the companies that are trying to achieve carbon neutrality and study and how and when this increased cost is going to be absorbed and how and when the market will start up. You want to respond very quickly if this happens.
This is for the construction equipment. As for mining equipment, as you all know the mining measures each have their own goals and they will communicate about their needs requesting for certain types of vehicles. So, I think on this side of the business, there is a certain level of needs and the market is being created. We will address this by power-agnostic trucks for this market.
To respond to your second question about bridge technology, where was the page that had a lot of arrows? Yes, this. We have this number of technologies, and we will tackle each of them in full. So, it is an omni directional approach. We will be engaged in all of these technologies. As for carbon-neutral fuel, as I have explained, we have confirmed that, it can be used in the current engines or equipment. So you can use it as is.
On the other hand, as of now, we want to continue developing diesel engines as well. I had explained about a roadmap at the beginning. Although, we think that sometime in the future, diesel engines will gradually fade out, but we want to continue developing diesel engines for the time being.
Also as I have been saying, we continue to update information and observe and watch technological trends. If there are any changes we will update that and share it internally and with our suppliers as well. So, we will continue to be engaged in all of these technologies.
Kentaro Maekawa
Another question is about efficiency by solutions. You talked about visualization. For instance, when you are able to use autonomous operation for construction processes, I think this means that there are less rework and will lead to improved efficiency. But how are you actually going to visualize this efficiency by solutions to reality? For instance, we just say that, as work volume is less by this, so CO2 would be reduced by this amount. Can you elaborate on the direction?
Taisuke Kusaba
Thank you for your very insightful question. As you have said, yes, it is very difficult. The bottom-line is. How are we going to visualize CO2 emission? This virtually means primarily how far can we reduce fuel input? Through our ICT construction equipment, we have accumulated a lot of data.
As we have the data of the operation of diesel engines through simulation, we can compare how much efficiency can be achieved at each construction sites when Smart Construction is introduced through ICT construction equipment. If we are able to analyze the difference, for instance, if you were using 10 dump trucks before introducing Smart Construction, but if you make the process more efficient, then you only use eight trucks.
This means that, you have reduced two dump trucks. If the work volume is the same and the construction period is the same, but you are able to reduce fuel consumption, of course, this means the customer can enjoy improved efficiency, at the same time, it contributes to carbon neutrality. This is our understanding and we are trying to visualize this by fully utilizing data.
Operator
So, let’s go to Mr. Isayama.
Yuichiro Isayama
So thank you very much for your explanation. I have one question. There was this reference in the previous question about how you’re going to keep cost at an adequate level. You strictly control SVM. But are you reviewing your KPIs for these electric products? For instance, say there is a 5 point shortfall in SVM, but on the other hand, there are credits so we can go ahead in the development. Is that type of review conducted? I think about a year ago, you mentioned introducing various KPIs. Are you going to consider that there will be additional cost in developing carbon neutral products? Or as you have said referring to your electric products, that it was tough for you to develop? Did you mean that when you want to commercially produce these products within a set of requirements, it is tough, because you have to procure a lot of components? Can you talk about your perspective in terms of development and cost? Thank you for answering a tough question.
Taisuke Kusaba
If we add up the cost of batteries or motors, these machines will cost two or three times of that, of diesel machines to be frank. Of course, we do consider SVM. But another way to think about it is the total cost of ownership from the customer’s perspective, when the customer finishes using the machine and sells it, is the customer going to make profit or not?
I think this is the most important point. The person who asked the questions first asked about the market response, I think if the customers feel fully comfortable saying we can achieve carbon-neutrality and TCO is satisfied, we can make profit. Let’s go in this direction. I think this is what’s going to happen.
On the one hand, of course, we have to strive to bring down the cost so that the customer’s TCO is satisfactory by our own production technology and development technology. On the other hand, maybe there is some cost that can be absorbed through using subsidies and tax benefits, including all these options, what we are thinking right now is that if the customers understand and feel comfortable, we will mass produce and supply these products.
