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CNBC Exclusive: CNBC Transcript: Toyota Chairman Takeshi Uchiyamada speaks with CNBC’s Akiko Fujita on the “CNBC Conversation”

Following is the full transcript of CNBC's exclusive interview with Toyota Chairman, Mr Takeshi Uchiyamada on the CNBC Conversation.

This episode of CNBC Conversation is scheduled to broadcast in Asia on Saturday, 9 September, 6.30AM SG/HK time

All references must be sourced to a "CNBC Interview".

Interviewed by Akiko Fujita, Correspondent, CNBC.

Part One

Akiko Fujita (AF): I want to start by looking back, because this year makes 20 years that Toyota first launched its Prius, and at the time 1994, you got very simple marching orders, essentially build a car for the 21st century. We're now in the 21st century. Is the Prius today, how you imagine 20 years ago?

Takeshi Uchiyamada (TU): The introduction of hybrid technology into the world of automobiles delivered new value, presenting the customer with the option of selecting the car of choice based on a new parameter - environmental performance. This was the most significant contribution from the Prius.

The Prius inspired other manufacturers to launch their own hybrids and electric vehicles. It spurred heated competition over fuel efficiency even among conventional vehicles. In retrospect, I feel our technology has succeeded in contributing to the environment.

AF: Has that gone beyond your expectations?

TU: While I felt change would be forthcoming, the pace of change far exceeded our imaginations. It was a sign that the Prius offered a response that society was looking for.

AF: In 1994, you were 25 years here in your career in Toyota but you have no experience as the chief engineer, why did you go for hybrid technology, such an ambitious project?

TU: We were aware that if the hybrid technology was to be widely accepted, convenience for the user, the consumer experience would have to be a key consideration. The hybrid didn't dramatically alter the driver experience. It actually enhanced it by reducing the amount of trips to the gas station because it was more fuel efficient.

As we continued our work on the hybrid, we realized something else. We realized that electrification is inevitable, and the vehicle needed to be equipped with a system to supply electric power to the motor.

Whatever shape electrification was set to take, our hybrid was equipped with all the necessary technology – the battery, the motor, software, and semi-conductors, to accommodate the future.

AF: Let's talk about the changes we have seen in the industry here, because in recent years we've seen a big focus on electric vehicles. Tesla of course, which till recently Toyota had a stake in, is the most aggressive in pushing for that. We have also heard from legacy companies like Volvo, who've announced they want to go 100 per cent electric over the next five years. You famously said several years ago that you don't believe that there's a market that will accept a pure electric vehicle. Do you still believe that?

TU: That is a question I get asked a lot. I must say upfront, that we are not against electric vehicles.

But in order for electric vehicles to cover long distances, it currently needs to be loaded with a lot of batteries that take a considerable amount of time to charge.

There's also the issue of battery life.

We are moving forward in our development efforts with this in mind. New laws and regulations are actively encouraging development of electric vehicles, with little regard for customer convenience.

But as those laws and regulations come into effect in places like China and the US, carmakers will have no choice but to roll out electric vehicles or risk going out of business. Toyota is no exception, but we are skeptical there will be a rapid shift to pure electric vehicles, given questions over user convenience.

AF: You talked about the challenges with the batteries that are currently on the market, the lithium ion batteries. Is the solid state battery the key to make EV mass market?

TU: Yes. This is an issue that is not limited to electric vehicles. The battery will be the key technology moving forward.

However, in order for vehicles to be powered solely by batteries, we still need two or three more technological breakthroughs. Toyota is taking on that challenge, and working to achieve our goals in battery development.

AF: So what's the timeline for Toyota to bring in pure electric vehicle using solid state batteries in the market? We're heard reports of 2022, what's the timeline you're looking at?

TU: That's something we honestly don't know. People around the world are working to develop new batteries, and we are seeing progress in bringing affordable batteries to the market. Once the technological challenges are resolved, we expect adoption to pick up rapidly.

