Honda Motor Q3 2026 Earnings Call Transcript

Quartr
Provided by Quartr
February 10, 2026

Key Takeaways

  • Positive Sentiment: Motorcycle operations drove the quarter, delivering record-high unit sales and margins (Q3 motorcycle operating profit ¥446.5bn) and management kept the full-year motorcycle target at 21.3 million units.
  • Negative Sentiment: Automobile operations reported an operating loss of ¥166.4bn in Q3, hit by large one‑time EV-related charges (~¥267.1bn), tariff effects (~¥279.5bn) and weaker unit sales from semiconductor disruption.
  • Positive Sentiment: Balance-sheet and cash metrics are strong — operating cash flow after R&D ¥1,855.8bn, net cash ¥3,170.7bn and free cash flow ex‑finance ¥917.4bn — the board approved cancellation of 747m treasury shares and kept the full‑year dividend at ¥70/share.
  • Negative Sentiment: Honda has recognized ~¥270bn of EV write‑offs YTD and has budgeted up to ¥650–700bn (including R&D); further uncertainty remains due to ongoing negotiations with GM and a planned reassessment of EV product, CapEx and cost strategy.
  • Neutral Sentiment: Management reduced the estimated tariff impact (now ~¥310bn vs ~¥450bn initially) and uses a ¥148/USD assumption (FX tailwind), but expects intense competition in Asia requiring incentives, so full‑year guidance remains unchanged (operating profit ¥550bn; profit attributable ¥300bn).
AI Generated. May Contain Errors.
Earnings Conference Call
Honda Motor Q3 2026
00:00 / 00:00

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Translator 1

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 Co., Ltd.'s financial results briefing for the third quarter of fiscal year ending March 2026. First of all, allow me to introduce the attendees today. Mr. Noriya Kaihara, Director, Executive Vice President, and Representative Executive Officer. Good to see you, everyone. We have Mr. Eiji Fujimura, Director, Managing Executive Officer. Thank you. And Mr. Masao Kawaguchi, Operating Executive, Head of Accounting and Finance Unit. This is Kawaguchi. Good to see you, everyone. Mr. Kaihara will first present the financial results of the third quarter ending December 2025 and the forecast of consolidated results for the fiscal year ending March 2026. Then Mr. Fujimura will present the details. Over to you, Mr. Kaihara. Thank you.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

I thank you very much for your continued support for Honda's activities. I would like to present to you the financial results for the third quarter of fiscal year to March 2026. I would like to start with the highlights of the financial results. Our operating profit for the third quarter of the year to March 2026 was JPY 591.5 billion. Motorcycle operations saw solid unit global unit sales led by India and Brazil. And in addition, the restriction on ICE vehicles in Vietnam, which was a concern, had only limited impact to sales compared to our assumption. For results up to third quarter, we've attained the record high unit sales, operating profit, and operating margin. Automobile operations saw declines in profit due to non-recurring expenses related to EV, in addition to impact from tariffs.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

Operating cash flow after R&D adjustment, which indicates the resources available for future investments, came to JPY 1,855.8 billion, generating cash on par with the same period last year. The forecast for the consolidated results for the term ending in March 2026 is operating profit of JPY 550 billion and profit for the year of JPY 300 billion, unchanged from the previous forecast. Impact from tariffs was initially forecast at JPY 450 billion at the beginning of the term, but our prospects are now that it would be reduced to JPY 310 billion. Toward the end of the term, though we expect growth in profit due to yen depreciation, the competitive environment for automobiles in Asia will intensify, requiring incentives. Taking into consideration the uncertain business environment, we are maintaining the previous forecast.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

Going by business segments, for motorcycle operations, with the tailwind of solid sales in India and Brazil, we continue to aim for 21.3 million units, the highest record sales. For automobiles, we will maintain the forecast of 3.34 million units, unchanged from the last forecast. The shortage of semiconductor supply experienced in the third quarter now has good prospects for preventing recurrence. On the other hand, we are beginning to see signs of supply risk for other materials such as rare earth metals and memories, and we will closely monitor the situation and take actions as needed. To give you the consolidated results for the third quarter of the year to March 2026, operating profit was JPY 591.0 billion, lower by JPY 548.4 billion compared to the same period last year. Investment earnings due to equity method was JPY 24.0 billion, higher by JPY 51.3 billion.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

