Panasonic Holdings Corp
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I will now present the consolidated financial results for the first quarter of fiscal 2024 ended June 30, 2023.
This is the summary. First, the impact of U.S. Inflation Reduction Act, IRA on our financial results and forecast. Although the detailed rules have not yet been determined. An amount equivalent to the IRA tax credit is recorded in Q1 as adjusted operating profit. Details are explained in the next slide.
Next, the results for Q1. Overall, sales increased year-on-year on increased sales in Automotive, Connect and EV batteries and through currency translation. Despite largely decreased sales in Industry, adjusted operating profit increased overall on increased profit in Lifestyle, Automotive, connect and Energy despite decreased profit in Industry.
Net profit increased considerably, mainly due to recording of JPY 121.3 billion for deferred tax assets and other factors with the liquidation through special liquidation of PLD, Panasonic Liquid Crystal Display as well its debts waiver, which was resolved by the Board of Directors as announced separately today. Operating cash flow increased year-on-year due mainly to efforts to control inventories and improvements in working capital.
For the full year forecast, group-wide net profit is revised upward, reflecting the considerable increase in profit in Q1. Group-wide sales and multi-step profits all the way to profit before income taxes remain unchanged. The forecast by each segment also remains unchanged from the initial forecast announced on May 10.
First, the impact of U.S. IRA tax credit. As explained at the earnings briefing on May 10 in FY '24, we are assuming to elect refundable tax credit method to monetize the tax credit. In addition, we are considering the idea of investing the IRA tax credit in our EV battery business in the U.S. as well as its effective use with our customers towards strengthening and expanding our EV battery business in North America. Accordingly, we recorded half of the total tax credit as adjusted operating profit. The amount recorded for Q1 is shown in this slide.
For sales, minus JPY 24.2 billion is recorded as a deduction based on an accounting treatment for the amount to be effectively used with customers. This is a change from our previous assumption in the full year forecast, details are shown in the upper right box. Initially, we assumed to record the tax credit as expenses of provision, whereas for Q1 results, we recorded the amount of tax credit as deduction of sales.
While the method of effective use with customers remains undetermined the revenue recognition standard is applied. Therefore, we recorded the deduction of sales of JPY 24.2 billion according to the following calculation: minus JPY 22.5 billion or half of the tax credit for Q1, together with minus JPY 1.7 billion. This JPY 1.7 billion is derived by applying multiple-year accrual accounting to JPY 20 billion, which is half of the JPY 40 billion recorded in net profit in FY '23 Q4.
For AOP, we recorded JPY 20.8 billion after the deduction of JPY 24.2 billion. That is the equivalent amount to be effectively used with customers from the JPY 45 billion of the tax credit in FY '24 Q1. The impact on net profit is JPY 26.8 billion, which includes JPY 6 billion of deferred tax assets. The full year forecast remains unchanged at this time. Now the details of the consolidated financial results for Q1.
This is the consolidated financial results. Overall sales increased to JPY 2,029.7 billion, up 3% year-on-year. Sales in real terms on constant currency was -- were at the same level year-on-year. Excluding the negative impact of IRA tax credits, sales in real terms increased by 1% year-on-year. AOP increased to JPY 92.8 billion and OP increased to JPY 90.4 billion.
Net profit considerably increased by JPY 152 billion to JPY 200.9 billion. This is due to the recording of deferred tax assets and other factors with the liquidation through special liquidation for PLD as well as its debt waiver resolved by the Board of Directors.
This slide shows results by segment. The year-on-year variance analysis for sales and operating profit are shown in the next slides. First, sales by segment.
In Lifestyle, overall sales decreased due to the deconsolidation impact of part of businesses in China, while sales increased for the priority business such as HVAC, system electrical construction materials in Japan and showcases in North America.
In Automotive sales increase due to recovery in automobile production. In the Q1 of the previous year, automobile production had been affected by Shanghai lockdown and other factors.
In Connect sales increase due to favorable sales in avionics, reflecting market recovery in the aviation industry, increased sales in rugged mobile terminals and notebook PCs as well as sales growth of SaaS business in Blue Yonder, despite decreased sales of process automation caused by investment slowdown for PCs and smart phones.
