Honda Motor Co Ltd

TSE:7267

Earnings Call Transcript 2023-Q2

[Operator]

Thank you very much for attending. This is Honda Motor Company FY '23 second quarter financial results announcement meeting.

First, I'd like to introduce the executives represented -- Director, Executive Vice President and Representative Executive Officer, CFO, Kohei Takeuchi.

[Kohei Takeuchi, executive]

This is Takeuchi speaking. Thank you.

[Operator]

Operating Executive and Head of Accounting, Finance, Supervisory Unit, Eiji Fujimura.

[Eiji Fujimura, executive]

How do you do? I am Fujimura.

[Operator]

Would like to ask Kohei Takeuchi to first announce the FY '23 second quarter financial results and FY '23 forecast followed by Fujimura, who will give the details on the above. Mr. Takeuchi, the floor is yours.

[Kohei Takeuchi, executive]

First of all, I'd like to thank all of you for your support towards Honda products and activities. I'd like to thank our customers and all stakeholders. Thank you.

We apologize that the delay in vehicle production is causing inconvenience to our customers who are waiting these products. We are working hard to deliver our products as soon as possible. We hope to gain your understanding.

Now to explain the financial results for the second quarter of FY '23 and give a summary of the forecast for the fiscal year. First, FY '23 results. Amidst a difficult business environment, including the semiconductor shortage, driving down automotive production and unit sales combined with soaring raw material prices, Honda has been making company-wide efforts to improve profitability. In addition, the increase in motorcycle unit sales and the impact of yen depreciation and sales revenue and operating profit for the first 6 months have increased year-on-year.

In the second quarter, specific semiconductor shortage affected production of main models, mainly in North America. But we made worldwide production allocations, utilized substitute parts and replaced models sold, resulting in a year-on-year increase in group unit sales of automobiles.

In addition, sales revenue, operating profit and profit for the period of -- all increased year-on-year due to price increases commensurate with improved product value and strong Motorcycle business impact of the yen's depreciation. In the FY '23 forecast, group unit sales of automobiles is lowered by 100,000 units to 4.1 million units, taking into account the impact of semiconductor supply shortages.

In addition to the decline in unit sales, we expect to see continued inflationary pressure on costs. However, we have revised upward our previous forecast for sales revenue, operating profit and profit for the period, reflecting profitability improvement efforts, motorcycle unit sales increase and recent weak yen. Despite the challenging business environment, Honda will continue to accelerate initiatives for electrification and new growth in preparation for the future.

Next, the status of our Automobile business in major markets. First half sales decreased from the same period year-on-year due to semiconductor supply shortages and others despite the positive effect of new model launches.

In the second quarter, sales in Japan and China increased year-on-year. But in the U.S., shortage of certain semiconductors drove down production of mainstay models and inventories at dealers. Although demand is expected to be firm, we have revised downward our previous forecast for FY '23.

In the second quarter, Honda announced its initiatives for electrification. In the U.S., Honda has agreed with LG Energy Solutions to establish a joint venture to produce EV batteries and to manufacture them in the State of Ohio. Honda has also decided to evolve the 3 existing plants in Ohio as home to EV production in North America.

In China, Honda has established a new JV with Dongfeng Motor Group and also Guangzhou Automobile Group to procure EV batteries. In addition, we signed an MOU with CATL to further strengthen our partnership, aiming to establish a long-term stable procurement system in China and further enhance our competitiveness. Honda will continue to accelerate its efforts towards electrification.

Next, the Motorcycle business status. Although there were some effects of semiconductor supply shortages, sales in many countries were higher than in the same period of the previous year due to replacement of models sold and the use of substitute parts, et cetera.

In Vietnam, we recorded record high sales for the month of September. Although sales in Pakistan affected by flooding as well as China and other countries dropped, sales in India, Vietnam and other countries were strong, leading to an upward revision of the previous forecast for consolidated FY '23 unit sales.

In September, Honda announced its launch -- it will launch more than 10 electric motorcycle models globally by 2025 and 3.5 million unit sales by 2030 to achieve carbon neutrality.

Here is an overview of the first half of FY '23. And despite a decrease in automobile production and unit sales due to semiconductor shortages and rising raw material prices, operating profit increased JPY 11.2 billion, reaching JPY 453.4 billion due to price increases commensurate with enhanced product value and reduced incentives as well as increased motorcycle unit sales and currency impact. Earnings per share attributable to owners of the parent was JPY 338.5 billion mainly attributable to share of profit of investments accounted for using the equity method of Japanese affiliates. The table shows unit sales and profit and loss.

