Honda Motor Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2025

Key Takeaways

  • Positive Sentiment: Motorcycle operations achieved record-high Q1 operating profit driven by strong sales expansion in Brazil and Vietnam.
  • Positive Sentiment: Full-year operating profit forecast was raised by JPY200 billion to JPY700 billion and net profit to JPY420 billion, reflecting tariff reviews and a stronger USD/JPY assumption.
  • Neutral Sentiment: As of July 31, Honda repurchased JPY363.5 billion of stock under its JPY1.1 trillion buyback program announced in December 2024.
  • Negative Sentiment: Q1 operating profit declined by JPY240.5 billion year-on-year to JPY244.1 billion, mainly due to JPY124.6 billion in tariff headwinds and JPY113.4 billion of EV-related nonrecurring expenses.
  • Negative Sentiment: Automobile operations posted a Q1 operating loss of JPY29.6 billion, hurt by higher R&D costs, currency effects and write-offs on EV development.
AI Generated. May Contain Errors.
Earnings Conference Call
Honda Motor Q1 2026
00:00 / 00:00

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Moderator

I thank you very much for taking time out of your busy schedule to attend our briefing today. We would now like to start Honda Motor Company Limited's financial results briefing for fiscal first quarter ended 06/30/2025. First of all, allow me to introduce the attendees today: Mr. Eiji Fujimura, Director, Managing Executive Officer, CFO, good to see you. Mr. Masao Kawaguchi, Operating Executive, Head of Accounting and Finance Unit. Good to see you. First, Mr. Fujimura will present the financial results of first quarter ended 06/30/2025, and consolidated results forecast for full year to March 2026. Then Mr. Kawaguchi will present the details. Over to you, Mr. Fujimura. I thank you very much for your continued support for Honda's activities. I will now like to present to you the financial results for the first fiscal quarter ended 06/30/2025.

Moderator

I'd like to start with a summary. Our operating profit for the fiscal first quarter came to JPY 2 and 44,100,000,000.0. Motorcycle operations saw sales expansion in Brazil and Vietnam, and we've attained the record high operating profit for a quarter period. In automobile operations, we needed to post impact from tariffs and nonrecurring expenses related to EV, while sales in North America were strong. The forecast for the full year results to March 2026 has been revised up to operating profit of 700,000,000,000 yen and net profit for the year of $420,000,000,000 yen Due to a review of tariff impacts and changes in exchange rate assumptions, this means 200,000,000,000 yen increase versus the previous forecast.

Moderator

An examination of the impact due to tariffs led to a revision of our gross impact to 400,000,000,000 yen And for exchange rate, in view of the recent developments, we are revising our assumption against the U. S. Dollar from JPY 135 to JPY 140. While uncertainty persists surrounding policy changes, including tariffs, we will improve our earnings structure and we aim to expand our profit further. Concerning the share buyback, which we announced on resolved on 12/23/2024 for the 1,100,000,000,000.0 yen As of July 31, shares worth 9 and 36,500,000,000.0 yen have been acquired.

Moderator

To give you the consolidated results for the first quarter ended June 2025, operating profit was 244,100,000,000.0 yen lower by 240,500,000,000.0 yen compared to the same period last year. Equity method earnings was were 4,200,000,000 higher by 2,700,000,000.0 yen And the quarter profit attributable to the owner of the parent was 190,000,000,000, lower by JPY197.9 billion. Next, I'd like to cover the forecast for the consolidated results for the full year. Again, to the previous forecast, our forecast is operating profit of 700,000,000,000 yen up by 200,000,000,000 and the profit for the year attributable to the owner of the parent of 420,000,000,000 yen up by 170,000,000,000 yen The exchange rate against the U. S.

Moderator

Dollar is assumed at $1.40 100 yen for the year. The forecast for the full year dividend for the fiscal year ending in March 2026 is 70 yen per share, unchanged from the previous published forecast. The acquisition of own shares resolved on 12/23/2024 for the amount of 1,100,000,000,000.0 yen is explained earlier. Next, Mr. Kawaguchi will present the details of the results.