The quarter profit attributable to the owner of the parent was JPY 465.4 billion, lower by JPY 339.8 billion. Next, I'd like to cover the forecast for the consolidated results for the term ending in March 2026. Compared to the previous forecast, we maintain our forecast of operating profit of JPY 550 billion, and then the profit of the year attributable to the owner of the parent of JPY 300 billion, which is unchanged. The exchange rate against the U.S. dollar is assumed at 140 JPY for the full-year period. Next, for shareholder returns, the forecast for the full-year dividend for the fiscal year ending in March 2026 is 70 JPY per share, unchanged from the previously published forecast. In addition, the board of directors meeting held today has resolved on the cancellation of treasury stocks. We will execute the cancellation of 747 million treasury stocks.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

So let me explain about the details of the financial performance. And Mr. Fujimura is going to explain. Let me start. So, regarding cumulative group unit sales for three months up to the third quarter year-on-year, for motorcycles, 16.44 million units sold due to the increase in India, Pakistan, and Brazil. For automobiles, 2.561 million units due to a decline in Asia, mainly in China. And for power products business, 2.507 million units sold due to some incremental sales in Europe and a decline, mainly in Asia. We have explained the consolidated performance up to the third quarter already. Next, I will explain factors for changes of operating profit year-on-year. Operating profit was JPY 591.5 billion, down by JPY 548.4 billion year-on-year.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

Factors behind the changes: Sales made a positive impact by JPY 38.1 billion because of the increase in motorcycle unit sales, as well as in profit in financial businesses, though automobile unit sales declined due to the shortage of semiconductor supplies. Price and cost impact were positive by JPY 225.9 billion due to effective price revisions. Expenses impact was negative on profit by JPY 108.6 billion, R&D impact negative by JPY 35.7 billion. Foreign currency impact negative by JPY 111 billion. One-time EV-related expenses impact negative by JPY 267.1 billion, and the tariff impact squeezed the profit by JPY 289.8 billion. Excluding one-time EV-related expenses and the tariff impact, the operating profit would be JPY 1,148.5 billion.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

Regarding operating profit by business segments, motorcycle businesses JPY 446.5 billion operating profit, automobile businesses JPY 166.4 billion losses, financial service businesses JPY 218 billion profit, and the power products and other businesses JPY 6.5 billion losses. Operating profit of motorcycle business increased by JPY 44.8 billion year-on-year due to a margin of JPY 546.5 billion. Factors for changes: Sales impact was positive and JPY 61.2 billion due to incremental sales units, mainly in Asia and South America. Price cost impact was positive by JPY 48.6 billion due to expected price revisions, and so on. Expenses impact negative by JPY 24.1 billion. R&D impact was positive by JPY 4.6 billion. Foreign currency impact negative by JPY 37.7 billion, and tariff impact negative by JPY 7.7 billion. Operating profit of automobile business went down by JPY 569 billion year-on-year, resulting in the operating losses of JPY 166.4 billion.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

Breakdown of factors for changes: Sales had a negative impact by JPY 82.8 billion due to unit sales decline, mainly due to semiconductor supply shortage, losses associated with the reorganizing of the affiliated company of the group, and so on. Price and cost impact had a positive impact by JPY 177.3 billion due to effective price revisions. Expenses had a negative impact by JPY 11.7 billion. R&D impact negative by JPY 42.1 billion. Foreign currency impact negative by JPY 62.9 billion. One-time EV-related expenses had a negative impact by JPY 267.1 billion, and the tariff impact was negative by JPY 279.5 billion. Cash flow situations now: Free cash flows, excluding financial service businesses, was JPY 917.4 billion. Net cash as of the end of the third quarter was JPY 3,170.7 billion, and operating cash flows after R&D adjustment was JPY 1,855.8 billion.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

Let me explain the consolidated forecast for FY ending March 2026. Regarding group unit sales, we will keep the previous forecast of 21.3 million units of motorcycles, 3.34 million units for automobiles, and 3.67 million units for power products volume. We have already explained the consolidated financial forecast for FYE March 2026. As for factors for changes in operating profit year-on-year, for those forecasts, operating profit would be down by JPY 663.4 billion year-on-year. With factors for changes, sales would have a negative impact by JPY 162 billion due to semiconductor supply shortage, and so on. Price cost impact will be positive by JPY 330 billion due to effective price revisions, and so on. Expenses impact: JPY 106.5 billion negative. R&D impact: JPY 166 billion negative. Foreign currency impact: JPY 149 billion negative. The tariff impact: negative by JPY 310 billion.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

