Honda Motor - Earnings Call - Q1 2026

Transcript

Speaker 2

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 fiscal first quarter ended June 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 June 30, 2025 and consolidated results forecast for full year to March 2026. 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 June 30, 2025.

I'd like to start with a summary. Our operating profit for the fiscal first quarter came to ¥244.1 billion. 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 evidence. 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 billion and net profit for the year of ¥420 billion. Due to a review of tariff impacts and changes in exchange rate assumptions. This means ¥200 billion increase versus the previous forecast. An examination of the impact due to tariffs led to a revision of a gross impact to ¥400 billion and for exchange rate.

In view of the recent developments, we are revising our assumption against the U.S. dollar from ¥135 to ¥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 and resolved on December 23, 2024 for the ¥1.1 trillion, as of July 31 of this year, shares worth ¥936.5 billion have been acquired. To give you the consolidated results for the first quarter ended June 2025, operating profit was ¥244.1 billion, lower by ¥240.5 billion compared to the same period last year. Equity method earnings were ¥4.2 billion, higher by ¥2.7 billion, and the quarter profit attributable to the owner of the parent was ¥196.6 billion, lowered by ¥1. 197.9 billion yen. Next, I'd like to cover the forecast for the consolidated results for the full year.

Again, compared to the previous forecast, our forecast is operating profit of 700.0 billion yen, up by 200 billion yen. The profit for the year attributable to the owner of the parent is 420.0 billion yen, up by 170 billion yen. The exchange rate against the U.S. dollar is assumed at 140 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 December 23, 2024, for the amount of 1.1 trillion yen is as explained earlier. Next, Mr. Kawaguchi will present the details of the results. 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, came to 5.143 million. For automobile business, due to declines mainly in China and other Asian regions, it came to 839,000 units. For power products, though there were declines in North America and Asia, Europe led the growth. The total came to 828,000 units. The consolidated results during the three months of the first quarter as explained earlier. 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 244.1 billion yen, down by 240.5 billion yen compared to the same period last year. Factors affecting the operating profit were impact from sales, which was positive by 1,109.1 billion yen due to unit sales increase.

In North America, selling price and cost factors was an increase of 68.5 billion yen due to effective pricing. Revision expenses gave us a negative impact of 69.4 billion yen. R&D expenses led to profit decline of 24.5 billion yen. Currency effect resulted in a negative impact of 86.1 billion yen. EV related non-recurring expenses led to the negative impact of 113.4 billion yen. The tariffs impact led to a profit decline of 124.6 billion yen. Trial calculation excluding the EV related non-recurring expenses and the tariffs impact comes to operating profit of 482.1 billion yen, on a par with the same quarter last year. This EV-related non-accruing expenses include the provision for losses on EVs currently sold in the U.S. and the impact from write-off of development asset of EV models due to the change in our product range.

Speaker 0

Regarding operating profit per business segments for motorcycles, operating profit was ¥189 billion, automobiles ¥29.6 billion of operating losses, financial services ¥85 billion of operating profits, and power products and other businesses ¥200 billion of operating losses. Operating profit of the motorcycle businesses marked ¥189 billion, up by ¥11.3 billion year on year. As for the factors behind the differences, the sales impact was positive by ¥41 billion due to increased sales volume in South America and so on. Pricing cost impact was positive by ¥14.2 billion due to the effect of price revision and so on. Expenses squeezed profit by ¥12.7 billion, around decreased profit by ¥1.3 billion, and currency effect reduced profit by ¥30.6 billion. The tariff effect squeezed profit by ¥1.8 billion. For the automobile businesses, the sales impact was positive by ¥46.4 billion due to increase of the sales volume in North America.

Price and cost impact was positive by ¥53.5 billion due to the effects of the price revision and so on. Expenses negative for the profit by ¥43.1 billion, around was negative by ¥26.4 billion, and the foreign currency effect also negative by ¥47.3 billion. As I mentioned earlier, excluding one-time EV related expenses and a tariff impact, the operating profit would have been ¥205.8 billion. Regarding the cash flows, free cash flows of the businesses other than financial service businesses was ¥294 billion. Net cash balance at the end of the quarter was ¥2,907.9 billion. Operating cash flow after R&D adjustment was ¥583 billion. Moving on to the consolidated financial forecast of FY ending March 2026, regarding the forecast of the sales volume of the group, motorcycle unit sales will keep at 21.3 million units reflecting the volume decline in Europe and increase in Brazil and other regions.

