HMC earnings call for the period ending March 31, 2024.

Honda Motor (HMC 0.80%)

Q4 2024 Earnings Call
May 10, 2024, 2:15 a.m. ET

Contents:
Prepared Remarks
Questions and Answers
Call Participants

Prepared Remarks:
Operator

Thank you very much for taking time to join us here today. And I'd like
to begin Honda FY '24 financial results press conference. First, the
executives in attendance today are Toshihiro Mibe, director, president,
and representative executive officer.

Toshihiro Mibe -- Director, President, and Representative Executive

Officer

I'm Mibe. Thank you very much.

Questions & Answers:

Operator

Shinji Aoyama, director, executive vice president, representative

executive officer.

Shinji Aoyama -- Director, Executive Vice President, and

Representative Executive Officer

I'm Aoyama. Thank you.

Operator

Eiji Fujimura, managing executive officer and CFO.

Eiji Fujimura -- Managing Executive Officer and Chief Financial

Officer

I'm Fujimura. Thank you very much.

Operator
First, Mr. Mibe will give a summary of the results, followed by Mr.
Aoyama, who will present the FY '24 results and FY '25 forecast and
shareholder returns. Mr.

Mibe, please.

Toshihiro Mibe -- Director, President, and Representative Executive

Officer

Once again, good afternoon. I'm Mibe. I'd like to first thank all of you
for taking time today and providing generous support to Honda's
business. As a mobility company, Honda upholds its value proposition of
zero environmental impact and absolute safety through the social values
of environment and safety.

We aim to realize our vision of future mobility and an attractive mobility

society. This will enable us to manifest a new corporate path of growth.
We seek for your continuing understanding and support of Honda's
initiatives. I would now like to review our FY '24 financial results and
explain our forecast for FY '25.

FY '24 operating profit was a historical high, JPY 1,381.9 trillion.

Operating profit margin was 6.8%. In FY '25, we will steadily dedicate
resources to electrification and aim for an operating profit of JPY 1,420
trillion, operating profit margin of 7%, one year ahead of our original
plan. FY '24, cash flows from operating activities, resources for future
investment, excluding R&D expenses, was roughly JPY 3 trillion, up
JPY 1 trillion year on year.

We have the foundation to support future investment for growth.

Shareholder returns is regarded as our top priority. Management issue
FY '24 dividend was JPY 68, up JPY 28 year on year. In FY '25, we will
acquire a record high JPY 300 billion of the company's shares and
realize a stable, continuous dividend policy.

Next, I will review the initiatives we have taken toward establishing

earnings base. Motorcycle business, in addition to our dominant position
in Asia, we have expanded large motorcycle sales in advanced nations
and expanded product lineup in South America to further strengthen our
business structure and build a well-balanced global income structure.
Regarding automobile business where profitability was an issue, we
increased commonality ratio of core models such as CR-V, Civic, and
Accord; reduced hybrid system cost; and enhanced product appeal to
steadily improve our business structure. We will further evolve
performance and cost of a hybrid system targeting the second half of this
decade.

Next, initiatives for enhancing corporate value. Currently, the PBR

remains less than one-fold. We believe there are three reasons as shown.
To address this, we will optimize capital through proactive shareholder
returns, build and maintain earning base, and work out granularity of
electrification strategy.

As for FY '25, we will acquire JPY 300 billion of our company shares
and aim for an operating profit margin of 7%. The details of
electrification strategy and capital allocation will be explained at the
2024 Honda Business Briefing on May 16th. Through these initiatives
and continuing dialogue with stakeholders, we'll aim for an early
achievement of a more than one PBR.

Operator

Next, Mr. Aoyama will present the details of our financial results.

Shinji Aoyama -- Director, Executive Vice President, and

Representative Executive Officer

Let me explain about the actual results of FY 2024, followed by FY

2025 outlook and the shareholder returns. With regard to the updates of
the main markets of automobiles, the market declined in China, but
increased in the United States due to the stable demand has led to the
overall sales exceeding same period last year. For motorcycle businesses,
the market in Vietnam declined because of the economic slowdown.
However, the unit sales increased in India and Brazil due to the solid
demands, contributing to the overall market, almost similar to last year.

Regarding Honda's group's unit sales of motorcycles, mainly due to

incremental units in Europe as compared to last year, we achieved
18.819 million unit sales, automobiles, 4.109 million units sold are
mainly due to the increase in North America. And in power product
business, we achieved 3.812 million unit sales due to the decline in
North America. This is the summary of the consolidated financial
results. On top of the additional automobile in its sales, thanks to the
improvements in automobile profitability, we achieved the operating
profit of JPY 1.3819 trillion, up by 601.2 billion.