Of course, SVM should be considered, but I do not remember the numbers right now so I’ll refrain from answering that part of your question. However, I think the key is our customers will feel comfortable using your products and utilize it for their business.
Operator
Next Mr. Sano, please.
Tomohiko Sano
I’m Sano from JPMorgan. On the same topic, I have one question. I think if you consider what was discussed at COP28 it is unavoidable that you have to cover every technology in terms of your R&D. Your R&D spending differs depending on the year, but is around 3% of sales. I assume that you’re going to accelerate R&D including acquisition or ABS that you have conducted? So Kusaba as a CTO, how are you discussing about this issue at the management level of how you position R&D to spending taking into account the current trend? It’s a big picture question, but I hope you can answer.
Taisuke Kusaba
Thank you. That’s another tough question. And I can only talk about the big picture. Putting aside the question about whether it’s enough or not, we have been talking about how to improve efficiency. I mentioned efficiency of equipment earlier, but we also have been discussing for a while about how to improve the efficiency of the development process. We would like to work on improving efficiency as well as make use of collaborations.
As I shared today, we are working with other companies to acquire technological expertise and are also working with the academia. The CTO is responsible for collaborating with other companies and the academia. So, I think it’s very important for Komatsu to develop technology that will serve as a foothold for future further carbon neutral development by leveraging these relationships.
I believe that our strength lies in the fact that we are not doing this just domestically, but that we’re doing this globally. Therefore, whether we collaborate with other companies or the academia, we’d like to do it on a global scale. As for development costs, I would like to withhold from talking about it in detail.
Tomohiko Sano
I understand. The other question is about carbon neutral fuel, which I thought was one of the highlights in the presentation. But I was wondering if you can talk about the demand for this type of fuel from customers and future developments towards 2030? What is your view on the output, penetration rate and so on, if you are monitoring these trends?
Taisuke Kusaba
Well, I think I may have overemphasized carbon neutral fuels in the presentation, but we do not intend to rely on it 100%. Betting on this fuel completely would be a risk, a risk which we will not take. So in a sense, it is our risk hedge and our development policy to do everything 360. However, as you know, talking about carbon neutral fuel specifically, we have started to use the fuel at our plants in Europe for filling up equipment before shipment. And we are aiming to gradually introduce it to our customers going forward.
Also, as you know, quantity is becoming an issue for carbon neutral fuel. We will need to make various efforts in this area in the future. But securing enough quantity in our industry will be an issue for the future, I presume. So yes, I think the quantity issue is probably going to be the greatest challenge.
Operator
The next person is Mr. Sasaki.
Tsubasa Sasaki
Thank you for taking my question. My name is Sasaki from Mitsubishi UFJ. I’d like to ask you two questions. First is the way you think about milestones. As you’ve been communicating from before that you will be promoting development in a holistic manner, can you look back over the past three years, as you have indeed achieved many things that you covered today as well. But what are your thoughts on the accomplishments Komatsu has made in the past three years? Then, if you would like to share with us your thoughts on the development milestones that would like to achieve over the next three to five years in accordance with the development roadmap or over the medium-term that would be appreciated. Thank you very much.
Taisuke Kusaba
Thank you. That’s another hard question. I wish I could say that I was not in this position in the past three years, but I don’t think you are going to settle for that answer. So I like to say that the achievements are what I shared with you today. For example, three years ago, Komatsu probably was not able to drive a hydraulic excavator with batteries.
It was a pretty challenging start. However, I can say that we have the basic component technologies internally, whether it’d be engines or pumps, we own the technology. And because we had the expertise, we knew what attributes were needed as a power source, when shifting to motors or batteries. And we knew the technologies thoroughly, inside out. So, I think that’s why we were quick to adapt.
