Panasonic Holdings Corp
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Panasonic Holdings Corp
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Good evening. Let me start my presentation on Panasonic's consolidated financial results for the third quarter. First, the summary. Overall sales increased year-on-year due to increased sales for information and communication applications in industry and automotive batteries and energy as well as the new consolidation of Blue Yonder, while sales decreased for consumer electronics in Japan of Lifestyle and automotive solutions of Automotive, mainly as a reaction to the strong demand in the corresponding quarter in fiscal '21.
Adjusted operating profit decreased largely affected by higher material prices, primarily in Lifestyle, including consumer electronics and air conditioning as well as such temporary negative factors as the impact of accounting treatment related to assets and debt reevaluation upon Blue Yonder acquisition. Profit increase for industry, energy and other businesses increase in sales, operating profit and net profit both declined.
For the full year forecast, adjusted operating profit is revised downward, reflecting the current environment of reduced automobile production, higher material prices and temporary factors mentioned above. Other income and loss is revised upward due to expected gains from the sale of assets and other factors. No change to overall sales, operating profit, profit before income taxes or net profit.
Now details of the consolidated Q3 results. This slide shows the consolidated results. Overall sales were JPY 1,889.8 billion, up 4% year-on-year. Adjusted operating profit was JPY 87.5 billion, down JPY 55.3 billion year-on-year. Other income and loss was down JPY 1.9 billion. Operating profit and net profit also decreased.
This slide shows the changes in segments. As explained in the Q2 earnings briefing, we shifted to a new structure on October 1, 2021, based on the new organization. This slide outlines the changes and how the businesses of the current segments are reorganized. Starting from today's briefing, I will explain based on the new segments shown on the right.
This slide shows the results by segment. EBITDA is shown on the right. The figure for Connect is adjusted, considering the impact of accounting treatment related to assets and debt revaluation upon Blue Yonder acquisition, as noted in notes. Details of sales and operating profit are provided in the next few slides.
First, sales analysis by segment. Overall sales increased with higher sales for information and communication applications of industry and automotive batteries of energy, despite lower sales of consumer electronics in Japan of Lifestyle and automotive solutions of Automotive as a reaction to strong demand in fiscal '21 as well as new consolidation of Blue Yonder. Lifestyle sales decreased overall, largely due to lower sales in Japan for washing machines with supply issues, cooking appliances impacted by fiscal '21, stay-at-home demand and other segment products such as TVs. Alternatively, sales were stable for consumer electronics, such as washing machines in China, commercial refrigeration and food equipment in North America and air conditioning in Europe.
In Automotive, sales decreased as a reaction to last year's automobile production recovery and continued impact of reduced automobile production, mainly due to shortages of semiconductors, parts and materials, but sales improved quarter-on-quarter. In Connect, sales increased driven by mounting machines with favorable market conditions of PCs and servers, projectors reflecting recovering trends mainly in the U.S. and Europe and the new consolidation of Blue Yonder.
Sales of notebook PCs decreased due to parts and materials issues. In Industry, sales increased with favorable sales of industrial-use motors, capacitors for ICG infrastructure and for automotive use and EV use relays.
In Energy, sales increased mainly with EV batteries and power storage systems for data centers despite the impact of the dry battery business transfer in Europe. Within other elimination and adjustments in Entertainment and Communications, sales decreased for such businesses as TVs as a reaction to the FY '21 stay-at-home demand and parts and materials procurement issues, such as semiconductors. In Housing, sales increased with the launch of new products for the new normal and accelerated digital marketing.
Next, operating profit analysis by segment. Overall, adjusted operating profit decreased, largely affected by higher material prices, mainly in lifestyle, such as consumer electronics and air conditioning as well as temporary negative impact related to assets and debt reevaluation upon Blue Yonder acquisition despite higher profit with increased sales of industry and energy. Overall, operating profit also decreased.
In Lifestyle, profit decreased despite increased overseas sales and such efforts such as rationalization at each business as a reaction to the FY '21 stay-at-home demand in Japan, higher material prices and the recording of temporary expenses. In Automotive, profit increased due to cost reduction efforts and the impact of recording temporary expenses related to onboard charging systems in FY '21, despite decreased sales and parts of material price.
In Connect, profit decreased with lower sales of notebook PCs due to parts and materials procurement issues as well as the temporary impact related to assets and debt revaluation upon Blue Yonder acquisition and others despite increased sales of mounting machines and projectors.