We accomplished the highest-ever results in operating profit before

income taxes and profit for the year attributable to owners of the parent.
ROIC was 9.1% and ROE, 9.3%. Let me explain. Factors of ups and
downs of the profits as compared to the last year.

There were some impacts by inflation and so on. However, due to the
effective pricing scheme that reflects the improved commercial value of
the products and incremental automobile unit sales, we achieved a JPY
1.3819 trillion operating profit, up by 601.2 billion year on year. Profit
before income taxes was JPY 1.6423 trillion, up by 762.8 billion year on
year. Regarding operating profits by business segments.

Motorcycle business is JPY 556.2 billion, the highest ever result.

Automobile business is JPY 560.6 billion; financial services business,
273.9 billion; and for power products and other businesses, it was a
negative JPY 8.8 billion. Free cash flow of business companies
excluding financial businesses, was JPY 1.4609 trillion, with JPY 3.7616
trillion of net cash balance at the end of the period. And next, let me
explain financial forecast of FY 2025 on consolidated basis.

Regarding expected unit sales of Honda Group compared to the last year
for motorcycles, we expect at 19.8 billion units, reflecting the growth
mainly in Asia, 4.12 million units of automobiles expected, reflecting the
incremental units mainly in Japan and North America. And for power
products, we expect 3.66 million units, reflecting the decline mainly in
Europe. Unit sales volume on consolidated basis will increase in
motorcycles and automobiles businesses. Moving on to the outlook of
the consolidated financial results of FY 2025.

Operating profit will be JPY 1.42 trillion, with the operating profit ratio
of 7% and the profit for the year attributable to owners of the parent will
be JPY 1 trillion. Foreign exchange assumption is set for JPY 140 for a
dollar throughout the year. The factors behind those profit before income
taxes. Forecasts are as follows.
R&D and other expenses will increase. However, thanks to the pricing
scheme that reflects the commercial value of the products, our profit
before income taxes will be JPY 1.5 trillion, down by JPY 142.3 billion
year on year, and the operating profit will be JPY 1.42 trillion, up by 38
billion year on year. These are the outlook of the capital expenditures
and depreciation, amortization, and R&D spending for FY 2025 on the
slide. Lastly, let me touch upon shareholder returns.

Annual dividends for FY 2024 is JPY 68 per share, a JPY 28 more from
the year before, and JPY 10 higher than our previous projection.
Dividends at the end of the year is JPY 39 per share. Annual dividend
for FY 2025 is expected to be JPY 68 and per share, same as FY 2024.
In the board of directors' meeting today, we made a decision to execute
share buybacks up to JPY 300 billion.

That concludes my presentation. Thank you very much.

Operator

Thank you for your listening. And now we'd like to proceed to Q&A. We
have provided you with the Zoom function, so please ask the question
through Zoom. And in the interest of time, please limit your questions to
two per person.

[Operator instructions] The first question comes from. Yomiuri Shimbun

newspaper, Mr. Nakamura.

Unknown speaker

Can you hear me?

Yes, please.

Nakamura from Yomiuri Shimbun newspaper. I have two questions.

First, about your China business. Each of the manufacturers, they are
having difficulty challenging their Chinese EV companies.

Meanwhile, I think that there are a lot of fans for ICE vehicles. So, what
is your marketing strategy going forward? And what about the
optimization of excessive production capacity? And secondly is to Mr.
Mibe, I think it is the first time since you became president that you are
attending the financial results presentation meeting. So, what is the
reason for your attendance? Is there any message that you would like to
deliver directly to us? If so, please introduce them to us.

Toshihiro Mibe -- Director, President, and Representative Executive

Officer

Well, first, thank you for your question, Mr. Nakamura. And first, about
the Chinese business. I would like to explain, yes, there are a lot of
Honda fans and ICE fans, and I do agree with you on that.

And as for future marketing strategy, well, at the Beijing Motor Show
and also prior to that, there was an announcement that we made, but the
Ye Series, the second of the series, will be introduced and this will be
done in the first half of this fiscal year. Furthermore, the second half of
this fiscal year, as we've already announced, the Ye Series, the first of the
series, will be the first and battery EV platform in China and the P7, S7
will be launched. And therefore, the Ye Series will be expanded. And
this is how we want to expand our business in China, especially the
battery EV.

We want to introduce competitive motor products. And this is a basic

marketing strategy. Meanwhile, about the overall production capacity
and excessive capacity, well, with our joint venture partners, we will
consult and we are currently examining this, what can be done? And for
this fiscal year, within our budget for FY '25, we have included some
expenses toward that purpose. About the specifics of how to optimize
them, we will like you to wait until we can make the announcement.