For automobiles, we will keep the previous forecast of about 3.062 million units and for power products we will keep the previous forecast of 3.67 million units. Consolidated earnings forecast for FYE March 2026 has been already explained. Next, I will explain the factors behind the changes of operating profit forecast year on year. Operating profit is expected to decline by ¥513.4 billion year on because of the factors of sales impact being positive for the profit by ¥106 billion due to incremental volume of the motorcycles and automobiles in North America. Price and cost impact will be positive for profit by ¥350 billion due to effect of the price provisions and so on. Expenses will be negative for the profit by ¥1,991.5 billion.

R&D be negative by ¥126 billion and foreign currency impact being negative by ¥302 billion and the gross impact of the tariff to be negative by ¥450 billion. I'll explain the changes of the operating profit forecast comparing to the previous guidance. Operating profit is to be up by ¥200 billion from the previous forecast because of the sales impact being negative by ¥50 billion due to one time expenses related to EVs, price and cost impact to be negative by ¥100 billion. As we reviewed, recovery of the tariff impact and foreign currency impact will be positive by ¥150 billion. As we changed currency exchange rate ¥240 for a dollar, we examined the tariff impact in which will be expected to be positive by ¥200, I believe on yen.

Lastly, expected spending on capital expenditures, depreciation, amortization and R&D expenditures for fiscal year ending March 2026 are shown on the slide. That concludes my presentation. Thank you very much for your attention.

Speaker 2

Thank you very much for your attention. We would like to move on to our Q and A session. We will take our questions through Zoom that we have communicated to you earlier. Due to time restriction, we would like to limit it to two questions per person. Please turn on your microphone and camera when you ask questions. Please use the raise hand button if you have a question. Thank you.

Speaker 0

It.

Speaker 2

Okay, the first question will be by Mr. Okinaga from Nikkei Newspaper. Thank you. This is Okinaga from Nikkei Newspaper. Yes, we can hear you. My first question is about the impact from tariffs. Between the U.S. and Japan agreement, the automobile tariffs have been changed from 25% to 15%. It looks like the higher tariff has come down. That means your negative impact to the profit has been fixed now. What's your take on that? For Mexico and Canada, the view is not clear. What is your take on what might happen to Canada and Mexico? Accompanying and in alignment with that for the production, you've expressed transferring production from Japan to Canada. I guess your take on emphasizing production in the States would remain unchanged. 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? Thank you for the questions. Both your questions are related to tariffs. 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 brings us a positive impact and also for the customers. We do have a lot of non-Japanese shareholders. For our company, of course, this agreement for reducing the tariff is a positive, and it says that what has not been established is now clearly identified, which is a good turn of events. We like to pay our respects to all the related parties.

On the other hand, as your question suggested, for example, if I think about the short-term view, if there's going to be what's going to be happening with the retroactive application of the tariff or when it's going to go into effect, details have not been worked out. I hope that there will be early decision and disclosure between the governments, and we have communicated a wish to the Japanese government. It used to be what used to be 2.5%, now that's been up to 15%. As our general stance is that it doesn't affect just Honda but other OEMs as well. I think we are trying to do free trade and competition around the globe, and so that has really developed, fostered the competitiveness of the other industries in different countries, which led to providing good quality products to different countries' markets.

This must have been contributing to the local communities, and that stance remains unchanged, and I hope that will continue. However, now that it is a possibility, we need to assume that this will become the new normal. We would need to take that stance. I believe that direction relates to the second question that you've asked. As you know, we have the production in the U.S., like 60% or 70% are produced in the U.S., so the local production manufacturing ratio is high to begin with. Our stance is to produce where there is demand. That has been our ongoing approach. I believe Mr. Mibe mentioned this in the previous briefing. We have a two-shift operation in the U.S. We might change it to a three-shift operation in the U.S.

so that the production equipment's uptime might be increased, and we can increase the production volume without spending too much on the capital investment. That's something we'd like to continue to do. 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. I guess the key highlights here would be that in the U.S., for hybrid vehicles, many of the core parts are coming from Japan. I believe we call that the three major components: the motor, battery, and ECU. How we can localize the production there will be the critical point. Concerning those, we are holding discussions. This concludes my answer. Thank you.

