Honda Motor Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2024

There are 2 speakers on the call.

Operator

I'd like to now make a start of the financial results, the press conference for the Q2 FY 20 25. Let me introduce the Paris Banca today. Director, Executive Vice President and the Representative Executive Officer, Mr. Shinji Aoyama Director and Managing Executive Officer, CFO, Mr. Eiji Fujimura.

Operator

Mr. Uemayo is going to present the outline of the results of the year 2nd quarter FY 20 25 and full year outlook of the year FY 2025, followed by Mr. Fujimura to present details of the financial results. Mr. Weyma, the floor is yours.

Operator

Thank you very much for your understanding of our business activities as usual. Let me present our Q2 results of FY 2025. Starting with the highlights. Operating profit of the first half of the FY twenty twenty five was JPY 742,600,000,000 with operating profit margin at 6 0.2%. The unit sales on our consolidated automobile businesses in joint are steady sales of ICE and HEV models in North America as well as the full fledged start of the EV sales.

Operator

We had additional sales of the 64,000 units year on year. Total units sales across the group declined by 155,000 units due to the reduction of the unit in China. Regarding motorcycle businesses, we had a favorable unit sales globally and had achieved the cumulative sales of 2 quarters, reaching 10,000,000 units. Operating cash flow after R and D adjustment was JPY 1.285 1,000,000,000,000,000, the same level last year. Regarding the full year consolidated forecast of FY 2025, despite the impact by strengthened incentives for EV sales in North America, with the recovery of motorcycle businesses.

Operator

We will keep the same forecast from the previous guidance that is JPY 1,420,000,000,000. As for the current profits, due to the sales decline in China, a profit decline of domestic affiliates causing less investment or profits based on the equity methods. We will change the previous forecast down to JPY 950,000,000,000 less by JPY 50,000,000,000. With regard to the shareholders' returns, we made a decision in the Board of Directors meeting today of interim dividend of JPY 34 and annual dividend JPY 68, which will be maintained from the same amount from the previous forecast. As for the share buybacks, in addition to JPY 300,000,000,000 which we made a decision on as of the May 10, 2024, we have made a resolution to add up to JPY 100,000,000,000 of the further acquisitions.

Operator

Let me explain the situations of main market. For the automobile businesses, unit sales increased in Japan and the U. S. However, due to the impact by the growing new energy vehicle market, intensifying the price competition in China and so on, the total unit sales declined below the level last year. For the Motorcycle businesses, despite unit sales decline in Thailand due to economic slowdown, we had a steady demand in India, incremental unit sales in Vietnam.

Operator

By economic recovery, total unit sales exceeded year on year. This is the financial result of the 1st 2 quarters of FY 2025. Operating profit was JPY 742,600,000,000 up by JPY 46,000,000,000 year on year. Investment profit and loss based on the equity method was negative JPY 20,700,000,000 down by JPY 87,400,000,000 year on year. The profit attributable to the owners of the parents for the interim period was JPY 49 4,600,000,000 down by JPY 121,600,000,000.

Operator

Next, regarding the consolidated financial outlook for our FY 2025, we will maintain the forecast of operating profit of JPY 1,420,000,000,000. Previous guidance still stands. The profit attributable to the owners of the peers for the year will be down by JPY 50,000,000,000 that is to be JPY 950,000,000,000. Forex assumption will be set at JPY143 for a dollar for the second half of the year and for the full year JPY 148. Regarding the dividends, interim payouts for FY 2025 is JPY 34 per share.

Operator

Guidance for annual payout will stay the same at JPY 68 and no change from the previous guidance. In the Board of Directors meeting held today, we made a decision of a share buyback, so we will execute it with the upper limit of JPY 100,000,000,000. Next, Mr. Fujimura will explain the financial details.

Speaker 1

And next, I will explain the second quarter results details. First, the FY 2025 Second Quarter Honda Group 6 month unit sales. Motorcycle Business at 10,382,000 units, due mainly to year on year increase in Asia. Automobile Business, 1,779,000 units, mainly due to drop in Asia, in particular China. Product Products Business, 1,653,000 units, mainly due to drop in North America and Europe.