In Industry, profit increased with higher sales of industrial use motors, rationalization effort and others despite impact of material price hikes. In Energy, profit increased with higher sales of automotive batteries and power storage systems for data centers and others, despite the impact of the dry battery business transfer in Europe and other factors.
Results of Lifestyle by divisional company are shown here. All divisional companies posted a decrease in both adjusted operating profit and operating profit. Main factors are as follows: Living Appliances and Solutions was affected by a reaction to the FY '21 stay-at-home demand in Japan and higher raw material prices, while sales increased in China. To counter higher raw material prices, we are promoting gradual price revisions overseas and rationalization of parts and materials through a collaboration between China and Japan.
In Heating & Ventilation AC, profit decreased despite stable sales in Europe due to lower sales of the indoor air quality business, such as air purifiers and room air conditioners in Japan and material price hikes. To counter higher material prices, we will promote such measures as material replacement, including switching from copper to aluminum to the extent possible. Cold Chain Solutions were subjected by higher material prices, procurement issues and the recording of temporary expenses despite stable sales in North America. To counter higher material prices by such measures as price revisions in North America. To counter procurement issues, we are reducing the number of different parts.
In Electric Works, profit decreased due to parts and materials procurement issues in lighting and others and the impact of the fire incidents at suppliers' factories and electrical construction materials businesses. This despite increased sales overseas and reduced fixed costs. The impact of the fire incident is expected to ease from Q4, and we aim to achieve overall recovery through the price revisions of electrical construction materials overseas to counter higher material prices.
This shows Q3 free cash flow and cash position. Free cash flow was positive of JPY 4.3 billion, as shown on the left. This is due to the temporary deterioration of working capital mainly because of the external factors such as port congestion and increased inventories by strategically securing parts and materials. Net cash decreased to a negative of JPY 755 billion from JPY 194.5 billion at the end of fiscal '21, as shown on the right-hand side. The bridge loan of the Blue Yonder acquisition was already refinanced with JPY 400 billion in subordinated bonds issued in October 2021. These are in accordance with the financing plan, we explained at the announcement of Blue Yonder acquisition.
This explains the impact from Q3 changes in the business environment. The issues of factory lockdowns for COVID-19 are being resolved. However, we still face the lasting impact of raw material price hikes and shortage of the parts and materials, including semiconductors. This shows the impact on each segment by changing in demand, raw material price hikes and parts and material shortages.
The light blue areas show factors with a positive year-on-year impact. The pink area shows negative impact. The future outlook is indicated by the arrows. Lifestyle and Automotive are impacted by increased demand in fiscal '21. On the other hand, Industry and Energy are experiencing continuous favorable demand. As for raw material price hikes, Lifestyle and Automotive were mainly impacted. However, Industry and Energy were able to mitigate this impact by rationalization efforts and other measures. For parts and material shortages, including semiconductors, all segments except Energy were affected. We will take effective measures to deal with the changes in the business environment while continuing to assess the impact.
Next, I will explain the full year forecast for fiscal '22. This shows the consolidated financial forecast. Adjusted operating profit is revised downward and other income and loss is revised upward. Adjusted operating profit is revised downward by JPY 35 billion to JPY 365 billion, reflecting the current management environment, including reduced automobile reduction, production and the raw material price hikes and the negative factors, such as the impact of temporary accounting treatment upon Blue Yonder acquisition. Other income and loss is revised upward by JPY 35 billion to JPY 5 billion due to expected gains from sale of assets and other factors in Q4. Operating profit and net profit remain unchanged.
This shows the forecast by segment. I will explain the revision factors. In Lifestyle, the sales of forecast remains unchanged. However, adjusted operating profit is revised downward due mainly to lower sales of heating and ventilation AC business, price hikes of raw materials and logistic costs, procurement and production issues and recording of temporary expenses. In Automotive, sales is revised downward due to the impact from lower automobile production. Adjusted operating profit is also revised downward due to the increased impact from lower sales and parts materials price hikes.