Next, consolidated FY '23 forecast. Although we expect to see continued pressure on costs in addition to the impact of lower automobile unit sales, we revised upwards the forecast operating income by JPY 40 billion to JPY 870 billion, reflecting further efforts to improve profitability, including higher motorcycle unit sales in India, Vietnam as well as other countries and currency impact.

Earnings per share attributable to owners of the parent is revised upward by JPY 15 billion to JPY 725 billion. Exchange rate assumptions are JPY 135 and to the dollar for the second half, JPY 135 to the dollar for the full year. Unit sales and profit/loss are shown in the table.

As for dividends, interim dividend is JPY 60 per share. The annual dividend forecast remains unchanged and is JPY 120 per share. Honda will continue to strive for stable and sustainable dividend payments, aiming for a consolidated dividend payout ratio of 30%.

Regarding share buyback announced on August 10, as of October 31, the total number of shares repurchased was 50.33 million shares at a total cost of JPY 53 billion.

Fujimura, Operating Executive and Head of Accounting of Finance Supervisory Unit, will give the details.

[Eiji Fujimura, executive]

Let me explain. Honda Group's cumulative unit sales until the second quarter FY 2023 were as follows. Motorcycle business is 9.202 million units sold mainly with the incremental sales in Asian countries year-on-year. And Automobile business is 1.785 million units due to the decline in sales in North America. And Power Products businesses, it was 2.935 million units due to a decline in North America.

Next, let me explain factors behind ups and downs of the profit before income tax for the first 2 quarters year-on-year. The profit before taxes were JPY 515.8 billion, JPY 44.5 billion decline year-on-year. Operating profit was JPY 453.4 billion, up by JPY 11.2 billion year-on-year.

Excluding factors of foreign currency impact, the profit was practically negative by JPY 141.9 billion. The breakdowns are as follows. Regarding the impact of sales, profit declined by JPY 100.1 billion due to reduction in unit sales, changes in model mix and profit decline in financial businesses.

Regarding impact of retail prices and costs, there were impacts by soaring raw materials prices and product pricing, reflecting product value improvement. However, the profit increased by JPY 8.2 billion.

Regarding miscellaneous expenses, profit declined by JPY 41.9 billion due to quality related cost. Regarding research and development expenditures, profit declined by JPY 8.2 billion.

In terms of sales revenues and operating profits in each of the business categories, operating profit in Motorcycle business was at JPY 224.7 billion. And of Automotive businesses, OP was at JPY 63.5 billion, and of our Financial Services businesses, it was JPY 153 billion.

Out of the Automobile and the Financial Service businesses combined, the operating profit associated with automobile sales is estimated to be JPY 211.3 billion when aggregated together. Next, operating profit of the Power Products and Other businesses was JPY 12 billion, which includes operating losses of aircraft and aircraft engine businesses being JPY 12 billion.

Next, I will explain about our cash flow situations. Free cash flow of the non-Financial Services businesses was 153.3 billion. Net cash at the end of the second quarter was JPY 2,560.9 billion.

Let me talk about our forecast of consolidated business performance for FY 2023. With regard to the Honda Group's unit sales in the Motorcycle business as compared to the previous forecast, the expected unit sales will be 18.43 million mainly reflecting the flood in Pakistan and the demand decline in China and so on. When consolidated, we expect unit sales to be 12.02 million units, up by 360,000 units, reflecting a good sales performance in countries such as India and Vietnam.

Unit sales expected in our Automobile business would be 4.1 million mainly reflecting a decline in North America. For Power Products businesses, we maintained the previous forecast of 5.556 million units.

Next, I'll explain factors behind our [indiscernible] of profit before income tax as compared to the results from last year. We expect the profit before tax to be JPY 1,080 billion, up by JPY 9.8 billion year-on-year and operating profit to be around the same level from the results of the last fiscal year. Excluding foreign currency impacts, we expect a negative profit of JPY 287.2 billion, of which the breakdowns are as follows.

For the impact of the sales, our profit will be increasing by JPY 41.8 billion due to unit sales increase of motorcycles and automobiles. Regarding retail price and cost impact, profit declined by JPY 110 billion due to soaring raw materials prices and so on.