Regarding factors for changes in the forecast of the operating profits, we will keep the previous forecast of the operating profit, for which sales impact will be negative by JPY 10 billion. Expenses impact: negative by JPY 15 billion. R&D expenses impact: negative by JPY 40 billion. And foreign currency will make a positive impact by JPY 65 billion yen due to the change of the exchange rate assumption to 148 yen for dollar. Expected capital expenditures, depreciation, amortization, and R&D spending of FYE March 2026 will be as follows, reflecting an increase in CapEx for acquisition of factory buildings, and so on, of the battery production JV with LG Energy Solution.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

Lastly, I would like to speak about the future direction of our operations in view of the current business environment. For automobiles operations, with the expertise we have accumulated on internal combustion engines and hybrid technologies, our results the third quarter confirmed that we are maintaining a business environment, a business characteristic that continually gives us profit if we exclude the non-recurring impact from EV and impact from tariffs. On the other hand, we are faced with issues including stagnated growth of the EV market, less stringent environmental regulations in different markets, retreat of multilateral free trade systems due to protectionism policies, heightened supply chain risk due to expansion of global procurement, further exacerbated by intensifying global competition from emerging OEMs. Thereby, we need to conduct a fundamental review of our strategies to rebuild our competitive strength.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

In this situation, we believe that our current tasks are to build in business characteristics to enable flexible actions against changing business environments, and to realize product features and cost competitiveness that overwhelm those of emerging OEMs. To address those issues, firstly, we are working to completely settle within this fiscal year the losses related to EVs currently sold in North America. In addition, we are striving to make prompt management decisions in line with EV markets, such as disciplined expenditure control, EV product range, and review of CapEx plans aligned with the business environment. At the same time, to further enhance the earning capability of hybrid models, we are preparing to launch next-generation hybrid systems, as well as equipping the hybrid models with next-generation ADAS. We will communicate our review of fundamental medium- to long-term strategy at an appropriate timing, sometime during the coming fiscal year.

Noriya Kaihara
Noriya Kaihara
Director, EVP and Representative Executive Officer at Honda Motor

Honda has multiple business domains, including motorcycle and finance business operations, forming a well-balanced business portfolio, each of which helps us to generate cash flow and to maintain a sound balance sheet. Because of this, we have adopted a DOE indicator, which allows us to ensure stable returns and dividends aligned with the company's growth, even in an uncertain and extremely volatile business environment. Through these initiatives, we will continue to strive to enhance corporate values so that we will remain a company expected to exist in the eyes of our stakeholders. This completes my presentation. I thank you very much for your attention.

Translator 1

Thank you very much for your attention. So now, I'd like to take questions from the audience. We have already introduced you with Zoom for the questions. Please limit your questions to two questions due to the interest of time. And if you are to ask questions, please turn on your microphone and the camera from your end. Thank you for your cooperation. So please push the raise-your-hand button if you have questions, please.

Analyst

Okay, then the first question.

Eiji Fujimura
Eiji Fujimura
Director and Managing Executive Officer at Honda Motor

This is from Mr. Yokoyama of Toyo Keizai.

Analyst

Okay, this is Yokoyama from Toyo Keizai. Can you hear me? Yes.

Translator 2

Thank you. I have two questions. First question is, I just would like to take your outlook for the full year. You are progressing beyond your budget already. But it is true that in the fourth quarter, you tend to get a lot of expenses. But you have been saying that the expenses would be JPY 2,650 billion for the full year. There was one gap, so I just wanted to check that. And then for the automobile profitability, I would just like to check. There were tariffs impact. If we include that, that would be an IOS of 3.6%. But if you include a hybrid, I think earlier you mentioned like 8% of profitability. So if you say 3.6%, I thought it kind of sounds lower.

Translator 2

So I would like to ask for your evaluation of the profitability of automobiles, and then would like to see what your real values are. Thank you.

Translator 1

Okay, thank you very much for your question, Mr. Yokoyama. First of all, for the specific numbers, this will be covered later. But this time, for the fourth quarter, we slid the results from the third quarter. So let me try to answer how we expect the financial results would land toward the end of the year. So compared with the third quarter results, the tariff impact will work on the positive side. And then the motorcycle and automobile unit sales, because we had favorable results in the Vietnam motorcycle, well, I should not say favorable, but the damage was less than we had assumed in Vietnam. So I think motorcycle, it will go positive compared to our budget.

