Honda Motor Co., Ltd. (NYSE:HMC) Q3 2025 Earnings Call Transcript

Honda Motor Co., Ltd. (NYSE:HMC) Q3 2025 Earnings Call Transcript February 13, 2025

Operator: Thank you very much for spending your time to join us here today. We’d now like to begin Honda Motor Company Ltd. FY 2025 third quarter financial results briefing. Allow me first to introduce the executives in attendance. Director, Executive Vice President, and Representative Executive Officer Shinji Aoyama.

Shinji Aoyama: How do you do?

Operator: The Director and Managing Executive Officer, CFO Eiji Fujimura.

Eiji Fujimura: Thank you very much.

Operator: Now, first, Mr. Aoyama will overview the FY ’25 third quarter financial results and FY ’25 full-year consolidated forecasts, followed by Mr. Fujimura’s explanation on the details. Mr. Aoyama, the floor is yours.

Shinji Aoyama: Thank you for your continuous support for Honda’s business activities. Thank you very much. And let me explain the financial results for the FY 2025 third quarter. First, let me highlight the key points. The FY 2025 third quarter cumulative operating profit was 1,139.9 trillion yen with an operating profit margin of 7%. In motorcycle business, sales volume remained strong globally and third quarter cumulative total was 15.5 million units. In automobile business, consolidated unit sales volume decreased by 297,000 units year on year despite solid sales in North America due to drop in Asia, mainly China. Operating cash flow after R&D adjustment, representing funding for future investments, remained at the same level year on year at 1,945 trillion yen.

The FY ’25 consolidated financial forecasts are unchanged, operating profit, 1,420 trillion yen; profit for the year, 950 billion yen. Motorcycle unit sales has been revised upward to a record high due to strong global sales. Automobile operations, mainly due to decline in Japan, is revised downward to 3.75 million units. However, due to rise in motorcycle sales and exchange rate, operating profit and profit for the year, forecasts remain unchanged. A resolution was made on December 23rd, 2024 to repurchase 1.1 trillion yen worth of company shares, 184.9 billion has been acquired as of January 31st, 2025. We will work to complete repurchase of 1.1 trillion yen in shares. Next, the situation in the major markets. Regarding motorcycle operations due to strong demand in India and Brazil combined with economic recovery in Vietnam, sales exceeded the same period last year.

Automobile business saw an increase in Japan and the United States, but due to the severe market environment in China, total sales dropped year on year. In Japan, sales volume in the third quarter was lower than the same period last year due to fierce competition among others. The cumulative consolidated financial results for FY ’25 third quarter is as follows: Operating profit increased by 63.5 billion yen year on year, totaling 1,139.9 trillion yen. Equity method investment profit decreased by 94.5 billion yen, a loss of 27.2 billion yen. Profit for the period attributable to owners of the parent company was 805.2 billion yen, down 64.3 billion yen. Consolidated financial forecast for the fiscal year ending March 2025. We maintain our previous forecast for both operating profit at 1,420 trillion yen and current profit attributable to owner of the parent company, 950 billion yen.

Exchange rate assumption is 152 yen against the dollar for the fourth quarter and full year. The forecast for the annual dividend remains at 68 yen unchanged from the previous announcement. Additionally, a resolution was made on December 23rd, 2024, to repurchase 1.1 trillion yen worth of company shares. As of January 31st, 2025, 184.9 billion yen has been acquired. Cumulative FY 2025 total of acquired shares is 472 billion yen. Mr. Fujimura will present the details of the financial.

Eiji Fujimura: I’ll explain the results of the third quarter regarding the cumulative unit sales until the third quarter, FY March 2025 of the group. For the motorcycle segment due to the year-on-year increase mainly in Asia, 15,508,000 units sold for automobile segments, due to decrease in Asia, mainly China 2, 817,000 units sold. And for power products segments, due to decrease mainly in Europe, 2,516,000 units were sold. Consolidated financial results of the cumulative three quarters were explained already. Next, I will explain factors of ups and downs of profit before income taxes of accumulative nine months year on year. Operating profit increased by 63.5 billion yen year on year because of the following factors. Regarding our sales impact, profit increased due to the rise in sales unit.