Speaker 1

The consolidated 6 month financial results have already been explained. Next, the changes in profit before income taxes for the 6 months compared to the same period last fiscal year. Operating profit increased 46,000,000,000 yen The change factors are as follows: Those sales impacts saw a positive impact on profit due mainly to increase in unit sales. Increase in incentive led to a 28,000,000,000 yen decline in profit. Price and cost impacts was positive due to pricing commemorative commensurate with product value, resulting in a JPY 268,600,000,000 profit increase.

Speaker 1

Expenses, increase in personnel and outsourcing costs, had a negative impact of 105,500,000,000 yen R and D expenses increased 80,000,000,000 yen negatively impacting profit. Currency effects was negative impact of 9,000,000,000 yen Profit before income taxes declined by 137,300,000,000 yen due to a decline in unit sales in China, decrease in equity method profit due to drop in domestic related companies' profit and appraisal loss of foreign currency denominated assets due to stronger yen compared to last year end. Next, operating profit by business segment. JPY 325,800,000,000 in Motorcycle Business JPY 258,000,000,000 in Motorcycle Business JPY 162,700,000,000 in Financial Services Business. Power Products Business and Others saw a loss of 3,900,000,000 yen Next, cash flow.

Speaker 1

The FY 2025 6 month free cash flow of operating companies, excluding financial business operation, was 372,300,000,000 yen Net cash balance at the end of the second quarter was 3,492,300,000,000 yen R and D adjusted operating cash flows was 1,285,100,000,000. Next, the FY 2025 full year consolidated financial forecast. Honda Group Motorcycle Unit Sales forecast is 20,200,000 units, an increase compared to previous forecasts due to increase in mainly Asia. Automobile is 3,800,000 units, reflecting drop in Asia. Power Products business.

Speaker 1

Though we have reviewed the forecast by region, the last forecast of 3,660,000 units remains unchanged. FY 2025 consolidated financial forecast has already been explained. Next, the change factors behind forecasted profit before income taxes. Operating profit, up 39,000,000,000 yen from last fiscal year. The change factors are the following: sales impacts, though there is an increase in profit due to increase in unit sales, Increased incentives and other factors will result in a JPY 170,500,000,000 profit decline.

Speaker 1

Price and cost impacts, positive effect of pricing reflecting increased product value, will increase profit by JPY 550,000,000,000. Expenses, negative JPY 68,500,000,000. R and D expenses will increase by JPY 125,000,000,000. Currency impacts will have a 148,000,000,000 yen negative impact. Profit before income taxes will fall due to drop in unit sales in China and domestic related companies' profit equity method profit.

Speaker 1

Since exchange rate is assumed to see the yen appreciate against the end of last fiscal year, there is appraisal loss of foreign currency denominated assets, resulting in JPY 207,300,000,000 drop in profit. Next, changes from previous forecast. Operating profit forecast remains unchanged. Breakdown is as follows: sales impacts due to increase in incentives, amongst others, negative JPY 99,500,000,000 price and cost impacts, positive JPY 48,000,000,000 due to pricing commensurate to the product value increase expenses, positive due to a 2,500,000,000 yen cut R and D expenses, negative due to 4,000,000,000 yen increase currency effects, an increase of 53,000,000,000 yen profit before income taxes, down 45,000,000,000 yen due to decline in unit sales in China, resulting in a negative equity method profit. Lastly, the forecast for capital expenditures, depreciation and R and D expenditures for FY 2025 are as shown.

Speaker 1

This concludes my explanation. Thank you.

Operator

Thank you for your attention. So now we would like to take questions from the floor. As we have explained beforehand, we are going to take questions on the Zoom. Zoom. Because of the interest of time, please limit your questions to 2 questions.

Operator

And if you want to ask questions, please turn on your microphone and the camera on the system. So please push the raise your hand First question from Yomiuri Newspaper, Mr. Nakamura. Please ask questions. Can you hear me?

Operator

Yes. Thank you. Thank you. So I have two questions. First one, I have a question about EPC in North America.

Operator

The ProLoga, the ZDx have already started on the sales on sale and then the incentives are dragging your performance. And as compared to the beginning of the year, what is the incremental incentives as of now? And in this situation, do you still plan to strengthen EV sales over there? And question 2, so it is our outlook. You're changing the ForEx assumptions towards the yen depreciation direction.