AF: Looking to the future, what's the breakdown for Toyota? You have bet big on the Prius. Do you see 50 per cent still being Prius, plug-ins, hybrids? How much of it will be fuel cell cars, how much of it electric vehicle? What do you envision as the breakdown for the company?

TU: Ultimately, it will be the user's choice, and auto makers cannot dictate their choice. The consumer will decide which system is the best, and allow it to permeate the market.

Another driver would be the extent of infrastructure available. Be it electricity or hydrogen that powers the motor, the supply infrastructure needs to be there. The extent of infrastructure available will be driven by a nation's energy policy. We are keeping close watch over policy developments, so that we are prepared no matter what emerges as mainstream.

Part Two

AF: Let's talk about the global headwinds that Toyota faces. A lot to get through globally; Toyota and other global carmakers have been in the crosshairs of the Trump administration in the US, who has pushed for made in America for cars that are sold in America. You recently announced that partnership with Mazda to set up a plant over in the US that will reportedly create 4,000 new jobs. How much of that is in direct response of President Trump's pressure to make in America?

TU: We are producing and selling our cars in markets across the world. As a business, we must base our production in markets that are competitive.

Our decisions over say investment, withdrawal from a certain market, are not driven by short-term considerations.

We also have plant operations in the United States, from where we strive to contribute to the competitiveness of the local industry. The same approach is taken for operations in Canada, Mexico and elsewhere. It is not a zero-sum game, where one side wins and the other side loses. We do not favor one operation over the other.

AF: But it sounds like you do agree with President Trump to the certain extent that you need to increase manufacturing in the US to stay competitive in the US market?

TU: That is never a consideration that determines our focus. We are firmly committed to a consistent investment to the US. In the past five years, we have announced investment worth 10 billion dollars or 1 trillion yen in the US. This is a sign that we are there to stay, and committed to sustaining competitiveness.

AF: The US is currently in the process of renegotiating NAFTA with Canada as well as Mexico. The Trump administration has called for stricter origin rule requirement. How disruptive will that be for Toyota's supply chain?

TU: NAFTA has 25 years of history behind it, and has promoted free trade in the region. The three economies have enjoyed prosperity and enhanced competitiveness. As the respective nation's leaders say, while adjustments may be required, as long as the framework is working in favor of the economies, we hope to see the system remain in place.

That is also our position, and we have made that clear at every opportunity that puts us in contact with the leaders of relevant countries.

AF: Let's move to the UK now because when you look at a post-Brexit Britain, there's no question that the cost of production, that the cost of producing cars in the UK, will go up. How does that change the calculus for Toyota in terms of what you produce and manufacture in the UK?

TU: Once Brexit takes place, the free flow of goods and people will be obstructed. This could eventually push up costs, damping competitiveness. Trade policy changes could encourage suppliers to relocate out of the UK, a potential risk factor. Should that happen, even if Toyota perseveres and remain, the assembly plant will be placed at a disadvantage, as access to the supply chain suffers.

AF: You've recently announced a 240 million pounds investment in your Burnaston plant in the UK. Toyota has publicly said that you are committed to staying in the UK. But what assurances have you gotten from the government that will ensure your presence in the UK?

TU: Our position has always been consistent over the years. Once we enter a market, we remain committed to the betterment of its industry, to ensure business is sustained. This has always been our mission. We ask that policies do not undermine our efforts.

We have not thought yet about what needs to be done when our requests are not met.

AF: Japan recently signed a free trade deal; a Japan EU free trade deal. How significant is that for Toyota?

TU: Toyota commands a slim market share of about five per cent in the EU. We consider ourselves a challenger.

Over the past several years, we have worked to adopt a marketing approach that departs from the customary Toyota style, now with a focus on the hybrid.

The Lexus lineup is practically all hybrids, and so are 30 to 40 per cent of the models rolled out in Europe - the Yaris, the Auris have gone hybrid. Hence, we have been left unscathed from the diesel issue that has shaken Europe. While I would not go so far as to say that our European business is smooth sailing, it is on steady footing.

