Panasonic Holdings Corp
TSE:6752
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Panasonic Holdings Corp
Earnings Call Analysis
Q3-2024 Analysis
Panasonic Holdings Corp
Despite challenging market conditions and the impact of inflation, the company has succeeded in increasing sales and profits in the third quarter of fiscal 2024. Notably, higher sales in the Automotive and Energy sectors, along with positive currency translations, have compensated for declining sales in the Lifestyle and Industry segments. Adjusted operating profit grew, with contributions from Lifestyle, Automotive, and Energy sectors, offsetting lower profits in the Connect and Industry areas. This enhanced profitability reflects the company's ability to optimize pricing and implement cost rationalization measures effectively.
Looking ahead, the full-year forecast for the group remains consistent, signaling a stable outlook. However, revisions at the segment level reflect the dynamic business environment. Automotive sales and profits are set to rise, benefiting from a gradual recovery in automobile production, while Lifestyle faces downward revisions due to weaker market conditions in Europe. Connect sales are also expected to see an uptick, capturing demand for aircraft and PCs. In Energy, sales forecasts are higher, particularly in North America, though profits are slightly down due to operational issues in Japan.
Delving into the quarter's financials, sales climbed to JPY 2,180.9 billion, a modest 1% increase year-on-year. Excluding the impact of the U.S. Inflation Reduction Act (IRA), the figures still depict a revenue uptick, underscoring the company's core strength. Operating profit surged by JPY 43.1 billion, while net profit followed suit, bolstered by improved finance income and expense management amid higher interest rates. These improvements occurred despite a slight decline in constant currency sales, highlighting the company's formidable financial management in the face of adversity.
The robust performance in certain business segments propelled overall growth. In the Lifestyle segment, burgeoning sales in cold chain and electrical construction materials were somewhat offset by weaker HVAC and consumer electronics demand. The Automotive segment rode the tailwinds of increased customer production, and the Energy segment enjoyed a boost in industrial and consumer sales, capitalizing on the burgeoning market for data center energy storage systems. Despite headwinds in Factory Automation and ICT infrastructure, sales rose in Energy's vehicle branch.
A notable year-on-year improvement in operating cash flows to JPY 598.3 billion illuminates the company's operational efficiency, partially stemming from significant inventory reductions. Enhanced yet stable net cash positions hint at disciplined capital management, further evidencing the company's financial strength.
The company is poised to cultivate its growth further through strategic partnerships and initiatives in pivotal areas. A case in point is the recent alliance with the Italian manufacturer INNOVA, specializing in advanced HVAC solutions. This partnership aims to inject innovation through IoT-based products, enhancing energy savings and customer value. These developments underscore the company's commitment to evolving with market demands and maintaining a trajectory of long-term growth.
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I would like to go over the consolidated financial results for the third quarter of fiscal 2024. These are the highlights. Regarding the U.S. inflation Reduction Act or IRA, the accounting treatment is the same as in the first and second quarters. Proposed rules for Section 45X was released last December, but there are no major changes to the contents.
Next, the results for the third quarter. The sales and profit increased even excluding the IRA impact. Overall sales increased due to increased sales in Automotive and currency translation despite lower sales in Lifestyle and Industry. Adjusted operating profit increased overall on higher profit in Lifestyle, Automotive and Energy, despite lower profit in Connect and Industry. Net profit increased mainly on above factors as well as improved finance income and expenses. Operating cash flows for 9 months significantly increased year-on-year due mainly to reduced inventories.
For the full year forecast, the group-wide forecast remains unchanged. The partnership with Apollo regarding Panasonic Automotive Systems business announced in November is not factored into our forecast. By segment, the forecast are revised, reflecting changes in each business environment. In Automotive, both sales and profit are revised upward. While in Lifestyle, both sales and profit are revised downward. In Connect and Energy sales are revised upward.
First, the impact of the U.S. IRA tax credit on our financial results and forecast, the accounting treatment and items remain unchanged since the first quarter. The amount recorded for the third quarter and full year forecast are shown on this slide. The full year forecast remains unchanged.
Now the details of the consolidated financial results for the third quarter. For the consolidated financial results, the sales and profit increased. Overall sales increased to JPY 2,180.9 billion or 1% year-on-year. Sales in real terms on constant currency decreased slightly by 2%. Adjusted OP increased by JPY 40.2 billion to JPY 126.1 billion, and operating profit increased by JPY 43.1 billion to JPY 127.5 billion. Profit before income taxes and net profit both increased due mainly to the above factors and an improvement in finance income and expenses on higher interest rates. Even excluding the IRA impact, profit increased as shown on the right.