Speaker 0

Thank you very much. Next question from NHK, Mr. Nishizono, please. Thank you. Nishizono speaking. Can you hear me? Yes, please. Thank you for your presentation today. One question. The forecast for this fiscal year regarding the tariff, what is your assumption for your forecast? Other than the automotive tariff, will there be other kinds of tariffs involved as well? This time, part tariff, when are you going to end up going to with that to start? What is your assumption there and what's your assumption to come up with those forecasts? That's all, thank you. Details will be provided by my colleague Mr. Kawaguchi. At the beginning of the fiscal year, what are our assumptions for the tariff and its calculations and so forth? The appendix of the presentation materials includes all those explanations, so please have a look at those materials later on.

Basically, CBU and parts and the raw materials and motorcycle power products, we have the assumptions of tariff in values in those categories. In the first quarter, American Honda had a standard tariff amount for the tariff. They worked out the breakdowns, how much for the U.S. part, U.S. portions, what is the area for the important ones. Eventually, we changed the gross impact from ¥650 billion to ¥450 billion after those calculations and what kind of breakdown was involved to have those numbers down. He is going to give us the details about it now. Thank you for your question. With regard to the assumptions for the tariff, as Fujimura-san said earlier, the main part is the automotive tariff. That is the main area of the tariff.

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. That is the main area. The assumption of that part has been already explained. In the budget 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.S., we can produce in Indiana instead, or the U.S.-made ones were exported to South America. Instead, we could use and sell those U.S.-made products within the U.S., and we organized the reallocation again. In terms of the import of the CBUs, there will be the tariff imposed on them. If the parts and components are manufactured in the U.S., those will be exempted from the tariff.

The question is the portion of those kinds of parts; we examined how much of those are in that area. Actually, CBU that we have in the value like that reflects all those exercises. Parts, materials, steel, aluminum, and those coppers. Of course, there will be tariff involved, not just the U.S. and Japan. The Canada, Mexico involvement, there is not much advancement so far, no progress. However, right from the beginning of the year, the parts imported from Canada and Mexico could be in the jurisdiction of USMCA. We are joined with suppliers to scrutinize how much will be in the jurisdiction of the USMCA. 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.

We are still working together with the suppliers to take one by one those breakdowns of the tariff. From Canada, Mexico, the parts from there could be actually under the rule of USMCA. We have been working on how much of them like that. Of course, we have price components imported from other countries other than Mexico and Canada, tier 3, 4 included. We need to go down that level of the details in order to have a precise understanding. We've done a bit of the work so far. Of course, $450 million gross impact is made and estimated based on such exercise up until now. We have this tariff between the U.S.-Japan agreement, and at the moment we do not know when exactly the automotive tariff would start to apply. At the moment, assumption is to start the 15% of the tariff to start from September.

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

Speaker 2

Hi, thank you Mr. Nicizolo. Okay, the next question from Yomiuri newspapers from Mr. Narahashi. Over to you. Mr. Narahashi. Okay, this is Narahashi from Yomiuri newspapers. Yes, we can hear you. Thank you very much for the briefing. I have one kind of detailed question we'd like to check on, then ask two questions. The automobile operation had an operating loss from May to June. Since how many years has it been that you got the red losses? Now I have two questions. First, about the tariffs. If you do CBU exports from Mexico or Canada to the United States, that's 25%. I thought that a lot of it might be exempted. The actual amount that Honda would have to bear, how much would it be? 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 is about the sales unit sales for Asia and Europe and Japan. You've seen decline year on year. I'd like to know more about the detail about the causes. Is it that the sales, the competition outside the U.S. could be intensifying because of the tariff impact in the U.S.? I'd like to know specifically if there's any reason where the competition is getting worse. Thank you. Okay, to answer. Let me look into the first question that you said you wanted clarification on. To answer your first question, the CBU coming in from Mexico and Canada concerning the parts as well, this also applies. Quite a bit of amount will be exempted. I believe Mr. Kawaguchi mentioned it earlier a little bit concerning CBU. There is quite a cost for the United States.