Moderator

Okay. Then I will present the results for the first quarter. To give you the group unit sales during the three months of the first quarter, for motorcycle operations compared to the same quarter last year, with growth mainly in Brazil and other regions, it came to 5,143,000.000 yen For automobile business, due to declines mainly in China and other Asian regions, it came to 839,000 units. And for Power Products, though there were declines in North America and Asia, Europe led the growth the results the total came to 828,000 units. The consolidated results during the three months of the first quarter are as explained earlier.

Moderator

Next, I'd like to explain the factor analysis of operating profit for the first quarter compared to the same period last year. Operating profit was JPY 2 and 44,100,000,000.0, down by JPY 240,500,000,000.0 compared to the same period last year. Factors affecting the operating profit were impact from sales was positive by JPY 109,100,000,000.0 due to unit sales increase in North America. Selling price and cost factors was an increase of 68,500,000,000.0 yen due to effective pricing revision. Expenses gave us a negative impact of 69,400,000,000.0 yen R and D expenses led to profit decline of 24,500,000,000.0 yen Currency effect results in a negative impact of JPY 86,100,000,000.0.

Moderator

EV related nonrecurring expenses led to a negative impact of JPY 113,400,000,000.0, and the tariffs impact led to a profit decline of 124,600,000,000.0 yen Our trial calculation, excluding the EV related nonrecurring expenses and the tariff impact, comes to operating profit of 482,100,000,000.0 yen on par with the same quarter last year. This EV related non recurring expenses include the provision for losses on EVs currently sold in The U. S. The impact from write off of development asset of EV models due to the change in our product range.

Moderator

Regarding operating profit per business segments for motorcycles, OP was JPY 189,000,000, automobiles at JPY 29,600,000,000.0 of operating losses, financial services, yen 85,000,000,000 of operating profits and power products and other businesses, yen 200,000,000,000 of operating losses. Operating profit of the motorcycle businesses marked 189,000,000,000 yen up by 11,300,000,000.0 yen year on year. As for the factors behind the differences, the sales impact was positive by 41,000,000,000 yen due to increased sales volume in South America and so on. Pricing cost impact was positive by 14,200,000,000.0 yen due to the effect of price revision and so on. Expenses squeezed profit by 12,700,000,000.0 yen R and D increased profit by 1,300,000,000.0 yen and currency effect reduced profit by 30,600,000,000 and the tariff effect squeezed profit by JPY1.8 billion.

Moderator

For the automobile businesses, sales impact was positive by JPY46.4 billion due to increase of the sales volume in North America. Price center cost impact was positive by 53,500,000,000.0 yen due to the effects of the price revision and so on. Expenses negative for the profit by JPY 43,100,000,000.0. R and D was negative by JPY 26,400,000,000.0 and the foreign currency effect also negative by JPY 47,300,000,000.0. As I mentioned earlier, excluding one time EV related expenses and the tariff impact, the operating profit would have been 205,800,000,000.0 yen Regarding cash flows, free cash flows of the businesses other than financial service businesses was $294,000,000,000 yen Net cash balance at the end of the quarter was 2,907,900,000,000.0 yen Operating cash flow after R and D adjustment was $583,000,000,000 yen Moving on to the consolidated financial forecast of ending March 26.

Moderator

Regarding the forecast of the sales volume of the group, motorcycle unit sales will keep at 21,300,000 units, reflecting the volume decline in Europe and increase in Brazil and other regions. For automobiles, we will keep the previous forecast of 3,620,000 units. And for Power Products, we will keep the previous forecast of 3,670,000 units. Consolidated earnings forecast for FY March 2026 has been already explained. Next, I will explain the factors behind the changes of operating profit forecast year on year.

Moderator

Operating profit is expected to decline by 5 and 13,400,000,000.0 yen year on year because of the factors of sales impact being positive for the profit by 106,000,000,000 yen due to incremental volume of the motorcycles and automobiles in North America. Price and cost impact will be positive for profit by JPY $350,000,000,000 due to effect of the price provisions and so on. Expenses will be negative for the profit by JPY 91,500,000,000.0, R and D be negative by JPY 126,000,000,000 and foreign currency impact be negative by JPY $3.00 2,000,000,000 and the gross impact of the tariff to be negative by JPY $450,000,000,000. I'll explain the changes of the operating profit forecast comparing to the previous guidance. Operating profit is to be up by 200,000,000,000 yen from the previous forecast because of the sales impact being negative by JPY 50,000,000,000 due to onetime expenses related to EVs.