Results by segment are as shown here. Variance analysis for sales and OP are shown in later slides. First, sales analysis by segment. Lifestyle sales decreased overall due to lower sales in HVAC and weakening demand in Europe. Lower sales in consumer electronics, mainly in Asia and China and the partial deconsolidation of the China business, despite continued steady sales for cold chain in North America and electrical construction materials.
Automotive sales increased on recovery in automobile production of our customers. Connect sales increased in Avionics, Gemba Solutions and Blue Yonder, despite lower sales in Process Automation.
Industry sales decreased mainly due to market downturn for factory automation in China and ICT infrastructure, despite higher sales for capacitors for green vehicles and capacitors and multi-layer circuit board materials for generative AI servers.
In Energy, in-vehicle sales decreased due to lower production and sales at Japan factory despite favorable sales with stronger demand and improved productivity in North American factory. Industrial and consumer sales were up, driven by energy storage systems for data centers with expanding generative AI market, despite weakness in batteries for consumer products and power equipment. In other eliminations and adjustments, lower sales for entertainment and communication and housing due to deteriorating market conditions.
Next, adjusted OP analysis by segment. Lifestyle profit increased mainly on higher sales in cold chain and electrical construction materials and recording of temporary expenses in the previous fiscal year despite lower sales in HVAC and consumer electronics.
Automotive profit increased due mainly to higher sales, price revisions to counter higher parts and materials prices and rationalization efforts. This, despite increased fixed costs and persisting impact of higher parts and materials prices. Connect profit decreased due mainly to lower sales in Process Automation and higher strategic investment of Blue Yonder, despite higher sales in Avionics and Gemba Solutions. Industry profit decreased due mainly to lower sales affected by the market downturn.
In Energy, in-vehicle profit increased due to higher sales in the North American factory and improved balance between raw materials and selling price despite lower sales at Japan factory and higher tax cost -- or higher fixed costs. Industrial, consumer profit increased due to higher sales of energy storage systems for data centers with expanding generative AI despite lower sales of batteries for consumer products and power equipment.
Lifestyle results by divisional company. Sales and profit decreased for Living Appliances and Solutions and HVAC, while sales and profit increased for Cold Chain Solutions and Electric Works.
Next, operating profit analysis by factor. From the left, decreased sales in real terms pushed down profit by JPY 7.4 billion. The increase in fixed cost pushed down profit by JPY 7.5 billion (sic) [ JPY 17.5 billion ] due mainly to investment in Energy for business growth and impact of inflation. Impact of price hikes in raw materials and logistics turned to a positive of JPY 2.4 billion. Positive effect of price revisions and rationalization totaled JPY 43.2 billion. As other individual factors, impact of IRA was positive JPY 22 billion, and negative impact of decreased profit of Blue Yonder was JPY 6.8 billion. The breakdown is shown on the bottom right. The effective exchange rate was positive JPY 4.3 billion, mainly in Industry and Energy. As a result, adjusted OP was up JPY 40.2 billion and OP was up JPY 43.1 billion.
This slide shows cash flows and cash positions for 9 months in FY '24. On the left, operating cash flow was JPY 598.3 billion with a significant increase year-on-year due mainly to reduced inventories. Going forward, we aim to further generate operating cash flow by improving profitability and reducing inventories and others. On the right, net cash was negative of JPY 502.8 billion, improved from the end of FY '23.
Next is the consolidated financial forecast for FY '24. This shows the consolidated financial forecast. The group-wide forecast remains unchanged from October 30, 2023. However, the forecast by segment are revised, reflecting changes in business environment. Details are explained from the next slide.
This shows the full year forecast revision by segment. Let me explain the major factors for the revision. In Lifestyle, both sales and profit are revised downward due mainly to deteriorating market conditions for HVAC business, mainly in air-to-water heat pumps in Europe and the downturn in market conditions for consumer electronics in overseas markets despite steady sales of the cold chain and electrical construction materials.
In Automotive, both sales and profit are revised upward due mainly to gradual recovery trend in automobile production and higher sales. In Connect sales are revised upward due mainly to capturing demand for aircraft as well as for PCs, both in Japan and overseas, profit remains unchanged by factoring in the risks of the delayed market recovery in China.