Operator

Please And please explain me the backdrop. Of course, the presidential election, other situations might and other political situation might change the Air Force situation. How do you address that? Thank you very much, Mr. Nakamura, for your question.

Operator

The North America EV, your net sales were steadily. In those 2 quarters, first half, our performance of the unit sales, we had about 20,000 unit sales less fewer in the United sale U. S, in North America. And in the second half, 60,000 more units planned, and it will be about a little bit less than 80,000 in sales to be included for the full year. And in terms of the incentives, I cannot give you the detailed numbers of those incentives.

Operator

However, as compared to the original assumptions, we have about $7,000 per unit more spend on the incentives. And for this one, for the second half this year, we are going to budget the same level of the incentives basically. And the question of strengthening of the sales in these situations, from the 'twenty six model year, we are going to have the Air Honda EV designed and manufactured by Honda. Those will be on sale in North America. And in order to have a good connections to that model, for this model currently sold, we are going to keep the momentum of the sales of the current AV models.

Operator

That is the basic idea. Of course, we have to look at the basic market situation, incentives situation plus how we address the regulations. Those factors have to be considered in order to have flexible activities. And then FOREX, Fujimura san is going to address this question. Thank you for your question, Nakamura san.

Operator

In the previous session, in the summer, we said JPY 140 for the full year. That was the assumption we had. And then we didn't change from the beginning of the year. We said that it is going to be steady. But at that time, there were like JPY 20 ups and downs, fluctuations of the ForEx levels at the time.

Operator

And the assumption of JPY 140 assumption actually, it's second half JPY 135. That was the assumption we had in the first half period. But now JPY JPY 130 JPY 145 for the 3rd quarter and JPY 140 for the 4th quarter. It will be about JPY 142.5 or so for the second half, so yen depreciation direction. And then as compared to the time last time, we had a number of those public rates down in U.

Operator

S. And Japan as well. Those interest public interest rates are coming down. And also, actually, those reduction of the rates is a little bit squeezed over time. And we have no idea what could happen for the presidential election.

Operator

It is now being counted, and we have not factored in the presidential election matter in our forecast. However, those are the assumptions we have put up for this term. Thank you.

Speaker 1

Thank you very much. Thank you very much, Mr. Nakamura. Next question to Okinawa, please. And this is Okinawa from Nikkei.

Speaker 1

Can you hear me? Yes, we can hear you. Thank you. Thank you. I have two questions.

Speaker 1

First, about automobile operating income, the fact that it's declining. Well, the North American business, hybrid, is still even though it's doing well, you have inventory piling up. So including EV, what do you see in regards to automobile consumption, including inflation? So what is the outlook of demand consumption in North America? That's the first question.

Speaker 1

And the second question is about the downward revision. So you have the negative for the equity method profit. So can you talk about the background? I think the major factor is China, gasoline cars and also EVs, the current sales and also the forecast stood sales. Yes.

Speaker 1

Mr. Okinada, thank you very much for the question. Thank you. Well, about North America, even with the HEV, the inventory is increasing, you say. Well, it's not necessarily the case.

Speaker 1

I think that looking at the current situation and also because various measures have been taken for the market, we it may appear as if the inventory is slightly increasing, but this is a onetime phenomenon. In regards to HEV, I think we are doing very well in terms of sales. For the overall market, well, the U. S. Market is about 60,000,000 units per annum.

Speaker 1

This is the total market that we see, and so we think that this will remain unchanged. But again, well, depending on what happens with the presidential election, we have to see what will be happening. So we have to keep an eye on the market developments. But currently, hybrid is doing well, we think.

Operator

And

Speaker 1

I hope you'll understand that to be the case. And we also,

Operator

in the

Speaker 1

second half, will be mainly promoting our sales of hybrid. Now about the profit of equity method and the negative number that you see here, as I explained earlier, In addition to the decline in sales in China, our related companies in Japan, there has been a decline. So these 2 combined, we are seeing this negative profit of equity method. If Fujimura has something to add, I'll ask him. Well, about the downward revision.