Translator 1

That is our assumption as well. However, for the North America automobile market, if we look at that, and then going forward, I believe there will be further impact from BEV. So the sales will become difficult. So we will have to increase a bit of the incentive. That's one thing we're considering. But as a downside, another downside is that so far, we had the BEV with GM. Well, Mr. Fujimura will explain this later. But we need to do this negotiation with GM, considering the compensation. So depending on how that comes out, we might have a little bit more expenses to be covered. So with that, that is why we're giving those numbers as a forecast. And then as the BEV environment, how it develops, maybe the GHGs credit, and then in the finance, we might have losses from residual value on the leases.

Translator 1

So on the basis of those, we believe we are just assuming for fourth quarter, the outlook is still maintained. Okay, so I would like to ask Mr. Fujimura to give a little bit more details then. Okay. Okay, thank you very much for your questions, Mr. Yokoyama. As you mentioned, the -JPY 650 billion. So so far, we had a negative battery EV of -JPY 650 billion. Battery EV, that's what we have been saying. So when we talked about the JPY 650 billion, so the GM-related issues that we talked about, and then of the models that we are developing, we were doing a let's say, we were doing a review of those models so as to write off certain assets. So with that, we recognized JPY 250 billion, and then now JPY 400 billion of R&D. So we put a total of JPY 650 billion in the budget.

Translator 1

This time, in the results, the portion this is not for the GM portion, but for models in China, because according to the discussions with the partner, we have reviewed our product lineup. Some of the models or some of the development assets, those have been written off. So up until nine months of this year, we have JPY 270 billion. And then so that's JPY 270 billion for the nine months. But if we turn it into a budgeted, let's say, amount, this will come to JPY 290 billion, plus JPY 400 billion for R&D. So it is getting close to the JPY 700 billion range. So those are the numbers that we have put into the budget. So this 270 has already been incurred. And then the JPY 290 billion for the full year, so the JPY 20 billion remaining, the difference, this is up to the negotiation with GM.

Translator 1

So the negotiation with them still has not been established. We have not been offered any number concerning that. So we are assuming we don't sorry, we don't know if the JPY 20 billion is sufficient or not. So because of that, looking at the sales situation, and then maybe if you think about the exchange rate, that might be an upside. But this could be a downside factor. So that is why we are keeping the outlook forecast unchanged. This JPY 700 billion BEV portion, next year well, if this JPY 200 billion is no longer there next year, then it will only be JPY 400 billion R&D. That will be the starting line for next fiscal year. But at the end, as Mr. Kaihara explained to you, currently, the current EV market, considering the current EV market, I think we need to rebuild our framework of our strategy.

Translator 1

So we'll take this well, are we going to really take this JPY 400 billion as a starting point? Or are we going to review this? We don't know how much of the disciplined expense, cross-customer control, is going to be going to be. We are still in the process of formulating those plans. So we hope to be able to issue an outlook prospect of that sometime in the future. When it comes to ICE, it was like JPY 900 billion or close to JPY 1 trillion yen earnings is something we have. However, we do see declines in unit sales in Asia, and we see some impact from the exchange rate. And then the semiconductor impact, we are recovering a little bit of that, even though this is one-time. But so without the tariff, that's JPY 700 billion. And then let's say, if there's no tariff, it will be JPY 400 billion.

Translator 1

So, on the plus. 400 billion probably would be the starting line. 300 billion yen tariff impact, it cannot be recovered just immediately next fiscal year. So we want to closely monitor the costs. So we might proceed with more expanding of our local procurement and try to control costs more closely. I hope that answers your questions. Well, when it talks about the upside, you are assuming the exchange rate at 148 per dollar. But I think this would go toward the upside, right? I think if things progress as things are going right now, yes. As I might have mentioned, I said per dollar, 1 yen would give us an earning plus of JPY 10 billion or so throughout the year, that is, of course. So we'll slash that by four to get a quarter-quarter number per yen of per 1 yen against the dollar fluctuation.

Translator 2

Okay, thank you very much, Mr. Yokoyama. Next question, please, from Asahi Shimbun Newspaper. Mr. Miura, please. Asahi Shimbun Newspaper, Miura, thank you for your explanation today. And I have two questions. One, page 20, EV market trends with the model lineup prioritization and focus, as you mentioned here. Could you elaborate on that, please? The basic idea and the directions, please explain about that to me. And another question is also on page 20 about reorganizing the longer and midterm strategies. And please tell us about the directions of those strategies. Thank you for your question, Mr. Miura. So EV market and our attitude for that. Basically, BEV market, for us, in North America and in China, for North America, the market environments, for instance, there is an ACC now invalidated and accredited for BEV. We cannot really see the values anymore today.

