Honda Motor Co Ltd

TSE:7267

Earnings Call Transcript 2023-Q3

[Operator]

I thank you very much for taking time out of the busy schedule to attend our briefing today. We would now like to start Honda Motor Company Limited financial results briefing for third quarter of fiscal year to March 2023.

First of all, allow me to introduce the attendees today. Mr. Eiji Fujimura, Operating Executive and Head of Accounting and Finance supervisory unit.

[Eiji Fujimura, executive]

Good to see you, everyone.

[Operator]

Mr. [ Masao Kawaguchi ], General Manager of Accounting Division, Accounting and Finance supervisory unit.

[Unknown Executive]

Good to see you, everyone.

[Operator]

Then Mr. Fujimura will first present an outline of the third quarter financial results and the forecast for fiscal year to March 2023. Then Mr. Kawaguchi will present the details. Over to you, Mr. Fujimura.

[Eiji Fujimura, executive]

First of all, I would like to thank all our customers around the world. for their loyalty to Honda products and all the stakeholders who support Honda's efforts. We sincerely apologize for the inconvenience caused to our customers who are waiting for Honda products due to the current vehicle production delay. We will do our best to deliver our products to our customers as soon as possible and seek for your understanding.

I now explain our financial results for FY 2023 third quarter and FY 2023 financial forecast. First, the key points of our financial results. The current business environment continues to be difficult. In the third quarter, production and unit sales of automobiles decreased from the same period of the previous year due to the impact of the COVID-19 pandemic in China and semiconductor supply shortages. In addition, manufacturing costs continued to rise due to soaring raw material prices and inflation.

Under these circumstances, Honda made company-wide efforts to further improve its earnings structure and secured a 6.3% operating margin for the fiscal year '23 third quarter. The motorcycle business posted record high operating profit and margin for the second consecutive quarter.

For the full year forecast, we have revised downward automobile unit sales. Despite upward pressure on manufacturing costs, we will maintain our previous forecast for both operating profit and profit for the year by further improving our business structure. Despite the unfavorable business environment, we believe our earnings structure is steadily improving.

And in light of our current profitability, cash level and future fund requirements, the Board today approved a resolution to acquire JPY 70 billion of our own shares when added to the JPY 100 billion already acquired this fiscal year, the total comes to JPY 170 billion and will continue to accelerate its efforts towards electrification and new growth to enhance corporate value.

Next, I will explain the status of our Automobile business in major markets. In the first 9 months of the fiscal year, unit sales in major markets declined from the same period year-on-year. The third quarter period was affected by semiconductor supply shortages and pandemic in China. Unit sales in Japan were higher, while sales in the U.S. and China were lower than in the same period of the previous year. In Japan, the N-BOX was the #1 selling new car and the FREED was the #1 selling minivan for the calendar year 2022. And in North America, the Acura Integra was named 2023 North American Car of the Year.

We have revised downward, our previous sales forecast for fiscal year 2023, taking into account the current production and sales condition. In addition, we announced plan to launch a new light commercial EV in spring 2024, utilizing the features of the [ N-BOX ]. In the U.S., we announced establishment of a joint venture with LG Energy Solutions to produce EV batteries and the signing of a basic agreement with GS Yuasa to collaborate on high capacity, high output lithium-ion batteries.

Next, our Motorcycle business. In the first 9 months, unit sales exceeded year-on-year in major markets. In the third quarter, Unit sales in major markets exceeded that of the same period last year due to the replacement of sales models, utilization of alternative parts and the effect of new model launches, mainly in Vietnam, despite the effects of semiconductor supply shortages and other factors. In Vietnam, unit sales reached a record high in October following September. And in Brazil, unit sales reached 1 million units for the first time in calendar year since 2014.

We have upwardly revised our previous sales forecast for FY '23, reflecting the current strong sales trend. As a forerunners of the global launch of electric motorcycles, Honda announced the EM1 e in Europe in November; and 3 community EV models in China in January.