In Industry, sales decreased due mainly to the downturn in market conditions for ICTs and FA in China as well as the impact of changes in semiconductor sales channel resulting from the business transfer in FY '21 despite increased sales of capacitors for green vehicles.
In Energy, overall sales increase in real terms, excluding the impact of IRA. As for in-vehicle, sales increased due to favorable sales and production with continuously growing EV demand and improved productivity. For industrial and consumer sales decreased due to weakening market conditions.
Within other elimination and adjustments, sales of both entertainment, communication and housing decreased due to the impact of weakening market conditions.
This shows our adjusted operating profit analysis by segment. In Lifestyle, profit increased due to higher sales in HVAC system, electrical construction materials in Japan and showcases in North America and rationalization and price revision efforts to offset the increased fixed costs mainly for higher production and strategic expenses.
Automotive profit increased due mainly to higher sales price revisions to counter price hikes in parts and materials and cost reduction efforts despite higher fixed costs for increased production and personnel expenses and persisting impact of price hikes in parts and materials, particularly for semiconductors.
Connect profit increased due to higher sales in avionics, rugged mobile terminals and notebook PCs and Blue Yonder despite lower sales of process automation.
Industry profit decreased due to lower sales affected by the downturn in market conditions, despite price revisions, rationalizations and the effect of weaker yen.
In Energy, overall profit excluding the impact of IRA decreased due to much lower sales of industrial and consumer. However, in-vehicle profit increased due to higher sales, normalized balance of material prices being reflected in sales prices and the impact of IRA despite higher fixed costs.
This shows the result of Lifestyle by divisional company. In heating and ventilation AC company, both sales and profit decreased, due mainly to lower sales in room air conditioners in Japan impacted by weaker aggregate demand. Excluding this, both sales and profit increased. As for air to water in European market, we are facing a temporary slowdown in demand due mainly to a decline in new housing construction, reflecting economic downturn, lower gas prices and changes in subsidy schemes in some countries. However, looking at the medium to long term, decarbonization initiatives in Europe remain unchanged, and we expect a gradual recovery.
This shows our operating profit analysis by factor. From the left, profit from sales expansion increased by JPY 9 billion. Fixed cost were a decrease factor of JPY 26 billion. This is due mainly to investments in Lifestyle and Energy aimed at business growth. Price hikes in raw materials and logistics were a decrease factor of JPY 20.5 billion (sic) [ JPY 30.5 billion ]. On the other hand, the current effect of price revisions and regionalization efforts was an increase factor of JPY 42.3 billion. By looking at other individual factors, the impact of IRA was an increase factor of JPY 20.8 billion and higher profit of Blue Yonder was another increase factor of JPY 5.3 billion, the breakdown, but AOP of Blue Yonder is shown here on the down right.
The effect of exchange rate was an increase of JPY 6.2 billion, mainly seen in Industry and Energy as a result. Adjusted OP increased by JPY 27.1 billion. Operating profit increased by JPY 26.7 billion.
This shows a situation of cash flow and cash position in Q1. On the left, operating cash flow was JPY 226.6 billion, increasing year-on-year. This is due mainly to efforts to control inventories, improvements in working capital. As for inventories, despite a temporary seasonal increase, we will continue to reduce inventories toward the end of fiscal '25, mainly by revising the strategic inventory level. On the right net cash was minus JPY 537.5 billion, improved from the end of fiscal '24 (sic) [ '23 ].
Next is consolidated financial forecast. This shows the consolidated financial forecast for fiscal '25. Net profit is revised upward by JPY 110 billion to JPY 406 billion (sic) [ JPY 460 billion ] from the initial forecast of JPY 350 billion, reflecting the considerably higher profit in Q1. Sales and multi-step profits down to profit before income taxes remain unchanged from May forecast. Accordingly, the EPS revised upward to JPY 197.8 (sic) [ JPY 197.08 ] and ROE is revised upward to 12%, respectively.