In Industry, the forecast remains unchanged. In Energy, sales is revised upward. For in-vehicle sales, the sales is revised upward due to higher sales at North America factory. However, the profit is revised downward. The sales price increase and compensation claims to our customers, such as for utilization were lower-than-expected concerning the Japan factory's reduced cell production for high-end EVs in North America. Additionally, there were increased expenses related to the manufacturing process issues in the past. For Industrial and consumer, both sales and profit were revised upward due to increasing sales of energy storage systems for data centers.
This shows the forecast for Lifestyle segment by divisional company. I'll explain the major factors for the revision. For Living Appliances and Solutions company, both sales and profit are revised downward due to the following major factors: For overseas sales decreasing in China; and for Japan, deteriorating market conditions and delayed share-improvement of the products, including washing machines.
For HVAC, both the sales and profit are revised downward due to significantly deteriorating demand for air-to-water in Europe as well as lower-than-expected sales of room air-conditioners and Indoor Air Quality or IAQ businesses. For Cold Chain Solutions Company, Electric Works Company, both sales and profit are revised upward due to steady sales trends.
Next is the situation of HVAC system business in Europe. I will explain the changes from Q2. The upper chart shows our European sales trend on the right-hand side, growth slowed down each quarter and turn to a year-on-year decrease in Q3. The major factor is the changes in air-to-water business environment shown in the middle. As of October 2023, we assumed an improved market condition by second half, considering the restart of the subsidies and gas price trends. However, neither factor pushed up the demand and the total annual demand is expected to decrease significantly year-on-year. Accordingly, our sales forecast is revised downward.
Although the current market conditions are challenging, given the ongoing transition to carbon neutrality in the society, this is a business area where we can expect long-term growth. We will continue our efforts in strengthening our business towards the future.
As shown at the bottom, on February 1, 2024, we announced a capital and business alliance agreement with INNOVA, an Italian manufacturer. This company has a strength in cutting-edge product development and offering of customer value using IoT solutions. With this agreement, we aim to create unique value with IoT-based coordination and control devices for HVAC equipment as well as with improved energy saving and comfort. Also, we aim to expand the customer value through sales expansion of products equipped with natural refrigerants and sales collaboration with our partners.
Finally, some updates of the progress in our initiatives for 3 growth areas. In the automotive battery business, Energy signed an agreement to purchase silicon anode material with U.S.-based Sila Nanotechnologies, Inc., aiming to strengthen supply chains in the U.S., FTA or free-trade agreement countries.
In the supply chain management software business, Blue Yonder completed the acquisition of U.K.-based Doddle, a leading technology company focused on returns management, toward enhancing its end-to-end solutions.
In the air quality and air conditioning business, as mentioned earlier, a capital and business alliance was signed with Italy-based INNOVA toward creating unique value. Currently, some businesses are affected by the changes in the business environment. However, we are continuing to take necessary actions towards medium to long-term growth. We'll respond flexibly to the changes in the business environment and always continue to enhance our business competitiveness towards future growth.
And with that, I'd like to end my presentation. Thank you for your attention.
Nikkei, [ Ando-san ], please.
[ Ando ] from Nikkei. First, my question is on Panasonic Industry. In addition to the UL certifications, the ISO certifications have been suspended temporarily as was announced today. I sure you're looking into the details of the impact. But what is the likely impact on your full year forecast? Is there a possibility of making the downward revision as a result of this incident?
First, the UL irregularities have caused significant inconvenience to our customers and all the stakeholders. I'd like to take this opportunity to apologize for the inconvenience and the concerns raised.
Let me answer your question. As of today, impact on our financial results, was your question. What we can estimate now, the amount is already incorporated in the Industry forecast that we disclosed today. And to most of our customers, we are directly explaining the situation. And we have been accused significantly. The safety performance in others of our products are explained fully to our customers.
And regarding the actions going forward with the consent of our customers, we will proceed with the shipments and the recording of the sales. So as of now, what would be the impact on this fiscal year's results, we currently do not expect material impact. Certain related costs have already been incorporated in our forecast. Was that helpful?
Yes. My second question. Electric Works, especially the electric construction materials are presenting a very strong positive. So regarding this strong business of this electric construction materials, what are the factors? Can you elaborate on that?
Electric Works Company. In Japan, lighting fixtures, especially not for individual customers, but for commercial facilities. That part of the business is proceeding very strongly. And overseas market, where the company is focusing on in Turkey and in Vietnam, in those countries.
