Here are edited excerpts.
Q: Where does Subaru expect its U.S. sales ending up in 2021?
A: We'll have to consider orders after the Thanksgiving holiday, but we're looking at a little more difficult situation than in previous months. Of course, that's caused by the semiconductor situation. Considering that, for the calendar year, we're expecting a number that is below 600,000.
And next year?
For 2022, there is still uncertainty surrounding the semiconductor situation. So we don't really have a firm target at this point. But industry demand will be around 15.5 million or 16 million [in the U.S.]. Considering that, we are looking at a number around 650,000 units.
The current inventory level is extremely low — like 5,000 to 6,000 units. That's basically about a five-day supply for the U.S. market. Next year, we're going to have to rebuild this inventory to the normal levels. And we think that's going to take about a year, through gradual buildup.
What is an ideal inventory level next year?
Previously, our comfortable level was about a 45-day supply. But due to the COVID-19 situation, our sales efficiency improved quite a bit and we learned a lot. The system to sell from the inventory pipeline has been strengthened. We think we've improved our management of low-inventory situations. So we think a 30-day supply is a comfortable level, and next year, we'll work on building up to a 30-day supply.
Generally speaking, the situation around the semiconductor supply shortage is improving. So for next year, we're not expecting situations like sudden plant shutdowns.
Why does Subaru seem to be impacted by the shortage more severely than rivals?
Compared with the other manufacturers, Subaru didn't have a lot of inventory to start with. Also, we have a smaller model lineup than other mass-market manufacturers. So we are not able to multisource parts from a lot of suppliers because our overall volume is not that big.
Despite the low inventory, our sales efficiency — the amount of inventory versus the number of sales at the end of the month — is extremely high, at the top of the industry. And the model turn rate — how fast those vehicles sell — is also at the top of the industry. So that's the good side.
When the industry ramps up, will low- volume Subaru be able to secure the chips it needs?
We're not exactly sure at this point how much supply we can get from the semiconductor suppliers. Next year, every auto manufacturer is going to be recovering, and they're going to try to build inventories back to normal. All those orders will be going into the suppliers.
We don't think the foundries and semiconductor suppliers are going to be able to answer to every one of those orders. So that's why we see a gradual increase of inventories and gradual recovery of supplies. And that is going to take about a year.
We don't think we're going to get hit harder than the other manufacturers. When we talk with semiconductor suppliers, they take into account a fair-allocation policy.
How did Subaru make its retail network more efficient with low inventories?
Subaru of America adopts a sold-order system in which customer orders are logged somewhat like back orders. This system existed from years ago. When we have abundant inventory, we don't really use it. But now, we've put it into action and evolved the system to make it better.
It helps us see inventory. And then we can allocate the right vehicle to the right retailer, so it gets to the customer in a fast manner.
In a normal situation, sold orders are around 5,000 to 6,000 units. It's currently around 45,000 units, which is pretty high. And each month, we're seeing about a 10,000-unit increase of sold orders. We're seeing that momentum, and we're not able to supply vehicles to fill those orders.
When will sold orders top out?
I want it to happen quickly. But we still have uncertainty in front of us, considering the semiconductors situation. So it might be difficult to recover that in December or January.
Will customers wait that long?
Yes, they will wait. Of course, some people who put in sold orders might cancel if they aren't going to be able to get a car quickly. But overall, we think that a lot of customers are OK waiting. When you look into the sold orders, they aren't for the basic models but for the unique or high-end models. Like the Wilderness editions of the Forester and Outback that we launched this year. The customers putting in orders for these vehicles are willing to wait.
After two years of sliding U.S. sales, when might Subaru return to record volumes?
The timing is difficult to say. But if we can get the supply back to normal, we think there's potential to hit a number more than 700,000 units annually. It's just that the situation with vehicle and parts supply is unclear and we can't say at this point when. But we think that the potential is there. Before COVID-19, the annual sales target for this year was supposed to have been more than 700,000 units, and our plan was to keep growing.
Does Subaru see a need to be more aggressive with its electrification rollout plans?
The target of 40 percent electrified vehicles by 2023 was announced two years ago. And of course, there has been a lot of change in the two years since, in terms of customer reaction and market movement. So we know that we have to shift or accelerate this plan.
But will it be 50 percent or 60 percent? We're not really focusing on the number because it's not a competition over who gets the biggest number. It's more a matter of the right mix and the right target for the business. We have the Solterra, our first battery EV, coming to market next year. Based on how it's received by the market, we can plan for what kind of ratios we should target for EVs and hybrids.
What's the bigger risk these days — investing too much or investing too little in EVs?
An all-in investment in EVs is a bit of a risk. Currently, we have joint development with Toyota. And that's the way we made an EV in an efficient way. That's a better idea.
Too much investment in this area might be a risk in the future. When you look at the market in each country, are EVs really dominating? In the U.S., the market is dominated by Tesla. But do we see other models that are really selling a lot? We're not so sure. We are trying to focus on what customers want and what benefit they need from an EV, and we want to follow our customers' needs.
Of course, the EV era will eventually come. And at that point, it will require investment for developing our own EVs. But we want to know when the market is going to be mature for EVs. We want to be a smart follower in this area and not really on the front line.
When EVs do take off, will Subaru be able to catch up without the advanced investment?
For the Solterra, the development timeline was very short compared with traditional internal combustion engine vehicles. We learned it's possible to build EVs in a shorter development timeline.
Also, when you produce these vehicles, they are not going to mass volume from the start. One idea is multiple models on one line, in mixed production. So we have the plans and we have the knowledge, and we think we can cope with market changes in a timely manner.
How do you see the Subaru-Toyota partnership evolving?
We consider them a really important partner for our business. But when you look to the future EV era, when most of the vehicles are EVs, instead of being more collaborative with Toyota, it may become more competitive. While I'm certain that the areas of collaboration will continue to be on our efforts toward carbon neutrality, what areas we collaborate with them or compete with them will be changing depending on the situation in the market.