And next, I, Mibe, would like to explain why I'm here today at the
background. Well, it is my first time, but in the past, there are presidents
have not attended this meeting. And so, I'm the very first in the history
of Honda that I'm attending as president. Well, this is because we are
faced with a lot of challenges at this time of transformation, and I is
present.

I wanted to explain about the current management situation and also our
short to mid-term plans. I thought it was important that I directly
communicate this. As I mentioned today, for FY '25, we want to achieve
the same, but one year in advance, I would like to achieve this margin
profit, 70%. So, this is something that I personally have led and I want to
demonstrate my leadership this fiscal year as well to achieve this goal.

And in my presentation yes, we have a less than one PBR. And I think
that this is a major challenge that we currently face. And as of the end of
March, about 60% of the prime market companies listed market have
exceeded one. But Honda, we have a 0.76-fold.

So, this is a major challenge on the part of Honda. As I said a

shareholder returns. We have to look at the investment balance and
consider this. But what's most important is for us in order to -- first of
all, we have to make clear our growth path.

In particular, we want to make clear what our plans are for

electrification, our future vision of electrification. And that included, we
would like to update you on the progress we're making. And I think that
there will be opportunities at the financial results meetings to present
this. I don't know if I'll be attending all the quarterly press meetings, but
at the full year announcement, I would like to attend this meeting in the
future.

Now, about making clear the granularity of our electrification strategy.

Well, on May 16th, we are going to have a meeting, a briefing session to
elaborate on our strategy, and I will talk about our outlook for
electrification and all the other details. So, please wait until the 16th for
the details. And I would like to I continue to attend this meeting.

Thank you.

Unknown speaker

Thank you very much, Mr. Nakamura. Next question, please.

Operator

Nihon Keizai Shimbun, Okinaga-san, please. From Nihon Keizai

Shimbun, Mr. Okinaga, please. Please ask your question.

Unknown speaker
[Japanese] that was going to be the highest as well R&D spending in
order to strengthen shareholder returns, how do you manage that? And
also, what is the backdrop of having to reinforce your R&D efforts?

So, let me explain about its positioning, and overall situation rather than
each quarter situation. As we said before, electrification and the software
and the intelligent use of that, and we said that we are going to invest
JPY 5 trillion by 2030. And then I'm going to explain more of the details
on the 16th of May. But in the meantime, we actually changed our
strategy a little bit.

For instance, in terms of electrification, specifically, speaking of the

batteries, we had explained about Canada before. And we are going to be
shifting to the vertical-type system in order to sustain the total
electrification businesses. To do that, we need to have the investment
development as well. We have to internalize those technology, and that
will be on the increase as well.

And for the software, too, core of the software have to be supported by
Honda itself. And R&D menus will be toward a more of the internal
kind of efforts. Therefore, we have more spending on that. Fujimura-san
is going to give us several details about the spending.

Eiji Fujimura -- Managing Executive Officer and Chief Financial

Officer

Thank you for the question. As for the R&D spending, it is going to be
the highest ever. As we said now, JPY 1 trillion spending. Therefore, that
would include the upcoming electrification related to our development
expenditures.

And also, in the first place, we have to support our foundation for the
electrification going forward. We call it [Japanese], which is the
functionality and its evolution. And in our R&D efforts, we have to put
more efforts in the process before the development of the vehicles to
strengthen that part. And specifically, for the model year 2027, that will
be still more efforts of the ICE model based on the hybrid, basically.

And therefore, for those ICE models toward 2030, there will be still a
60% of the ICE model to be run. Therefore, we need to earn from those
businesses. Therefore, we need to allocate some resources through that
as well. So, we have to spend on both, which will be the next three-year
efforts.

And those will be important. And we will keep up with the higher level
of R&D spending going forward for the growth going forward, and we
will be more aggressive on that part. And the rationale for that effort is
such that now, after the R&D adjustment, we have this operations cash
flow that is a new kind of indicator. And for this past our fiscal year, we
had a JPY 3 trillion.

And three years before, it was a JPY 2 trillion. So, we are adding JPY 1
trillion more to that. But that means we try to improve the profitability of
the ICE models that we have supported so far. And that is going to be
earning more going forward.

That is why we can justify such spending. And then we are going to
spend 1 trillion R&D again and cash flow after the R&D adjustment will
be staying around JPY 3 trillion based on the earnings strength. And then
we would like to be based on such a stronger earnings structure and then
spend more on the R&D. At the same time, we are going to strengthen
our shareholder return as well.

That is our financial strategy. And in terms of the capital allocation, as

we said, up until 2030, as we said before, we are going to give you more
communication in the business update scheduled on the 16th of May,
and we will give you more details on that day. Thank you very much.