The electric construction materials are enjoying strong business. Since last fiscal year, various actions have been implemented and price revisions, price hikes have been proceeding with the understanding and the consent of our customers, and that has translated into a strong business. Was that helpful?
We'll move on to the next question. [ Umewaki-san ] from Toyo Keizai Shimpo.
[ Umewaki ] speaking. I have 2 questions. First of all, about the sale of PAS, what is the current status? And through the sale, how would you use the proceeds? What is your plan if anything has been decided?
And the second question is about the forecast for next year. Without the P-A-S or PAS, the Lifestyle and others, there are many segments which are suffering. So concerning IRA, there is a risk of the -- Trump becoming the President again. So it's very difficult to forecast. But what is your view? You can probably give us some guidance from the qualitative point of view.
Yes. already about the Automotive business, the agreement was done at the -- will be done at the end of March, and we are proceeding with the negotiation at this moment. And steadily, the negotiation is progressing. And as for the -- I mentioned that this is not factored into the business performance, reflecting that is something that we are still in the negotiation process. And again, the end of March is our target. So on a daily basis, we are discussing various things and try to finalize the agreement. So that's about the progress of the Automotive.
And also, the proceeds, how would we use the proceeds from this? Or -- it's difficult to explain, but we need to look at the total capital allocation, and we showed the growth areas. And so we basically believe that we'll be using the proceeds for the growth areas that is our view. So that's about the Automotive question.
The second point about the next fiscal year business performance, internally, right now, we are discussing about the next fiscal year. So it's difficult to say. But the businesses which might face difficulties from now on. Before talking about that -- so agreement we are trying to finalize at the end of March. But as for Automotive, FY '25, this business will remain under the consolidation. So actual closing, we have to, of course, go through the various screening process. So the time frame is that -- fiscal '25, even in the fiscal '25, this business or company will remain under the consolidation.
So from the -- in terms of the difference from this fiscal year, some of the businesses which have been struggling, I think that mostly have already hit the bottom. So in Lifestyle, so consumer electronics and other businesses. In Japan and Southeast Asia and China, the overall demand was lower than the year before. Whether it would become worse? I think that the plateau or a slight increase is what we expect for these businesses. So especially in Japan, in our case, we usually suffer in the first half and in Q3. The washing machine -- we struggled with the washing machine in Q3 as well. But starting with the fourth quarter, I think that we are starting to see the good -- better signs. So of course, we cannot be too optimistic for the next fiscal year, but we do not believe that this would be the negative factor.
As for the air-to-water, as I explained in my presentation, as we faced in the past, up to fiscal '23, it was doubling. And starting with fiscal '24, it started to decline quickly. And the recovery probably will take about 2 years in our expectations. So next fiscal year, we expect the plateau or flat performance or depending on the countries, there will be some differences.
So flat or a slight increase are something that we expect so that we can improve the -- improve the performance. So in that sense, the -- as of now, we do not see the profit to come down. We have already seen the declines until now.
Concerning IRA, the presidential election will be done. So of course, that -- we cannot do anything about that. So the plant in Kansas, we are starting it up and construction has been starting up. So before IRA was announced, we already made a decision about it. So cost is already factored in. And already, we have a plant in the United States and the productivity of that plant is increasing. So we are working on that. And then when -- IRA will be considered as added -- additional factor.
We'll move to the next person. [ Gen-san ] from Dempa Shimbun.
[ Gen ] from Dempa Shimbun. I have 2 questions. First, this was asked by an earlier question about the HVAC, the air-to-water business in Europe is really impacting. And you did talk about various measures being implemented, and you also commented that over a long term, you regard this as a growth industry -- growth business, still for the time being for next fiscal year, you expect flat. So as a group, it is categorized as a growth industry. So I see a risk of being affected by the environment. So do you still consider this business as a growth business? Or are you having a second thought? That's my first question.
My second question, consumer electronics are not good, but entertainment, the PCO, TV, digital camera, the situation in Japan and overseas. Could you elaborate on that part of the business?
Thank you for your question. The HVAC air-to-water subject to many factors, particularly the subsidy policies and programs. Yes, you are correct. In our business portfolio, the basic thinking has already been explained in our strategy briefing sessions. One is to contribute to resolving the global issues, which may sound rather grand, but environmental measures, in other words.