Next, our overview of FY '23 9 months results. Despite decrease in automobile production and unit sales due to semiconductor shortages and pandemic in China plus higher manufacturing costs due to surging raw material prices and inflation. Operating profit increased JPY 62.2 billion to JPY 733.9 billion year-on-year due to price increases commensurate with improved product value, increase motorcycle unit sales and foreign exchange. Profit for the year amounted to JPY 583.1 billion, up JPY 1 billion from the same period last year. unit sales and income statement are as shown.

Next, FY '23 consolidated financial forecast. Despite decline in automobile unit sales and upward cost pressure due to inflation, we are maintaining our previous forecast of JPY 870 billion for operating profit, reflecting price increases commensurate with improved product value, increase in motorcycle unit sales, mainly in China and company-wide efforts to further improve profitability. The profit for the year forecast of JPY 725 billion is also maintained. Exchange rate assumptions for the fourth quarter and full year are JPY 130 and JPY 135 to the dollar, respectively. Unit sales and income state are as shown.

Next, I will cover the dividend information. The prospects for fiscal year dividend for fiscal year 2023 is at JPY 120 per share, unchanged from our previous announcement. At the Board of Directors meeting held today, we have resolved to acquire own stock, with the objective of enhancing capital efficiency and enabling flexible capital strategies, we will acquire on stock up to the maximum total amount of JPY 70 billion.

Next, Mr. Kawaguchi, General Manager of Accounting Division, will explain the details of the financial results and forecast.

[Unknown Executive]

Allow me to start the explanation. To begin with Honda Group's unit sales for 9 months of the fiscal year 2023, in Motorcycle operations, unit sales grew year-on-year, particularly in Asia and came to 14,285,000 units. Automobile sales came to 2.74 million units, mainly due to decline in China and North America. In Power Products operations, our unit sales came to 4,121,000 units, mainly due to decline in North America.

Next, I'd like to explain the changes of our pretax profit for the 3 quarters compared to the same period last year. Pretax profit was JPY 859.3 billion, which was higher by JPY 14.1 billion compared to the same period last year. Operating profit was JPY 733.9 billion, which was higher by JPY 62.2 billion on the year. To give you a factor analysis of the operating profit impact from sales though there was an increase in motorcycle unit sales, declines in automobile sales volume and in financial operations led to income decline of JPY 97.1 billion. Impact from selling price and cost, while there was an effect from our pricing in line with the product value due to surging material prices and inflation, it resulted in a decline in profit by JPY 17.1 billion.

Next, expenses. Due to increase mainly in selling expenditures and other factors. This gave us a negative impact of JPY 65.6 billion. R&D expenses led to a decline of JPY 11.5 billion. and currency effect we sell debt in JPY 253.7 billion positive impact.

Next, to explain the sales revenues and operating profit by business segment. For Motorcycles, operating profit was JPY 376.5 billion, Automobile operations profit was JPY 112.9 billion. Operating profit from Financial Services was JPY 220.3 billion. And for Power Products business and Other Businesses, operating profit came to JPY 24.1 billion.

Next, I will explain the cash flow. Free cash flow of the operating entities for the third quarters of FY '23 came to JPY 217.0 billion, and at the end of the term balance of net cash came to JPY 2,339.3 billion.

Next, I would like to talk about the consolidated financial forecast for FY ending in 2023. Firstly, speaking of Honda Group's unit sales since the previous forecast, in Motorcycle business, considering the growth mainly in Asia, forecast is for 18,730,000 units. In automobiles, are 3.85 million units, considering the decline mainly in China. And in Power Products, 5.58 million units in view of the declines in Europe and in Asia.

Next, I would like to explain the factor analysis of pretax profit compared to the actual results from last fiscal year. Pretax profit is forecast at JPY 1.080 billion, up JPY 9.8 billion from the previous year's results. Operating profit is forecast at almost the same level as last year's result.