In Connect, both sales and adjusted operating profit are revised downward due mainly to the impact of temporary accounting treatment related to the revaluation of assets and debt upon Blue Yonder acquisition. In Industry, sales is revised upward, mainly with higher sales of capacitors and other segment products. Adjusted operating profit is also revised upward due to the higher sales and fixed cost reduction through enhancement in management structure. In Energy, sales is revised upward due to yen's depreciation. However, adjusted operating profit remains unchanged for the forecast of October 28, with factored in higher raw material and logistic costs despite the effect of the yen depreciation. In other elimination and adjustments, adjusted operating profits revised downward. This is due mainly to lower sales in entertainment and communication caused by parts and material shortages and other factors and higher elimination for intercompany profits due to the increased inventories.
Other income and loss revised upward due to the expected gains from the sale of assets and other factors in Q4. This shows the forecast of Lifestyle segment by divisional company. Adjusted operating profits revised downward for all except Living Appliances & Solutions company.
Next is the financial results for the full year of the current midterm strategy based on the forecast I announced today. As you can see at the bottom, we have been enhancing our management structure, including the fixed cost reductions and measures to businesses with loss-making structures. We expect the profit contributions of JPY 130 billion during the 3-year period and to exceed our original target of JPY 100 billion. We have been experiencing huge changes in the external business environment, such as COVID-19. However, we have continued to enhance our management structure. Financial results in the current 3-year period demonstrates steadily improving profitability based on the today's forecast. We are continuing to take these initiatives in Q4, so we can go a step further with the new medium-term strategy starting from next fiscal year.
Finally, this shows our schedule for higher activities going forward. On October 1, 2021, we started our new structure based on the new organization. On April 1, 2022, Panasonic will transition to the operating company system and Group CEO, Kusumi, plans to announce our new strategy. In addition, in early June, we are planning to host IR Day event with presentations given by each operating company. Thank you very much for your attention.
[ Furukawa-san ] from Bloomberg.
Can you hear me, yes? Thank you. I have a question about the mass production of the new battery for 683. Anything that you can share with us today when and where would the new production facility be installed when would it become operational? And what is the investment about 4680 new battery?
For your question, 4680, we know that there has been a report -- speculative report about that. And the Wakayama plant building is currently being renovated. As far as 4680 battery is concerned, performance, satisfied prototype has been completed. So beginning to start the trial production for the mass production. That preparation will be made, and we will be using the facilities in Wakayama. We are renovating the facilities. As for the development milestone, generally, things are moving as planned. Specifics on such matters as when the prototyping line will become online, when would we start the mass production, we can't say for certain. But in the early part of fiscal '23, we would like to start the prototype production, start the operation of prototype line. That's about it for what we can share with you.
A follow-up question, the Wakayama plant. The prototype line will be built there for as a preparation for mass production. Am I correct? Another follow-up question. The new battery, you wanted to start selling to multiple customers, I understand. But initially, you will be supplying only to Tesla, am I correct?
Prototyping for mass production, we need to have a thorough verification for that, and we are assuming that Wakayama facilities would be used for that purpose. Of course, the prototyping and other R&D efforts are underway for mass production. That is being done elsewhere, not Wakayama. But the mass production line itself, it will be newly installed. And we are currently assuming that, that will take place in Wakayama.
As for sales elsewhere, as we mentioned at the last briefing, we are receiving some inquiries of our products, most probably for 2170 battery. As far as 4680 is concerned, we are going to have to conduct a thorough verification and there is a strong request coming from Tesla. So we'll, first, we will prioritize supplying to Tesla. Once all the verification is complete, I think that will be the overall direction.
Next [ Gen San from Denka Shimbun. ]
This is [ Gen from Denka Shimbun.] I hope you can hear me.
Yes.
As for the consumer electronics appliances in Japan. In Q3, sales and operating income, could you give us the comparison year-on-year comparison? And also the Lifestyle business, you mentioned that there was a reaction to the stay-at-home demand last year, and there were some of the factors mentioned. So vis-a-vis the competitors, are you losing to the competitors? What is happening to your market share in Japan? Also, based upon the performance, starting with Q4 and toward the next fiscal year, what kind of measures are you taking? And what are the prospect?
Well, first of all, as a whole, overseas, the sales were up. And in Japan, a different higher than 90% year-on-year has been the results. In the case of our company, in comparison to other companies, first of all, there is a perspective of market share. For each product, we are higher or lower vis-a-vis the others. But in Q3 at the introduction of the tram line, there has been some delay about the front-loading, and we are catching up with it. And that part in comparison to the competitors, the momentum was probably a little bit weaker.
