But rest assured, the cash flow of our China operation is still positive. We’re just not able to get as much dividend anymore from it. So for the next couple of years, as mentioned previously, we are in the transition period until we get the new — five new Nissan-branded new energy vehicle and also the other new energy vehicle of Nissan brand. So we will be launching these new cars. So this year and next year will be sort of transition period until we get back to growth mode again. Second point is the production versus retail. Yes, you’re right. We are trying to, as I mentioned earlier, trying to adjust the inventory more to a stable level. Now that supply is no longer as big of a concern as it was the last few years, so we can go back to more efficient, stable production and hopefully keep a smaller amount of inventory.
And in the volume mix in here that you show in the step chart, actually its volume is positive contribution, obviously, because we have increased volume. The issue is the mix as we are trying to sell more EVs in the U.S. So, of course, we are not as profitable on the EVs as we are on the ICE. So as we are trying to reposition the area and also providing more leaves to our customers on a portfolio base is a negative to the mix. So that’s why you see a net negative here. But of course, selling more of these area leave will help us in overall Café and other compliance requirements. So this is net-net is beneficial for us. It’s just on this step chart will show up as a net negative on mix. Does that answer your question, Kishimoto-san?
Chie Kishimoto: Thank you. The second one. Yes. If so, there will be a positive side from the supply to the market. But if you increase the sales of BEV, this will be the negative impact. And BEV, LEAF, you are going to boost the volume of Nissan LEAF. Am I right?
Stephen Ma: Got more supply of batteries now, so we are able to sell more. And also, as you might have seen starting from March, we will qualify also partially for the IRA benefit subsidy for the LEAF. So we will be able to enjoy that. And of course, as you know, in the U.S. market, Café credit or Café requirements are escalating year by year. So by enriching our mix slightly, it helps us overall. So, net-net, from a business case point of view, it makes sense, and also it goes with our initiative to improve the electrification mix in our portfolio in the U.S.
Chie Kishimoto: That was clear. Thank you.
Operator: Due to time constraints, the next question will be the final question. Daiwa Securities, Hakomori-san. Please go ahead.
Eiji Hakomori: Hakomori of Daiwa Securities. I hope you can hear me.
Makoto Uchida: Yes. We hear you.
Eiji Hakomori: Thank you very much. I have two questions. First, on the same page, variance analysis, Page 23, sales performance plus JPY30 billion. What’s the backdrop to the estimate? It will be a year of intense competition. So we expected negative figures, but you are expecting positive contribution. Why? S&P credit rating is the second question. There was downgrading one year ago and one of your priorities was to gain back your rating, according to Mr. Ma. BB+ continues to be the rating against Nissan. So what is your thinking? And in actual business, has the downgrade had any impact? Could you update us on the impact from the ratings perspective? Those are my two questions.
Stephen Ma: Hakomori-san, so sales performance here, I think you’re referring to the breakdown below where we show the selling expense and pricing positive JPY30 billion. As you saw from Uchida-san presentation, we are launching several new models. As we’re launching the new models, they require less incentive. And also from last year, if you remember, last quarter, we had to spend a lot more incentive on selling down the old model year 2023 road. So we don’t have to do that if we manage properly going forward. Plus, we had a new model which required less incentive. That’s why you see a net positive JPY30 billion here.
Makoto Uchida: Pricing.
Stephen Ma: And pricing, of course, and pricing that of the new model, we are pricing properly. Thank you, Uchida-san. So it’s a combination of selling expense and pricing. That’s why it’s positive JPY30 billion. For the S&P rating, yes, obviously, given how well we performed the last couple of years and how much we progressed, we were hoping that S&P could alter their assessment of our rating and outlook. Unfortunately, we are working with them every quarter. We’ve been trying to convince them. So far, it’s more of a view of their overall sector that they have. That’s sort of holding us back. But we are still working with them. I’m hoping with this good result we have for the full year and Q4, as well as the outlook for next year, we will for sure talk to them again and work with them and see if we can increase it.
And of course, with them as having us a non-investment rate — rating, it had some impact on our cost of borrowing. But as you also saw from last year, we were able to get a Fitch also rate as an investment grade. So we’ve been able to offset. Sorry, so we’ve been working on this to work with Standard & Poor’s, and we will try to convince them that we are on a solid trajectory towards sustainable profitability and recovery. As mentioned before, we — like Nissan NEXT, we got to the profit level we wanted to. We ended up a little bit higher, 4.5%. Nissan NEXT, we said 4.2%. And in Arc, we said that now we will maintain this margin, slowly increase, but we want to grow because our scale should be much bigger than this. And when we get the scale, we should have better profitability.
So Hakomori-san, does that answer your two questions?
Eiji Hakomori: Yes. Thank you very much.
Stephen Ma: Okay. Thank you.
Julian Krell: So now we will close the session. Thank you very much for your participation today. The Nissan Investor Relations team remains at your disposal for any follow-up questions. Thank you and bye-bye.