To explain the factors behind the operating profit, impact from sales was a negative JPY 5.2 billion due to reduced income and financial services, the motorcycle unit sales grew, selling price and cost impact is negative JPY 93.0 billion due to sourcing material prices and inflation, though there was good effect from pricing in line with the product value. Expenses impact is expected to be negative JPY 120.0 billion due to increase in the quality-related expenses and our selling expenses. R&D expense impact is negative JPY 52.0 billion. And currency effect is forecast at positive of JPY 269.0 billion.

Next, the changes since our previous forecast. We are keeping our pretax profit and operating profit forecast unchanged. To explain the factors affecting our operating profit, impact from sales is negative JPY 47.0 billion, mainly due to decline in automobile unit sales Selling price and cost impact is positive JPY 17.0 billion, thanks to effect from pricing in line with product value, though there is headwind of inflation adding to cost rises. Expenses impact is positive JPY 32.0 billion due to a decline in quality-related expenses. R&D expense impact of positive JPY 15.0 billion, currency impact of negative JPY 17.0 billion.

Lastly, since our previous forecast, our forecast for capital expenditure, depreciation and amortization and R&D expenditures for FY '23 remains unchanged. This completes my than explanation. Thank you very much for your attention.

[Operator]

[Operator Instructions] Let us begin with [indiscernible],

Mr. [ Nakamura ], please. Mr. Nakamura, can you hear -- can you hear me? Yes, please.

[Unknown Analyst]

I'm Nakamura from [indiscernible]. I have 2 questions. The first, the sales in China, I want to know the details about sales in China in November due to the Corona or COVID-19 policy. These plan had to be suspended, but what is the forecast of production sales in China, January to March? And also about trying to shorten the delivery time in Japan overseas, especially due to the shortage of semiconductors, I think that you're working to try to secure the necessary semiconductors. But I'd like to ask you, including that area of semiconductors, how you intend to shorten your delivery lead time.

[Eiji Fujimura, executive]

Thank you. Mr. Nakamura for your question. We have received 2 questions. First, about China. Let me begin with China. [indiscernible] pointed out again and also as explained, for the third quarter, especially October and November due to the Zero COVID policy, the plant had to be suspended as well as the coastal areas, it was the inland area of China, which was heavily impacted and also the -- we have the [indiscernible] plant. It's in Wuhan and because it's in the inland area, including production, there was a big impact.

And from December after the government is shifting to boosting the economy and therefore, in regards to the restrictions of outings, the Chinese government have lifted these restrictions. But as a result, the number of infection cases increased. And so in the third quarter, compared to our original plan. In regards to China, we were short of some 120,000 units. Of course, there is also the semiconductor impact included here.

Now in regards to the fourth quarter, January, March quarter, Well, we came up with the January numbers recently. And due to the [indiscernible] and that some of the dealers were closed. And there was, to a certain extent, the impact of those sales. And also due to the Chinese Lunar New Year, and also, the car acquisition tax, there was a tax reduction. This was ended at the end of December. And therefore, in January year-on-year compared to last year, it is around 50%. But in regards to these factors, we had factored the win in our plan. And February at the spring, we will be able to resolve these impacts.

Meanwhile, looking at the market development last year in calendar year 2022 in China. The passenger car market, we are not involved very much in commercial vehicle. So talking about passenger car market, it was around 23.5 million units. And in year '23, we are expecting it to be more or less the same. And given that, the breakdown would change. So we believe that there will be growth in the new energy cars, and they will have a share of 30%, 40% and seeing a growth of 130%.

[Unknown Analyst]

And so how are we going to compete given this situation?

[Eiji Fujimura, executive]

The e:N Series, well, we launched this series last year. It is still -- and we also have ICE, intercombustion gasoline engines. So we will have to compete with these core CRV are highly appraised. And therefore, we want to ensure that these can be produced and we want to cover with that. And also for electrification, the e:N series, the second of the series will be launched within FY '24 and also under [indiscernible]. And we work on intelligence, and sensing [ 360 ], these will be evolved. So that by FY '27, we will have 10 EVs in the market. So that is our situation in China.