However, incentives went up and thus, the profit was squeezed by 104.3 billion yen. Regarding price cost impact, thanks to the pricing that commensurate, they improved the product values. Profit increased by 376 billion yen. Regarding expenses, due to incremental labor and subcontractor costs, profit squeezed by 54.3 billion yen. R&D cost increased, 97.5 billion yen downward impact on profit. And the currency effects squeezed the profit by 56.3 billion yen. Profit before income taxes were down by 38.9 billion yen because of the profit of equity method declined due to a drop of the unit sales in China and so on although operating profit itself increased. Regarding the operating profit by segment, 501.6 billion yen for motorcycle business and 402.6 billion for automotive and 244.9 billion yen for financial service businesses.

And power products and other businesses made losses of 9.3 billion yen. Next, the cash flows. Free cash flows from the businesses excluding the financial services businesses were 693.7 billion yen during the first nine months, cumulative of the FY March ’25. Net cash at the end of the quarter was 3.789 trillion. Operating cash flows after R&D adjustment were 1.945 trillion yen. Next, I’ll explain consolidated the business forecast of FY March 2025. Regarding the projection of the group’s unit sales versus the previous forecast, unit sales of the motorcycle will be at 20.6 million, mainly reflecting the increase in Asia. And the units of the automobiles will be 3.75 billion, mainly reflecting the decline in Japan. And those of power products businesses will stay at 3.66 million, same as the last forecast.

I’ve covered the forecast of the consolidated performance of the FY March 2025. Next, let me explain factors behind the changes in profits before income taxes, year-on-year basis. Operating profit will be up by 38 billion yen year on year. The breakdown of the differences will be regarding the sales impact, although the incremental unit sales will push up the profit, however, the higher incentives and so forth will squeeze the profit by 198 billion. Regarding price cost impact, pricing reflecting a product value improvement and so on will add a profit by 535 billion yen. Expenses will increase by 73.5 billion, squeezing the profit and R&D cost will increase by 125 billion yen, squeezing the profit, too. And the currency effect will impact negatively on profit by 100.5 billion yen.

Although operating profit itself increased, the profit before income taxes will drop by 177.3 billion, reflecting a decline in profit of equity method because of the reduction in unit sales in China. Next, let me explain the differences in comparison to the previous forecast. We will keep the same operating profit of the previous guidance, of which the breakdowns will be motorcycle sales will increase. However, the unit of automobiles will reduce, thus, the sales impact will squeeze the profit by 27.5 billion yen. Price cost will squeeze the profit by 15 billion yen. Expenses will increase by 5 billion yen, reducing the profit and the currency effects will push up the profit by 47.5 billion yen. Profit before income taxes will be expected to be higher by 30 billion yen, reflecting yen depreciation causing forex gains.

Lastly, this is a forecast for capital expenditures, depreciation, and R&D spending. And that concludes my presentation. Thank you very much.

Q&A Session

Operator: [Operator Instructions]. So the first question from Toyo Keizai, Mr. Yokoyama, please.

Unidentified Analyst: This is Yokoyama from Toyo Keizai. Can you hear me now?

Shinji Aoyama: Yes.

Unidentified Analyst: Thank you. I have two questions. First, about the full year, the four-quarters plan. The question is about operating profit, 410 billion yen, and you deduct the 280 billion yen for the fourth quarter. So what is the reason for the decline? And I’m asking the same question, I think it’s related to the expenses. But compared to the past plans, please talk about the risks and opportunities. And so that is my question. And I’d like to proceed to the next question. But in the interim announcement, you talked about the EV incentives to quite an extent. And I think it was a 100 billion increase from the original plan. After the third quarter as of February right now, North American incentive, how much increase are you seeing?

And are you seeing that the incentive costs are increasing? And I think of that, the consolidated for automotive is declining. So please explain about the incentives in North America. Thank you, Mr. Yokoyama, I think you’ve asked two questions. But first, about the fourth quarter plan, and — well, compared to the actual third quarter, you were asking about what about the fourth quarter? That was my understanding of the question here, but basically speaking that the fourth quarter, well, it’s the end of our fiscal year. And so what increases is especially the R&D area and also SGA. And because it’s the end of the fiscal year, there are a number of things that are paid out and delivered to us, and so there’s an increase in expenditure. And therefore, in the fourth quarter, it tends to be the SGA and R&D.