Regarding miscellaneous expenses area, our profit would decline by JPY 152 billion due to incremental sales and quality-related costs. For research and development expenditures category, we expect the profit to drop by JPY 67 billion.

Comparing our new expectations to the previous forecast, the differences as well as profit before income taxes will be up revised by JPY 40 billion, operating profit to be up revised by JPY 40 billion. Excluding foreign currency impact, we expect a negative profit of JPY 80 billion for which breakdowns are: regarding the sales impact, down by JPY 128 billion mainly due to unit sales decline in automobiles.

And in the area of the retail pricing cost impact, although some cost increase is expected due to inflation impact, we will manage price -- pricing practices to reflect enhanced product values to add profits by JPY 36 billion. Regarding research and development expenditures, we expect the profit to go up by JPY 16 billion.

Finally, for CapEx, depreciation and amortization as well as R&D spending for FY 2023, we revised the previous expectations to reflect the currency impact. That concludes my explanation. Thank you very much.

[Unknown Executive]

Thank you very much. Thank you for your attention. And now I would like to proceed to Q&A.

[Operator]

[Operator Instructions] We'd like to go to [indiscernible].

[Unknown Attendee]

My name is [indiscernible] from Nikkan Jidosha Shimbun newspaper. Can you hear me?

[Unknown Executive]

Yes.

[Unknown Attendee]

I have 2 questions. First, currently we're seeing a depreciation of the yen, and this has boosted your profit. But can -- in order to maximize your benefit when it comes to production and procurement, what kind of ideas will come up when Honda localizes its production? But are you making any changes to your approach?

The second question, worldwide, there is a concern of a recession at your major markets, U.S. and China. How do you see the prospect of the economy?

[Unknown Executive]

Mr. [indiscernible], so first of all, in regards to your exchange rate question, well as you rightly mentioned, we have the policy of producing where the demand exists. This is our basic policy. That is how we have set up our production sites.

And so it's locally produced and locally consumed, meaning that we are -- of course, given the major fluctuation in the currency rate, it does have an impact to a certain extent. But compared to other manufacturers exporting from Japan, compared to those manufacturers, I don't think that our impact is that big.

But, having said that, still, to explain the currency impact, the U.S.-denominated only, if there's JPY 1, there is a difference of the current situation, there is a swing of 10 billion, used to be 12 billion, but it's now 10 billion of which half is the export of components or the loyalty received from overseas?

So it's mainly cash flow. And also, we generate profit overseas, and we convert this into Japanese yen. In that conversion, we have half of the difference. So that is the impact of currency.

But as for the yearly forecast, we are estimating now JPY 135 against the dollar. And so this would be an impact of JPY 120 billion in profit. But still, the supply chain. We have suppliers and others relationship. So it's not the case that we can immediately shift our production to Japan. Basic philosophy is to produce where the demand exists will remain in place. That's in regards to your currency question.

And about the U.S. and China's economy, well, the midterm election is -- the vote count is underway right now in the United States. Given the 8% inflation continuing towards the end of the year, as everyone says, there is likely to be an impact on the economy. So we also share that concern.

But if we look at the current situation, our car supply for certain models due to the shortage of semiconductors, we have lost some unit sales, but customers are waiting for our products. So looking at the current situation in regards to our customers, we believe that the cars we produce will be purchased by our customers.

But economically, as is being said, there is the interest rate increase, the inflation occurring. And therefore, there will be some impact to a certain extent. And keeping this in mind, we will continue with our operation.

Likewise, in China, the Chinese GDP compared to a few years ago is declining. But automobiles annually, the passenger car is about 23 million units per annum, in line with that, especially the market electrification. Last month also -- this month, we see 20% or 19% ratio. And therefore, we have this electric -- EV car on the market, and the first one. And we've announced a second. We are focused on electrification, and we want to meet our customers' demands also in China. And this is how we want to market our products in China.

[Operator]

So next question, Yomiuri newspaper, Nakamura, please.

[Unknown Attendee]

Nakamura from Yomiuri Shimbun newspaper. Can you hear me? Two questions. First of all, sales. The price increases are in overseas and also potential price increases in Japan, please share with me the potential.

And Japan and Southeast Asia markets are good, and what is reason behind? And how long do you think it would continue on going forward, the Motorcycle business?

[Unknown Executive]

So thank you for your question, pricing, retail price situations and the pricing reflecting the product values. That's how we call it. And in the U.S., including the inflation situations, we are repricing that to reflect our values of the product.