Operator

One more? Do you have one more question? What is your second
question, please, Okinaga-san?

Unknown speaker

May I ask a second question?

Sure, please.

So, the unit tells us for the regions in China, it declined from the
previous year. Is that what you expect again? You're going to provide a
new series, right? What is the expectations? And you also say that you're
expecting a growth in North America. Is that because of the SUV
[Inaudible] more?

So, the unit sales per regions, are we speaking? And for China, as we
said before, Ye Series is going to be very -- had expected a model, and it
is going to be launched in the second year of FY 2025, second half of
this year. Therefore, it will be effective after that. And we plan to
provide 50,000 units of those in addition to the existing ICE and have
products. Therefore, as compared to the previous year, it is going to be
on the decline.

And for North America, Civic hybrid, which is not yet launched.
However, we are going to add Civic hybrid, which will be added to the
growth. And in terms of the incremental units, battery EVs in May and
April this year, we are adding a BEV. And that part will be the
incremental portions in the North America.

That is the plan.

Thank you. The next question.

Operator

Toyo Kezia. Mr. Yokoyama, please.

Unknown speaker

This is Yokoyama from weekly magazine, Toyo Kezia. Can you hear
me?

Yes.

Thank you. I also have two questions. The first, about hybrid and
competitiveness and product appeal. I'd like to ask one question about
this.

Yes, in your material, Eiji referred to this slightly, but in North America
and Europe, your competitors, Japanese competitors are also doing well.
But also, you say that you're going to invest in ICE, but the earning base,
I think hybrid will be very important contributor. So, within your
electrification strategy, what is the positioning of hybrid? That's my first
question.

I would like to respond to this question. Yes, hybrid competitiveness.

First of all, volume-wise, we believe that in FY '24, about 800,000 units
were sold. That is hybrid.

But in FY '25, this fiscal year, we are aiming for 1 million. Well, it's 4.12
million in total. So, one out of four vehicles will be hybrid. That's our
plan.

About our earning power, well, I'm currently looking at our current
situation. Well, how we position hybrid will make a difference in terms
of our profitability. And there's a variance in profitability as how we
position hybrid. But I said hybrid, these two are expected to bring about
this more or less the same profit.

Well, 2018 model year and 2023 model year, if you compare these two,
system-wise, it is more efficient and also the performance is higher. And
despite that, we've seen that cost-wise, we are trying to make it more
affordable. And therefore, rather the 2027 model, we are currently
developing the model. But here again, we want to increase our
competitiveness, not just in terms of cost, but also in terms of
performance.

That is how we are addressing this. In the second half of this decade, we
will increase battery EV, and therefore the volume of all but the earning
power per unit will increase, so that we can earn a profit. And this will
be happening also in the second half of this decade. And this is going to
be the source for injecting resources into electrification of battery EV
that is.

Eiji Fujimura -- Managing Executive Officer and Chief Financial

Officer

Maybe, if I may add, well, hybrid, yes, we have one hybrid that we are
focusing on. So, we have been reducing the cost. But in the past, from
the perspective of profit, ICE was a much more competitive as OEM has
had. Now, it's at par more or less.
And so, if we had, for example, this fiscal year, in the automotive
business, if EV-related development expenses were excluded and if it
were only hybrid and ICE alone, if we cover just these two operating
profit margin-wise, we can expect 8%. So, competitiveness-wise,
including cost, it is quite strong. But in addition to that, in the second
half of this decade, it will further evolve. We have one evolution
planned.

And therefore, the current hybrid is doing quite well. But up until 2030,
we want to be able to compete in North America with the current
competitiveness we have. Unit volume is 1 million this fiscal year. By
2030, if things go well, then I think we'll come close to 2 million units.

And that is the one plan that we have, including our suppliers. We are
trying to meet this increase so as to be able to achieve a scale of 2
million units. That is how we are preparing for hybrid. And if we can
lead this, and then I think we will have more power to generate cash, and
thereby, we will be able to make a transition to electrification.

So, hybrid was, to begin with, a strong weapon. And we want to enhance
this technology that we are already strong in. And that is how we want to
do our business. Thank you.

Unknown speaker

Second question about the profitability of your automotive business.

Well, in the fourth quarter, I think the margin compared to the third
quarter, I think has gotten worse. I think you mentioned that there's an
addition of the expenses here. But looking about the profit margin of the
current automobile business, and I think that you will also have to
support the suppliers.

So, how about -- you said I think it's about 5% or less of 5%, but
including the support to suppliers, how are you going to try to increase
the operating margin of your automotive business?