They tend to be, well, roughly speaking, one stage higher. Well, it’s 390 billion yen or a little less than 400 billion yen for the third quarter operating profit, but most of that is SGA and R&D. So I think that those are the main ones. What North American incentive-related items for slightly — and the procurement cost is, in some cases — in other words, the finance business I’m talking about here. The procurement cost is increasing, but that’s included. But it’s mostly the SGA and R&D that will explain the numbers for the fourth quarter. Now about North America and the incentive in North America, well, it has increased slightly now, but the procurement cost is slightly higher. And this is also reflected partially. And in total, I think that is just a marginal increase as a total that is.

Because we’re talking about North America on the whole and the incentives of North America on the whole, But the EV incentives, if you just focus on EV incentives in the second quarter in the first half, I said there will be for full year an impact of 100 billion yen. And just talking about that part, I do think that the number has slightly declined. In other words, we were able to reduce the incentives. But because of the sales unit volume and also the production, well, these are products being produced at GM and the production, there is an adjustment in the supply. And therefore, the final vis-a-vis the supply, there, we have tried to reduce the supply. And therefore, there is the need to make payments or discuss the possibility of making payments for compensation, etc.

And therefore, in the fourth quarter, these and things could turn out to be on the negative side. But right now, we don’t have any numbers at hand. And therefore, they are not reflected right now. But there are the possibility of such negative factors in the fourth quarter. Is there any additional explanation? Well, yes, about the fourth quarter. Well, to begin with, compared to the original plan, I think you were asking what it looks like right now. But for the full-year forecast, the exchange rate, we’ve changed it to 152 yen. But we still have 1 trillion, 420 billion operating profit and it has been covered, offset by the motorcycle. But — and it has not been fully offset with the automotive. And therefore for the full year, it — in fact the substance will be a negative.

But the third quarter, the motorcycle business did offset the automotive business, and there was the weakening of the yen and there was about 30 billion yen compared to the budget add on to — in the third quarter. So the full-year negative has more skewed — been skewed to the fourth quarter, and that is the difference between the last time and this time. That is all. Thank you.

Operator: Thank you very much. Mr. Yokoyama. Next question, Asahi Shimbun newspaper. Mr. Nishiyama, please.

Unidentified Analyst: Hi. I’m Nishiyama from Asahi Shimbun. Can you hear me?

Shinji Aoyama: Yes, please.

Unidentified Analyst: So thank you for the explanation. And I have two questions. First one, earlier, the question was already covering this point, which is automobile business profitability as compared to motorcycles. In a way, a motorcycle business is a very good. That is the factor behind. However, in order to improve the profitability of the automobile businesses, of course, there could be another separate discussion about business integration, so on, so forth. But what is your measures for improving profitability of the cars? And then in the last presentation and that time around, there was Trump’s administration, topics talked about a lot and then a tariff for Canada and Mexico is said to be risen. Of course it is frozen for a month, but we don’t know when it will be coming back again. And what is your measure against that? And once the tariff is in place, what is the impact on your businesses?

Shinji Aoyama: Thank you very much, Mr. Nishiyama. So the profitability of the automobile businesses, to start with a recent situation, the revenue for this year, looking at that revenue, of course, that may look a little lower, especially in comparison to the — that of a motorcycle business. However, in order to give you the precise answer, for instance, battery EV development cost and battery EVs sales volume is not so high in North America and in China. However, if battery EV businesses and those investment in the development for that is deducted from that, the remainder will be the ICE and hybrid businesses. And for that part alone, actually, the situation for that part is not so different from the previous term. The profitability is about 8% for that part.

Therefore, hybrid and then gasoline-based engine cars have profitability that is far improved from the previous situation. That is a kind of overall picture. And battery EVs, we are preparing for the business of battery EVs now, for instance, GM production. That was the starting point for North America. And then right next fiscal year, we are going to produce and launch the cars that we developed by ourselves in North America and U.S. And as of today, I wouldn’t say that that will be making a very good business right at the start. However, including the preparation for the next-gen cars, we are going to improve the businesses of the upcoming models, and we will spend the development efforts with investment which will improve the situation furthermore.