Of course, raw materials prices soaring, and also safety equipments are rearranged as well. So including all that, people buy the products. And in the U.S., the stock level is quite low. Including that situation, we try to price the product in an appropriate level for them to buy.

And in Japan, when we have such a soaring raw material prices, of course, that has impact on the revenue. However, we also have a sort of relationship with like competitors, the peer companies in the semi industries. We will look at how they are reacting and then if necessary, we would do repricing, increasing the prices. But at this moment in Japan, we do not have specific information as of today.

And as for the motorcycle situations, thankfully, in the second quarter, the Motorcycle business performance was very good. Specifically, the best area is our Asian markets, specifically Vietnam, Thailand, number of the units sold was very good, which gave us additional revenue.

And how long will that continue? Well, as of now, without any economic or turmoils or the kind for this term, Thai and the Vietnamese market will continue as it is perhaps -- and also for the Motorcycle businesses, we have an EV, electrification plans for India and the countries toward -- excuse me, in Indonesia from 2030 and '35. And including that, we will try to come up with the appropriate pricing and so forth for the electrification plans with motorcycle. Thank you.

[Operator]

Nikkei. Mr. Tanabe, please?

[Unknown Attendee]

Can you hear me?

[Unknown Executive]

Yes.

[Unknown Attendee]

Well, about automobile, about the unit sales past forecast. In North America, you said that it's been reduced. Well, I think there might be some differences in the unit semiconductor shortage depending on the region. So what about Japan and North America and Asia? Can you give some regional differences? And do you think that this is likely to continue? What is likely to happen in the next fiscal year? That's the first question.

The second question is about the way of thinking towards the exchange rate. Well, it's contributed to the profit to quite an extent. But if this continues longer, I think there might be some challenges ahead. So can you candidly share with us how you assess the currency forecast?

[Unknown Executive]

Thank you very much, Tanabe-san. First, about the units, the automobile units. And due to the shortage of semiconductors, we have downward revised by 100,000 units, U.S. And we are trying to catch up here in Japan and Asia. But it's a 100,000-unit downward revision.

As I already explained earlier, it is a specific type of semiconductor that has this issue with semiconductor. And it has an impact on our CR-V, Civic. And so for these specific models, we have seen this impact of the shortage.

And this, the second quarter, this was the situation. And in North America in the second half of the year, we think that it will be difficult to increase the production. And therefore, it's difficult for us to catch up. And this is the downward revision for U.S.

What about China? When it comes to China, naturally, in the first half, there was an impact. But in the second half, the production system is such that we think that we can catch up. And therefore, we think we can catch up.

Meanwhile, Asia. You mentioned about Asia, Indonesia, et cetera, the numbers are growing. And therefore, as I said, it's not -- well, the cars in Asia are relatively small. So with the smaller cars, there are the semiconductors available. So we can catch up there.

With the supply of semiconductors this fiscal year, we have inconvenienced our customers to quite an extent. We apologize. But there, well, the old semiconductors sometimes experience a shortage. So we have to try to observe carefully, and we need to monitor carefully the situation because there are some abrupt incidents occurring in the supply.

Now about the currency situation, as I've already explained, we believe that we should be producing where the demand exists. Therefore, the currency impact is limited. But given the fluctuation occurring in such a short period of time, this volatility, it does have an impact, and we cannot hedge against this. We need to have a currency where there is long-term stability.

[Operator]

Next question, Newspeak. Newspeak's Mr. [indiscernible]

[Unknown Attendee]

Newspeak's [indiscernible] speaking. A few questions. First on operating profit of the Automobile businesses. As compared to last year, you already descended a bit lower. And as you said before, of course, do you have any additional explanations on the top of the presentation about this? In what situation can you expect the OP to go up?

And the second question is about electrification. The Ohio plant will be the hub for EV production. And as there are IRA, Inflation Reduction Act there. But how do you take the benefits of the Ohio electrification production hub?

[Unknown Executive]

So operating profit of automobile was rather lower as compared to last year. And as you said, one is semiconductor supplies. Because of that, a number of the units have to be constrained. That is the big factor. And also OP of automobile have to be improved. And in the last 2, 3 years, we've been making efforts to push it up, for instance, reducing fixed cost, closure of the plants in Europe and Japan and so forth. And those are materializing as suggested.

We have Honda architecture, specific designs and so on or specification to make a better efficiency. The numbers are reflecting those efforts. However, in terms of the unit sales, it's not yet there because of the semiconductor constraints.