And about the deliveries, both in Japan and overseas, the impact of semiconductor shortage, I said that in China, there was also the impact of pandemic, and we had to reduce it by 210,000 from the plan. But other than China, again, we have 40,000. So in total, 250,000 reduction about the impact of this 40,000 units. Given the markets in U.S., North America, is a big factor. And well, relatively speaking, North America when it comes to the price range of the vehicles -- will be -- the vehicles will come with a lot of equipment, which requires semiconductors and therefore, we -- North America is more impacted by the shortage. But in Japan and Asia, and including the measures that we're taking, we are increasing our unit sales.

So the semiconductor impact -- well, we initially were planning for 4.2 million, but is now 3.8 million units. We are trying to manage the situation on a daily basis. And so if we miss even a single component, we cannot produce, therefore, together with our suppliers as well as the semiconductor suppliers, we are directly communicating with them to try to address this issue.

Well, it is a very challenging situation. But the third quarter, Well, excluding the pandemic in China, compared to the second quarter, we have been increasing unit sales. And compared to last year's third quarter, the unit volume is increasing. So we think that we are starting to see the situation bottom out. And from the second half of this year, the supply will recover. We are expecting that to happen. So this is the image that we hope.

[Operator]

From [ Nikkei Newspaper ], Mr. Tanabe?

[Unknown Analyst]

Okay. This is Tanabe from Nikkei [ Paper ]. I hope you can hear me. Okay. About your financial services business. So recently, from October to December, you saw some declines in your profit. So I'd like to know the reasons. That's my first question. My second question is for the states. I would like ask, are the whole industry -- I believe that the incentives are actually coming to the bottom. So from January to March, I wonder what you expect the incentive to go from here? Well, the word recession is mentioned -- so I just want to ask what -- how you see the demand in states.

[Eiji Fujimura, executive]

Okay. Thank you very much, Mr. Tanabe. Concerning the financial services operations and then our states and the incentives. Okay. Mr. Kawaguchi will cover the details about the financial services. But the financial services after since the pandemic started, what has been changing dramatically is that during the pandemic, the subsidies so far, there has been a lot of good subsidies from the government to individuals. And then we have not been able to provide good new vehicles. So the used car market prices have been going up. So in all our financial services operations, there's a bit of a special factor. There has been some impact in default and the losses of the residual value, so those are negative. Risk expenses has been there.

And then -- but for the past story through the 2, 3 years, there has been -- the negative risk factors has been very low. So we used to have got JPY 330 billion operating profit. However, now those risk factors are coming in. So we are -- we used to have this. We are thinking expecting something like JPY 250 billion to JPY 260 billion throughout the year for the full year. So that is the effect that we are seeing. So far, we were -- without going without the risk expenses, but those are now coming back. That is the big reason behind this reduced earnings.

You have anything to add Mr. Kawaguchi?

[Unknown Executive]

Okay. Mr.Tanabe. Thank you for the question. As Mr. Fujimura explained, the overview of the -- our financing services business. As you've said, for -- if we look just at the third quarter, compared with the third quarter last year, we have lost about JPY 14 billion operating -- operating profit are 2 big factors for this. One is that as Mr. Fujimura explained, those default -- those losses associated with the default -- to repeat myself last fiscal year, in the states, particularly, we had a very good business, so the government subsidies. So with that, the 14 percentage was very low. But now those subsidies because the pandemic came to -- coming to an end -- those are subsidies are coming to the end, so that the normal defaulting ratio has been coming back.

However, in case of Honda, the customers, we are -- have been -- we have -- thankfully, we have many customers who have a very high credit score. So compared to the general increases in defaulting, it is not that we are getting the same level of our delinquencies or default. So it is a gradual increase in the default in percentage, fortunately. And another thing is that the credits of the loans, this balance is itself is declining. So the loans or the leasing, we have the interest income from them to the customers.

So currently, if our lending credit has been declining, that means our revenues are declining. So the financial revenues, sorry, the income has been going down. So due to the semiconductor and the pandemic, we -- the states in general, the retail segment has been very struggling. So the credits that we have been providing to consumers -- the lending, those are kind of expiring. And then we are getting a reduced number of loans and lending [indiscernible] . So the lending volume has been going on. So those are the 2 factors that contributed to this.