Translator 2

Demand environments for EVs are quite negative today for us. The recent EV situation today would be leading to the idea of reorganizing the EV strategies for that market. Last year, we had some tax credits, and we had accelerated some prior to the September period. However, now, the market is slowing down in this end. In that regard, EV strategies in the future have to be revisited. For China, the EV market is last year, for instance, half of the market share in China are supported by the EVs or BEV in China. In terms of Honda EVs, unfortunately, there are local EV manufacturers over there. In terms of the prices, UI, UX perspectives, we are not there. We are behind those companies. In terms of the competition in the software environments, we are still behind other companies.

Translator 2

Unfortunately, we do not have the established image of the business in the EV area over there. So we have to go back to a scratch and then rebuild our strategies for EV. For the cost perspective, the local suppliers over there or engineering companies over there, we would have to make use of those presence. That way, we have to turn our direction dramatically so that we can then gain our cost competitiveness utilizing them. NOA, ADAS, those will be updated with them so that we can be competitive again to challenge the markets once again. In that regard, as I mentioned the other day, the timing of the launches will be revisited in order to have our entry once again in the EV market over there. Thank you very much. Thank you very much. Thank you very much, Mr. Miura. Okay, this is Okinawa from Nikkei Newspaper.

Translator 1

Yes, I can hear you. Concerning, I'd like to ask about the EV again. So throughout the year, you said JPY 290 billion for the year. Is there a possibility of, let's say, further impairment posting of impairment losses? So that's one question. And about the other question is concerning semiconductor. So you said that you have a good prospects for preventing recurrence of this shortage problem happening. So I just would like to know what you have been doing. And then JPY 150 billion negative for China. So any impact for Japan and China? So I would like to know how the situation has been for China and Japan. Okay, thank you very much, Mr. Okinawa. First, about the EV, the impairment losses for the non-recurring one. Well, we don't know what's going to happen, but we have been processing this in accordance with the accounting principles.

Translator 1

So whatever we know, we have incorporated into our books. However, as mentioned by Mr. Fujimura, we don't know what kind of compensation issues might come up with the GM. So there's a bit of an unclear future prospects. And then actually, as I've explained about because the EV market is dramatically changing, so we would need to monitor our sales volume trends. And then we might have to take some actions if needed. Any details you can add? Okay. Then if the intention of your question is about the impairment losses for the EV business in general, like at other OEMs, because we are not sure what's happening at other companies. So I would like to refrain from mentioning anything about other companies.

Translator 1

But what we are saying is that with the models that we have developed, as the die and tooling, and then the development R&D assets, some of those have to be written off. This is not really impairment, but we would need to do some compensation. Because of the review that we have conducted as a product lineup, we are booking some temporary losses, those expenses that are incurred. But you asked about the impairment. Impairment means that this is a CGU that we use. This is CGU, whether this leads to cash generation in the future, and then how the business environment has been doing and what management decisions have been in view of those. In view of all of those, we are getting audited. With the auditors included, we discuss.

Translator 1

So we are not recognizing anything, any impairment like that have happened in other companies. But we have been talking with the accounting. We have been discussing on a continuous basis. And then we have been discussing how we, at management, should assess those costs and expenses. So I just wanted to mention that whatever that were incurred up until three quarters, those are only those associated with the product lineup review. We don't know what we don't know as if it's going to be enough, but we have included whatever we can so far. And then the second question, you asked about semiconductor. So last year in North America, from the end of October, we had to go into production adjustment and production suspension in Mexico. So the impact, actually, is I think I mentioned the 120,000 units affected. We hope that we are able to recover a bit.

Translator 1

The affected would be 110,000 units. But it would be a JPY 150 billion impact, we assume. Of that, this is, unfortunately. But for Japan and China, we have had some disruptions in production. From China, we had about three weeks or so from the beginning of the end of the year, sorry. Then for Japan, we have had to suspend production like at Suzuka for two or three days and then did some production adjustment for a few days after that. So because of that, even though there was an impact once, but for Japan and China, we have the capacity to sufficiently recover. So we will be able to complete the recovery of those lost production by before the end of this fiscal year. So in terms of business impact, it is very limited. So we have not considered that into our business.