Speaker 1

And well, it has been we downward revised the operating profit to JPY 950,000,000,000. In the second quarter, if you look at the second quarter, well, it was 1,420,000,000,000. And we think that we can maintain this. But if you look at the others below that, about the profit equity method, as Aoyama has already explained, there is the impact of China. Well, from the beginning of the fiscal year, we have seen a decline of some 300,000 units or more.

Speaker 1

And so that is one factor. And plus, at one time, this factor is domestic, I mean, I did companies. And again, this is derived from partially China, so there's a negative coming from them. And so there are some onetime factors involved here. And as a result, we have a €25,000,000,000 negative profit of equity method.

Speaker 1

And other than that, because of the currency fluctuation that we're seeing right now, Well, for Honda Motor and also our subsidiaries overseas, they have, for example, the debts and bonds and also the foreign currency deposits. And we have to do the appraisal of these foreign currency denominated assets. And so there have been the loss pertaining to non sales factors. And therefore, the operating profit will remain the same, but we are seeing $50,000,000,000 These 2 together, resulting $50,000,000,000 or so. And also, there is a difference in tax systems in different countries.

Speaker 1

But I think that these 2 combined has led to a drop of $50,000,000,000 in net profit. Is that okay? Next

Operator

question from NHK. Mr. Nishizono, please. I have a question to Mr. Aoyama.

Operator

So in this financial results, how do you conclude the results? What is your taking? And then Chinese market impact and your action to that, could you explain on that, please? Thank you very much. Mr.

Operator

Nishizono? Well, it is difficult to say in one word how to take the situation now. But as compared to the REX, no dollars, Forex, no dollars not against the dollar, but the Forex against the emerging currencies or Canada, Mexico, Argentina, Turkey. The currencies of those countries are kind of involved here that sort of had negative 30,000,000,000 yen or so because of the ForEx fluctuation. And then it wasn't expected in the beginning.

Operator

It caused some fluctuation. And we would say it is transient, but for the full year sort of basis. But in the immediate three months for the Q2, we had a quality cost, a warranty cost, which was rather high, warranty, JPY 110,000,000,000 negative impact by the warranty expenses. And this is how I take it. And then actually, it was away from our expectations.

Operator

And battery EVs incentives increased, as discussed earlier. And of course, we have factored in some of them to the negative side. However, we had a certain possibility, and we had anticipated to a certain extent for those matters. It wasn't really a surprise to me, in fact. And then the unit sales reduction in China, for instance, it was actually greater than we were expecting.

Operator

The reduction rate was quite fast, I guess, our expectation. And then also the business structure around fixed cost Every year, we have been working to reduce them at a high speed as well. So although those because of those that down sort of trend for the performance is sort of alleviated. And then Iceland have in North America, we have incentives. And in fact, actually, we don't spend as much as we were expecting for the incentives in North America.

Operator

Plus, we had a good tailwind by the motorcycle business recovery, and that is good, too. And Chinese market, as I said earlier, NAVs, BEVs and PHEVs, new energy vehicles, those types of the cars are increasing very fast. And at the moment, we do not have a competitive product in this end, in this area. Therefore, we had to try to reduce the fixed cost because of that.

Speaker 1

Thank you very much, Mr. Nishizono. Next, Toyo Keisai, Mr. Yokoyama, please. This is Yoko Yama from Toyo Kaisa Weekly Magazine.

Speaker 1

Can you hear me? I have two questions. Thank you. First, it's the balance between the first half and second half. Well, according to your revision, in the second

Operator

half, I think well, Mr. Fujimura has talked

Speaker 1

about the expenses increase the increase to decrease in the second half. And with this revision, you have, I think, made some changes. And Mr. Ayama talked about the recall expense, but your thinking towards the balance between the first half and second half and also the sales cost. So I want to hear about this balance.

Speaker 1

That's the first thing. And second question, about China. Well, in the beginning of the fiscal year, both of you, you were talking about restructuring and optimizing production and also personnel. But what is the progress you're seeing so far? And currently, I believe that the pace of decline in sales is quite quick.

Speaker 1

And therefore, do you have any plans to rationalize? And how do you think about the production balance between Guangzhou and Dongfeng? [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Yes. Thank you very much, First of all, about the balance between the first half and the second half of the fiscal year and the difference between the 2. Well, as you pointed out, in terms of the cost, it does tend to be that there will be it will be skewed more towards the second half.