Eiji Fujimura -- Managing Executive Officer and Chief Financial

Officer
Thank you. Well, about the fourth quarter, the ESM, there is a tendency
for the expenses to increase. And therefore, if you look at the full year, I
think it's better to talk about the full year, not just the fourth quarter, as
you pointed out. Yes, but there's been a 4% or so.

Well, a ratio at the end of the fiscal year and after the first quarter has
been explaining, last fiscal year, there was an increase in the quality
related to expenses. But it used to be 1% versus the sales, but we are
seeing that the warranty has increased in this fiscal year. Based on that,
we were accounting for 1.2% warranty expense ratio. And so that is the
ratio and also the support to suppliers because of the restructuring,
[Inaudible] there was impairment.

And so, excluding those, it's a little less than 5%. So last fiscal year,
rather I've been saying this -- sorry, it's last fiscal year, I think that is the
actual result that we obtained. But then going forward, how are we going
to improve this? Well, those areas that we have been trying to work on
the profitability and also the fixed cost part, we want to continue to work
hard on those things. And so, we tightened and therefore, the top line,
where possible, will be raised for this fiscal year in the United States and
in Japan.

I think these are both the major markets. But in those areas, we want to
post a positive. And also, we'll reduce the incentives, etc. I think that our
product appeal has increased, and therefore we can do this.

And based on that and also the pricing, though we will be more prudent,
we think that in each of the domains, we will try to price in line with the
value that we're offering our customers. Now, about the support to
suppliers, for our suppliers, especially in Japan and U.S., there is the
impact of UAW. And it's not just an in-house production, but also our
suppliers at the same time have to give consideration to this. It's on a
negotiation basis.

So, it's one by one. But still, there is the inflation part that we have to
take into account. So, we have budgeted, so that we can provide support
for inflation. Now, what's different from -- prior to COVID, we have
stable production and we're doing models inquiry together with our
suppliers and manufacturing.
So, we have to think about where we can improve our cost
competitiveness together with our suppliers. So, we want to do co-
creation with our suppliers. That is the sort of budget that we have
compiled this time. That is all.

Thank you.

Unknown speaker

Thank you.

Thank you very much, Mr. Yokoyama. Next question.

Operator

From NHK, Mr. Obi, please.

Unknown speaker

Can you hear me?

Yes. Thank you.

NHK, Obi speaking. Thank you for your presentation today. I have two
questions. First one, these sales turnover revenue and OP, you are
achieving the highest ever.

And your business is very good. Very well going. And then in this
context, what is your impression reaction to this good business today?
And the second question is a bit away from the financial results. So,
today, speaking about yen depreciation today in Japan, it is quite a
commonplace today, JPY 155 per for dollar as of today.

However, that may be good for you. That is quite supportive for the
businesses for you. But for Japan on the whole, what is your thinking
about current exchange rate situation today? What is your thought about
it?

So, first question I'd like to address. In the second part of 2010, we said
that we would envision 6 million cars, 6 million units. We were on the
expansion of the businesses mainly, and then we needed to shift our
directions. And then we said that we would solidify our basic businesses
with efficiency.

For instance, we would optimize the surplus capacity by fixed cost

reductions and then less derivatives, more commonality of the parts
components and system cost reduction of the hybrid cars with the better
performance to enjoy the cost reduction effectiveness. This way we
could improve value of the commercial vehicles with the appropriate
prices, with those initiatives. And the automobile businesses have
improved a lot. And if you look at the EV business alone, we are
reaching a near 8% today.

In addition to that, for the motorcycles, we were relying on the Asian

markets quite heavily. But we now had expanded our profitability in
other areas, too, in Europe, 20%; Asia, 80% -- and South America, 20%;
and Asia, 60%. And then for both motorcycle and automobile
businesses, both together, we have improved our structure of the
businesses quite nicely. And then altogether, we were successful in that
regard because of that.

Now for 2030, for instance, we can envision 2 million EVs. That is our
vision, plus our businesses, 5% EV. That is our targets. And we will keep
spending for research and development.

As with that, EV businesses in 2030 will be something like that. And we

have solidified our foundation to achieve that vision finally. And in
terms of the yen depreciation situation today, of course, we are in the
manufacturing businesses. And we reliant on the facilities and
equipments heavily.

Therefore, abrupt changes of the forex is not really welcome. But

recently, of course, it is related to the policies of the U.S. and the Japan
government. Bank of Japan's initiative, U.S.

counterpart, when they are going to move to reduce the rates and so on.
Of course, they are all related. And then, the fundamentals behind such
ups and downs of the forex situation today is actually related to the
actual demand for the yen currency. I think that is my thought.
And the true actual demand for the yen today will be related to the
export from Japan because it was export-oriented, so far, heavily. But
now, in this situation, we would have a more internal domestic demands
meaning that we could repatriate our manufacturing businesses back in
Japan and then Japanese stocks, the share prices are now appreciating,
too, reflecting that. That probably indicates that the demands for end will
be improved going forward. And then, our expectation or assumption is
JPY 140 for the time being in this budget.