And then profitability of that will be businesses from this model year ’27 onwards. We already explained that in December last year, a next-generation hybrid starting around model year ’26 or ’27. And the hybrids are in those years, will be of a much higher profitability. And also, commercial values of those will be much better. And with them in place, it will improve the profitability of the entire businesses, including ICE cars and hybrids. And then Trump administration after the March 1st, the question is still hypothetical, I should say. However, if I want to try to answer your question squarely, thank you for your question, of course. So suppose in March 1st, 25% tariff is started if that comes in place. So the impact on the business, up until March this year, there could be perhaps a 20 billion plus impact.

That is the assumption as of today. However, it is a super short-term impact, right? Production in Mexico or Canada, we have those productions in there, and we will try to bring over those product from those two areas to the U.S. earlier, perhaps in February. And that is our actions in the short term. And in terms of the tariff increase, again, in the big picture, of course, every year, the situation is rather different. However, about one-third or higher than one-third of the businesses are using the airport components or a product brought down from Canada and Mexico. The remainder of the two quarters, two-thirds are produced in the U.S. Therefore, our second highest local content of the production of the vehicles next to Ford in the United States.

And the question is how effective would that policy will become? In fact, it is very difficult to visualize it. So at this moment, what we can do is to do something in the short term, which is about current production based on the current model mix and production in Mexico and Canadian factories. We could reorganize the mix, product mix of the production as well there. This is something we can do short term. But in a mid-term perspective, we could change the allocation of the multiple mix in different ways. We are preparing for that, too. However, we have possible actions and the consideration for short term, mid term, long term, so forth, but we don’t really give a go at this moment for any of the actions on the table today. So Fujimura-san, anything to add, please?

Eiji Fujimura: So again, the tariff is — so what is the approximate estimate of the impact based on the simple calculation based on the CBU complementary supplies. In the United States, we have the next to Ford sort of local content of the productions, meaning 60% of the products are produced in the U.S. We have some import from Japan as well, but 40% of those are supported from by the production in Mexico and Canada. And of course, those two countries are also dependent on the U.S., too. And at the moment, we are talking about the sales in our U.S. which pertains to the production in Mexico and Canada. And last year, it was about 550,000, and Canada is dependent on the U.S. for 40,000, and Mexico is dependent on 20,000. That adds up to 610,000 units.

And of course, that depends on the type of models. But suppose cost 30,000 for the cost of those cars and then 25% of the tariff to that amount of the money. That way, you can calculate the impact on the cars, plus you can think about others, like steels and aluminum, other miscellaneous materials and so forth. But that could be like a few digits or high end of the four-digit figures, I suppose, as much as I could expect as impact. And my colleague, Aoyama-san said about our short-, mid-, long-term measures actions and when should we trigger to start those actions. Of course, we have to watch carefully what’s going on then decide when to start with that. Thank you.

Operator: Thank you very much, Mr. Nishiyama. And next question, please. Yomiuri Shimbun, Narahashi, please

Unidentified Analyst: Narahashi, Yomiuri Shimbun newspaper. Thank you. About the motorcycle sales in Thailand is declining again from the last quarter. I think it’s due to market conditions. And what impact does this have on your automobile business? That’s my first question. And the second question about repurchasing your shares. Well, as of December, yes, there was the talk of the business integration with Nissan and based on that, well now that this has been scrapped. And what is the reason for continuing to do the repurchase?

Shinji Aoyama: Thank you, Mr. Narahashi. Well, about your first question, the impact on automotive business, right?

Unidentified Analyst: Yes.

Shinji Aoyama: Okay.

Unidentified Analyst: Yes. What is your outlook of the Thai market?

Shinji Aoyama: Okay. I understand. Motorcycle sales in Thailand, this year’s numbers compared to last year is quite low. That’s for sure. And this apparently is because of the credit, the difficulty in financing. And so that is the cause. That is clear. But about the motorcycle sales in Thailand, just looking at that toward the end of last year, we — well we are, for the low-income bracket, seeing that the income tax was refunded, and the Thai motorcycle sales was better. But still, it’s quite significantly low year on year. Now about automobile and related to the financing and difficulty to secure loans, I think this is continuing. And therefore, the market, both in the motorcycle and automobile market in Thailand, it has been on the decline for the past year or so.