As for the refrigerators, other companies are shifting toward the new products. And in terms of the market share, we are doing well. So I think we can maintain the good momentum there. As for Q4, the Lifestyle business, the biggest impact this time was due to the higher material cost. So how can we overcome that? Of course, the fundamental, for example, using the common parts and materials and also use of the materials from China. That is something that we're working on. In fiscal '23, we would accelerate that.
And as I mentioned in my presentation, the higher sales overseas and also the home appliances for overseas, we have started to revise the prices. As for the home appliances in Japan, of course, we will be continuing our own efforts. But at the different timing, by product in April and onwards, we will be reflecting some of the higher material costs to the prices of the products. So that is something that we are seeing about the current status of the lifestyle business.
Sorry, a point of clarification about the Lifestyle business in Japan, you mentioned higher than 90% year-on-year. So that is the home appliances in Japan. So air conditioners, is it included? What about TV, is that excluded?
Well, air conditioners, B2B is what we also have. So the Living Appliance & Solutions is mainly what I am talking about. As for TV, in the new segment, it is included in the entertainment and communication and sales of the TV is actually -- it goes through the Lifestyle segment. So in the divisional companies of the Lifestyle rather than if you look at the overall Lifestyle business, the major decline is in relation to the TVs and also the phones and proximity, which were affected by the shortage of the semiconductors. So that has been the reason.
Next [indiscernible].
Can you hear me?
Yes.
In the Lifestyle upgrade business, you said that sales were steady in China. The Beijing Olympics to start soon. Did it have an impact, for example, in areas other than Lifestyle update business. I wonder if you had seen any changes, plus and minus. That's my first question. And also, I understand that home appliances were firm in China and China business overall, we're doing well. And I think this would mean that PR promotional activities would be important. And I'm wondering if you have any plans for that, including those related to the Olympic Games?
The China business by product, there are differences. Some are doing better than others. Those that are doing better, washing machines, refrigerators especially the e-commerce or the net sales -- Internet-based sales are being strengthened, and we are seeing growth of over to double-digit growth. For air conditioners, that's not doing too good compared to our expectations in China. But overall, China business continue to be favorable. That's our China home appliances business.
You asked about the Beijing Olympic Games, Winter Olympic Games. We are one of the top sponsors because we support the Olympics charter, production mapping and for the comfort of athletes and the staff, we are supplying the home appliances and other products for the succes of the Olympic Games and the Paralympic Games in Beijing.
As for public relations and promotions, it will be up to the situation there, the local situation. So it's not about what we do here in Tokyo, rather the overall direction is that we're going to support the success of the games.
Next [ Lu San from Toyo Keizai. ]
This is [ Lu ] speaking. I hope you can hear me.
Yes.
Two questions. First is about the Lifestyle business, about production, in procurement of the parts and also there was some buyers. But I think that the profit came down mainly because of the higher material costs. But the sales are increasing, but the cost is higher than that. Or is there opportunity losses for some of the products and some of the supply is stagnated in some of the products, if you can elaborate on the differences of different products in Lifestyle.
Yes. About supply, it is true that in some of the products, in Q3, especially there was a lockdown for the COVID-19, but we are seeing some improvements there. So as of now, the front rolling type, we will be starting the new product in October. But due to our reasons the delivery, it took a longer time for the delivery. So the procurement of the parts and materials have been quite difficult. But in the market, we have been able to supply our products. So production is going on steadily.
As for the profitability, of course, that the higher price of the materials cannot be offset through the rationalization and making -- using the common parts. So that is affecting the profit level. That's all about the Lifestyle business.
Second question is about the cash flow. Capital allocation, medium term capital allocation, you said that it's going along with the plan. But I think there were some extra expenses. So maybe the cash level is a bit lower. So for the 4680, there has been the investment for the mass production. So is it -- is there -- for example, do you still think that you will be able to flexibly make the investment when the opportunities arise?
About the capital allocation policy, from the profit that we earn from our business, we would like to make the investment. And we want to make sure that we don't miss the opportunity for investments. So the timing might be a bit different, but we, for example, the sale of the assets or the acquisition of the assets, we will make sure that we seize the opportunity using the external fund. So that's our capital allocation policy, and we will continue with this policy.