Translator 1

But anyway, we have faced those problems. So basically, to the suppliers, so let's say we are trying to do a multi-sourcing of the suppliers. And then we have been asking them to keep an appropriate inventory levels. However, some of the suppliers have not, unfortunately, have not provided us with that much of a details. So to be blunt, we have been relying heavily on our suppliers. So that's something we are reviewing fundamentally so that we will keep a close watch over our supply chain all the way upstream and then see what kind of risks there may be. And then we will do an appropriate risk assessment and then keep appropriate inventory management or go multi-sourcing as well. And then that needs to be done from the development stage as well. So at the early development stage, we have been looking at the cost sourcing.

Translator 1

Well, in view of that, there are some single-sourcing strategies as well. But in terms of business continuity strategy, if we go single-sourcing, we will pay careful attention to upstream of each of those components containing semiconductor. And then we will decide how much of our inventory we will hold. And then we will do a review about what is going to happen if we go multiple sourcing and then take actions accordingly. Currently, as you may know, the semiconductor issue, in addition to what we have experienced so far for the memory, and then, of course, the rare earth issues are there. We are aware of those. So when those issues arise, we would, of course, at this point in time, I don't think there is anything that would lead to immediate problems right now. But in the future, of course, it is well, it is not very clear.

Translator 1

So we will work closely together with the suppliers and take actions as needed. However, for the rare earth metals, it is nothing that one single corporate entity can do anything about. As you may know, at the JAMA level as well, this is being discussed. And also with the governmental agencies included, this needs to be reviewed. So we would like to deepen our collaboration with different entities. Thank you very much. This concludes my answer.

Translator 2

Next question, Mr. Okinawa. Thank you for the explanation. I have two questions. One is about tariff impact. Little by little, compared to the start of the year, it is coming down. It is down from the JPY 386 billion from the beginning now. And could you tell me more about the reasons behind this? And then the other question is about a sales situation of the automobiles.

Translator 2

Your target is there, but it's not achieved. In order to achieve the target volume of the sales, what are you going to do with the Japan and North America market? So tariff, Mr. Fujimura, is to address. Thank you very much for your question, Ms. Uchida. And as you said, until last time, a gross impact in the first half, JPY 385 billion impact expected because of tariff and the recovery of the cost, expected JPY 50 billion, and then JPY 338 billion net impact. And then 110,000 units reduced in the US because of the semiconductor situation. And then including that, JPY 338 billion net actually is because of the foreign exchange and so on. It will be about JPY 360 billion. That is the actual gross. And there are JPY 50 billion recoveries. So net was JPY 310 billion, in fact, incorporated in the accounting. And then the recovery part, they were realized.

Translator 2

Therefore, JPY 310 billion, this is the number finalized, let's say, for this. What kind of recovery plans incorporated in the JPY 50 billion? With the suppliers and others, we had made adjustments looking at the logistics and so forth. Additional local procurements were progressed as well to achieve a USMCA. We are more confident in achieving that. Plus, within the U.S., credit utilization is also to be added. We scrutinized how far we can incorporate from that. We had a broad consideration. Eventually, a JPY 50 billion yen recovery plan is now realized into the JPY 310 billion pay gap. As for the sales strategy, let me address the question. For North America, as I mentioned a little earlier, our credits were pushed toward the end of the period. It was included. Then BEV drops quite dramatically.

Translator 2

Therefore, going forward, it will be staying at a very low level. Going forward, we have to be focusing on the hybrid brand, taking advantage of the brand to make sure that those models will be selling more. As of today, in North America, various companies had the impact of the tariff. We were thinking that there will be increasingly selling prices. However, we do not see the dramatic selling price increases. We had seen some incentives utilized in different areas. The actual prices are on the decreasing trend, practically speaking. Therefore, we have to use incentives. At the same time, we have to appeal the hybrid models. Customers who are looking for the affordable models, the ICE models, can be provided too.

Translator 2

We try to cater for the needs of the customers to try to get by the situation here. Together with the dealers, we have to do the marketing activities. We're not really focusing too much, however, in the area of the fleet, which was not really focused before. We have to work on that to sell more cars in the fleet customer field. Japan, hybrid models, that is very focused in the Japanese market. In Japan, rather than the competition, I think it is more of the customers and how we can include and support those customers. The dealers will make sure that they have a close contact with the customers. For instance, one-on-one strategy, one person looking at one customer, one-on-one strategy to try to satisfy their needs, for sure. That is a very down-to-the-ground activity, let's say.