You might take it quite conservative perhaps. And the reason behind the
JPY 140 is maybe in the first half, it will be something like JPY 145 for
a dollar in the first half of the year, and then in the second half, JPY 135
because of the interest rates changes and so on. That is the expectations.
But in the long run, I as I said before, the power of the Japanese
businesses will be appreciated better with the better actual demands
within Japan.

Therefore, it would not go to JPY 150 or JPY 160. I wouldn't think it

will be the case. However, of course, it is not possible to project
however, the abrupt changes of the currency, so difficult for us. The
April-May situation of the forex is not really favorable to us.

However, we have to adapt to the changes out there in terms of how we

operate everyday basis. Thank you very much.

Thank you very much for your answer. Thank you.

Next question.

Operator

Nikko Japan Automotive Daily, Mr. Misododi. Mr. Misododi, please.

Unknown speaker

This is Misododi or Japan Automotive Daily. Can you hear me?

Yes.

Thank you. I have two questions. So, first, FY '25 forecast, about this
forecast, operating profit increase. You say the selling price and cost
impact is a positive of 502 billion.

Can you give the breakdown? Is any relation to that? I want to know
about the price increase impact. I think it was a positive last fiscal year,
but the price increased itself. Has it completed the cycle or is it the case
where this fiscal year, again, you want to continue and try to increase the
profit through the price increase? And that's the first question. And the
second is about the business in Japan.

in FY '25, your forecast says that 660,000 units. I think you said that
Honda to begin with in Japan, your annual unit sales is around 700,000. I
think that's more or less the target. But the shortage of semiconductors
has ended.

And I think the fact that you cannot reach 700,000, what is the reason?
And also to Mr. Mibe, once again, how do you position your business in
Japan? Can you explain about that as well? Thank you.

Allow me to -- about the operating profit and increase and decrease. And
so, there is a impact of 502 billion and what is the breakdown of this?
That's your question. But I think that it was mentioned earlier, but in
Japan and the United States has an increase in labor costs. I think this is
true also for the suppliers.

And so, this is included. We have been working to increase the cost
together, and we can reflect this in our motorcycle business. So, we have
offset that. But mainly it's a selling price.

The positive impact of the selling price, it's about 407 billion worth. And
well, the inflation part but we have to try to introduce a competitive
products to increase their price. But there are some special factors
included. In the United States, with the upcoming electrification, dealers
and we the manufacturers, we have to change the roles that we play.

I think that we have to factor in this change, the dealer margin, therefore.
On our part, we have done a lot of consultation, and we have reduced the
dealer margin. In other words, the profit allocated to the dealer has been
allocated to us. Well, the new car business, it will be like that, but in the
future, the maintenance and those parts, as a touch point for the
customers that do this, will be a very strong business partner for us.
So, that will continue to be the case. So, that profit, within the 407
billion, I think about 100 billion is included. And therefore, if you
subtract that, that will be the price increase. So, that has been budgeted.

Meanwhile, recently in North America, especially, we have been

reducing our inventory, and we're trying to reduce the incentives. That's
our operation. Well, we have not yet reached the level prior to COVID.
And I think that the competition is more fierce these days with
competitors, and therefore we have to budget more of the incentive.

And in the operation, the pricing and incentive, we are trying to reduce
this down, but we have to offset where needed. So, 500 billion, this is a
large number, but these factors are included here. So, please understand
this number to mean that. And this fiscal year, whether we can continue
to raise our price, as we said earlier, we have to comply with the
inflation and also introduce appealing products and try to tap on these
strengths that we have.

That's all. But business in Japan, Aoyama will first.

Shinji Aoyama -- Director, Executive Vice President, and

Representative Executive Officer

Yes, 700,000 has been the benchmark in the past. That is true. So,
700,000 units. At one time, we were selling that much.

So, that was regarded as more or less the benchmark. So, you are correct
in saying so. But the mid to long term, we think that the Japanese
automotive market is declining. Unfortunately, we have to admit this
overall.

And therefore -- for FY '25 as well. The market itself, there will be a
marginal increase. That is how we look at it. And so, we have the
655,000 units listed here, but the registration is about 700,000 units.

As for the share-wise, if you calculate this in terms of share this fiscal
year, a 15% or so is what we're aiming toward. And therefore, 15% share
is what we want to gain. And this is the highest in in history. So, this is a
plan that we have.
Already, we are receiving bookings in advance, the new Freed before
launch. And so, we want to sell this. And also, in addition to that, at the
end of last fiscal year, we launched WR-V. So, this product, plus the
Vezel, minor model change.