And about the current cash level. The net cash and gross fund or gross cash, we have to look at both about the gross cash and the environment for procurement is not so good and not so bad. So we are being selective. At the time of the beginning of the COVID-19, JPY 1 trillion level gross fund was something that we considered for the stability. But now we can be more agile. So I think that the less than JPY 1 trillion is the current level.
But what about the resource for the investment?
Right now, we have about more than JPY 200 billion increase year-on-year. So total is a little bit higher than JPY 1 trillion. And of course, strategically, we have been increasing this. And this is one of the -- based on the resource allocation, this is also another investment.
And in the supply chain, I think that sometimes volatility increases. So when that happens, the material might increase and all the operating companies, whether we have them strategically or do we have an operational issue. We want to make sure we understand them. And so that we can normalize it. So this JPY 210 billion can be returned to cash. And we want to make sure that we do not miss the investment opportunity. So that's our way of thinking about the capital allocation. I hope that answers your question.
Next from [ Niko Kesai ]
I hope you can hear me.
Yes.
I have 2 questions. First, regarding the Q3 results. On a full year basis, well, profit decreased for Q3. For full year, I think you have revised the forecast downward. What is the factor? Was it higher material prices? And what about the progress of price revisions?
First, the Q3 results, did a downward revision for JPY 35 billion, basically, 3 factors that accounted for the revisions from the Q2 guidance. One is the temporary expenses. In the Lifestyle segment, about JPY 9 billion or so. And Blue Yonder, this is purely accounting reason. The purchasing price allocation, PPA, the goodwill and intangible assets and others. At the time of Q2, they were provisional figures, but now we have a more final figures. The acquisition value, cash and corporate value, they are not affected at all. But at the time of the acquisition only, asset should be recorded as the profit, and that amounted to over JPY 10 billion, but it means that more surplus. And so through P&L, we were thinking of making the profit projection. But due to the accounting reasons, they went to the surplus instead, and that accounted for the difference.
And another factor is the material cost and the distribution cost soaring. We are taking countermeasures, about half -- about JPY 8 billion, half of about JPY 15 billion, which cannot be made up for. The third factor, as we mentioned earlier, in the Automotive from the car manufacturers, we receive the demand forecast of the time. But due to semiconductor and other procurement issues, the automobile production volume had been reduced. The impact of which amounted to around JPY 7 billion impairment. And so overall, about JPY 35 billion downward revision.
And you also asked about the progress of price revisions. During the first half of the year, the material price increase was not that large, but the price revisions were not very significant either. However, for Industry, already measures we're taking from the first half of the year. Between Q3 and Q4, we don't foresee impact. That's how much progress we are making in terms of price revisions as far as Industry is concerned, in addition to the streamlining and other efforts.
And the same is true for Energy as well because the products or product prices are in line with the material prices. So for Q4, the -- maybe half of the impact of the raw material price increase, I think, would be accounted for about half that is for Q4. As for next fiscal year, what will be the impact of the higher raw material prices? Well, that is questionable. But overall, B2B trend is, as I explained earlier, for B2C, where we're still lagging behind, as was mentioned earlier, we have already embarked on the price revisions overseas. And for FY '23 from product to product, we will be translating the higher cost into the selling price. So there will be differences from business to business from company to company. But I think we are gradually moving into the phase of being able to account for the higher cost.
We are afraid that we are running out of time. So from [indiscernible] and [ Suzuki-san from Yomiuri Shimbun. ] Please limit the number of the questions to one question per person. [indiscernible]
One question about energy, the cylindrical battery profitability for Tesla. How much is that? In the Q2, you mentioned that you are getting close to 5% the raw material price is rising, and there is an impact of that. So what is the current profitability? And for the next fiscal year, what will be your prospect?
In Q3, the results in Energy segment sales, adjusted operating profit, Automotive, mainly for Tesla in terms of sales, 60% of Energy and 40% or plus in terms of profit. And there is an energy business for the industrial application. That is the opposite. That is 40% of the sales and 60% or less from -- of the profit. So 5% or higher level of profitability is secured in Q3 for the Automotive. In Q4, the similar trend is expected from Q3. But the logistics or distribution, we send the batteries from Japan, there has been some congestion at the port of the United States. And the electrolyte is also increasing in their prices. So there will be a timing of the delay that might impact our profitability. So the effect of the weaker yen was something that we had in Energy, but profit -- therefore, profit forecast remains the same.