While the forecast by segment remains unchanged, we envision some changes in demand from our initial assumption at the beginning of fiscal '25. It shows the latest outlook on changes in demand. changes from the May assumptions are highlighted in the boxes and the situation differs by segment. For example, in Connect, aviation demand shows higher-than-expected recovery. However, Industry demand recovery for ICT terminals is expected to be delayed. In addition, we cannot see signs of full-fledged recovery in China's FA market. We will carefully monitor the situation and then decide whether it is necessary to revise the forecast by segment from the next results announcement and onwards.
Finally, the business portfolio. It shows our initiatives to carry our business portfolio management, which group CEO, Kusumi, explained in the group strategy briefing held on May 18. From this fiscal year, we will proceed with management initiatives considering the revision and replacement of business portfolio towards shifting to growth base. As Panasonic Holding Corporation, our aim is to provide all stakeholders with benefits and to increase the value of the group.
To achieve this, we will make a decision by looking at 2 types of criteria. The first is relevance to the group-wide common strategies. The second is the market position and competitiveness. Based on these assumptions, we will set the direction of the revision in the current fiscal year and execute the decisions accordingly. Thank you very much.
Furukawa-san from Bloomberg.
This is Furukawa from Bloomberg. I hope you can hear me.
Yes, we can.
I have two questions on energy. I'm looking at 2 Page about IRA tax credit for Q1 and we see an increase by JPY 5 billion over the amount in Q4 of the previous year. Is this a onetime thing? Or can we expect this to continue?
If the tax credit is expected to increase in Q2 onward, on a full year basis, although you are expecting JPY 140 billion -- JPY 160 billion, could this increase? Another question, in addition to Mazda, Subaru today announced the collaboration with Panasonic on EV battery. Should you expect further supply in-vehicle battery going forward? I think it will be more efficient to produce in Japan. What's your plan?
Thank you for your questions. JPY 160 billion on a full year basis and JPY 45 billion in Q1, multiplied by 4 would be JPY 180 billion. So JPY 130 was our original assumed exchange rate, but it was JPY 137 to the dollar in Q1. And also, if you can look at star 3 on Page 2, $35 per kilowatt hour by 9.4 gigawatts, you can see that formula shown as star #3. So for -- we want -- 9.4 gigawatt hour. We are seeing improvement in productivity, and therefore, we saw a good progress. But there was a major impact from the exchange rate as well. So on a full year basis, the actual amount we have not changed for now. But should we see further improvement in productivity and should be any changes to the exchange rate assumptions, there is room for upward revision. That is one thing that we might be looking at in Q2. That's the answer to your first question.
Your second question about Subaru. Yes, we made a joint press release today. Already from many OEMs, we have been receiving various requests. And we have been involved in consultations as we have been reporting to you. And should there be an agreement, we would be making that announcement, it's the policy that we have been sharing with you. And it is along that line that we made the press release today.
In addition to Mazda, Subaru is now on our customer list. And we have -- we are committed to the stable supply and as is shown in the press release, Subaru is going to be using the batteries at their Gumma plant, which is located in Japan, of course. And currently, a 50 gigawatt global capacity. So 38 gigawatts in the U.S., 12 gigawatts or thereabout in Japan in terms of our capacity. So of course, we will be considering what is the best efficient way of supply.
So keeping in mind what the customers are doing, we will be planning our capacity expansion as well as where best to supply from. No final decision as of this point.
We'll take the next question, Hirashima-san from Nikkei.
This is Hirashima with Nikkei. Two questions, please. So this time, the net profit is at the record high in terms of number. So what is your reaction to that? And also in relation to IRA and what you announced today, the PLD, excluding those, what will be the progress so far? And you mentioned that there could be some possibilities in the future. So could you tell us your reaction to this?
And the second question is about the PLD. This was something that you announced in the past, but this is the liquidation. So what kind of message should we receive from this announcement in relation to the liquidation of the PLD?
About net profit. Yes, at the beginning of the fiscal year, we announced that the JPY 350 billion, and this included the major impact of IRA, so the highest profit was expected. And this time, it just coincided with the timing that in fiscal '23, the liquid crystal -- the responsibility of the supply has come to an end. So this business of PLD has come to an end. So now we have been studying whether we can liquidate PLD. And as a result, it is a highest profit. But regardless of that, we have had a cruising speed, and we have been steadily improving the profitability, and that is something that we will continue to do.