So, all these included, we want to introduce some competitive products

so as to achieve this 15% high share. That is how we are looking at this
fiscal year. And I'd like to Mibe-san to talk about our positioning of our
Japanese business.

Toshihiro Mibe -- Director, President, and Representative Executive

Officer

But looking at the current situation, as Aoyama has already explained,

well, at the beginning of this year at the CES, we announced that Honda
0, this is a new EV, and this also within the global market, we wanted to
reduce this to Japan, too, as a global market. The product lineup also, the
N series included, we have these smaller minivans, and we are shifting
more to the smaller size models. Ad therefore, this is one of the reasons
why I was seeing a slightly slow increase in unit volume. Electrification
is a key word that we're using.

This is a new direction that we're aiming toward. And this is a good
opportunity for us. And within this process of electrification, once again,
of course, we are a Japanese company based in Japan. The Japanese
market is a very important market for us.

And therefore, in addition to what we were doing in the past and newly,
we want to introduce a new lineup, so as to be able to raise the appeal of
Honda in Japan. Currently, we are working out the details and therefore
we cannot make an announcement today, but it will not be the same as
the past. And that is as far as I can say for now. But please expect that
we will be making changes and look forward to our strategy in Japan.

Thank you.

Unknown speaker

Thank you. So, next question.

Operator

Reuters, Shiragi-san, please.

Unknown speaker

Thank you for asking me for the question, Shiragi from Reuters. I have
two questions. Can you hear me?

Yes, please.

Away from the financial results, because of the president being here, I'd
like to ask this opportunity. As of today, what do you think about the
status of the battery markets and Honda's position today in terms of your
negotiation with the other companies and the development and sales
plans of that? Please tell us your frank view on that. And as for the
Canadian plant, for instance, recently for your EV sales goal, for
instance, you have today, you're probably having those steps done,
absolutely. But other companies are facing with a bit of a decelerating
trend of their EVs, and also discount is being seen quite in competitive
markets.

In that BEV slowing down trended today, minding that, do you think it is
a kind of good time for you to take advantage to accelerate yourself
away from others being slowdown situations? Or do you think you have
to accelerate further the businesses you have today? What is your
position today of your company in the current EV situation? And the
second question is about collaboration potential with the Nissan. I
understand it is still under consideration, but I'd like to ask Mibe-san
what is the topics that you are talking about with them today in the
negotiation process, maybe as far as you can share with us? And in the
topics with them, would you talk about EV sales, goals and so on?
Maybe you would tell us about it in the business update opportunity, but
do you have changes on your strategy, so on, with regard to their talks
with them?

Toshihiro Mibe -- Director, President, and Representative Executive

Officer
For the first question, BEV businesses, the EV demand is a little bit
down, according to what you said, that of course it is, what we are seeing
today globally better. Since I became the president, our goal is to achieve
40% by 2030 and 80% in 2040, have represent FCEV or BEV by 2040.
And of course, that is the kind of back-testing goal based in 2050. And
it's been three years since I became the president.

And those goals still stand, no change at all. So, for the goals of the 2030
and 2035, of course, EV-related regulations and laws in different
countries might change as we go toward those goal years. And that was
something we were expecting already. And this is what we experienced
today, for instance, to achieve 2 million cars in 2030.

And we'd like to establish the foundation for that businesses in order to
be able to achieve it. And then we are making plans now including the
investment plans and so on. And based on the current EV situation, we
still keep up with our original strategy, no change. And in terms of the
investment, maybe the opportunities, the timing of the investments of
those might be shifted within the range that we would anticipate.

But there's no change to the goal, no strategy changes at all. And in

terms of the hybrid, it is good technology as a tentative solution. And we
have the businesses of that today with hybrid. And we did not -- we are
not denying a hybrid business at all.

But after 2030, the global regulations and so forth would require be a
battery EVs, for sure, in order to achieve a carbon neutrality. And then
we have been working on the small mobilities today. The battery EVs
could be the best solution for those small mobility ones. And then we
have those milestones one after another.

And we like to take on achieving those steps as we go. And in regard to

the collaboration with the Nissan, we've done it on the March 15th. And
since that time, we've had frequent discussions between the two
companies with a different groups of people. And then as was announced
by Mr.

Uchida of Nissan the other day, actually I've checked the progress,
participating some of those meetings and work through the values that
can we provide by this collaboration. We are actually discussing about it
right now, and I cannot disclose what is being discussed at the moment.
However, we're coming to a good conclusion nearly. And once that is
well summarized, we can share with you.