We are still in the process of improvement. The numbers still be restrained. And of course, there are hypothetical situations as well. And we are on track, in fact, towards the unit sales improvement and Ohio electrification hub. You mentioned IRA Act and 700 -- 750 -- $7,500 and [ $3,750 ] so on according to your [indiscernible]. There are still details to be decided, but we will produce batteries with LG.

And we have 2 plants, Marysville and it's delivered to other plants and so on in Ohio, and those places will be a hub for the EV products. And of course, the principle is to make a production where the demand exists, and this is working well. And also, we have to take the benefits from the IRA incentive plans. Thank you.

[Operator]

NSK, [ Toma ]?

[Unknown Attendee]

This is [ Toma ] from NSK. Can you hear me?

[Operator]

Yes.

[Unknown Attendee]

First, I'm looking at the numbers announced. The sales revenue, I though it was record high. There was a record high, if any. Can you elaborate on which part was the record high in terms of the record sales revenue?

And about the profit, upgrading profit, I don't think it's a record high. But what are the reasons cost-wise? What cost was increased? Can you explain? That's the first part.

And second question about support to suppliers. And can you elaborate on what you're thinking about giving support to the suppliers?

[Unknown Executive]

Mr. [ Toma ], thank you for the question. First, in regards to the sales revenue this time, the FY '23 forecast and the second quarter 3 months and the first half 6 months all recorded a record high. But it was mainly attributable to the currency.

And in terms of unit volume, it was not a record high. So we really did not say proudly that this was a record high. And so -- and due to that, the unit sales was not high. It was mainly attributable to the currency. And therefore, the operating profit was not a record high.

But in the second quarter, 3 months, the motorcycle profit margin was 17% or more -- operating margin, 17% or more. So this is a very high number.

About the supplier support, yes. Well, we also in this FY '23 forecast compared to last fiscal year, there is a rise in the raw material price and also the logistics, inflation, et cetera. So the inflation part is having an impact significantly on the cost.

And suppliers, likewise, are experiencing the same pressure. And well, in line with the situation of the different suppliers, we consult with them and think about what needs to be done.

So it's not the case where for all the suppliers, we'll be providing the same support, but we have to tailor to the different situations of the suppliers. We consult with them and to provide, if necessary, support or take other measures. So we have to decide for each case.

[Operator]

Next one, Wall Street Journal, [ Ms. Davies ], please?

[Unknown Attendee]

I have one follow-up on semiconductors. We're hearing from some other automakers that they feel like they've made it past the worst of the shortages. Is that similar in Honda's view at the moment?

And my second question is on electrification. A few weeks ago, we heard from General Motors that they're pushing back some of their EV timelines because they're having trouble ramping up battery capacity. Is Honda seeing any impact from that issue, especially with regard to jointly developed vehicles and timelines around those?

[Unknown Executive]

So a semiconductor question, whether or not the worst time has been over. I think from the personal viewpoint, high level, the worst shortage period of the semiconductor at large has been gone -- has gone for general use of our semiconductor.

However, we have different types of semiconductors and different applications in the vehicles and so on. Where the matching are well supported, the worst time has been over. But still in some specific areas, we still have the shortage. I don't think we have passed the worst time for the specific application area of the semiconductor.

So we try to address the situation so that we can make a delivery of the products to the customers as soon as we can, and of course, to optimize our production and delivery situations. We are working on that.

And also electrification with GM and EV timeline delays, at this moment, we have a program with GM after 2025. We have 2 vehicle plans with GM with their supplies. And for that particular one, battery production capacity is not going to affect that. We haven't heard of that yet.

And will all of the GM vehicles be electrified? I don't know if that is the case. They might need batteries as many as those. And then we haven't heard, and I don't know how they're going to say that, but that is our response. Thank you.

[Operator]

And next, [indiscernible], please?

[Unknown Attendee]

[indiscernible], can you hear me?

[Operator]

Yes.

[Unknown Attendee]

About the raw material cost, that's my first question. The raw material cost and inflation you mentioned. Well, what is the outlook? What do you think this situation will be? Is it going to stop, the rise will stop? Or is it likely to continue to rise into next fiscal year? I think this will have an impact on your profitability for automobiles. So what is your outlook forecast for inflation going forward?

And the second about some numbers, a very detailed question. Well, looking at the end of September, I think that you have a positive for the operating profit, but the net profit is negative. So where do -- what is the cause of this negative?