So as of now, even if we have achieved the highest record, it doesn't mean that we are very satisfied with that. We are not that excited about this at this moment. So as for the IRA and the PLD, excluding those impacts, what is our take on that. So IRA is effective in terms of AOP. And in terms of PLD, this has to do with the impact on the income tax. So excluding those, it will be on track with our initial forecast at the beginning of the fiscal year.
Earlier, we mentioned that we might consider the revision that is in Q2 and that is the differences among the different segments. And in Q2, whether to make such a division will be decided. And as of now, we think that we are on track with our original forecast. As for the PLD, the message from this is that in fiscal 2020, we mentioned that we will withdraw from this business and supply responsibility is something that we have been fulfilling. And Toyota, we are working together with Toyota for the prismatic battery, and this has become a factory to manufacture the prismatic battery. So rather than having the message, this PLD business has come to an end. So as a result, we are liquidating this business. And other than that, there is no additional message from this. I hope that answers your question.
From Toyo Keizai Shinpo Sha, Menaki-san please.
Menaki from Toyo Keizai. I hope you can hear me.
Yes.
In your response earlier, you talked about the different impact by segment, especially in Lifestyle, life appliance -- lifestyle appliance and HVAC did not perform well in Q1. Can you elaborate on those businesses? That's my first question.
And I think you briefly commented on this. But if you exclude the impact of IRA, maybe not much difference from the previous year. So compared to your initial assumption, you said that the performance were more or less in line with your forecast. But could you elaborate on that?
Difference by segment. Page 13 is intended for that purpose for HVAC, the negative figure. This was especially in relation to the room air conditioner in Japan. Last year, in June -- a very hot June last year. Whereas this year, currently. We are suffering from extreme heat now. But up until June, we had a rather mild weather in Japan, that is and starting from the beginning of July, entirely different phenomena. In the previous year, we had cooler days in July, whereas this year, as you know, we are suffering from real heat every day in July.
So currently, the total demand for air conditioners in Q1, 60%, 70% was the level, whereas starting in July. 1.3x, 1.5x is the growth that we observed and demand. So Q2, we're only looking at one month, July, but we believe that we can catch up, make up the difference. Another factor that I'd like to comment on, another weakness is air to water. In Q1, compared to the previous year, slightly slower in sales, especially in Poland, the gas prices subsidies are beginning to be provided. So gas systems were regarded as a better cost.
But the situation is different from country to country. For example, in Germany, the situation is quite different and Czech Republic and Hungary, those countries have a severe winter, but they have posted increase year-on-year. So overall, decarbonization is the major thrust and we have not been able to supply enough to satisfy the demand. So we will be expanding our capacity. That is for HVAC.
Another question -- compared to last fiscal year. On Page 9, you can see the variance analysis in operating profit, the fixed costs have increased quite substantially. Strategic investments have been made, including air to water and in Energy, about JPY 300 million, excluding IRA impact, the profits in in-vehicle did not take place, JPY 18 billion is related to strategic investments. About 1/3 of that is in relation to energy. For example, 4680 in Wakayama and Kansas plant, new 2170 lines. We are accelerating the development investments in those sites, and those are having impacts on the profit. That is due to the strategic investment, but that is included in our initial plan, and that is the reason why I said that our performance is more or less in line with our projection.
We'll move on to the next question, Sato from Nikkei Asia.
This is Sato from Nikkei Asia. I have two questions in relation to IRA. First of all, about the tax credit, JPY 45 billion in terms of AOP and JPY 24.2 billion for the use with the customers. So the reinvestment in North America was something that we had an image about. But maybe this is because of my lack of understanding. But JPY 45 billion, the whole amount will not be reinvested. Just a part of it will be reinvested. And the remaining is posted or included as AOP. Is that correct?
And also JPY 24.2 billion, the impact of the IRA tax credit to be effectively used with customers. So what is the purpose of the use? Is it mainly the investment in Nevada the state of Nevada or not?
