The alarm bells may have yet to ring over at Toyota, but there is growing concern as the company posted a 20.8% decline in net income in the fiscal year that ended March 31, from 2.31 trillion yen (RM88.11 billion) to 1.83 trillion yen (RM69.76 billion).

What’s more, the Japanese conglomerate warned that income is expected fall again, by an estimated 18.1% to 1.5 trillion yen (RM57.1 billion), in the current fiscal year that began on April 1. Automotive News reported that if that was the case, it would be Toyota’s first back-to-back decline in net profit in more that 20 years.

The less-than-stellar earnings were enough to rattle president Akio Toyoda who, during his speech, stressed in no uncertain terms the need to overhaul every part of the business.

“I feel a strong sense of crisis about whether or not we are actually executing car-making from the perspective of the customer in all Toyota workplaces – from development, production, procurement and sales, all the way to administrative divisions,” he said.

Part of the loss of income was attributed to effects of foreign exchange rates, but the company also increased expenditure by some 530 billion yen (RM20.19 billion) last year. It was reported that the extra money was spent on retooling its factories to build its next generation of vehicles – based on the Toyota New Global Architecture (TNGA) – including the building of a new facility in Mexico in 2020.

Toyota has also invested heavily in electrification and artificial intelligence, such as the US$1 billion (RM4.3 billion) it has channeled into AI development at its new Toyota Research Institute (TRI). “Approaching both software and hardware from all directions is Toyota’s way,” he said.

In fact, Toyota’s research and development budget this year alone is expected to cost it over 1 trillion yen (RM38 billion), the fourth straight year this will have happened. Despite the lower income, however, Toyoda has no intention of taking his foot off the throttle.

“The present automobile industry is being asked to make a paradigm shift, for which, as I see it, especially AI, autonomous driving, robotics, connected systems and other new domains will hold important keys,” he said. “I want to continue planting seeds with a look to 10 or even 20 years into the future.”

In terms of electrification, Toyoda insisted the company approached it in a new, fresh manner, since it was late to the electric vehicle game. As an example of such a move, a new EV Business Planning Department sees him in a hands-on role as chief officer, beginning December 1.

“When it comes to electric vehicles, every car, be it the Yaris or whatever, once it is electrified, the acceleration is all the same,” Toyoda told Automotive News. “The reason I am responsible for EVs as well is that I don’t want to make these cars a commodity. Even with the electrification of the vehicles, I want the prefix “I love” to be affixed to those cars.”

The new department, dubbed an “in-house venture company” by Toyota, has been modelled after startups such as Tesla and Google, with a flat, fast-moving organisation. Aside from Toyoda, there are just three other people at the helm, from suppliers Aisin Seiki, Denso and Toyota Industries.

“I want to change the way they work on EVs,” Toyoda said. “Maybe we will call them electric vehicles, but introduce connectivity. Think about Tesla. Tesla is producing cars. And Toyota is producing cars. But what Tesla is producing is something close to an iPhone.”

So, Toyoda still wants to invest in future technologies, then – what he wants to change is the way Toyota builds cars, which he said should be smarter. “When it comes to making ever-better cars in a smart way, it is becoming apparent that there is still room for improvement,” Toyoda said.

“For example, might it not be the case that an over-enthusiastic desire to make ever-better cars is putting priority on improving our competitiveness in terms of performance and quality, while leaving issues of cost and lead time for later? Or, is the way we work capable of thoroughly implementing the basic principle of “appropriate sales price minus appropriate profit equals ideal cost?””

In his speech, Toyoda said he believes compact cars should be at the centre of its plan of building better cars, adding they should be small, safe and comfortable, as well as being able to provide a “stress-free driving performance” – all while being affordable.

“In the in-house company system we introduced last year, we launched the Toyota Compact Car Company, which specializes in compact cars, made Daihatsu a wholly owned subsidiary, and established a compact car company for emerging markets, among other actions,” he said. “These we have done with an aim toward returning to the basics of carmaking for compact cars.”

Toyota is looking to increase its cost-cutting as a result of the increased expenditure as well as slowing sales – global retail sales increased by just 1.6% to 10.3 million vehicles, while revenue dipped 2.8% to 18.40 trillion (RM700.1 billion). These figures are predicted to fall further this fiscal year, Toyota said.

The restructuring of the company Toyoda embarked on last year resulted in internal companies with greater autonomy, and he said people needed to be patient to see the fruits of their labour. “Sales revenue is very slow to increase,” he said. “But in that environment…as the paradigm shift continues, we must make investments in those areas that do not produce immediate profit. That’s the difficult challenge we are confronting.”