Moderator

Price and cost impact to be negative by JPY 100,000,000,000, as we reviewed recovery of the tariff impact and foreign currency impact will be positive by JPY 150,000,000,000 as we changed currency exchange rate at JPY $2.40 for DALA. We examined the tariff impact in values, which will be expected to be positive by JPY 200,000,000,000. Lastly, expected spending on capital expenditures, depreciation, amortization and R and D expenditures for fiscal year ending March 26 are shown on the slide. And that concludes my presentation. Thank you very much for your attention.

Moderator

Thank you very much for your attention. Then we would like to move on to Q and A session. We will take our questions through Zoom that we have communicated to you earlier. Due to time restriction, we'd like to limit it to two questions per person. And please turn on your microphone and camera when you ask questions. Thank you.

Moderator

Okay. The first question will be by Mr. Okinaga from Nikkei Newspaper. Thank you. This is Okinaga from Nikkei Newspaper.

Moderator

Yes, we can hear you. My first question is about the impact from tariffs. So between The U. S. And Japan agreement, see the automobile tariffs has been changed from 25% to 15%.

Moderator

So it looks like higher tariff has come down. That means your negative impact to the profit has been fixed now. So what's your take on that? And then for Mexico and Canada, well, still the view is not clear. So what is your take on what might happen to the Canada and Mexico?

Moderator

Okay. So that's the second question. Okay. And then accompanying in line with that for the production, you've expressed transferring production from Japan to Canada. So I guess your take on emphasizing production in The States, that would remain unchanged.

Moderator

So do you are you still in the sense are you holding the sense of crisis for the Trump's tariff situation? Is that correct to say that your stance does not change? Okay. Thank you for the questions. Okay.

Moderator

So both your questions are related to tariffs. So between so due to the 25% has come down to 15% between The States and Japan. Concerning that point, yes, for us, for our business, the change from 25% to 15% means that is should brings us a positive impact and also for to the customers. And then also, we do have a lot of non Japanese shareholders. So for our company, of course, this agreement for reducing the tariff is a positive.

Moderator

And then it's just that what has not been established is now clearly identified, which is a good churn of events. So I like to we like to pay our respects to all the related parties. And then on the other hand, as your question suggested, for example, if I think about the short term view, so if there's going to what's going to be happening with the retroactive application of the tariff or when it's going to go into effect, so details have not been worked out. So I hope that there will be early decision and then disclosure between the governments, and we have communicated our wish to the Japanese government. And then so it used to be 2.5%, now that's been up to 15%.

Moderator

So as our general stance is that it doesn't affect just Honda, but to other OEMs as well, think we are trying to do a free trade and competition around the globe. So that has really developed to foster the competitiveness of the auto industries in different countries and then which led to providing good quality products to different countries markets. And then this must have been contributing to the local communities. And then that stance remains unchanged, I hope that will continue. However, now that it is a possibility, we need to assume that this will become the new normal.

Moderator

We will need to take that stance. So now that direction, I believe, relates to the second question that you've asked. As you know, we have the production in The U. S. Like 60% or 70% produced in The U.

Moderator

S. So the local production manufacturing ratio is high to begin with. So our stance is to produce where there is demand. That has been our ongoing approach. I believe we've Mr. Mibbe mentioned this in the previous briefing. We have a two shift operation in The States. We might change it to three shift operation in The States so that the production equipments' uptime will be might be increased so that we can increase the production volume without spending too much on the capital investment. That's something we like to continue to do. And then, of course, our suppliers need to keep up with those changes, so we need to engage in discussions with our suppliers to take actions carefully.

Moderator

I guess the key highlights here would be that in The States, hybrid vehicles for hybrid vehicles, many of the core parts are coming from Japan. So I believe we call that Sunday '3 sorry, the three major components, the motor, battery and ECU. How we can localize the production there will be the critical point. So concerning those, we are holding discussions. This concludes my answer. Thank you.

Moderator

Thank you very much, Mr. Kinaka. Next question from NHK. Mr. Nishizo, please.

Moderator

Thank you. Nishizono speaking. Can you hear me? Yes, please. So thank you for your presentation today.

Moderator

And one question. So the forecast for this fiscal year regarding the tariff, what is your assumptions for your forecast? Other than the automotive tariff, there will be other kind of tariffs involved as well. And this time parts automotive tariff, when are you going to with that going with that to start, what is your assumption there? And what is your assumption to come up with those forecast?