CO2 emissions, environmental burden to be reduced? Is that essential question -- for planet earth I think is an important question. There might be some ups and downs along the way. But it's not subject to policies, situations in each country. But since environment is a global issue. There is no change in our policy regarding this as a growth business.
Having said that, since we are running business, we have to be mindful of the impact to the speed of the business execution. We have been announcing many measures in this area since last year, especially regarding the production increase, production expansion, either delay in start or to refraining from placing necessary orders, we are revisiting those aspects.
But overall, over a long term, we are to address the long-term issue. That's the air-to-water business. That's the answer to your first question. Second, entertainment and communications, PCO. In terms of sales, we have shown you the results. TV sets, overall lower sales, rather challenging situation. In the meantime, digital still cameras and others, with the traveling demand returning the cameras for smartphones, we thought would have an impact on the demand, but digital still camera is still being very appreciated by the consumers. So within the media entertainment, regarding the digital still cameras, that is doing well on the profit increasing trend.
As for TVs, a bit challenging. But towards the end of the second half of the fiscal year, we are seeing an improvement in the market share and collaboration with Amazon has been announced in this recently. And so we are hoping that these will contribute to better results.
We are running out of time for Q&A session for journalists [Operator Instructions]. [ Nakamura-san ] from [ Asahi ] newspaper.
This is [ Nakamura ] of [ Asahi ] Shimbun. So according to the consolidated business results, the -- you're managing the company based on the assumption that you'll be revising the business portfolio. And there was a news about the Automotive System business? And should we expect some other examples like this in the near future?
Whether we will be setting any other businesses in the near future or not, it's difficult to answer. But the portfolio management, of course, is something that we will be working on and the various things are being studied. And about the Automotive Systems, right -- we made announcement right after we announced the business performance. So when we can disclose any potential news, we will be doing so.
So it's not just the sale of any business, but consolidating the existing business and what will be the best portfolio management. As I said, the PAS portfolio management and also whether we are the best owner or not, we are studying and continuing our study based on that way of thinking.
We are getting close to the QA session for journalists. So we'll take only one question from the journalists. From Nikkei Asia, [ Sato-san ], please.
[ Sato ] from Nikkei Asia, can you hear me?
Yes.
I have a question on automotive battery or in-vehicle battery. For FY '24, new factory decisions for North America is to be made you said. The momentum for that decision, does that remain unchanged when the EV market itself is changing? I do not feel the speedy action on the part of your companies. So is that speed the same? Or are you having a second thought? Are you thinking of making any revisions looking at the current situation?
Thank you for your question. In FY '31, 200 gigawatts was the target that we announced. The purpose is not to expand the production capacity. That is not the objective. We need to squarely respond to the customer needs.
So the current situation is as follows: With multiple customers, we are talking about, and we are studying the possibility of building the next plant, FY '24 -- by the end of FY '24. We were saying that we will be sharing any decisions that we make. But since they are counterparties, and they are state governments and other stakeholders involved so I cannot commit to making any announcements during FY '24. So it's not just about the capacity on our part. We have to respond to the needs of the customers. So that is the way we are addressing this question.
So FY 2031 plan, there is a possibility of that being revised?
Yes, 200 gigawatt by 2031. We are not going to be bound by that. We'll look at the demand on the part of customers as well as the situation of the EV, electric vehicle market. If we see the need, we will move towards that. And if we see that it is going to be pushed forward, we will respond accordingly. The overall direction remains unchanged, we are to make contribution through our in-vehicle battery, the automotive batteries. But the actual time frame might be adjusted.
Thank you. That's the end of the Q&A session for journalists. Now we'd like to take questions from institutional investors as well as analysts. Again, we are not taking questions in English. Okazaki-san from Nomura Securities.
First question is about automotive batteries or about Energy, in-vehicle batteries. So about the -- there was a mention of the cost in relation to the manufacturing issues. I think that the other batteries did well this time, for example, data centers. So why did it improve in Q3 quickly? Could you talk about the prospect?
The second question is that it's probably related to the industry. But these days, the Japanese car manufacturers' production level could go down. So your -- what would be the impact on your outlook for Q4?
First of all, about Energy. The issues with the manufacturing. The production that we had in the past in the manufacturing process, for actual use of the batteries, there will be no concern about burning or generating smoke. But in terms of the capacity, the capacity could go down. And concerning that, already, the countermeasures have been taken. So with the current batteries, no issues will occur.