Speaker 1

And this fiscal year 2025, again, we think that the same is happening. And especially, the R and D part, it does tend to increase towards the second half of the year. This happens every year. And this year, again, we are seeing this happening. Now earlier, in the other questions, I partially answered what you've asked.

Speaker 1

But in terms of warranty, well, in the Q2, we think that this is a onetime expense. But yes, we will try to make this more positive in the second half, dealing with the warranty issue. And about the currency setting, on the second first half and second half, there is a JPY 100,000,000,000 negative difference between the first and second half. And in terms of sales impact, it's positive. That is our understanding.

Speaker 1

So sales and also selling price and well, saying the price, which is commensurate to the value of the product, it will be a positive. So in the second half, this will be an add on. The negative will be the currency, JPY 100,000,000,000 or so. And other expenses, R and D included. That will be a negative part.

Speaker 1

I hope you understand it to be that way. Now about China. In regards to China, I have talked about this in different occasions. But at this point in time, as you know, in China, we have 2 joint ventures and both will have new production capacity, dedicated EV factory with a capacity of 120,000 units per annum. One has already started, the other is to be started.

Speaker 1

And so this will be an add on to our conventional capacity. But at the same time, we had some 1,490,000 units production capacity, the 2 joint ventures combined. And in the last year, a little less than a year, together with our joint venture partners, we have been discussing what needs to be done. And at €1,49,000,000, this will be reduced to €960,000,000 Well, yes, including the lines which have yet to be suspended. So during this FY 2025, it will be dropped cut to 160,000.

Speaker 1

So including the battery EV dedicated, we are assuming that there will be 1,200,000 capacity. And of course, 1,200,000 units is more than the demand. And so there will have to be some cuts made in the future. And internally and with our partners, we are discussing what needs to be done. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] About personnel cut, well, yes, we are making some progress there.

Speaker 1

I won't give any specific numbers, but both for Guangdong as well as Dongfeng, for both, we have some several thousands of personnel cut, mainly voluntary resignation. And so that is the current status. Thank you.

Operator

Thank you very much, Mr. Koyama. So next question from Kyodo Tsushin. Mr. Okuda, please?

Operator

Okuda speaking from Kyodo. Can you hear me? Yes. So the ballot is being accounted now in the presidential election, and there was a mention to the Horx, some chance on Mr. Trump would raise the tariff and EV promotion can be reviewed and so on possibly.

Operator

And going forward, of course, who will win would matter. But what do you think is the potential impact of the businesses? And how would you address such a situation? In the case, for instance, investment plans on EVs in the future, would that be impacted by the results of the election? And the other question, Nissan and Mitsubishi and yourself have collaboration programs and what is the situation of the lines is Mr.

Operator

Kato from Mitsubishi said that they're going to sort of put together their ideas or plans by March next year? And then what is the situation? And also Mitsubishi, would they provide you the PHVs to you? What is their options with them at the moment? Could you share with us as much as we can, please?

Operator

Thank you very much, Mr. Okuda. So counting, we are casting a very keen eye on them, like you yourself. And then who is going to win? Whichever the case, no matter the case, we are not necessarily taking the situation in a short or mid term perspective.

Operator

We have a long short perspective as well, especially with regard to the investments. Whoever the President could be, we shouldn't be too much swayed around by the them. We have our automobiles, small car, passenger car, areas of the businesses. For that, every year, the EV electrification ban will be on the in the long run. And in Ohio, in the state of the Ohio, we had LGES joint venture LHE batteries.

Operator

And in Canada, we have a comprehensive value chain programs in Canada. So those programs will be pushed forward basically. However, away from the presidential election, we have to look at the AVs market, of course, we have we would have, for instance, investments on the those equipments and so on used in EVs and investment can be looked at. And then of course, we will have flexible investment plans and executions as per the situations of the market. Therefore, the impact on the investment plans, the presidential election will have no impact on us.

Operator

However, in terms of the influence, by large, for instance, production in Mexico, quite a few moved or transported from Mexico to the U. S, which will be subjected to the tariff for a certain period of time, which will be the area that is necessary, requiring some actions because we cannot relocate the production sites all of a sudden. So we have to see what happens and what we can do. And collaboration with Nissan and Mitsubishi, so we don't have any specifics like by when and what. However, PHBB, so on, system supply or the equipment supply.