So given such circumstances, however, as for motorcycle the business, well, the Thai market, we have an 80% market share. And therefore, we want to maintain this share and wait for the market to recover, should I say. And as for the automotive business, on a macroscopic level, the loan screening is very tough, and it’s difficult to secure loans. But in addition to that, for the automotive business, there are the Chinese OEM which are introducing EVs, and I think that this has had an impact. But for battery EV, within the market, about 20% or so are in the passenger vehicle segment EVs, battery EVs. So it’s not increasing, but it’s rather sluggish in Thailand, the battery EVs. But we also have been making efforts to sell BEVs, and we want to work harder next fiscal year.

About your second question about the repurchase of our shares and why we’re continuing to do so, well, to begin with on December 23rd, we announced that we will start consultation for possible business integration. And at the same time, this resolution was made and decided, but — and while the talks continue, we try to ensure that this will not comprise any insider trading. And therefore, that this reason why we had that resolution and made the announcement. But it was just a matter of timing. And so I’m talking about the size of the repurchase, and this is accumulation of from the past, and we want to optimize our equity ratio. And therefore, we believe that the timing at which this was resolved was just at the time when we were starting the business integration talks with Nissan.

But the size of the repurchase and the schedule of the buybacks, well, it was high time for us to do it. So it was just a matter of timing. But this was due to the need to optimize, and that was coming from the past. And we will continue to buy back, and nothing will change. Mr. Fujimura?

Eiji Fujimura: Well, let me add some numbers here. As of the end of December, our net cash, it was 3.8 trillion yen, and so it’s about 2.5 months’ worth from the beginning of the month. And due to the Lehman crisis and others we have experienced from that experience, one-month worth of cash is something that we want to hold normally. So — but against that it was at 1.5 months’ worth, rather. So it was 1.5 months’ worth, rather. And so we want to make appropriate our equity ratio. And so PBR, one fold. That was our target. And instead of holding cash at hand, we want to return to our shareholders. And therefore, we have decided for a buyback of 1.1 trillion yen. And as Mr. Aoyama has explained, this was not because of the business integration talks with Nissan. This 1.1 trillion yen program, once it is completed, we will have a one-month level of cash at hand. So we think that this is the appropriate level. Thank you.

Operator: So thank you, Mr. Narahashi. Next question from Mr. Noguchi, please

Unidentified Analyst: Noguchi from Nikkei. Can you hear me?

Shinji Aoyama: Yes.

Unidentified Analyst: Thank you. So motorcycle and automobile businesses are going forward. What is the concept or ideas for the operating profit for them? For the time being, EV development and SG&A cost is so prioritized, and automobile profitability is not growing, maybe suppressed a bit. And also, with the motorcycle businesses, you have electrification going on. So how much would that grow given the good marketplace, too? However, overall, if you have a mixture of the two businesses, do you think we can grow them together continually going forward? Or would that be suppressed a bit? Or are there any opportunities to grow, too? So that is the question.

Shinji Aoyama: Thank you, Mr. Noguchi. To start with the motorcycle businesses, in fact, it is for the automobile, too, the progress of battery EVs and the progress toward that, I think the assumption of that speed is one thing that we have to remind about. However, it is kind of difficult to anticipate the speed of that at this moment because of the North America policy situation, and the things are quite unclear now. However, let’s start with motorcycle businesses. Electrification of the motorcycles is, as compared to that of automobiles, we have investment on those for motorcycles. And the amount of the investment is not very big as compared to that of automobiles. With that, we are successfully electrifying motorcycles based on the past technologies of the engines and frames, and we are working on similarly with the battery EV.

We best combine the technologies and so forth. That way, we can have the restricted development across those successful. And then as we said with our automobiles, the battery EV costs for the cars is quite a lot. But motorcycle, it is not that much. And looking at the global motorcycle market today, I think we still have the way, the growth potential to in India; Brazil, in a short while. We still have markets there, the Philippines, Pakistan, Bangladesh, for instance. We still have lots of markets to grow into. In that regard, even when with the ICE engine-based vehicles, we will be able to maintain a high level of the profitability for the motorcycle businesses for quite a while. And for the automobiles, we covered that a bit in the first question, but we had the gasoline-based engines, including hybrids, which have the 8% profitability today.

And with the next-generation hybrid that comes in 2029 or ’27 or ’28, excuse me, those profitability will be growing into the two digits, above 10%, Therefore — so profitability for business of the battery EV, what would the business be like this situation. And we are going to launch battery EVs newly going forward. And of course, we will have improvement as compared to the current situation in the United States. However, as I said, currently, the visibility is quite poor. For instance, our income tax deduction so forth, we thought about LGES battery plants, so forth would be utilized with the assumption of a $7,500 reduction of the taxes based on the IRA. That was the original assumption. And now the question is what would become of eventually in this picture?