Moderator

That's all. Thank you. So details will be provided by my colleague, Mr. Kaguchi, but at the beginning of the fiscal year, what is our assumptions to be for the tariff and its calculations and so forth. Actually, the appendix of presentation materials includes all those explanations, so please have a look at those materials later on.

Moderator

But basically, CBU and parts and the raw materials and motorcycle power products. So we have the assumptions of tariff in values in those categories. And in the first quarter, American Honda had a standard tariff amount for the tariff. Actually they worked out all the breakdowns how much for The U. S.

Moderator

Part, U. S. Portions, what is the area for the import and so on. So eventually we changed the gross impact from $650,000,000,000 yen to $450,000,000,000 yen after this calculation and what kind of breakdown involved to have those numbers down and Kawaguchi san is going to give us the details about it now. So thank you for your question.

Moderator

So the with regard to the assumptions for the tariff, as Fujimilasan said earlier, the main part is the automotive tariff. That is the main area of the air. Then for the CBUs, we have plants in Canada and Mexico and those CBU completed vehicles are imported from there to The U. S. There will be the tariff imposed there.

Moderator

So that is the main area. Plus, the assumption of that part has been already explained in the beginning of this fiscal year. We have not changed so much about it. However, probably we will change the production allocations slightly. For instance, instead of exporting from other countries to The U.

Moderator

S, we can produce in Indiana instead or The U. S.-made ones were exported to South America. And then instead, we could use and sell those U. S.-made product within The U. S.

Moderator

And we sort of organized the reallocation again. And then in terms of the import of the CBUs, there will be the tariff imposed on them. And if the parts and components are manufactured in The U. S, those will be exempted from the tariff. And then the question is the portion of those kind of the parts.

Moderator

We examined how much of those are in that area. And then actually CBU that we have in the value like that reflects all those exercise. And then parts, raw materials, steel, aluminum and those copies. And of course, there will be tariff involved, not just U. S.

Moderator

And Japan, the Canada, Mexico involvement. There is not much advancements so far, no progress. However, right from the beginning of the year, the parts imported from Canada and Mexico that could be in the jurisdiction of MCA two and three are joined with suppliers to scrutinize how much will be in the jurisdiction of the MS excuse me, the MCA. And then we couldn't finish the exercise yet. However, at this moment, at the time of the beginning of the year, we applied a 15% for them because we couldn't examine all of them with the supplier.

Moderator

But we are still working together with the suppliers to check one by one those breakdowns of the tariff. And then from Canada, Mexico, the parts from there could be actually under the rule of MCA. So we have been working on how much of them are like that. And then of course, we have price components imported from other countries other than Mexico and Canada, Tier III, IV included. So we need to go down that level of the details in order to have a precise understanding that we've done a bit of the work so far.

Moderator

And of course, euros $450,000,000 gross impact is made and estimated based on such exercise up until now. And we have this tariff between The U. S.-Japan agreement. And then at the moment, we do not know when exactly the automotive tariff will start to apply. But at the moment, assumption is to start, the 15% of the tariff to start from September.

Moderator

That is the assumption for the calculation this time. Thank you.

Moderator

Thank you, Mr. Nishizono. Okay. The next question from Yomiuri newspapers from Mr. Narahashi.

Moderator

Over to you, Mr. Narahashi. Okay, this is Narahashi from Yomiuri Newspapers. Yes, we can hear I have one kind of detailed questions we would like to check on, then ask two questions. The automobile operation have an operating loss from May to June.

Moderator

After how many since how many years has it been that you got the red losses? Now I have two questions. First, about the tariffs. So from if you do CBU exports from Mexico or Canada to The States, that's 25%. I thought that a lot of it might be exempted.

Moderator

So the actual amount that Honda would have to bear, how much would it be? So is it going to be lower than the 15 or is it going to be greater than that? That's something I'd like to know. My second question about the sales unit sales for Asia and Europe and Japan. So you have seen you've seen decline year on year.

Moderator

So I'd like to know about more about the detail about the causes. So is it that the sales, the competition outside The U. S. Must be could be intensifying because of the tariff impact in The U. S?