Operator

Actually, we have nothing defined as of yet. So we simply keep our discussions at the moment. Sorry, I cannot give you the specifics as of now. Thank you very much.

Speaker 1

Thank you very much, Mr. Okuda. Next question, please. Bloomberg, Mr. Inajima, please.

Speaker 1

Two questions. First, this has all been asked, but so about the operating profit, the second quarter, what are the major factors, a negative impact? So you talked about JPY 96,900,000,000 expenses. Can you give the breakdown of the expenses, please? Mr.

Speaker 1

Inejima, thank you very much. About the 2nd quarter only, the 3 months, right, and year on year comparison? Well, Fujimura has talked about the full year forecast, but let's have him talk about the likelihood of the forecast included. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Mr. Inejimam.

Speaker 1

Yes, so year on year, your question is about the July, September. And you were asking about expenses, R and D expenses or just expenses? Well, that included. Well, the big items, yes, the big items compared to the previous year. Can you give us the big items?

Speaker 1

Well, about the expenses, well, this is included in an annual, but yes, so PR and also personnel cost, well, these are all included in the 3 months. And so I think we are at cruising speed, so to say, right now. And earlier, there was the question about the impact on the annual. And we did and I wanted to talk more about that over this 3 months. Looking at this 3 months that's just ended, well, as Ayoma has said, the warranty is about €80,000,000,000 annually.

Speaker 1

At the time of this announcement, I cannot give any specifics as to which supplier, but still. And we have not reflected this since we did not sign the memorandum of understanding, but it's posted as €30,000,000,000 But I think that we can set this. And so this is not included in the forecast. And also, annually, there is a negative listed here. But I think, as I said at the outset, because of the yen dollar currency effect, since we reviewed this significantly, this will disappear.

Speaker 1

And therefore, this $250,000,000,000 plus result, we think that $360,000,000,000 or so should be the actual instead of JPY 250,000,000,000. Then RS will be 6.6%. And the negative battery EV, well, yes, we are going to sell it. And in China and Asia, the drop in automobile sales with ICE and motorcycles, we want to offset that. So we think that we can do this throughout the year.

Speaker 1

And so based on that, we have some the unchanged $1,400,000,000,000 So the 3 months, as I said, number wise, we've I think our actual would be some JPY 100,000,000,000 added on to what you see here. It's due to various factors that it's lower. Thank you.

Operator

Next question, Daniel Assam from IRY 2, please. Daniel from Eureka. Can you hear me? Yes. My question is also about the North market, and some of the questions have already raised, and I'd like to continue from there.

Operator

Mr. Trump, in the election, in the last few months, he mentioned about cars imported from Mexico and plans to raise the tariff there. So he mentioned that a number of times. And then if he wins the election and if realizes his plan, what is its impact on your businesses? And how would you address on that in order to prevent the negative impact by that?

Operator

Could you add some more comments on that point, please? Thank you very much, Daniel, for your question. And again, the tariff on the Mexico import from Mexico. So the automobile production in Mexico, we have about 200,000 units over there in production, and 80% of those are exported to the U. S, about 160,000 units or so.

Operator

That's exported to the U. S. And the impact could be there, business of $160,000 which will be subjected to the tariff. And that is a big impact, I think. And then it is not just Honda, GM, Ford and other Japanese companies, Japanese OEMs, all of the companies are subjected to the same situation.

Operator

And in short, I wouldn't think that the tariff will be imposed right soon. After certain discussions, it will be done. And will those companies be able to stop the production in the in Mexico right away? Of course, if the tariff is a permanent one, I suppose it could be not permanent. Maybe we would go for the production elsewhere, which is production elsewhere, which is not subjected to the U.

Operator

S. Tariff. But we could do it.

Speaker 1

Thank you very much, Daniel san. And next question? Nikkan Chidosa, Mr. Mizutori, please. I think it was mentioned in the first question about the EV incentives in the United States.

Speaker 1

Well, Mr. Aliamam, you said that incentives were $7,000 higher than expected, I think you said. But the current situation, if you look at the EB only, well, the more you sell, the more the deficit, I think. And that if with the 26 year model, you can generate profit even with EVs, is that the correct understanding? Because it's Honda Corp and also in U.