Thank you for your questions. And first of all, this IRA tax credit, based on the law, we are to invest in the United States. So half of that is something that we will use to invest in North America. And also another thing is about joint development or the working of the Tesla, this comes from that. So together with the customers, we have to effectively utilize this amount. So that is something that we plan to use in the United States. But rather than using it as a discount in relation to the IRA concept, we want to promote the green energy, and mutually, we will be considering that. So that is how we plan to have -- use this.
So JPY 24.2 billion has not had any impact in terms of cash flow. So when we monetize this, the use will be determined. So the -- based upon the ordinary procedure, the monetization will happen in fiscal '26 time frame. So this time, we have booked a negative number in terms of sales. But in terms of the bottom line, this would be same as a provision. So we have not yet monetized this, and therefore, we have not yet used it, to answer your question. So the JPY 45 billion, all of them will be reinvested in the United States, but part of it is something that you would use in working with Tesla or -- together with Tesla.
From Reuters, Leussink-san please.
My name is Daniel from Reuters. I have a question about the forecast by region in Q2 onward, especially in Industry segment, the Chinese market, what's your projection for the Chinese market? And together with the global economic situation, do you expect the recovery in China as well?
Thank you. You talked about Industry. As you can see on Slide 13, mainly due to the situation in China, we are feeling the impact, and that is our projection. Those in black boxes are the additions this time around. For example, the first one in Industry, the recovery expected -- could be pushed back asset for server data centers, it will be lower than in the previous year.
And some other negatives, the FA market in China with no sign of flash economic recovery. So given these factors, the economic forecasts -- current economic forecast is that it's going to be worse than our initial projection. Some good signs would be the expanded demand for generative AI. That's something that we expect in Industry in capacitors and electronic infrastructure or the board -- the slate -- the substrate would be the products that are relevant. The high-quality and -- our quality are expected for capacitors.
We don't expect the demand to result immediately, but most probably in FY '25 onward. So overall, compared to the initial forecast, we are afraid that Industry in China in particular, might be more challenging.
It seems that we have no other questions from journalists, so we would like to end the Q&A session with journalists. So now we'd like to take questions from analysts and investors. Once again, we are not taking questions in English. To repeat, we are only taking questions in Japanese.
Goldman Sachs Securities, we have Harada-san.
Harada of Goldman Sachs Securities. Two questions. So first is about the Blue Yonder. So based upon the disclosed information from Q4 to Q1, the sales are up, but the profit is flat. So I'd like to know the background behind that. So recurring sales are on the rise. So I think that the profitability should improve. But you mentioned that the strategic inventories and probably that had some impact. So I'd like to not whether that is the case.
The second question is in Industry. Yes, in China, you are faced with some difficulties and you're not seeing the full-fledged recovery there. And in terms of Industry from fiscal '25, you expect to see some recovery. And from your perspective, the recovery timing of the Industry, is something that I'm interested in knowing.
And about the generative AI, you mentioned that in the next fiscal year, it might start, so specifically, what will be the expected impact from the generative AI, if you have made any calculation on that. So those are the two questions.
About Blue Yonder, in May, when we had a strategic briefing session of the Blue Yonder, Duncan our -- the Blue Yonder CEO, explained to you that fiscal '24, there was a cloud business investment, so that's what he explained. So this investment had a certain impact on the performance. So as Harada-san said, that is the current status that we have.
So about the breakdown of the Blue Yonder on the supplementary or the reference in the quarter. And on Page 25, we are showing some details. And here, it shows the KPI of the progress of Blue Yonder. So when you look at this like that, It's based on the Duncan plan, and we are progressing based on that.
And in the May briefing, as Higuchi said, if we stop the investments, the profitability could go up right away. So we want to make strategic investments so that -- we would like to continue to look at those four KPIs to see the progress. So Harada-san, your understanding is correct.
And as for the second question, the Industry, during the fiscal '24, we are faced with some difficulties, and we are -- have made the -- we expected that the recovery will happen in 6 months. But then this situation lingers after 6 months. So as an Industry as a whole, we see the same trend. So after fiscal '25 and onwards, we expect to see the recovery. And that is something that we expect at this moment.