Translator 2

But it is what we are up to. Then next year onward, MMC and other campaigns expected to try to maintain the market share or improve the market share with those plans. Thank you very much. That is all from me. Thank you. Thank you very much, Ms. Uchida. The next questions come from NHK. Mr. Yasunaga, over to you. すいません、音声が少しつながってないよう。 Okay, it looks like he's not connected. 次行かせていただきます。 May we proceed to the next reporter first for the time being? Okay, now we got your voice. Yes, you're coming through now. Sorry about that. This is Yasunaga from NHK. Thank you very much for the presentation. One question. 先ほどもちょっと質問出たところなんですけれども、そのレアアース。 The rare earth metals supply concern, concerning that explanation, so there is an export restriction on China, is my understanding correct? And also about the diversification of supply chains.

Translator 2

So for rare earth metals, there is no way you have no choice but to rely on China. But what would be your appropriate action in response to this situation? Okay, thank you very much, Mr. Yasunaga. For the rare earth metal concern, yes, as you said, currently, rare earth metals, those are subjected to export restriction from China. But currently, are the exports stopped? But all I can do is apply for export, do the apply for exports. And we do see those exports coming through. But sometimes it just takes some time, a longer time. So if you ask us, can we get the exports coming through as expected? Not really. So as you know, rare earth metals, those are used in different various components. So if the supply stops, the risk is high.

Translator 2

So we need to ensure, as I mentioned, we need to apply without any delay, apply for permission for exports. Then, of course, when it comes to fundamental countermeasure, it is to go without use of rare earth. But that would take a longer time for development. So currently, we will take some parts that are difficult to switch over or take a longer development. All we can do is to simply hold our inventory. But currently, we don't have any actual problem in the supply. But how is it going to be in the future? We don't know. It is very uncertain, as I mentioned. So the supply, we need to work closely together with our suppliers, interview them, and then ask them what kind of supply chain our supplier have for the rare earth that's needed for their components.

Translator 2

So we will continue to consider our permanent, the long-term countermeasure. And this would be for more medium term, but we will consider development of parts and components that do not use the rare earth. But for the time being, all we can do, the first thing we can do is to secure inventory. And then also, secondly, to apply for export permissions in a timely manner. So those are the things that we can do currently. I hope that answers your question. Thank you very much. If not, these rare earth-free components, specifically, what kind of components do you have in mind? And where would be the real critical point? Well, there are different components, but there are different types of rare earth. So some are used in motors, some are used in meters.

Translator 2

So for each and every component that uses rare earth, for every one of them, we are looking into what can be done to replace them without making them without rare earth. Thank you very much, Mr. Yasunaga. Ms. Nagai from TV Tokyo, yes.

Translator 1

Thank you. Question one about rare earth. Third quarter overall sales in that period for automobiles, excluding the automobile sales, you had a reduction of the volume. And excluding the impact by the semiconductor, what is the situation as compared to the expectations in the beginning of the year? And the second question is about page 20. As Noriya Kaihara said, the direction of the businesses going forward, you said that it is going to be a dramatic revisiting of that. And as I heard about incentives in North America, there could be kind of limitations to improve the profitability by doing by itself alone.

Translator 1

But I suppose that you're still speaking to Nissan or Mitsubishi, not just those two. I'm thinking about the possibility of the collaboration with other companies other than those two. Thank you very much for Ms. Nagai for your question. And three months volume, right? That's your question, right? Yes, correct. And then volume, you mentioned that the volume had declined for that period year-on-year, I suppose. But for the automobiles, actually, the volume sales increased as compared to the plan for the automobile businesses for the third quarter. You're comparing from last year, same time last year, right? And for the original plans, third quarter, we had actually overachieved the plan for the third quarter automobile. And as compared to last year, it declined because of the next barrier, semiconductor impact. That is the largest and also Chinese market for ICE. AV/NAV market is expanding in China.

Translator 1

ICE markets are shrinking in China because of which volume in China is in a tough situation. So year-on-year, it dropped. And that is about the volume. And what was the next question? はい、アライアンスの Alliance question, right? And Nissan Alliance. Well, actually, with Nissan. 企業統合といった、そういった話。 The integration possibility, we do not talk about that at all now. And I have to say that. And another thing is that, as you said now, development costs will be needed in the future. For instance, software, E&E architecture, so forth, would require investments. And for the future EVs, batteries, e-axle, if we can commonize those or have a co-development together, that will help reduce the development cost. Or cost itself may reduce thanks to that. However, for those matters, we continue to discuss with Nissan. However, not just Nissan.