Speaker 1

S, the CO2 credit, like in California, the revenue and payment, what will happen if there is an increase in the number of EVs? Mr. Mizutori, thank you very much for the question. Well, yes, the incentive was higher than expected. That is a fact.

Speaker 1

So this fiscal year, 2025, against the original assumption, we think that it will be JPY 100,000,000,000 or so incentive increase. So that is what we're assuming right now. That is the current situation visavis FY 'twenty five. Now as for next year and beyond, well, as I said earlier, basically, there will be the environmental regulations. So we have to respond to those regulations and also profitability.

Speaker 1

The more you use incentives, this will aggravate the profitability. So we have to think about how to respond to the regulation versus incentives. And we have to think of these 2 together. But from FY 'twenty six, we are expecting unit sales to increase, and there will be sales momentum to a certain extent. So we have to think about the units and also the incentives and how to respond to the regulation.

Speaker 1

So overall, we have to balance all these 3. But with the FY 'twenty six well, the model year 'twenty six, a new model, whether we can generate profit, we'll work hard to generate profit with our new model. As for the specifics, I cannot spell them out right now. But still, from model year 'twenty six, we want to work hard on that. And as for the CO2 credit, well, in the U.

Speaker 1

S, it's a bit complicated because the overall GHG, a greenhouse gas emission, that's on one hand. And meanwhile, there is some states like California, which are ZEV states, 0 emission vehicle states. So there are these 2. Now for the model year 2025, California, according to the ZEV Act, ACC1 is the stage. And from the model year 'twenty six, it will be ACC2.

Speaker 1

So transition to the next stage, which is more stringent. Therefore, for the GHG, Honda meets, complies with the requirement ACC1 regulation, which will continue until model year 2025. We are already selling the 2025 model year. But up until ACC1, we are complying right now. But ACC2, we have to sell a lot of battery EVs to meet this ACC2.

Speaker 1

And so we have to sell, and that will start from model year 2026. And all automobile OEMs are facing the same situation. So for this, of course, we will increase our battery EV sales. But as of now, if we do it as is, this will increase our deficit. So what are we going to do?

Speaker 1

We could buy credits. So keeping this possibility in mind, as I said, if we do that, and then the unit sales and incentive and also regulation compliance plus credit, The selling buying of credits also have to be taken into consideration. So there'll be a lot of factors that we have to work on. Well, as for the details, I would like to talk about this at a separate occasion when I talk about how we'll respond to these different regulations. Thank you.

Speaker 1

Thank you for the detailed answer.

Operator

Thank you very much. Mr. Mizutomori. And because of the time constraints, the next question is going to be the last one. Nakajima Minami.

Operator

Mr. Nakajima, please. So operating profit of your company is supported by the motorcycle businesses, but the Japanese motorcycle business is not doing well. And sometime very soon, 50cc, small motorcycles will be gone. Can we expect the profit in a short while in the near future?

Operator

So let's talk about those 50cc motorcycles. And we may be a little bit responsible for the society with regard to the 50ccs. And actually, this 50cc category, so called Gen 60 category, actually, for this category, it will be revived away from the 50cc constraints. In specific, 125cc or less with a 4 kilowatt or less sort of power. And with that kind of the motorcycle, the drivers with that category license would continue to drive the with the 4 automobile license.

Operator

Regular one would allow them to drive the motorcycle below 125 cc. That is going to be the same category going forward. And then as for the business of that, well, we have a so called dream 10, the mid size, large size or 155cc categories. We have those areas, businesses, which is very steady and good. Because of the COVID-nineteen, we had a bit of increase because of that for people who would take it to war riding the motorcycles.

Operator

Such kind of boom had kind of settled now, but we can do a good business, and we want to take a profit from the business of motorcycles like that in this area. And also in advanced or developed countries, including Japan, the profitability of the motorcycles are high. And I would like to see the continuous continuity of the profits.

Speaker 1

And with this, we would like to conclude our briefing session. And as for the documents, they are posted on our website. We thank you for your participation.

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Earnings Conference Call
Honda Motor Q2 2025
00:00 / 00:00