But the provision for the quality issue, towards the Q4, we are making preparation for that. So because of it the U.S. business itself is doing well and going well. And for production manufacturing in Japan, for the high-end EVs, it's not doing well. But aside from that, the -- this has do with the past inventories related to the manufacturing issues. So it's -- will not be leading to any accidents burning or anything. So gradually, already, the countermeasures to make improvements have been taken.
Also, about the Automotive and Industry -- more recent trend, still it's difficult to forecast any impact. And because of that, Q3, Automotive already we have exceeded the yearly forecast. But as for Q4, the -- there has been some results from the higher prices from Q3. So for Q4, the lower profit is forecast. So we are trying to see probably to absorb the fluctuation of the demand. But again, we are not really seeing the clear impact of that. And I hope that answers your question.
But the provision in Energy, that will be billions of yen?
Yes, that's about right.
[ Peter Colson ] from [ BoA ] Securities.
[ Peter Colson ] from [ BoA ] Securities. I have 2 questions. First, on Lifestyle. Year-on-year, Q3 profitability improved. So 2.1% margin expected for Q4 seems rather conservative given the situation last year. So why is it that you are taking such a conservative view regarding the profit margin for Q4?
My second question on Energy. You said underachievement, I understand that the profit with Tesla was already established. So this underachievement, is it going to have an impact going forward about the compensation?
Yes, for Q4, as you can see in one of the slides, that's Slide 29, yes, Slide 29. And Slide 30 as well. I think that's a better slide to use. Air-to-water for HVAC, until last year, we saw an increase, and therefore, a profit decrease expected for this fiscal year. So given that -- and also for Q3, this profit increase as was explained earlier, recorded the onetime expenses in the Q3 of last fiscal year. And that explains for the year-on-year difference, which is shown under China and Northeast Asia company. So there is a difference -- year-on-year difference resulting from what happened in the last fiscal year.
Now consumer electronics, we do expect improvement this year for Cold Chain and Electric works, about the same as in the previous year and that is impacting our profit margin expectation. So this has to do with the quarterly characteristics, a difference between production and sales, the seasonal lag. Q3 appears stronger than reality, I think, would be another way to put it. That's for your first question.
The second question regarding Energy, the underachievement of what was guaranteed, especially related to the start-ups, the compensation claims were underachieved. And this was largely affected by IRA and the vehicle models. The higher-end models, above the price of $80,000, which would include some of the high-end models of Tesla, is having an effect because the consumers or the buyers of such high-end models cannot benefit from the 30D section. And that part is lagging behind in terms of compensation points.
Next, Nishimura-san from Okasan Securities.
So for the next fiscal year outlook, I'd like to know some information. I have 2 questions related to that. First, question. You mentioned that you already hit the bottom. So there are no additional negative news. But when you look at the overall top-line drivers as of now, what are the expected drivers, if you can?
Second question is, on Page 9 of your material, Operating profit analysis, the rationalization. When you look at the next fiscal year, the fixed cost and the rationalization, what will be the balance between the two? The price revisions -- I think for this fiscal year and last fiscal year, there were quite a bit of price revision. So including that factor, what will be the balance between that and the rationalization?
Well, for the next year's top line, the driver for this fiscal year, the industrial or Industry business in China and Energy were affected and factory automation were affected as well. And among them, the factory automation, the labor-saving investment might be tough next year. But from Q3, what is becoming clear is that generative AI business or generative AI-related business that will be improving further next year.
Also, the major growing business that we can expect -- Energy, we increased the productivity and increased the utilization or operation rate, and Avionics and others is still continuing to be very strong. So starting up of the Kansas factory, is -- the end of fiscal '25 and fiscal '26. So during those years, top line will see the major increase. So this could be a major driver.
And other than that, for the next fiscal year, the major increase of the top line probably is not something that we expect. So the flat to slight increase is what we expect. But situations are changing, and we are still coming up with the plan. So this is just one of the possibilities.
And as for the fixed cost and the price revisions and rationalization. This is mainly in Japan with the rising wages and the inflation, the virtuous cycle is emerging. So in the fixed cost, the labor cost is occurring already in this fiscal year. So with the price revisions and rationalizations, we are offsetting that.
So the price revisions -- the very rapid price revisions, whether we expect that to happen in the future, depending on the industries, there are differences. Of course, I cannot give you the specific industries, but the basic way of thinking is that with the inflation and wage hikes that is to boost the Japanese society and economy.