[Unknown Executive]

Yes. Let me explain about the raw material part and also the logistics cost inflation, what is the outlook. Well, yes. It depends on the material, but for example, the bare metal, et cetera, for the past few years -- a few months, it is not rising. But it's showing a slight downturn. So I think that this is reflected in partially our forecast.

But is it going to dramatically decline? Well, it depends on the material, the raw material you're talking about. But those raw materials for batteries, I think the supply is not sufficient. And I cannot say anything about that, but other raw materials, if the current situation would continue, I think the rise will be more gradual.

But still, will we see a dramatic decrease in the near future? Well, depending on the material. As electrification progresses, I think that some of the production balance, et cetera, the demand and supply balance and prices are determined. So at this point in time, there might be some changes, but we have to capture those changes early on so that we can provide good products to our customers. And that is how we want to address this issue.

About the operating profit, about the first 6 months, I think you were asking about the first 6 months about the operating profit. Well, really, it is positive. But the reason for the negative is the nonoperating profit and also for the share profit and investments accounted for using equity method.

Now as for the first, I think the interest rate and exchange rate is volatile and hard to finance. So they are doing the procurement of funding. And so the derivative, we have hedged. And the assessment of the hedge, et cetera, is one of the negative factors. So this is nonoperating profit.

And as for the share profit of investment accounted for using the equity method, well, in China, well, the business -- it's rather than the business per se, positive or negative. Recently, the share prices are declining. And therefore, we have the balance sheet based on the equity method.

But if we could compare this to the share prices, and those that we can say, some using the equity method, if the share price -- if there is a gap, we have to do -- write it off. And therefore, that is the reason why we have a negative for the net profit.

[Operator]

Next question, Automotive News, Hans-san, please.

[Hans Greimel]

Can you hear me? Hello? Ask a question in English, can I?

[Unknown Executive]

Sure.

[Hans Greimel]

My question is about the EV strategy in the United States, specifically with regard to the EV partnership with Sony. Can you give us any new guidance on how Honda plans to approach the retailing of those EVs in the United States? Will Honda use its existing retail network to support the sales of those Sony-Honda EVs? Or will it be completely -- or I should say, sales and servicing of those EVs? Or will it need some kind of different and independent servicing network?

[Unknown Executive]

So Sony and Honda joint venture has kicked off established in September. And the other day, [indiscernible] made a joint announcement together. And how we're going to sell the products, of course, with that framework, we're going to -- we have established a new joint venture company, Mobility. That will be not Honda, not Sony, but it will be a new Mobility. That is why we established a new company.

And how we are going to sell, it is not defined as yet, clearly, so I can't share with you at the moment. And using the existing network may not be the case.

However, service network, we have 1,000 Honda and 300 Acura service network 1,000 Honda and 300 Acura at our service network, of course, U.S. would make use of that. However, the way to sell maybe in line with the new kind of mobility new world, completely new things. So personally, I think it is going to be something new, but all those things are still under contemplation. So I don't think I can refer to that today. But it is going to be nonconventional, no Sony, no Honda, something totally new. And that is how we have started up with this joint venture company. So please expect us for the next one.

[Operator]

Next question, [indiscernible].

[Unknown Attendee]

Can you hear me?

[Operator]

Yes.

[Unknown Attendee]

My name is [indiscernible] from Nikkan Kogyo Shimbun newspaper. Now looking at the current situation, you said that you will replace some of the models to be sold. But in what regions? What kind of models did you replace? Can you elaborate on that?

And the second, well, you mentioned that about the operating margin of automobiles but the unit volume, et cetera. But the motorcycles were not that much impacted. And that is the reason why the operating margin for motorcycles is good. Can I interpret it that way?

[Unknown Executive]

Well, in what regions, what kind of models have been replaced, et cetera, I cannot make any specific reference. But in the first half or the first 6 months or 3 months for Civic and CR-V, we had a shortage of semiconductors. And in the second half, we think in the United States, we -- given the current production situation, it will be difficult to catch up.

So instead, the small models in Japan and Asia, we -- these are those for which we do not have a shortage of semiconductors. And therefore, we place them with these models. So -- and on weekly and also a regional basis, we are doing such things so that we can deliver products to our customers as soon as possible. So such replacements are taking place.