Our only remaining concern is whether Brexit will put a damper on our efforts to maintain and enhance the competitiveness of our UK factory operations. We are doing what we can.

Part Three

AF: Let's talk about what the future of cars looks like. Innovation helped propel Toyota to become one of the top carmakers. But it does seem like in recent years, traditional carmakers have started to lose that edge to tech companies. We have already mentioned Tesla, but there's also of course Alphabet and Baidu in China, all of which are pushing for self-driving cars. How do you think Toyota stakes up against them?

TU: As you point out, the automobile will depart from the format we're familiar with now. New technology will be mounted onto the vehicle, enabling features we've never seen before. That includes autonomous driving, or connecting cars to the cloud, in order to process big data. Those technologies will dramatically transform the vehicle.

Players involved won't be restricted to traditional automakers. In fact, carmakers won't be able to it alone, without partnering with startups developing sensors, or software, or computer technology. Major companies will need to carefully work with those players. Otherwise, they won't survive.

AF: How many years are we away from self-driving cars being adopted on a wide scale? 10 years? 20 years?

TU: That is certainly something automakers hope to know. But I draw upon my experience to say that once technology is accepted, it can spread extremely rapidly. This holds true for the hybrid. The pace of adoption has far exceeded my expectations.

This is all the truer for IT, where the pace of adoption exceeds any precedence set in the manufacturing industry. I would believe we need not wait for 30 years, or 40 years (for auto drive technology to spread).

AF: So 50 years from now, will there be any drivers left on the road?

TU: Drivers will not disappear entirely. Self-drive vehicles will be easier to maneuver say on a highway, where control and recognition of the surrounding is easier, but when it comes to driving on the roads in a place like Japan or in Asia, I doubt that the autodrive vehicle will be adopted at the same pace.

AF: By 2050, do you think all cars will be electric? What will power the cars?

TU: The future we foresee in 2050 does not culminate in a single product. The electric vehicle, the hybrid, the plug-in, the fuel cell battery vehicle will be mobilized. It is not clear which technology will grab the chunk of the market. Toyota does not possess a scenario where all vehicles go hybrid, electric, or FCV , at least not for now.

AF: You're quickly approaching 50 in your career here at Toyota, which is pretty impressive for someone who, as you pointed out, grew right in this area. Your father helped developed the Crown, which is the flagship sedan for Toyota. Is your legacy the Prius?

TU: True, I have led the way to bring the first generation Prius to market. I may have earned the name, Father of Prius. But I tell everyone, now that 20 years have come and gone, Grandfather of Prius sounds right.

AF: Grandfather? (Uchiyamada: Yeah) That's not a bad legacy.

Do you still have a few more tricks left up your shelve though, you think?

TU: I can no longer engage in the frontlines as a researcher, but there are three things I aspire to achieve with everyone at Toyota.

One is to commercialize the FCV. We need to create a zero-emission society. Everyone in Japan, in Europe and in the US, notice changes in climate. We need to act before it is too late. That is why I am passionate about achieving an emission free society by mobilizing the efforts of all around me.

The second goal is to realize auto drive technology. For the sake of enhanced convenience, auto drive technology will make a difference. Every year, 1.25 million people lose their lives in car accidents. The auto drive technology could help protect lives.

We are not interested in a heated competition over the robot car that we are witnessing today.

Placing a robot car on the road is not enough.

Data capture from the vehicle would be monitored, to swiftly engage the brakes, scan the periphery of the car and ensure that the driver does not step on the accelerator when the brakes should be applied.

So many possibilities. Deploying such technology, we want to ensure that traffic accidents decrease.

The third aspiration. I have yet to come up with a more vivid image to describe this. The car needs to be connected to Cloud. Once the car is connected to Cloud, the car is converted into a sensor that works within a larger social system. As it travels the road, it will collect information along the way. The data will naturally be used to serve the interest of the owner.

These three aspirations are worth striving for. Having lived in this industry, I strongly believe these themes are truly challenging and exciting pursuits.