We have done closer review and the effective tax amount has been reduced quite a bit. I cannot give you the number right now, but it has gotten a little bit smaller. For the parts as well, for those parts coming in from Mexico and Canada, which I mentioned at the beginning of the term, the USMCA contents, it will be outside the scope if it's co-applied. That regulation was out there already. It's just that it's going to take a little bit longer time because it might take to do a better scrutiny. We see that can be reduced by ¥100 billion or so. Not all of it, but we have been able to reduce this. Out of the ¥100 billion, 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. In different countries' markets, we did have strong shares in each of Asian markets. In the past few years, the Chinese OEM have participated into some of those markets, and we are struggling in some of those countries' markets. In addition to that, hybrid vehicles are popular in some markets and in some other markets not at all. This is related to actually the subsidies from the government. I need to actually, I should be talking about different markets separately. When we try to come up with the hybrid models, there are some markets where we have not been able to launch some into some market. In ICE we are losing against Toyota, for example. This might take some time, but we would reinforce launching hybrid models into some of those markets, try to compete.

For Europe, we have been struggling. Several years ago, UK and Turkey production sites had to be closed. We had to do that. 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. Within that trend for automobiles business in general, 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. There are some areas where competition is intensifying and there are some other areas where we need to put a lot more efforts. 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 the 2020 fiscal year due to the pandemic. We had some losses. This is the first time we had losses since then. Thank you very much. Thank you.

Speaker 0

Thank you very much. Next question. Toyo Keizai magazine. Mr. Yokoyama, please. Thank you very much. Yokoyama speaking. Can you hear me please? I have two questions. One is first quarter results and the full year forecast. You are changing a bit. The operating losses are put up for the automobile businesses and Fujimura-san. Mr. Mibe already said that there will be some EV expenses to be put for the first half. We have about ¥100 million also. For the full year, ¥600 billion or so already put up previously. Is your situation today in line with your expectations back then? If you kind of multiply the quarter results by four, I think you should have the forecast a little higher than that. What is the expectation assumptions alone and then 19.9% operating profit margin for the motorcycle businesses? That is quite very outstanding way of the businesses.

You have grown the businesses in Europe and now South America and South America. You were quite aware of the importance of the profitability there. What is the aerial capability in the first quarter? What is the reason behind such good results of the motorcycle businesses? Thank you. To start with a conclusion of the results, financial results and EVs implication. Starting from the three months, ¥240 billion for three months. That is actually half of the amount from the previous year. In the grant we have those tariffs, about tariff impact of ¥120 billion or so. As we have been saying so far, out of ¥120 billion in the first quarter we had some recovery plus refund expected after the imports and we had handled those based on cash. In fact, because of such situation we have more put up for the first quarter and EV one time.

In the beginning of the year, ¥200 billion were expected, anticipating some to be added later. That is why we budgeted ¥300 billion for the EV related. Then we have about ¥60 billion plus ¥50 billion that was unexpected out of the EV related ones. That amounts to ¥110 billion eventually. Out of the ¥60 billion as we expected. As I said, we decided that recent 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. We needed to have some write offs for some of their votes. A remainder is ¥120 billion and out of a ¥50 billion which is not the expected ones.

Regarding that, in the end of the term, we had the GMAV, we had to put up the reserves for as much as ¥50 billion at the end of the year. That was the reserve to be used for the future. However, we would have the IRA subsidies and the California ACC2 related accredited values. Actually, those were included in the losses that we were calculating for the future. However, those are now gone. Therefore, it is not necessary anymore to do that. We now have a ¥50 billion future loss expectation. For the full year, it's been complicated. We anticipated ¥600 billion, that is in line with what we thought. We have ¥50 billion higher than that because of the IRA subsidies cancellation, ACC2 invalidity anymore. Those are actually negative for that. ¥600 billion is now ¥650 billion instead.

For the motorcycles, 19.9% profit margin you said is too good. Of course, we've made a good result and the result is getting better. This time, if you look at the plants in India, for instance, there's a little bit of slowing down. However, we're not worried about it because we can bring it back again, recovery. We don't have the things going on as planned in India. However, we have South America, Vietnam, we have a good recovery instead. So far, it's been like when we have some issues in one place, one region, we have other regions, which is good to compensate for the other part. That is the situation we've been seeing for some time. We have a very high profitability in Vietnam. In South America, we have a high profitability as well for the businesses. In Brazil, for instance, we have a lot of shares.