So we can’t really say what’s going to happen. Therefore, it is difficult to tell you the business outlook. But nevertheless, we’d like to maintain the high level of profitability with the ICE and current gasoline-based vehicles. In the meantime, with the battery-based EVs vehicles, we could be more flexible and be more flexible to react to the — any given circumstances as we go. Thank you very much.

Operator: Thank you very much Mr. Noguchi. Next question, please. From Mr. Mizutori from Japan Automotive Daily, please.

Unidentified Analyst: Mizutori speaking. Can you hear me?

Shinji Aoyama: Yes.

Unidentified Analyst: Thank you.

Shinji Aoyama: I think you’re muted now. We cannot hear you.

Unidentified Analyst: Can you hear me now?

Shinji Aoyama: Yes, please.

Unidentified Analyst: Thank you. The first question about China. So we see that there is a 40% year-on-year decline from April to December, and the year series, and that was thought to be promising. But there has been a bit longer time required for ensuring the quality. And therefore, locally, the HEV market seems to be developing. But how are you trying to make a recovery in China? That’s my first question. And about the number, I want to make some confirmation. The full year, the capital expenditure is 70 billion yen or so less, I think. So is this due to the revisiting of the exchange rate? Is there anything that you postponed in terms of your capex?

Shinji Aoyama: About — Mizutori-san, first of all, thank you very much for the question. Now first, about the ES series. Yes, the quality, well, yes, in the preparation for mass production, I think that we were a month or two behind schedule. That is for sure. But there wasn’t any significant problem. So from March to April, we will be launching. So I think that this is the current plan. But the MSRP, the final decision has not been made, MSRP. And the current market, including the incentives, the situation is quite tough. And what pricing we should adopt etc., these are things that we’re still looking into right now. Well, about the competitiveness, whether there is or is not competitiveness. As we are making announcements locally, the styling, the appearance, the interior space, design have all won a high appraisal.

So we have a high expectation for our models. But yes, first, the ES series, well, as we have been announcing in the past, the ES7, the ES series ES7, we’ll start with that model. And then the sedan GT will be launched. And then after ES7, this — well, we’ll have a three-row seat large SUV launched. So we are preparing this model, too. So this will be the series. And therefore, with this, we want to establish and expand the ES series. That is for the current battery EV plan. Meanwhile, as you know, the NEV ratio in 2024 calendar year, it was more than 46%. Next year, what will happen? Well, there are different views on this. So — but still, in that case, we are thinking 55% or more. So there will be an increase of new energy vehicles, But for the premiere hybrid, we want to go with that.

We want to use the current Accord and CR-V and the sister plug-in hybrid vehicles. And well, we have an incentive race right now, which is quite tough, so it’s not selling that much. But other than that, we think that, basically, next fiscal year — no, maybe the year after, as I said, the next-generation hybrid, we’ll start mass production in China. So it’s FY ’27. Yes, FY ’27. So at that time, it will start. And we want to sell these models, but the NEV ratio is increasing. And therefore, if there’s a 10% increase, then the non-NEV vehicles will decline. The market — the gasoline vehicle market will decline by more than 10%. This is something that we cannot deny. So next fiscal year and depending – well, looking at our unit sales, well, we have to assume what market changes will take place and put together a business plan.

Well, yes, and I think that with the NEV ratio increasing, we want to sell our NEVs. That is the opportunity that we want to capture. About the second, capex. So yes, the decline of 70 billion is not really a delay, But instead, it has been posted slightly. Well, what we are planning for the end of the fiscal year will be carried over to the next fiscal year, the beginning of next fiscal year. So that’s about the change that we are seeing. The specifics, can I disclose the specifics? The battery EV-related investment, Canada related, well there has been — not really delay, but we’ve just changed the timing.

Operator: Thank you very much, Mr. Mizutori. Next question from Nikkei Asia. Mr. Takei, please.

Unidentified Analyst: Hello. Takei from Nikkei Asia. Can you hear me?

Shinji Aoyama: Yes, yes.