Okay. Then let me try to answer the second question about the incentives. As you said, those are hitting the bottom I would say that is what we see. So we are struggling with the semiconductor situation. We do have a good demand. However, we are not able to catch up with the supply.

So at the dealers, the inventory at the dealers has been very low, generally speaking. So -- so even if you look at the other OEMs across the market, that has been the situation. However, the American and Korean OEMs, they are getting rid of that situation, they are getting -- they're building up their inventory. So due to -- maybe due to the impact we are seeing that the incentive has bottomed out and then is going -- looking to increase. So we are assuming that this situation will continue.

But for ourselves, initially before the pandemic, we were thinking of like 60 days worth of dealer inventory. That's what we used to keep. But we wanted to minimize -- running and minimizing the inventory dealer when it comes to keeping down the incentives. This is something that America Honda believes in and the dealers in the states that we work with. They understand the situation that this leads to keeping down the incentive. So we don't want to make sure that we don't bring up the inventory level at the dealers to the previous level. And at the same time, of course, for model, there will be some situation where the incentive would need to be raised. However, we want to avoid that situation. We have been trending at the lowest level of incentive originally. So we want to try to keep it even more than the efforts that we use to pull into this before. I hope those answered your question.

[Operator]

Next question. [indiscernible]

[Unknown Analyst]

This is [indiscernible] from NHK speaking. Can you hear me?

[Operator]

Yes. Can you speak a bit louder?

[Unknown Analyst]

Mr. [indiscernible] from NHK. About your operating profit of the Automobile business, this -- we have a margin of 1.4%. And compared to last year, it's low. What are the reasons? And how will you try to improve? What are your policies going forward? That's the first one. And related to that, the price increase of your automobile [ miles ], can you talk about possible price increase?

[Eiji Fujimura, executive]

[indiscernible] Thank you. About our operating margin, well, 1.4%. Yes, as you mentioned, it is quite low. We do recognize this to be low. Well the operating profit or the operating margin of our Automobile business -- the fact that it's low. Well, it's after the [indiscernible] shock, we were struggling, and we had this goal of achieving [ 6 billion ] worldwide, and we started up our factory, but we could not achieve that level. And therefore, to now, we had to decide to close down some of our plants.

And about profitability of new models, again, it is pointed out that it's not increasing. We want to try to have common parts, [indiscernible] cars globally and also improve the profitability of [indiscernible] with the respective models.

So -- as for our plants in Europe as well as in Japan, [ Saitama ] factory, Sayama plant. We have reduced the fixed cost and for new models, recently from last year, Civic, Accord, CRV, HRV [indiscernible] well our core miles being renewed. So I think in terms of our profitability, we have put in a lot of new measures and come this far. As per our capacity, well, I said that we are -- we were aiming to 6 million units globally is currently JPY 5.14 million. But regretfully, due to the semiconductor and the pandemic situation, it is less than JPY 4 million right now, but around 70% of what we are aiming towards with JPY 5.14 million.

Well, this [ 1.4% ] operating margin is low. So we have to think about first, how to secure [indiscernible] semiconductors so as to improve our top line, but despite this very low utilization rate of plants, we have managed to come this far.

And about the price increase question that you asked, it will be coming up later. Over the past 2 years, we have -- we have had a cost increase impact of some JPY 700 billion over the past 2 years, and we had to take measures to cope with that. And so with these factors all combined have resulted in operating margin of 1.4%. We have to try to increase the margins. We understand.

About the price increase of our automobile models, the way to think about it. Well, about the price increase, we avoid using the term price increase. Instead, as we explained, we try to -- try to price it and commemorate with the product value. And so -- what we are thinking here is that the car and the service, we have to focus on how our customers will appreciate the value. So this is the first factor that will be important. And we need to try to enable our customers to recognize the value of product or service. We need to offer such products and services that our customers would appreciate.