As for the generative AI server, specifically, what will be the demand? And what would be the inquiries that we get from the customers? And rather than talking about other calculations, we want to make sure that we have materials and components which are suitable for the coming demand. We want to make sure that we make improvements to accommodate such demand. So we believe that this would be a major market but in terms of time span, it's not going to be right away. So in fiscal '25 and onwards, we expect an increase of this market to emerge.
Next, Ayada-san from JPMorgan.
Ayada from JPMorgan. I have two questions. First, on Energy. I'm looking at Page 5 of the supplementary materials. The industrial and consumer rather slow and recovery to push back to the second half, you said. So for the second half alone, to make up for the slowdown in the first half seems to be difficult, meaning that on a full year basis, too, maybe the Industry consumer should expect a rather difficult year. And if that's the case, for Energy, the in-vehicle, I think the market is very vibrant, but given the constraints on the part of your capacity, so if consumer industry is slowed down, do you think in-vehicle can make up the difference? Or is that too optimistic? That's my first question.
My second question on Automotive. The in-vehicle cockpit system for Q1, I think the progress was rather high compared to last year. Is this just a onetime thing? Or can we expect this to continue in Q2 onwards?
In Energy, the ICT Industry consumer. We are expecting similar trends as Industry, so rather challenging forecast. Our initial forecast has been rather challenging as well. So would there be any downward -- downside to that is something that we need to pay close attention to. As for in-vehicle battery, last year, due to the higher prices of the materials and we had a time lag in the price revision. But now we have been able to catch up with that and that's the current situation. And we are making the strategic investments and that is the reason why we are not seeing a big increase in profit.
But productivity will be improved and in addition, the IRA -- well, with the higher productivity, IRA amount is going to increase as well. And the foreign exchange impact will be something that we'll be paying close attention to as well. So overall, whether we can keep up with the regional forecast is something that we're going to pay attention in Q2.
Something surprising was JPY 20 billion out of JPY 40 billion, JPY 1.7 billion in the first quarter x 4, 4x altogether, which would amount to around JPY 7 billion. So how can we make up for that? Catch up with that? Is something that you might want to keep in mind. It's not that we don't have any visibility, but we like to make up the difference for Energy overall. Of course, we'll be looking at the details in Q2.
How about Automotive?
Right. Automotive, the infotainment, the in-vehicle electronics. Last year, due to Shanghai lockdown, the components, materials supply was disrupted, affecting our production. And we are recovering from that. That's a major factor.
Semiconductor. For example, if you can look on Page 13, the difference by segment. Semiconductor has yet to really catch up. But part in other words, the environment is improving partially.
So in Q1, was there a special profit that we recognized?
Well, price increase and the component prices have increased, have been reflected in higher selling price on our part as well. So last year was difficult. That's one factor. But in Q1 of this year, was there a special factor? Not really. We are seeing a recovery in the supply of components, and we expect this to continue. Overall, in Automotive, we are seeing a rather strong impact, strong reaction.
Next, Yasui-san from UBS Securities.
Thank you very much. I have two questions, please. First, about the air conditioning and horrific quality. It seems that you started off rather poorly. I think that in Lifestyle, the highest growth was expected. So how do you plan to catch up in the Q2 and onwards? Today, Mitsubishi Electric made announcement. And they're doing well in their business. So could you talk about Japan as well as overseas?
Second question is about the Blue Yonder and strategic investments. So JPY 8.4 billion for the year and the JPY 600 million in Q1. So the remaining 9 months, JPY 7.8 billion so how do you allocate that in coming 9 months? If you can explain that?
Yes. Thank you. About the air quality and air conditioning. The reason behind the lower sales and lower profit is that the room air conditioner in Japan, especially in Q1, [ 67% ] of the previous year. And the Industry, I think that the performance has been similar to that. But as for July in Japan, we have seen a good trend. So in Q2, we expect the opposite. So we expect a positive performance in Q2. So I think that the -- as for the room type air conditioner in Japan, we should be able to catch up in Q2.