Moderator

So I'd like to know specifically if there's any reason why the competition is getting worse. Thank you. Okay. To answer so let me look into the first question that you said you wanted to you wanted clarification on. Okay.

Moderator

So to answer your first question, the CBU coming in from Mexico and Canada, concerning the parts as well, this also applies, but quite a bit of an amount will be exempted. I believe Mr. Kawaguchi mentioned it earlier a little bit. Concerning CBU, quite there is quite of a cost for the states. We have done a closer review and the effective tax amount has been reduced quite a bit.

Moderator

I cannot give you the number right now, but it has gotten a little bit somewhat close smaller. And for the parts as well, for those parts coming in from Mexico and Canada, which I've mentioned at the beginning of the term, the USMCA contents will be outside the scope if it's core applied. So that regulation was out there already. It's just that it's going to would take a little bit longer time because it might take to do better scrutiny. But we see that, that would be can be reduced by JPY 100,000,000,000 or so.

Moderator

So not all of it, but we have been able to reduce this out of the JPY 100,000,000,000, we have been able to reduce it by like 70% of this. That is the position. For Asia and Oceania and Japan, about the unit sales, different markets regions have different regions, I must say. First of all, for Asia, so in different countries' markets, we did have strong shares in each of the Asian markets. But in the past few years, the Chinese OEM have participated into some of those markets and then we are struggling some of those countries, the markets.

Moderator

And in addition to that, hybrid vehicles popular in some markets and in some other markets not at all because this is related to actually the subsidies from the government. So I need to actually I should be talking about different markets separately. But when we try to come up with hybrid models, we there are some markets where we have not been able to launch some into some market. So in ICE, we are losing against Toyota, for example. So this might take some time, but we would reinforce launching hybrid models into some of those markets, try to compete.

Moderator

For Europe, we have always we have been struggling several years ago. U. K. And Turkey production sites had to be closed. We had to do that.

Moderator

When it comes to unit sales, I think it's only around it's been trending around 100,000 units or so, just a slight decline since then. But within that trend, for automobiles business in general, the we are putting a lot of efforts into markets like U. S, Japan and India. We still do need to revisit internally what we want to do with the European market. That is a situation for Europe.

Moderator

So there are some areas where competition is intensifying and then there are some other areas where we need to put a lot more efforts. So we want to be clear about our selection and then make further efforts going forward. That closes my question on that. For about the April to June losses, since how many years it's been? The last time this happened was twenty twenty fiscal year.

Moderator

Due to the pandemic, we had some losses. So this is the first time we had losses since then. Thank you very much. Thank you.

Moderator

Thank you very much. Next question. Toyo Keizai Magazine. Mr. Yoko Yamag, please.

Moderator

You very much. Yoko Yamaguchi speaking. Can you hear me? Please. I have two questions.

Moderator

One is first quarter results and the full year forecast. You are changing a bit. The operating losses put up for the automobile businesses. And Fujimura san and Mr. Mibei already said that there will be some EV expenses to be put for the first half.

Moderator

And then we have about 100,000,000,000 yen also. And then for the full year, yen 600,000,000,000 or so already put up previously. And is your situation today in line with your expectations back then? And then if you kind of multiply the quarter results by four quarters amount, I think you should have the forecast a little higher than that. What is your expectation?

Moderator

And on? And then 19.9% operating profit margin for the Motorcycle businesses, that is quite a very outstanding way of the businesses. And then you've grown the businesses in Europe and now South America and you were quite aware of the importance of the profitability there. And what is the real capability in the first quarter? What is the reason behind such a good results of the Air Motorcycle businesses?

Moderator

Thank you. And to start with a conclusion of the results financial results and EV's implication. And then starting from the three months, $240,000,000,000 for three months, that is actually the half of the amount from the previous year. And then in the graph, we have those tariff about tariff impact of 120,000,000,000 yen or so. And as we have been saying so far, out of 102,000,000,000 yen in the first quarter, we had some recovery plus refund expected after the imports, and we had handled those based on cash.

Moderator

In fact, because of such situation, we have more put up for the first quarter. And EV one time and then in the beginning of the year, 200,000,000,000 were expected anticipating some to be added later. That is why we budgeted JPY 200,000,000,000 for the EV related. And then we have about JPY 60,000,000,000 plus 50,000,000,000 that was unexpected part out the EV related ones and then that amounts to 110,000,000,000 yen eventually. And then out of the 60,000,000,000 yen as we expected, as I said, we decided that with sensor situation would tell us that we need to have a bold decision that is to suspend some of the development efforts of some of the EV models and we needed to have some write offs for some of the efforts.