Now how are we going to increase the price? It really depends on the market. It depends on the model. So a number of factors are involved here. And in the field, we will be very careful and prudent in setting the prices.

About inflation -- was not because of inflation that we want to increase the price, but to our customers, in order to explain how we are prudent about increasing prices in regards to our automobiles. Well, there are cases in which we rather cut. Reduce the price. Well, rather, if we were to reduce it, it will lead to reducing the price of used cars. It's not just new customers but our existing customers who are already using our models. We would animate the asset value of these vehicles. And therefore, as that we are trying to keep incentives to the lowest in the industry. So including that, we have to try to protect the value of our customers' assets. This is something that we also need to take into consideration. And therefore, for our customers to not just by a new Honda but we also have to attach importance to our customers who are using our products. And with this in mind, we want to determine this pricing. These are the thoughts that we have in regards to the subject. Thank you.

[Operator]

From [ Automotive News ] [indiscernible]

[Unknown Analyst]

Hello. Yes, this is Automotive News. Can you hear me now?

[Operator]

Yes, please.

[Unknown Analyst]

Yes. If I may ask a quick question in English, please. It's about your dealer strategy in the United States with the Sony Honda Mobility. It seems to be a somewhat sensitive issue with Honda dealers there. Your Honda dealers and accurate dealers seem to assume that they will have automatic rights [indiscernible] to start selling Sony Honda EVs. But the Sony Honda Mobility Joint Venture doesn't seem to agree necessarily with that. What is Honda's position on maybe giving its own dealers an advantage or a priority in selling or, I should say, servicing or aftermarket business with Sony Honda Mobility?

[Eiji Fujimura, executive]

[Foreign Language] Thank you very much, [ Hans ]. For Sony Honda Mobility, about the fusion of the Sony and Honda. Those are -- we come from different industries. So this is an unprecedented idea. This is a new mobility value that we alone cannot come up with. So it's something innovative. So we do have high expectations of this as we started up with the joint venture and then as the project proceeds.

But I'm sorry to -- I have to say this, but see this, the Honda and Sony Mobility's vehicle business and Honda's business -- they can become competitors depending on the market where the joint venture dealers and our business work. So they would have to -- there are rules and policies, regulations about sales and competition. So we cannot talk about the Honda Sony Mobility's products and services, what will be made available. And as you've asked, what kind of sales strategy will be adopted. I'm sorry to say that we are unable to answer the question. So I hope you will appreciate our position on this.

[Operator]

[indiscernible]

[Unknown Analyst]

This is [indiscernible] speaking. How do you do? Please, 2 questions. So about the 9-month and full year, the operating profit and you talked about the gains and losses and the selling price and cost, and you said -- I want to know are those are the material cost? So can you explain the details of how much increase and also give the breakdown. And another question is, I might be asking the same question every time by the suppliers. I think I'm looking at the performance, and they are also having difficulties. And so the suppliers, are they not requesting that you try to add on their additional cost on the pricing? So are you not receiving such request and are you satisfying their request?

[Eiji Fujimura, executive]

Mr. [indiscernible], thank you very much. About the breakdown, I would like [indiscernible] to respond to your question about that. But about the request that we're receiving from our suppliers to add on their cost to the pricing and for us to accept the increase in pricing.

Well, true for ourselves as well, but I do think that there is a big impact in various ways. But recently, there's been the foreign exchange, raw material, energy price, the personnel costs increased and along with the semiconductor situation, we had to reduce our production. And therefore, we have to shoulder the fixed cost more than in the past. And -- and we are asking our suppliers to put in place the necessary fixed asset to meet our requirements. And therefore, I think that they are very much impacted having to reduce their production volume. We do recognize that this is their situation.

Well, when it comes to foreign exchange or raw material impact, within the fiscal year, we are purchasing section and the suppliers work out and try to supplement the shortcomings, but this year, just for this year, the energy price or there's the inflation impact and production reduction impact, so all these included. We are trying to respond fully and try to support our suppliers and struggling with these challenges. And it's not just the Tier 1 suppliers, Tier 2, Tier 3 suppliers to the supply chain on the [ whole ], we are looking into how we can share the burden.