As for the air to water, the subsidy change -- subsidy scheme change happened and this subsidy scheme, it's not something that was changed all of a sudden. But in Germany, for example, the nuclear policy -- due to the nuclear policy, there is a tailwind for air to water. So there are differences among the different countries. So this is something that we'd like to we see, and we do not believe that the medium- to long-term trend has changed. So we want to make sure that we look at the full year trend. So that is about the air quality and air conditioning. We started off poorly, but we expect improvement.
As for the Blue Yonder strategic investments, originally, increasing the head count and doing the R&D is something that we have been doing in May. So in Q1, this is what we expected but -- that's an image. In Q2, we expect the increase in Q3 and Q4, the high level will continue. So for full year, JPY 8.7 billion -- or JPY 8.4 billion is something that we expect. So the investments is something that we will make sure we make that will lead to the future growth. So it does mean that we are lagging behind in Q1 but rather in Q2 and onwards, we expect growth. So those are the numbers that we will see in the near future.
Sorry. Air to water, you mentioned that there are differences of the regions. But in -- for the full year, you expect a good trend in the air to water, is that correct?
Yes. As for the Poland market, this was the major factor in Q1 due to the subsidy scheme change, that there was an impact. But Europe -- there are different countries in Europe, there are strong countries. So the growth of the air to water for us, in Q2, we expected the higher sales. So in terms of our direction, air to water trend, of course, depending on the quarters, there could be some differences. But in terms of the overall direction, the steady growth is expected, and that has not changed.
Next from Citigroup Global Markets Japan, Ezawa-san please.
Ezawa, Citigroup Global Markets Japan. I have two questions. First, on IRA, on battery business. Just as said in the earnings briefing that IRA benefits will be divided 50-50 with Panasonic. Looking at your figures, though, JPY 1.7 billion excluded as a special factor. Still, the gross amount that you will be receiving and half will go to Tesla and Tesla will be receiving the $10 tax credit, so total would be $45, so that's more than 50-50 for Tesla. So 70%, 75% going to Tesla and Tesla receiving -- and Panasonic are receiving 30%. With that formula continue going forward and also IRA, I think the sales interruption was the way you record it. So I think this is going to make it appear as if that is used to finance and fund the price discount. Would that be fair?
My second question, PLD production or the PLD liquidation. Sanyo, I think, still remains and so for the photovoltaic panel, solar panel, are you going to be liquidating that as well? If not, why is it?
Thank you for your questions. First, regarding IRA impact. The Tesla portion, I think you're referring to Section 30D portion. That's something that would benefit the end users. So to what extent would you call the Tesla business is one question, but it does not go to Tesla. It will go to the end users, the customers, the consumers that as for 45X, the total amount welcome to Panasonic, from which we'll decide how to divide with Tesla based on our consultation. And in light of the IRA policy, we will be deciding on the application and monetization. And therefore, the actual use would be in FY '26 onwards, and that's when we'll be looking at the details.
Not to fund the price discount because the money will first come to us, so it will not be used for that. EV battery production and sales related, for example, supply chain enhancement and production facilities improvements and chemical plants, there are many options. Together with Tesla, Panasonic will work on the effective use of this tax credit in light of the spirit of IRA. So what is it used for today? Well, we are not using it yet. So we will be using it, not for the price discount, but we'll be deciding how best to use it.
And regarding PLD liquidation, and you talked about Sanyo. Yes, that's true. Sanyo, as you know, is the general electric appliances company. So very different from PLD because PLD was engaged in the single line, the specialized business, dedicated business. So no overseas operation, et cetera. Whereas in the case of Sanyo, the operations still continue in China and others through the joint ventures and other affiliation. So there are partners that we have to keep in mind, and there are many after sales services that we have to keep in mind as well as legal aspects and tax aspect.
So it's different, the liquidation of PLD is different from Sanyo. Once you make the decision, we were able to work on liquidation in the case of PLD, but that's not the case for Sanyo. So the nature and the size of the businesses are very different. And therefore, we have yet to see any visibility in the liquidation -- possible liquidation of Sanyo.