Moderator

And remainder is 120,000,000,000 yen And out of 50,000,000,000 yen which is not the expected ones. Regarding that, in the end of the term, we had the GMAV. We had to put up the air for the reserves for much as much as 50,000,000,000 yen at the end of the year and that was the reserve to be used for the future losses. However, we would have the RRA subsidies and the California SEC two related credit values and actually those were included in the losses that we were calculating for the future. However, those are now gone.

Moderator

Therefore, it is not necessary anymore to do that. And then we now have a 50,000,000,000 yen future loss expectations. And then again for the full year, it's it's bit complicated. We anticipated €600,000,000,000 that is in line with what we thought. And then we have €50,000,000,000 higher than that because of the IRA subsidies cancellation, ACC2 invalidity anymore.

Moderator

And then those are actually negative for that. And then 600,000,000,000 yen is now $650,000,000,000 yen instead. And then for the motorcycles, point 9% of operating profit margin you said is too good. And of course, we've made good results and then result is getting better. And this time, if you look at the plants in India for instance, there's a little bit of slowing down.

Moderator

However, we're not worried about it because we can bring it back again recovery. So we don't have the things going on as planned in India. However, we have South America, Vietnam, we have a good recovery instead. And then so far, it's been like where we have some issues in one place, one region, we have other regions, which is good to compensate for the other parts. That is the situation we've been seeing for some time.

Moderator

And then we have a very high profitability in Vietnam. South America, we have a high profitability as well for the businesses. And then so in Brazil, for instance, we have a lot of shares. Therefore, the number of those vehicles running there is almost all Honda. So we actually are supplying only to satisfy the demands, however, not enough.

Moderator

And then we had 1,300,000 car capacity of the production. Now we are going to increase it to 1,600,000 production capacity. So the demand is higher than the supply at the moment. And pricing is healthily done too. Because of that, profitability in South American market is very good.

Moderator

So as I usually say repeatedly, the region there is of high volatility. So I have to remind you that the result is perhaps too good. But that was what happened in the first quarter for the motorcycle businesses. Thank you very much. Thank you.

Moderator

Okay. Then we'll take the next question from Bloomberg. Mr. Inajima, please. This is Inajima from Bloomberg.

Moderator

Thank you. I'd like to ask about sales in China. Up until June, it has been declining for seventeen consecutive months. So what kind of initiatives do you have to rebuild the sales? And then how when do you think it's going to recover?

Moderator

So still the decline continues even after the launch this year. So I think we'd like to know about it. And then another question is that there will be there was talks about the report about discussions that you're trying to get supply from Nissan and then sell in The States. So I'd like to ask about any update if there's any discussions with Nissan. Thank you.

Moderator

Okay. Mr. Inajima, thank you for the questions. Concerning China, yes, the situation is very continuing to be very difficult. So talk about the total market.

Moderator

You'll be under 24,000,000 so this will be on par with last year. So for the NEV market condition, we'll still continue to stay this way. Maybe over 50% of those is what I'm assuming, over 50%. For the past several years, we have been trying to adjust our capacity. And then over the past two or three years, we have adjusted the capacity by 500,000, while we have 1,240,000 capacity and then 1,000,000 is about the ICE and then 200,000 is our battery EV.

Moderator

That's our factory capacity. But with these results, so we have not changed it from the beginning of the year, but 700,000 units capacity. So we still have available capacity. But concerning the available capacity, the direct reasons is that we have been well, we have been matching our manpower for the in line with the capacity. Actually, we do have a remaining a very old equipment, old production line.

Moderator

So I don't think we have that much impact from depreciation. That's the situation in the factory. But we will continue to take make adjustments. But this is a very sensitive topic and nothing has been decided yet. But we will need to monitor the production models and then we need to discuss with our partners and take very careful actions.

Moderator

For EV, we are struggling with the sales of EV, this ES series. This is something that we made some investments from the end of last fiscal year to the beginning of this year. But against the original plan, we are underachieving the initial plan. When it comes to the actual driving performance of the vehicle, we have received quite a certain level of good assessment. But within this market where there is a discount strategy continues, even looking at the price that we initially launched, it was not in line with the market expectations.