About the automobile profit margin, well, yes, we -- because of the shortage of semiconductors, we are not achieving the unit sales that we intended to. So we cannot achieve the margin that we wanted to. Motorcycles, likewise, are impacted by semiconductors. And depending on the country, the market, I believe motorcycles -- which motorcycles sell are different. And therefore, we're able to cover with that difference.

Those which have high margins, in those countries, the unit volume has increased. And therefore, in Thailand and Vietnam, and that is the reason for the positive. So it's not the case that we do not have any problem. But fortunately, those markets which -- where we have a high margin were the areas in which we saw growth in the unit sales. Thank you.

[Operator]

Next question Toyo Keizai [indiscernible], please.

[Unknown Attendee]

Toyo Keizai. I have 2 questions. First question is a confirmation. In the PowerPoint, the factors behind the profit before tax, you had [indiscernible] for the JPY 6 billion of the retail price factor for the ups and downs. You had raw materials situation plus you had managed repricing successfully to make this number. Is that how it went? Please share with us your strategy as well.

And also you talked about the pricing and also in mini vehicles, Kei cars, they're produced Japan, consumed in Japan. And in fact, the soaring raw prices are directly impacting the mini vehicles. And what is the impact on that because pricing is difficult on that?

[Unknown Executive]

So let me explain the first part. For the first half, like this time, we say JPY 36 billion plus. Despite raw material prices hike, we managed. That was the -- about -- what the question was about.

But throughout the year, annually speaking, for this fiscal year as compared to last one, raw material prices from the previous forecast because of inflation situation, distribution, labor cost and supplier, of course, suffer the same issues. But cost pressure is JPY 390 billion, the cost pressure upward total up to that much.

And our approach is to try to provide -- have a pricing that reflects values. And of course, throughout the year, inflation and supplier situation, specifically the price negotiation, and actually, those events happening in the second half, rather. So when we do pricing, we actually take up in first half already, anticipating what's going to happen next. But actually, that is a plus positive impact on the first half.

But throughout the year, I don't think we can absorb all of those costs increase factors. And then we have differences of the impact in second half and first half. And that is how those absent factors are allocated over the period.

So pricing in Japan as [indiscernible] said speaking of the domestic market, of course, we are looking at the competitors as well. And those mini cars -- mini vehicles, we have a -- the OEMs for supply that too. And we, of course, watch out the prices of those products of other companies, and it is kind of difficult to reflect the raw material price hike situations to the price of the products directly.

We have to make a decision thinking over the competitor's product. And when we have the new model, new specification, we may pass it on -- the price hike part for the price of the product, but we would try to do that as we go going forward.

[Operator]

The next question will be the last question. [indiscernible] please.

[Unknown Attendee]

Can you hear? About motorcycle sales, a detailed question about Indonesia. Compared to others, I think the growth is not that fast. Is the reason -- what is the reason? You talked about EV motorcycles. But in Asia, the competitors -- do you see that there is pressure coming from your competitors to try to push EV motorcycles, electrified motorcycles?

[Unknown Executive]

[indiscernible], thank you very much. Indonesia is more than 100%, but the growth is slower than other regions. What -- which -- where did this come from? Can you elaborate on your question?

[Unknown Attendee]

Excuse me. In the second quarter, the Indonesian sales, it says 101.9%. And in the fourth quarter it's 90%, I think. So that ratio I'm talking about.

[Unknown Executive]

Sorry. I'll look it up. Well, in regards to Indonesia, there is an impact of the recession, the slowdown of the economy, especially last year. When it comes to Thailand and Vietnam, there was a lockdown in Asia, as you recall.

And because of that impact, at that point in time, Vietnam and Thailand grew. So this is in comparison. I hope that you'll understand that to be the case.

And about the electrification of motorcycles in Asia, in India, there is this new manufacturer, who just started up. And they have a very forward-looking plan, sales plan, and it seems to be working. And Indonesia, again, competitors are putting pressure on us in terms of electrified motorcycles.

But we -- also, as I explained the other day, heading towards 2030 and '35, we want to aim for a large unit sales in Asia when it comes to EV motorcycles. It's true that competitors are putting pressure on us because of their growth, but mobile battery pack, we're using battery.

And the rickshaw in India, we installed battery and are doing demonstration tests there. So I think in Asia mainly in the motorcycle sector, we are trying to electrify, put together a strategy in this market going forward. Thank you.

[Unknown Executive]

So this concludes our presentation section today, our financial results presentations, of course. Those materials and the presentation package are available on our website, and thank you very much indeed for your participation.