Translator 1

If it is possible to build a relationship like that with other alternative companies, of course, as long as we can expect a win-win result altogether, of course, for those, we will continue to consider other possibilities. And that is all for your question. Thank you very much. 続いてのご質問です。 Nikkan Jidosha Shimbunの藤原様, Mr. Fujiwara from Nikkan Jidosha Shimbun and Daily Automotive Newspaper. 日刊自動車新聞の藤原です。 This is Fujiwara from Daily Automotive Newspaper. Yes, we can hear you. Okay, I have two questions as well. My first question is about the automobile, the factors for. Plus, you had a big contribution from the selling cost that helped to grow your revenues. So I wanted to know what region and what products. And then this was a second question. This may have been covered by Toyo Keizai's question. But the hybrid volume has grown by about 5% in the third quarter.

Translator 1

So how much is the I would like to know what kind of contribution this 5% growth of volume in the third quarter. Okay. ありがとうございます。 Okay, thank you for your questions. I'd like to. This was from year-on-year comparison, I believe. So sorry, the selling price and cost impact that worked to the plus, which was in automobiles, that was a sorry, that was for automobiles. There was a bit of a plus in the selling price and cost impact. If you look at the total graph, it's about JPY 60 billion. There was about JPY 40 billion for automobiles because this is from selling price impact. When we say selling price, per year, at the beginning of the term or in fall, we do go through price hikes. So of the JPY 40 billion or so, about half of it happens in the States.

Translator 1

For the other regions, those are just prorated, if you can prorate it to different regions by the volume. And then the hybrid volume for the third quarter, for the hybrid, the unit sales in the States, well, particularly in the States, hybrid is doing very well. But then how we do the incentive, incentive can be kept low relatively to the ICEs. However, the competitors were coming into the hybrid market. So if this our favorable condition, of course, is not going to last forever. So on our part, we will be getting into the transition period for different models. Competitors are going to come up with new models. So we need to kind of maybe build up, spend some more incentives. But incentives, sorry, the hybrid requires relatively lower incentive compared to petrol engines.

Translator 1

But in the future, we might have to spend some more incentives in the future. But on the other hand, for the petrol or gasoline engine vehicles, so we do need incentives more than hybrid for ICE. However, if you look at the contents of the components, gasoline engine require less tariff impact. So in that sense, petrol engine, gasoline engine contribute better. So we need to strike a good balance between those two groups. And then recently, if we look at the transaction, one of the reasons why transaction prices are deteriorating in the States is that the model type variants, which cost lower, are attracting customers. So because we do have both gasoline and hybrid, we need to strike a good balance. And then we need to, well, survive through this transition period between those different models using those good mix. Okay, thank you very much.

Translator 1

Thank you very much, Ms. Fujiwara. Sorry, due to time, the next question will be the last one for the day. Mr. Tsurumi from Mainichi Shimbun, please. はい、 can you hear me? お願いします。 Please. すみません、ちょっとネットの環境が。 Sorry about my internet connection, but すみません、私の顔出てないと思うんですけど、すみません。質問してください。

Translator 2

My face may not be shown, sorry. 四輪授業についてのですね、先ほどの。 And earlier, you talked about the alliances with Nissan. And based on the reports, the models in the US with Nissan and the part train commonization, so forth, you talked about that earlier. And what is the progress today? Are there any updates for us, as much as you could share with us? That is all from me. Thank you for your question. So in conclusion, there is no specific information I can share with you today. But with Nissan, as I said earlier, in many different fields or areas, we try to explore different possibilities.

Translator 2

As you said, the complementary supply of the models or production, the models from each other, if those are complementary to the other company, we could look for the possibility. Also, one company produces a model of cars and then provides or makes supplies. We have discussion about it. However, we have not decided on any specific plans yet. We simply continue our discussion. Then, as I said earlier, the communization of this software or architectures, such topics, of course, one of the discussion topics for the development. However, both of us have made progresses in the individual projects. Therefore, it is not yet the time to make a conclusion yet. But we continue to discuss positively with each other. So once any output or plans are solidified, we will make sure that we will share with you. Thank you very much. That is all from me.

Translator 1

Thank you. ありがとうございました。 Thank you very much. はい、ありがとうございました。 Thank you. それでは、これを。 So now that concludes our press conference for the business performance results. And those materials and handouts are available from our website of Honda. Thank you very much for your participation, everyone. Thank you.

Executives
    • Eiji Fujimura
      Eiji Fujimura
      Director and Managing Executive Officer
    • Noriya Kaihara
      Noriya Kaihara
      Director, EVP and Representative Executive Officer
Analysts
    • Analyst
    • Translator 1
    • Translator 2
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