Moderator

And also for the intelligent functionality, the market expectations were not met by our vehicles. So we need to expedite take actions. So we might put the deep sea with OTA or we might work with Momenta in the area of ADAS. So we want to promptly proceed to take action to address that issue. And then when it comes to the talks with Nissan, yes, I am aware that a lot has been reported, but nothing has been decided and nothing has been announced by ourselves.

Moderator

So please take note of that. We have been saying since some time ago that business related collaboration, We are exploring the different formats of a collaboration of Nissan and Mitsubishi Motor. That is something we are discussing, continuing to discuss. So as soon as something gets finalized, we would like to talk to you about it. Thank you.

Moderator

Okay. Thank you very much. Thank you very much, Mr. Inajima.

Moderator

Next question from TV Nagae, please. I have two questions. One is tariff. Tariff, they won't of course pass through the prices 100% for that much. And then with that plus the retail prices of the vehicles should be needed.

Moderator

And what is your idea about price increases of the cars or the vehicles? And then next one is forecast. Just like to Keisais colleague said, the progress level is quite fast as compared to the forecast so far. The forecast of three months ago was rather conservative, but what is the concept behind? For instance, volume not changing.

Moderator

However, what is your idea about environment of the businesses? What is your assumptions or the ideas behind those forecast and the guidance? Thank you. So as for the price increases, price hikes, I talked about $6.50 gross tariff impact now down to $4.50. And we have about 200,000,000,000 yen recovery plans included in that process.

Moderator

And that includes 100,000,000,000 yen for that month. Recovery parties are now 100,000,000,000 yen instead, but 200,000,000,000 this time. And half of that is actually related to the price hikes. And U. S.

Moderator

Economy, not just cars, what is the inflationary trend in The U. S. Plus other OEMs pricing situations? So we need to cautiously watch out to put up our forecast. That was what we were like.

Moderator

And then in the first half this year already August however for the price hike situation apparently other companies, other OEMs are not doing price increases. We had annual ones, but with respect to the tariff response, we are still cautious. And in the first half, we couldn't reflect such a part in our expectations. And price hikes of the vehicles is decided that way based on the position like that. And the recovery 100,000,000,000 might have them, but we have to still cautiously watching out the situation to make a final decision.

Moderator

And then JPY700 billion instead of about JPY240 billion that is the progress today as you said. And then of course that comes largely from the volume. And then exchange rate is now set at and $140,000,000,000 yen and 145,000,000,000 and 135,000,000,000 in the first and second half average is 140. That is the assumption of the ForEx and that is why we have that recovery part. And then usually we tend to have more expenses put up in the second half such as SG and A and R and D.

Moderator

Those expenses stood put up in the second half and that is another reason behind. Thank you very much. You. And three months ago, you were very conservative and that is stressed on that, but are you still that way? What do you think about it?

Moderator

UNIDENTIFIED Well, I said we were conservative because, one, ForEx exchange rate, of course, that is just assumption and also that is as per the way we think about it. So I don't know if I should say that conservative. At that time, three months ago, we told you about those tariff as on the assumption at that time. And then now $650,000,000 to $450,000,000 impact based on the well progressed scrutinizing exercise of the tariff impact. And out of $450,000,000,000 yen $350,000,000,000 for automobile and 100,000,000,000 yen for motorcycle, that is the breakdown.

Moderator

And 100,000,000,000 motorcycle includes direct impact by tariff. However, not that it has a direct increase of the prices because of that, but rather the potential recession was something we were thinking about at that time. And because of that, we still have a €50,000,000 or so impact by that. So recession related concerns, 50,000,000,000. However, although we had anticipated some like that, however, it is not materialized.

Moderator

It is not realized at this time for the first half. Therefore, you could say we were conservative. However, this was the assumption we had. Thank you very much.

Moderator

Thank you very much, Ms. Narayan. We'd like to take the next question from Automotive. I'd like to ask Mr. Hans Gremel. This is

Moderator

Hans from Automotive News. Can you hear me? Yes. Thank you. Is it okay to ask in simple English? Thank you.