If we go along with it, the appropriate price revision is necessary and as a manufacturer, we want to provide a good value for the customers. So for example, palm in shaver, it's like a -- just like an earphone case, the 5-blades, it's a shaver or a washing machine for a single home. And so those are the products that would provide clear values to people. So this is something that we have been trying to do. So with the new sales schemes, so that's something that we'd like to continue.
Next from JPMorgan, Ayada-san, please.
Ayada from JPMorgan. Air-to-water in Europe. I understand that the current situation is expected to continue into next fiscal year. Can you elaborate on country-to-country situation? I thought that this is going to be expanded to larger markets. So if you can share with us some details by different countries, including the inventory level. That's my first question.
Second question is on Energy. I'm looking at the supplementary materials looks like the CapEx has been reduced by JPY 40 billion or so for this fiscal year. And some of the Model 3, I think, is going to be reduced in relation to IRA. So in terms of the utilization rate at Kansas, it's going to be substituted by Model Y. So is it going to be the same in terms of utilization rate?
Air-to-water situation by country. I'm afraid I can't give you the details, but the major impacts came from -- yes, in Poland, where we enjoy lion's share, the reduced sales there had a major impact. Of course, it's not just in Poland. The overall demand is turning to a smaller demand -- lower demand. So in countries where we have a big demand and we want to focus on is France and U.K. And in terms of the size of the market, Germany would be part of that.
On February 1, INNOVA and Panasonic signed the alliance -- business alliance, particularly for coil fan indoor designability and ventilation functions. By acquiring that capability, we would like to expand our business to even greater markets in Europe. So in terms of the market share itself, while the overall demand -- market demand is expected to remain flat for some time. But in terms of the market share of Panasonic, we are hoping to increase. That's the answer to your first question.
Secondly, regarding the Energy investment CapEx, JPY 40 billion reduction. Regarding Energy, it's not that we canceled projects. Rather, when we put together the investment plans, the distribution logistics were in confusion -- supply chain was in confusion. And therefore, we were making the CapEx plans ahead of the overall decisions. But with the situation returning to normal, we now feel that some could be postponed, could wait for some time. So that is translating to those differences.
Regarding the construction plan of the Kansas factory, no change there. It is proceeding very steadily. And our CapEx decrease includes the air-to-water portion as well. The business alliance that I just mentioned will proceed and the expansion and renovation of the facility will be implemented as necessary. But when it comes to the timing, we would be very flexible. And all of that resulted in the different figure for the CapEx overall.
A follow-up question regarding the utilization rate of Nevada plant and the forecast.
Right. There is a counterparty to this. So 30D, the tax credit for the consumers that had an impact. As far as we are concerned, Model 3 and Model Y batteries, they are not excluded the way we see it. And therefore, the utilization rates of the lines producing batteries for those models will continue.
We are running out of time, but we will take one question from one person. From Morgan Stanley MUFG, we have Mr. Ono.
This is Ono speaking. About the automotive batteries, what is being discussed in the market. I'd like to have some comment. On Page 18, the anode -- the discussion about anode. So graphite production, more than 60% comes from China. And I think that they are increasing the exposure to North America. So concerning that, including the timetable, we don't have to be concerned about this. And about the silicon material, for the cylindrical, it's the metal. So the capacity could come down. So maybe that it's better to go with prismatic.
But I think that the next year-on-year working and Sila, you have a great alliance with those companies. And so that the material which would not expand is something that you already have. But from the -- your perspective, if you can make a comment on this point, or concerning that.
Yes, we are monitoring this closely so that we can be proactive. We can take measures quickly. And as Ono-san said, you're right. And Nexon U.K. and also Sila Nanotechnologies, we already announced the alliance, and we are taking the measures steadily.
And as for graphite, in terms of rules, the potential impact is -- from January '25 from China -- the graphite from China and the use of that, if we are still using it, that will violate the regulation of the used minerals. So it's still a year ahead. So concerning that, we are taking measures -- countermeasures.
So as for the graphite procurement itself. There's export regulation restriction from China, which is already going on. So with the authorities, we are working closely with them so that we are taking necessary measures. So as for the suppliers, for the procurement, we want to make sure that we watch what would happen to the regulation so that we can take necessary measures. So that's what we have been doing.
Thank you. With that, we conclude the earnings briefing for Q3 fiscal 2024. Thank you very much for your participation.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]