So in that sense, I am proud to say that, we were able to get to this point faster than people may have expected. Also, I know I keep talking about medium-sized excavators, but for medium-sized excavators, I think the PC200, the 20 ton class, is the cut-off point for power source transition. So, we are also in the process of working on hydrogen engines.
I think that, the past three years have been roughly on schedule in this respect, and also to be honest, if you ask me what we are going to do in the next three or five years, it is a secret for now. But we are working on several things, and I hope to be able to present them here next time. I hope that answered your question.
Tsubasa Sasaki
I will look forward to it. Thank you. The second question is a slightly different question. On pages 12 and 13, you talked about smart and digital twin technologies and the reduction of CO2 emissions through solutions. I totally agree, but my question is about AI. That’s become the latest trend in the world. AI as well as generative AI et cetera are making technological breakthroughs these days. So, I presume this has had a considerable impact on your company’s efforts in this area. I wonder if you could tell us about the impact of AI on your initiatives, because it is ever-changing at a rapid pace? Thank you.
Taisuke Kusaba
Yes. Thank you very much. So that’s another hard question. But regarding AI, of course, we are working on it, as other companies are. We are starting to see the advantages of AI in various areas and we are starting to understand how it can be applied. We are trying to accelerate these efforts on a global scale. But of course, there is also the issue of compliance that we need to address.
So we are working on AI on a global scale, while keeping a close eye on this issue. For example, thinking about what I can share with you, there are technologies that can support simulations, for example. And there are several other areas, where AI can be leveraged. But unfortunately, I am not able to elaborate on this subject right now. But I hope you understood that we are working on AI.
Tsubasa Sasaki
Thank you.
Operator
Thank you very much. Lastly, Mr. Kitaura, please.
Takeshi Kitaura
Hello. This is Kitaura from Bloomberg. Thank you for taking my question. I have two brief questions. The first one is about Slide 4, regarding the roadmap to carbon neutrality. It is a simple question, but hydrogen engine fuel cells seemed to overtake carbon-neutral fuel. The gap is particularly wide in 2050. I am sure that there may be changes down the road, but can you explain the reason why you are foreseeing this difference right now?
Taisuke Kusaba
Yes. Thank you very much. That’s a good point. Hydrogen engines and fuel cells should be applied to large machines rather than small ones. That’s our view. Because it has very high power density, and with the current technology in place, I think it will take less time to recharge a hydrogen engine rather than a battery. And as time passes, we believe we’re going to gradually move towards larger machines and that is why the blue band is getting wider and wider.
Takeshi Kitaura
Thank you. The second question may be related to the first one, but I think you’re getting the engines for large mining equipment from suppliers. And I was wondering if there is a chance to capture some of the added value that is being generated outside of the Company as we move towards carbon neutrality. Also for parts and services, you have been providing overhaul services in the past, but won’t there be any areas that will be lost going forward or any opportunities for new business?
Taisuke Kusaba
Thank you for the question. We are procuring large and super large engines from suppliers which we partner with. And we are hoping that when we enter the so-called carbon neutral world, they will continue to provide us with such engines or power sources. If that’s the case, and if we can continue to do business with the same manufacturers, I think it will be the same kind of relationship as it has been in the past.
If we ask external companies to do the work that we have been doing, then of course, as you pointed out, we will have to consider what will happen in the aftermarket business. But, as I mentioned in my presentation, we have been able to develop new technology quickly because of our strength in component technology, so I think that’s going to be key.
So, even if we enter the field of electrified vehicles or hydrogen driven vehicles, Komatsu’s engineering team will continue to study the technology, that’s right in front of us to ensure that we make it our own expertise. In addition, we would like to establish a system that can ensure an aftermarket business and in that sense, we would like to visualize CO2 emissions and show our customers how long the life of our products is.
I believe that it’s not enough just to have equipment. You are absolutely right in that regard, and thank you for the question.
Operator
Thank you. As we’ve approached the end of the scheduled time, we would like to conclude today’s meeting. Thank you for your attendance.