Unidentified Analyst: Thank you. Two questions. First one is the U.S. market automobiles. In the United States, Trump administration has started and upcoming BEV sales. What do you think it — how it would be? And well, hybrid demand is good today, but how do you assess the current EV and hybrid sales situation? How would you address current situation? And the other question is Southeast Asian region hybrid and plug-in hybrid well accepted, very popular there, I heard. And do you have a plan to be more engaged in the businesses for them? So please share with us your assessment and how you are going to do about your businesses in there.

Shinji Aoyama: Thank you very much, Takei-san, for your question. So Trump’s administration started eventually. And then, as of now, well, the things keep changing minute by minute. But our stance is to stay flexible and be able to be agile in reacting to the situation. But as of now, Canada and Mexico and its tariff situation, the current interest point is around that. And aluminum and steel, tariff of 25% on those would provide some impact, of course. However, those materials, like aluminum or steels, it is not too difficult to find out our solution because we have quite a bit of procurement within the country in the U.S. A part of the our supplies could be from Canada, from Japan as well for aluminum and steel. However, I don’t think it is very difficult to address that situation of the tariff for those two materials.

But at 25% of this on our CBU from Mexico and Canada, if that tariff policy continues for over year, two or three years, for instance, the — it will be a difficult situation. So our action might be different, depending on how we would assess the upcoming situations like that. And as of now, like I said before, $7,500. How would that be eventually? And also, the state of California is having this ZEV regulation and how would that be changing under Trump administration, the ZEV and other regulation in California, In fact, from the multiyear ’26, we are to incorporate the ZEV requirements. And then under this regulation, we need to sell more battery EVs. However, given the current situation, it is quite difficult to achieve that requirement for the regulation.

And I wouldn’t say this is a perfectly linked with the Trump’s administration intention. However, the ZEV-related regulation will have to change as accordingly perhaps. But as for the hybrid, affordably priced hybrid, it can be available with a more variety for the choices of the consumers. That is what’s happening today as a fact. And in case of Honda, this year, about 400,000 hybrid cars to be sold in this fiscal year ending March ’25. And next year, it will be a little more — maybe a little less than 500,000 units of hybrid, we expect. Therefore, this year, we have a 25% of our hybrid cars out of our all types. That is our prospect for this year. And next year, 500,000 units in North America for hybrid. Therefore, in the global context this year, the world will be a bit less than China, a bit less hybrid over there, too.

But this year, I would say 900,000 hybrid cars for this current year. And next year, it will be more than 1 million. That’s our assessment as of today. And what is the benefit for Honda? I think that was your first question, I suppose. I didn’t understand your — the intent of your question, really. But about Southeast Asian countries, the demands for hybrid in Thailand and in Indonesian markets, the demands for that is surmounting. In Thailand, the hybrid ratio is growing, let’s say, 30% or so hybrid, I suppose. Indonesia, the competitor is going ahead, and we are a little behind. However, the ratio, out of the entire market, will be like, of course, with the battery EVs a bit growing, 6% in Indonesia, hybrid is about 8%. So out of the entire market, they are still a small percentage, and Honda is a little behind as of now.

But next year, we will be more aggressive launching and selling the hybrid cars in Indonesia. Thank you.

Unidentified Analyst: Thank you. I apologize for the unclear question, but when I talked about benefit, I was saying that we are seeing an increase in demand for HEV hybrid. And therefore, I thought that there might be an opportunity for Honda to sell more hybrids. So in that context, well, you said that there will be an increase in the United States of some 100,000 units. So I think that you have answered my question. Thank you. And one clarification, if I may. About the North America market, you said the ZEV regulation will become reality, but what is the realistic number? And also, the hybrid ratio, well, this fiscal year is 25%, I think. But next fiscal year, if it were to increase, what will be the ratio for next fiscal year? Can you add that explanation, please?

Shinji Aoyama: Yes. About the hybrid ratio, well, this year, it’s about 25%. Next fiscal year, there will be an increase of 100,000 in North America, but I think the ratio will be 35%, a little more maybe, about 35%, I guess. And about the ZEV regulation, I was talking about the industry on the whole, I think it will be difficult to achieve that regulation standard. But currently looking at the situation, the regulation itself might become something more realistic. That was what I was trying to say here. So I really don’t have any specifics to talk about here. We’re just thinking that the regulation might be loosened to a more realistic number. Thank you.