Well, each will be negotiated. And so in our fourth quarter, I think that we were thinking that a much of the costs will be posted in the fourth quarter. We are doing a case by case. And in the third quarter, we have already settled it or decided with it in the third quarter. So in the third quarter, in our actual numbers, the cost increase is already reflected about half of the portion.

About the raw material prices included the suppliers' cost increase. Well, it's not really to respond to that [ state ]. But there is a cost increase of JPY 430 billion, of which suppliers also included having to try to deal with the supply situation.

And the full year, we and our suppliers we are trying to reduce our cost and improve our earnings structure. We are both on site, both sides are working on this. And for this fiscal year, I think it will be difficult to ask them to try to work on this. So -- looking at the supply chain, we will talk with them and decide what needs to be done. That is the situation.

And as for how much? I'll hand it over to [indiscernible]

[Unknown Executive]

[indiscernible], thank you for the question about the full year. The slide that you saw earlier and also the selling price cost impact is minus JPY 93 billion. About the raw material steel, aluminum and also the precious metal and catalysts. These are the areas in which we're seeing quite a bit of impact. The breakdown precious metal from last year, especially recently, [indiscernible] volume, the market is softening. That is how we see it.

And the semiconductor part is easy. And [indiscernible] the car production increases and the situation might change. We do think that might happen, but just as of now, we think for the precious metal pricing is -- the market is softening. We [ want ] still aluminum ever since last year, we have seen quite a bit of increase in price, and this has had an impact on our business.

About the full year, minus JPY 93 billion. And this explanation. But as Fujimura has already said, the overall cost is JPY 430 billion, and this is included and we are trying to make effort to reduce the cost and also to charge a price in line with the product value. So through such [indiscernible] we tried to cover for this, but still, we have this JPY 93 billion.

Now of the JPY 430 billion, the raw material cost increase and also, as I explained, the suppliers, we can negotiate and talk with our suppliers and try to shoulder some of their costs. So that will increase our costs and labor costs, logistics costs and inflationary impact are only included. Now there's JPY 430 billion. Well, raw material -- just looking about the raw materials, about JPY 200 billion would be the portion that accounts for the raw material part.

And about the 3 -- 9 months period, well, we -- I said the JPY 430 billion earlier, which JPY 250 billion plus has already been realized over these 9 months. And raw material impact is about JPY 150 billion plus. I hope I understand that, that is the case. That is all. Thank you.

[Operator]

We'd like to take the next question from [indiscernible] Mr. [ Yokoyama ], please.

[Unknown Analyst]

This is Yokoyama I hope you can hear me. Yes, please. Okay. I have 2 questions as well. But your production planning, I would like to hear about the forecast. So of course, for this year, you have shown the volume, but you talked about the semiconductor. So for the next fiscal year, in what direction you'll be heading with the production plan, including your countermeasures and all that? So Toyota said that 10.6 million units and then that will be the guideline. And then so I'd like to hear what Honda's thinking about. And then about the deterioration in profitability for automobile business, this was asked earlier for if the unit volume goes up, I guess, the profitability deterioration might -- might get worsened. I just would like to know what your prospects are for next business year onwards?

[Eiji Fujimura, executive]

Okay. Thank you very much, Mr. Yokoyama. About our production plans, our forecast. Well, I hope that we can -- we head towards this capacity of 5.4 million units, but I guess that would be difficult, I would say. So we talked about the 3 quarter results. So the impact of a COVID in China, so that consists of -- it is still very difficult to split up into the impact from pandemic and semiconductor. But I'd say the [ 210,000 ] unit reduction, I'd say, more than half of the majority would have been pandemic. So I would say for this fiscal year, that will be the 4 million units or so. And then the 4 million will be the bottom.

[Unknown Analyst]

So how much will we can build on top of it?

[Eiji Fujimura, executive]

That's the plan we have for the next business year. That's what we are thinking of.

[Unknown Analyst]

So exactly what kind of numbers we can build up for that?