Thank you. You talked about 30D and 45X, different sections. Battery module production is performed by Tesla, and therefore, it is receiving $10, whereas in the case of Panasonic, $35, and so altogether, $45 per kilowatt hour for Tesla for the plant itself. And you're not going to be dividing that 50-50?
Well, details have yet to be decided. Many different consultations are underway in parallel. You are correct. $35 per kilowatt hour is the amount that will come to Panasonic and $10 to Tesla under 45X. And so we'll keep all the factors in mind and we will be expanding them after the money comes to us, which would be FY '26 onwards.
We have many people wanting to ask questions, but we are coming close to the end of it.
So I'd like to like to take questions. Ono-san from Morgan Stanley MUFG Securities.
Ono from Morgan Stanley MUFG. I'm going to ask one question. In relation to IRA, the accounting treatment, I'd like to make a clarification. So earlier, Mr. Umeda said that we would -- you would decide on the use of tax credit and that would happen after the cash in fiscal '26 and onwards. But actually, booking in terms of the profit and loss -- so for example, in terms of the reserve, I think that it's possible to book it in terms of assets. So if there are gaps, quarterly gaps, you'll be able to book it, for example, in Q1, JPY 22.5 billion, but in Q2 and onwards, there could be some reversal and there could be some increase that type of accounting or booking is possible.
And if it is only after fiscal '26, you mentioned that the higher profitability and the higher volume aside from that, those factors, it will be almost fixed or no change in Q2 and onwards. Could you clarify on that point?
Well, the -- I think there is an image of giving discount, but this really has to do with the accounting procedure. So IFRS -- based on the IFRS, if there is no clear application, the -- it will be deducted from the sales. So we cannot use it as a reserve or provision. So we have considered the reduction from the sales. And in terms of accounting, so for example, the fixed cost -- sorry, the tangible cost, it will be similar to that.
So in Q2 and onwards, as you asked, aside from the volume, would there be any changes? No, if the productivity goes up, it would increase. And if the production stays the same, the same amount will be processed in terms of the accounting treatment. So based on the accounting rule, it will be handled. And that how we would like you to understand it. So the application of the use of this is not yet finalized or is not decided.
The last person, one question from Mizuho Securities, Nakane-san please.
Nakane from Mizuho. One question, I understand. So electronics device in Industry is the focus on my attention. If possible?
The first quarter or the Q4, the first quarter and Q2, Q3, especially the capacitors, what is the utilization rate of your production facilities? And maybe ratio. What is the current market situation?
And also for Q1, the operating profit compared to your original plan, how short, how much were you short of the plan? Or was there no shortage.
Looking at Slide 13, you are describing various market situation, ICT [ bad ] server recovery and Automotive, not bad. So overall, is the Industry -- so what is the situation, especially Q2, Q3, Q4 be? Do you think Q1 would be the bottom JPY 4.3 billion. And sequentially, I think you are expecting recovery. So could you give us some clues for that recovery?
Electronic devices, overall, on this slide, on Page 31. As you can see, mechatronics, industrial device solutions, these are the businesses that are included, are all facing a rather challenging situation. The Automotive applications, not that bad, but the automotive industry in China is part of our customer base. And so Automotive is not affected by the situation in China, but Industry is affected by the auto market in China, especially electric vehicles.
They are doing well. But EVs, well, the applications are broad in China currently rather than electric vehicles, the gasoline vehicles inventory, we understand are in the oversupply situation. So we will be watching closely the policies -- related policies, which indicate that it could going to be rather challenging going forward.
So compared to the plan, how are we doing? Well, we are lagging behind the plan. That's our impression. So can we make up? Can we recover from this? As we indicated on Page 13, different situations for different industries. We expect the rather uncertain situation to continue for some time. I think we need to have a better visibility in Q2. I think there is downside risk somewhat. So in terms of profit, we can't give you the figures, percentage, but rather difficult challenging situation, I think you are describing this rather correctly.
So with that, we'd like to end the fiscal 2024 first quarter financial results briefing session. Thank you very much indeed for your participation.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]