Finally but not the least Suzuki-san from Yomiuri.
Just one question.
Yes, we can hear you.
About soaring of raw material prices. At the last briefing, you were expecting the impact of over JPY 100 billion on the annual basis. Looking at Q3, we still do not see signs of improvement. So I'm wondering if there has been any change to your projection of the impact of JPY 100 billion plus. And what do you think would happen going forward?
Thank you for your question. The soaring of raw material prices, we were expecting the impact to be over JPY 100 billion as we stated at the last briefing. Copper, steel, those are still remaining at high level price-wise today. So the current projection is maybe JPY 130 billion on a full-year basis. That's our current projection. We will be taking actions to make a recovery, but those -- that will not be fully covered, especially in the Lifestyle business.
And what's the projection for next year onwards?
The current price level, in Q1, Q2, already, the prices are higher compared to what they were. So on a year-on-year basis, this is not going to be as much as we saw for this fiscal year. But if the Q4 situation continues, we believe that there will be impact to be felt in Q1, Q2, JPY 10 billion, JPY 20 billion, the order, something in that order year-on-year is our current projection.
Now that's all for the Q&A session for journalists. Now we are taking questions from the investors and analysts. We are taking questions only in Japanese. Again, we are taking only Japanese questions. Hirakawa San from BofA Securities.
Hirakawa from BofA Securities. I have 2 questions. First, this time, you attached the Blue Yonder on Page 24. And if you look at the sales number, JPY 260 million to JPY 290 million, so 10% or higher increase. So I think that the sales are expanding steadily. But this acquisition, our EBITDA was more than 30x. So in making the projection, I think that the sales target, I think, worked higher. So about the sales growth, how do you evaluate the sales growth? That's my first question. The second question is about -- from April, you will be shifting to the operating company system and you want to sharpen and specialize your businesses. And you have already started the new organization from October. And so that for sharpening and specialization, what kind of effects are you seeing? And what kind of issues do you see? It's been a little more than 3 months. So could you talk about or could you share with us what you have observed so far?
Thank you very much. About the Blue Yonder, on Page 24. And also on Page 30, we have some additional information. Now sales of the Blue Yonder, the total -- in addition to the total sales, the recurring -- percentage of the recurring businesses, we believe is important, the recurring ratio. So if you look at that, -- at the time of the acquisition, what we intended to achieve, actually, we are trending at the higher level. And on Page 30, especially the percentage of the recurring business would increase. So the percentage of updating will be very high. So we will have a cumulative increase. So on Page 30, as you can see, this is what we are expecting as a growth of Blue Yonder.
So going back to your question, it might be weaker recently, but the percentage of recurring ratio is increasing. And for fiscal '22, the expected results is actually higher than what we expected originally. So that is the current status about the Blue Yonder.
So the second question, individual business and the sharpening and specializing, we are currently formulating the next medium term business plan. So what kind of changes we want to bring to the society in 10 years. And peaceful and the comfortable society is what we want to create. And based on that, we want to come up with the strategies. So if you are to feel those changes in the society, for example, the exposure to mass media, I think, is increasing by the head of each operating company. The leaders of the operating company. I think you're starting to see the phases of those management leaders. And if there are any missing parts or any areas to be enhanced. The demand for the capital or in addition to that, the operational capability improvements or optimization, we are starting to see some of the areas for improvements. So we are currently working on the next mid-term business plan. But how can we become more competitive in each business and also communication with many stakeholders, we are trying to have a more active communication with the stakeholders. I hope that answers your questions.
Next from Nomura Securities, Okazaki San please.
I hope you can hear me?
Yes.
My first question is on automotive battery. Q2, Q3 sales volume -- sales amount seem unchanged, whereas Tesla itself is increasing its sales and production volume. So can you explain that? Should we -- is it fair to say that it has already hit the ceiling, the limit. So it's not going to change for quite some time? Or is it the port congestion issue? Now regarding Cold Chain and Northeast China and Northeast Asia companies seem to be suffering. Were there any temporary factors? And why is it that the profit is declining in China despite rather robust sales.
Thank you for your questions. First, regarding Tesla. Q2, Q3 changes. The port congestion issue had, had an impact, and that is impacting the inventory as well, the inventory at sea. So Tesla is pushing us for earlier delivery, very strong pressure.