Therefore, the number of those vehicles running there is almost all Honda. We actually are supplying only to satisfy the demands. However, not enough. We had 1.3 million car capacity of the production. Now we are going to increase it to 1.6 million production capacity. The demand is higher than the supply at the moment. Pricing is healthily done too. Because of that, profitability in the South American market is very good.

Speaker 2

So.

Speaker 0

As I usually say repeatedly, the region there is of a high volatility. 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.

Speaker 2

Okay, then we'll take the next question from Bloomberg's Mr. Inajima, please. This is Inajima from Bloomberg. Thank you. I'd like to ask about sales in China up until June has been declining for 17 consecutive months. What kind of initiatives do you have to rebuild the sales and then when do you think it is going to recover? The decline continues even after the launch this year. I think we'd like to know about it. Another question is that there was a report about discussions that you're trying to get supply from Nissan and then sell in the States. I'd like to ask about any update if there's any discussions with Nissan. Thank you. Okay. Mr. Inajima, thank you for the questions concerning China. Yes, the situation is continuing to be very difficult. To talk about the total market, it will be under 24 million.

This would be on a par with last year. For the NEV market, the condition will 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 0.5 million, while we have a 1.24 million capacity. Then 1 million is about the ICE and the 0.2 is a battery EV. That's our factory capacity. With these results, we have not changed it from the beginning of the year, but 0.7 million units capacity. We still have available capacity. Concerning the available capacity, the direct reason is that we have been matching our manpower in line with the capacity. Actually, we do have remaining very old equipment oil production line.

I don't think we have that much impact from depreciation. That's the situation in the factory. We will continue to make adjustments. This is a very sensitive topic and nothing has been decided yet. We will need to monitor the production models and we need to discuss with our partners and take very careful actions for EV. We are struggling with the sales of EV this year series. This is something that we made some investments from the end of last fiscal year to the beginning of this year. Against the original plan, we are underachieving the initial plan. When it comes to the actual driving performance of the vehicle, we have received a quite certain level of good assessment. Within this market where there is a discount strategy, it continues. Even looking at the price that we initially launched, it was not in line with the market expectations.

Also, for the intelligent functionality, the market expectations were not met by our vehicles. We need to expedite Hagyang actions. We might put the deep sea with OTA or we might work with Momenta in the area of ADAS. We want to promptly proceed to take action to address that issue. When it comes to the talks with Nissan Motor Co., yes, I am aware that a lot has been reported, but nothing has been decided and nothing has been announced by ourselves. 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 with Nissan Motor Co. and Mitsubishi Motors. That is something we are continuing to discuss. As soon as something gets finalized, we would like to talk to you about it. Thank you. Okay, thank you very much. Thank you very much, Mr.

Inazima.

Speaker 0

Next question from TV Tokyo. Ms. Nagai, please. Thank you. Nagai from TV Tokyo. I have two questions. One is tariff. Tariff. They won't of course pass through the prices 100% for that much. With that plus the retail prices of the vehicles should be needed. What is your idea about price increases of the cars or the vehicles? Next one is forecast. Just like Taizai's colleague said, the progress level is quite fast as compared to the forecast so far. The forecast three months ago was rather conservative. What is the concept behind, for instance, volume not changing? However, what is your idea about involvement of the businesses? What are your assumptions or the ideas behind those forecasts and the guidance? Thank you. As for the price increases, price hikes, I talked about ¥650 billion gross tariff impact, now down to ¥400 billion.

We have about ¥200 billion recovery plans included in that process. That includes ¥100 billion for that much recovery part, which is now ¥100 billion instead of ¥200 billion this time. Half of that is actually related to the price hikes and U.S. economy, not just cars. What is the inflationary trend in the U.S. plus other OEMs pricing situations? We need to cautiously watch out to put up our forecast. That was what we were like. In the first half this year, already August. For the price hike situation, apparently other companies, other OEMs are not doing price increases. We had annual ones. With respect to the tariff response, we are still cautious. In the first half, we couldn't reflect such part in our expectations. Price hikes of the vehicles are decided that way based on the position like that.