[Eiji Fujimura, executive]

In May, we will talk about the forecast for next fiscal year. So by then, we should be able to tell you something more. And in terms of actions or countermeasures, we have been making a lot of -- taking a lot of actions. So development of alternative components and parts and then for alternative parts. Concerning semiconductor, we -- one thing we have been relying on analog semiconductors to keep the costs reasonable. But even if those are more interchangeable, we would go for -- even for higher cost and then build -- we want to build as many cars as possible. So we want to develop alternative parts while using relying on that type of parts. And then we will try to coordinate with suppliers as well. That's what we have been doing.

And then at the early stage, we are communicating our production plan to the suppliers so that they can expect to secure certain parts volume. That's something we have been doing already, but we would like to reinforce that kind of efforts together to try to work out the production plan for the next fiscal year onwards.

[Unknown Analyst]

And concerning this, as the volume goes up, well, what is going to happen? I mean, profitability, how much that's going to go up by?

[Eiji Fujimura, executive]

As I said, we consider 4 million units at the bottom, and then we are thinking how much on top of it we can build up. So this is only assumptions. So at this point in time, I would we prefer to refrain from speaking of it. I hope we can show you something more solid in May. Thank you.

[Operator]

I apologize, but due to the time limit, the next question will be the last. Last question, Nikkei, [indiscernible], please.

[Unknown Analyst]

This is Nikkei [indiscernible] Can you hear me? Thank you. I also would like to ask about the semiconductor situation. Well, it might be a bit redundant, but once again, the first question is, well, I think you said that you [ costly ] communicate with semiconductor manufacturers. But what specifically are you going to talk about? What do you think will be effective? Are there any exchanges that you can share with us? And second, about the future outlook. Well, the last announcement in this announcement, you again have repeated the shortage of semiconductors. November, I think the shortage content -- the amount of content might be different. And things might be improving in some places or the types of shows semiconductors are in short supply might be changing. And can you explain about that? And what solutions that you have in mind to try to resolve this situation?

[Eiji Fujimura, executive]

Mr. [indiscernible] Thank you very much. We -- you want us to give you some more specifics. Well, we -- when it comes to components delivery, we have been talking with the Tier 1 manufacturers. We've lifted them to work on the situation. But when it comes to semiconductors, Tier 1 suppliers, they have to procure the components and assemble and deliver to us. And this process with the lead time that is required for that.

In the case of semiconductors production manufacturing, the lead time is long -- very long. And therefore, even -- we cannot just impose our requirements on Tier 1 manufacturers. We have to show understanding towards their situation. So is that possible to just make demands. And so whether it's going to be several months, year, a year or 2 years, I really cannot give you a definite answer. But given the nature of the semiconductor, the lead time that is required, we -- by thinking about what sort of information we should be providing them with.

And analog semiconductors -- well, in terms of our shortage, we do have a shortage of such semiconductors. And the manufacturers though would find it difficult -- well, the -- I don't think that they will decide on their own to invest on such capacity. So we have to share our troubles and to talk about what can be done. So through that, we can build up a relationship with our suppliers. So I think that, that is the sort of exchange that we have, and we hope to be effective.

Now about the outlook, when we announced from November, well, ever since that time, excluding China, I have -- it's minus [ 4 million ], so -- 40,000 rather, sorry. So it -- well compared to the plan, in Japan and Asia is plus where and others, it's minus but on the third quarter for North America, finally, compared to the second quarter of the previous year, we are -- we saw a positive. Well -- and in January, we have seen a positive increase and the market growth was greater than that of Honda. So I think that we are starting to see some good signs.

So how can we resolve -- going forward, the measures that I explained will have to be taken one by one. I think that is the other thing that we could do. But to fully resolve, I think it will take some more time. I think it will start to improve in the second half of FY '24, I think that we will start to see a better procurement of semiconductor [indiscernible] time.

[Operator]

So thank you very much. With this, I would like to close the financial results briefing. We do have some information about the financial results on the website, so please refer to it. Thank you very much for participating. Thank you very much.