And as we said on the March 15th, basically, it will be in the area of the
electrification software and also complementary product supplies and so
on. And for the growth in the future, it will be in the electrification
software. Those two will be very important for the growth purpose. And
then software, especially, with the AA included and the semiconductor
together, the development cost will be enormous.

And that area is one of the potential collaborative areas. And also, for the
scalability for the electrification, scalability can be quite advantageously
obtained with the collaboration, I suppose, with the electrification
efforts. And then we are having discussions closely on those points. And
once we find and identify the benefits, we will start working together.

And I cannot give you much today, however, we are having discussions
in the broader scopes in front of us. And on the 16th of this month, I
don't think I can give you the clear answers for our discussion items with
you today. But of course, the discussion will not go forever. Sometime
very soon, I can give you some ideas about the collaborative talks
between the two.

Unknown speaker

So, by summer, maybe can you give us a kind of a first round of the
sharing with us of the information by summer time? What is your goal?

I don't think it will be until the end of this year. It is, but long summer
time. Maybe by then, I'd like to come up with some sort of idea that we
can with you. That is what I think.

And we will focus on the discussions really? So, that, of course,

including whether or not we go for that, will not go for that. We will be
able to summarize the talks sometime very soon. Thank you.

Thank you.

Operator
Apologize, but in the interest of time, next will be the last question.
Asahi Shimbun newspaper, Matsuoka-san, please.

Unknown speaker

Can you hear me?

Yes.

I'm Matsuoka from Asahi Shimbun newspaper. But North America, your
automotive business is growing. The unit volume is increasing. Is it
because of the foreign exchange rate? Is it because the selling price has
been reduced because of the exchange rate? Or is it because people are
returning from EV? What is the reason for the increase in unit volume?

Well, the reason why we are seeing an increase in not just volume, but
profit, I understand. Sorry, yes. But exchange rate is one factor. But it's
not the case where the exchange rate is a dominant factor, especially in
FY '24 result.

I'm looking at FY '24 results. FY '23 was the time in which due to the
semiconductor shortage, we could not fully supply, but we could not
fully produce. And so that was the situation. Therefore FY '24 and FY
'25 as well.

In North America, the factory, the utilization rate is 100% or even

slightly more than 100%. That is utilization rate at the U.S. factories.
And therefore, as a result, we are being able to raise the price, selling
price in line with the appeal of our products.

I think that this is the major contributor. Plus, there was also, as I
mentioned, in the separate question, hybrid, after the '23 model year, the
performance index increased and also the business competitiveness
increased, including cost. And therefore, the profit ratio is equal to ICE.
But in terms of the profit amount, it is slightly more.

And so that included hybrid is doing very well. And so further boosting
our profit.

Page 10, you talk about the historical operating income and give the
reasons and selling price cost. I thought that this was a big contributor.
Can you elaborate on this?

Page 10, did you say?

Profit before income tax. The change in profit before income tax FY '24
results.

Yes, you're talking about FY '24. Right. OK. So, there is the price cost
impact, sales impact and includes the gross profit.

Well, motorcycle and other regions are included here, but yes, for
automotive, 317.9. Yes, underneath, it says that, this number of 4,487 for
the revenue model mix. And this is coming mainly from North America.
Well, the previous fiscal year, we had difficulty acquiring
semiconductors.

But this year, we have seen an increase. And there was a 420,000 unit
increase in the North America. And I think that this has attributed mainly
to North America and about the cost impacts. Well, roughly speaking, of
the 524.7 motorcycle or automobile, it's about 328 something.

But the supplier and also the wage increase, these are a negative,
included here, but the raw material cost, this is big. So, I said 360 billion
for automotive, but still, I think the raw material cost, this includes and
precious metal and steel, too, but it's about 190 billion or 200 billion. So,
this is the material they did. And so, this is a positive.

And the selling price increase, it's about 360 billion. And so, minus 200
billion. So, it's about 160 billion. That remains the cost increase, the
supplier and the wage increase, the cost increase factors are also factored
in.

And we believe that the price impact was that much. This is not just
North America, by the way, but for automotive, that is the situation.
Have I answered your question?

Thank you.

Hi. Thank you, Mr. Matsuoka.

Operator
Thank you very much. And I can conclude the press conference for the
financial results presentation today. And those slides and materials will
be available on our website. [Operator signoff]

Duration: 0 minutes

Call participants:
Toshihiro Mibe -- Director, President, and Representative Executive
Officer

Shinji Aoyama -- Director, Executive Vice President, and

Representative Executive Officer

Eiji Fujimura -- Managing Executive Officer and Chief Financial

Officer

Unknown speaker

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