The recovery ¥100 billion might have them, but we have to still cautiously watch out the situation to make a final decision. Then ¥700 billion instead of ¥240 billion, that is the probability progress today as you said. That comes largely from the volume. The exchange rate is now set ¥140 and ¥145 and ¥135 in first and second half, average is ¥140. That is the assumption of the foreign exchange rates and that is why we have that recovery part. Usually, we tend to have more expenses put up in the second half such as SG&A and R&D costs. Those expenses are steadily put up in the second half. That is another reason behind. Thank you very much. Thank you. Three months ago you were very conservative. That is stress on that. I still, what do you think about it?

I said we were conservative because one foreign exchange rate. Of course, that is just assumption, and also that is as per the way we think about it. I don't know if I should say that conservative, but at that time three months ago we told you about those tariffs as only assumption at the time. Now, ¥650 billion to ¥450 billion impact based on the well progressed scrutinizing exercise of the tariff impact. Out of ¥450 billion, ¥350 billion for automobile and ¥100 billion for motorcycle. That is the breakdown. ¥100 billion 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. Because of that, we still have a ¥50 billion or so impact by that. Recession related concerns, ¥50 billion.

Although we had anticipated some like that, it is not materialized. 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.

Speaker 2

Thank you very much. Ms. Narayev, we'd like to take the next question from Automotive. I'd like to ask Mr. Hans Remmel.

Automotive News.

Hans, this is Hans from Automotive News. Can you hear me? Yes, thank you. Is it okay? Ask in simple English. Thank you.

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 making in those price hikes and can you give us an average % increase that you expect to charge for vehicles in the United States, and regarding EV losses, can you give us a clear breakdown of the EV losses in the United States 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 United States.

Thank you very much. Okay, about the price hikes, exactly what kind of a hike per what kind of model, that is something strategically sensitive and that would affect the sales. I would like to refrain from the details. For example, last year or two years ago, in recent years we have made some hikes that were in line with the inflation. Of course, this reflects the strength of the U.S. economy and also depends on the features and attractiveness of our vehicles. Those are the factors that went into our pricing decisions. The price hikes that we are talking about are referring to those that are normal 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.

During the first quarter, during April to June, we have raised some prices for some models. Please refer to those 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, but just to give you a general image, I told you that the ¥650 billion, generally speaking of the ¥650 billion, I mentioned ¥200 billion at the beginning of the first term. We assume that kind of losses of the ¥200 billion. We did some write-off on certain models, ¥50 billion for certain models in the first quarter. That is part of it. We would say ¥250 billion would be the losses, kind of non-recurring losses. I mentioned the ¥200 billion we mentioned at the very beginning of the term.

Now the IRA that went away, those are the losses, additional losses of like ¥250 billion. Of the ¥650 billion, ¥250 billion would be about the losses for this term. We still have about ¥400 billion remaining. R&D will be ¥300 billion. Gross profit of ¥100 billion. Please take it that way. We have a gross margin of ¥100 billion. I think we had about ¥150 billion last year that was larger than that. We are narrowing down on the volume compared to last year. That is why we are positioning that ¥100 billion for zero series as mentioned 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. We would like to be fully prepared and then launch next term. When it comes to good timing, I will give you more information about it.

Thank you. Thank you.

Speaker 0

Thank you. Frans, we are very sorry that, and we know that many hands are still up for making questions. However, because of the time, the next one is going to be the last question from Reuters. Daniel, please, can you hear me? Hello. Yes, I can hear you. Earlier, USMCA discussions, I'd like to confirm a few things. Especially in the first half for this year, what is the real actual tariff rate? If that cannot be publicly open, do you have examples citing some particular parts or components? For instance, a lower tariff rate is applied, like expensive ones, parts, trains, and so on. Are there any alleviated, you know, the type of alleviated kind of partial 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 a CBU related to the USMCA. If I say that too well, it would reveal our cost structures. Therefore, I cannot say too much. However, rather the examples for the high rates rather than low, like hybrid, hybrid system, the critical hybrid systems, there are quite a few sent from Japan. It is the area where the high rate is applied, and for that area, next generation hybrid, like the 27 series, we are going to launch in the year with the new generation systems, and especially for them, battery motors, PCUs. The thing is, how can we produce those areas in the U.S.? That is one of the focus areas of the discussion today. Would that be right? Thank you. Thank you very much. Thank you very much, Daniel.

Now that concludes our presentation for the financial results, and those slides, materials, and the presentation package are available from our website. Thank you very much for your participation today.