Hans Greimel
Asia Editor at Automotive News

I would just like to confirm two things about these price hikes and the EV losses in The United States. Can you the price hikes in The United States, are they still it seems that there are still many much of the price hikes still to come later in the fiscal year. Are you still baking in those price hikes? And can you give us an average percentage increase that you expect to charge for vehicles in The U. S?

Hans Greimel
Asia Editor at Automotive News

And regarding EV losses, can you give us a clear breakdown of the EV losses in The U. S. For the first quarter and how much you expect for the full year? And does that change your strategy or timeline for rolling out EV production of the Zero series in The U. S.

Moderator

Thank you very much, Hans san. Okay, about the price hikes, so exactly what kind of a hike per what kind of model? That is something strategically sensitive and then that would affect the sales. So I would like to refrain from the details. But for example, last year or two years ago, in the recent years, we have made some hikes.

Moderator

That was in line with the inflation. So of course, this reflects the strength of The U. S. Economy and then also depends on the features and attractiveness of our vehicles. So those are the factors that went into our pricing decisions.

Moderator

The price hikes that we are talking about is referring to those normal annual price hikes annual price hikes, not particularly related to the tariffs, but we are talking about those annual ones that we would raise in NMC and the annual price hikes. So during those first quarter, during April to June, we have raised some prices for some models. But so please refer to those as the for your information. Sorry, details cannot be given out because this will affect our sales going forward. Related to the EV losses, I don't have any details about the first quarter, the breakdown by quarter.

Moderator

But just to give you a general image, I told you that the JPY $650,000,000,000 of that, generally speaking, of the JPY $650,000,000,000, I mentioned JPY 200,000,000,000 at the beginning of the first term. Those we assume that kind of losses of the 200,000,000,000 yen So we did some write off on certain models, yen 50,000,000,000 for certain models in the first quarter. So that is part of it. So we would say $250,000,000,000 yen will be the losses kind of non recurring losses. So I mentioned the 200,000,000,000 we mentioned at the beginning of the term.

Moderator

And then now the IRA, that went away. So those are the losses additional losses of like $250,000,000,000 yen So of the $650,000,000,000 JPY $250,000,000,000 would be about the losses for this term. So we still have about like JPY 400,000,000,000 remaining. So R and D will be 300,000,000,000 gross profit of 100,000,000,000 yen Please take it that way. So if we have a gross margin of 100,000,000,000 yen I think we had about 150,000,000,000 yen last year that was larger than that.

Moderator

But we are narrowing down on the volume compared to last year. So that's why we are positioning that JPY 100,000,000,000. For Zero Series, as mentioned, the because of the impact from IRA and expenditures and also the cooling down of the market, we are not very optimistic to put it plain, but we would like to be fully prepared and then launch next term. So when it comes to good timing, I will give you more information about it. Thank you.

Moderator

Thank you, France. We are very sorry that and we know that many hands still up for making questions. However, because of the time, next one is going to be the last question from Reuters, Daniel. Please, Can you hear me? Hello?

Moderator

Yes, I can hear you. So earlier USMCA discussions, I'd like to confirm a few things. So especially in the first half for this year, what is the real actual tariff rate to be? If that cannot be publicly opened, do you have examples citing some particular parts or components? For instance, a lower tariff rate is applied like expensive ones, parts and so on.

Moderator

Are there any alleviated tariff alleviated kind of parts or components you could cite if there are any? Thank you. I'm sorry, I should refrain from publicly saying too much. However, maybe I can talk about CBU. The question is about the CBU related to the USMCA.

Moderator

And if I say that too well, it would reveal our cost structure. Therefore, I cannot say too much. However, rather the examples for the high rates rather than low like hybrid system, the critical hybrid systems, there are quite a few sent from Japan. So it is the area where the high rate is applied. And for that area, next gen, next generation hybrid like the 27 series we are going to launch in that year with the new gen systems and specifically for them battery motors, PCUs.

Moderator

The thing is how can we produce those areas in The U. S. That is one of the focus area of the discussion today. Would that be all right? Thank you.

Moderator

Thank you very much. Thank you very much, Daniel. So now that concludes our presentation for the financial results. And those slides and materials and the presentation package is available from our website. Thank you very much for your participation today.

Analysts
    • Moderator
    • Hans Greimel
      Asia Editor at Automotive News
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