And also in relation to COVID-19, the employees who are reporting to work and others are being affected, the production itself is to be continued on a full capacity basis. But on a quarter-on-quarter basis, the factors that I mentioned are impacting some ups and downs. But the profitability itself over 5% is being secured. And 38 gigawatts, towards that volume, we are going to increase the operating rate. We are at that -- or Tesla is at that stage.
Regarding the profitability, profit level of our Lifestyle business, if you can look at Slide 8, you can see that the China and Northeast Asia company, the Asterisk 3, says impact of temporary expenses included and the minus JPY 9 billion in the China and Northeast Asia compared to the previous year. Almost all of that is in relation to this temporary expenses. The Air Conditioning, Heating Ventilation Company, China business and Cold Chain Solutions business are also being undertaken by the China and Northeast Asia company as well. So those are being double counted, so to speak.
Ezawa San from Citigroup Global Markets.
I have 2 questions. First is about the semiconductor and parts shortage and the higher prices of the materials. Once again, I'd like you to explain this. Earlier, JPY 130 billion was mentioned. So this fiscal year, for the full year as a plan, gross impact on the operating income, how much do you expect? And how much can you -- do you think that you can recover to reach JPY 130 billion? And of course, there are reasons why you cannot achieve the sales target. And what is the impact on the sales?
In addition to that, you mentioned that the impact in the next fiscal year, JPY 10 billion, JPY 20 billion, there could be some worsening effect. I think you said that. Could you explain what you meant JPY 130 billion is the effect that you expect for this fiscal year? And then you expect additional JPY 10 billion to JPY 20 billion in the next fiscal year? Is that what you meant? So that's my first point. The second point, maybe you already explained this. In Q4, other income and loss, you mentioned that there is a planned sales of the asset. So what is it? And how would it happen? If you can share with us some additional information on this?
Yes. So JPY 130 billion in comparison to that, the price revisions as a whole, about 1/3 of it for the full year, we believe that we managed to make the price revisions. So in each operating company, of course, there are some differences, as I mentioned. But as a whole, that is the impact that we see. Also, as for the impact on sales, especially the semiconductor issue, in terms of yen, it's difficult to say. But for the Automotive, downward revision is reflected. So in Automotive only like JPY 30 billion to JPY 40 billion, that is the change that we are seeing.
And how much of each business, it's difficult to explain. But as one of the phenomenon, that's something that we are seeing. As for the second point, for the next fiscal year, JPY 10 billion to JPY 20 billion in addition, it's difficult to say at this moment, but this year, in comparison to the last fiscal year, the higher material cost, the impact was JPY 130 billion higher, and we are trying to recover that. And we have recovered 1/3 of it with the price revision.
And for the next fiscal year, in terms of the gross yen level in Q1 and Q2, the impact was smaller. But in -- if the Q4 level continues in Q1, Q2 next fiscal year, so maybe the gap or the difference would be what we expect in the Q4 -- Q3 and Q4, we see the higher numbers. For example, copper per ton $12,000. If that goes up to that level, maybe it would change. But if the current Q4 level continues, in Q1, Q2, we will see some differences, but it's not going to be the gross impact, but rather through the price revisions and rationalizations, we can offset some of it. So I'm not talking about the profitability per se. So that's my answer to your first question. And as for the asset sales planned for Q4, this is the proceeds from the gains from the sales of the assets. And of course, we have to consider our counter-party. So I cannot disclose their names or details.
We're getting close to the time, but I think we can entertain one more question. From Crédit Suisse, Nishimura San please.
Just one question. In Energy, the future profitability. For Q4, the distribution costs was mentioned and you expect a decline year-on-year. How about for next fiscal year, with the launch of new battery as well as necessary investment to be made. How would the profit change year-on-year? Anything that you can share with us at this juncture?
In Energy, for automotive and industrial applications. The difference would come from the automotive applications. For 4680, well, current 2180 and 18650, they are more stable. The current models 2170 and 18650 are stable. So next year, we will increase the volume gradually to recover the cost investment made so far. Regarding 4680, prototyping for the mass production will be verified and associated development cost is being projected. Next year would be a combination of the investment recovery phase and the development phase. I think that would account for the overall profitability of the batteries, although this -- I could only respond in terms of qualitative aspect.
With this, we conclude the earnings briefing for Q3 of FY '22. Thank you very much for your participation.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]