Honda Motor (HMC) Q3 2022 Earnings Call Transcript

Honda Motor (HMC -2.21%)
Q3 2022 Earnings Call
Feb 09, 2022, 1:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Noriko Okamoto

[Foreign language] Thank you very much for taking time out of your busy schedule to attend our press conference today. We would now like to start Honda Motor Company Limited's fiscal year 2020 third quarter financial results press conference. I am Okamoto from corporate communications. I will be the facilitator today.

Thank you. First of all, allow me to introduce the presenters today. Director, executive vice president, and representative executive officer, Mr. Seiji Kuraishi.

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] Good to see you.

Noriko Okamoto

[Foreign language] Director, senior managing executive officer, Mr. Kohei Takeuchi.

Kohei Takeuchi -- Director and Senior Managing Executive Officer

[Foreign language] This is Taki. So good to see you.

Noriko Okamoto

[Foreign language] Then, Mr. Kuraishi, you will first present the third quarter financial results. Over to you, Mr. Kuraishi.

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] I would like to present to you the outline of the financial results for the third quarter and the full year forecast for fiscal year ending in '22. I would like to start with the situations in key markets. The total market demand in Japan was lower than the same period last year due to impact from factors, including supply shortage of semiconductors. Honda, so we've seen some growth in models such as Brazil and the cumulative results until third quarter showed lower sales compared to the same period last year.

N-Box ranked No. 1 in the new car unit sales among Kei cars in the calendar year 2021. While the total market during the fiscal year ending '22 showed firm demand, we believe that it will continue to be impacted by factors including semiconductor supply shortage and the resurgence of the pandemic. Honda will strive to recover its production and will maintain its previous forecast.

Next, take a look at the total U.S. market. While demand recovered under the economic stimulus measure, it was still impacted by factors, including semiconductor supply shortage. So the demand for the cumulative three quarters was almost flat compared to the same period last year.

Honda's unit sales for the three quarters surpassed the results of the same period last year due to increase in light truck models. But if we look at the three months just through the quarter by itself, it was lower than the same period last year due to impact from semiconductor supply shortage. And Civic, by the way, was named the 2022 North American Car of the Year by the way. We see the total market for the fiscal year ending in '22 to sustain strong demand, but still, we expect the impact from semiconductor supply shortage and the pandemic to be significant, we believe.

Honda has revised its previous forecast downward, considering our immediate production status. Now looking at the Chinese overall market, demand recovered, thanks to the economic stimulus measures by the government, but the impact from semiconductor shortage resulted in a lower demand compared to the same period last year. Honda has expanded sales of XRV and saw some effect from launching the new Integra, but still, our sales was lower than in the same period last year. The total market for the calendar year '22 is expected to surpass the previous year with solid demand, though the impact from semiconductor shortage remains.

Honda has revised its forecast upward considering the most recent sales situation. In China, in January, Dongfeng Honda Automobile announced the construction of a factory dedicated to electric vehicles. We will continue to further expand our electromotive vehicle product range and provide further attractive products. Now turning to motorcycle business.

Total market, while impacted by the COVID-19 pandemic is still showing recovery in demand in many markets. Honda also showed better results in many countries for the cumulative three quarters compared to the same period last year, but the numbers were lower in countries such as India and Vietnam due to the impact of resurgence of COVID-19 pandemic. The total market for the fiscal year ending in 2022 is expected to see solid demand, but we expect that the impact from the resurgence of pandemic will still remain. While Honda plans for sales volume surpassing that of the previous fiscal year, we have revised our forecast downward from the previous forecast in view of the sales status in India and the impact from semiconductor supply shortage.

Next, I would like to present the summary of the cumulative results up to the third quarter. While the automobile unit sales declined due to a supply shortage of parts, including semiconductors, and impacted by the surging material prices, thanks to cost reduction, curbing of incentive, and a positive ForEx impact, our operating profit grew by JPY 224.6 billion to JPY 671.6 billion. And also, the profit attributable to the owners of the parent company grew by JPY 138 billion to JPY 582.1 billion. Unit sales and income statement highlights are as shown on the screen.

Moving on to the consolidated financial forecast for the fiscal year ending in '22. Compared to our previous forecast, COVID-19 pandemic is spreading again. Supply shortage parts, including semiconductor continues and further surging prices of material continues. Thus, the environment surrounding our business is expected to remain challenging.

But we are making further efforts to curb our SG&A expenses and incentive so as to enhance our profitability. So we have revised our operating profit upward by JPY 140 billion to JPY 800 billion and also revised our profit for the period attributable to the owners of the parent company by JPY 115 billion to JPY 670 billion. The unit sales and income statement highlights are as shown. Next about dividends.

Forecast for the full year dividend for the fiscal year ending in 2022 is JPY 110, unchanged from the previously published forecast. I would now finally, I'd like to explain the key points of the results for the third quarter for fiscal year ending in 2022. For the three-quarter year-to-date results for the year ending '22, regarding supply shortage of semiconductors with the cooperation from our suppliers, we have adjusted our inventory allocation around the world and made changes to alternative parts. So we have made some improvements compared to the previous forecast.

Compared to the previous fiscal year, though we have seen a decrease in automobile production volume and impact from surging prices of materials. We have made all our own efforts and have absorbed all of the impacts and have been able to attain higher revenues and higher earnings. Combined with our efforts so far to solidify our existing business, which have given us toughness or resilience in the face of reduced production, the strength of our frontline gemba operations capable of responding promptly to the ever-changing environment production sales situations, has shown its true benefits, we believe. For the fiscal year 2022 full year performance forecasts, considering the flooding in Malaysia, which happened in the fourth quarter, and the impact of reduced production due to the wave of omicron variant, we are keeping the full year automobile unit sales forecast unchanged.

While the environment surrounding our business is expected to be challenging, including surging prices of raw materials, we will further reinforce our structure for generating earnings and we are revising our full year performance forecast upward. For the next fiscal year, we expect that the impact of semiconductor shores will linger. But we strive to further strengthen the business foundation for profitability, which we have built, and we ensure that we are well prepared for the future, and we may aim for further growth. And next, Takeuchi will give the details.

Kohei Takeuchi -- Director and Senior Managing Executive Officer

[Foreign language] And I'd like to begin the explanation. First, under group unit sales for FY '22 9 months was motorcycles due to increase in mainly Asia, unit sales increased to 2,775,000 units. Automobiles, due to decline in China and North America was unit sales was 3 million units. Life creation due to increase in mainly North America and Europe was 4.5 million units.

And next, FY '22, three quarters, nine months change in profit before income taxes. Profit before income taxes was JPY 845.2 billion, up JPY 186.5 billion from the same period last fiscal year. Operating profit was JPY 671.6 billion, up JPY 224.6 billion from the same period last fiscal year. Operating profit, excluding currency translation effect was JPY 97.7 billion.

Breakdown was revenue model mix, etc., despite the drop in automobile unit sales due to the effect of controlling incentives and others was plus JPY 81.4 billion. Regarding cost reduction, etc., despite the impact of the certain raw material costs due to cost reduction and price increase effects was minus JPY 9.7 billion. SG&A was plus JPY 98 billion due to cost reduction effect, such as warranty expenses. And next, sales revenue, operating profit by business segment.

Motorcycle business operating profit was JPY 282.3 billion. Automobile business operating profit was JPY 188.5 billion. Financial services business operating profit was JPY 258.1 billion. Combined operating profit of automobile business and financial services for automobiles was JPY 437.2 billion.

And next slide, creation and other businesses. Operating loss was JPY 7.4 billion, of which aircraft and aircraft engine operating loss was JPY 23.6 billion. Moving on to cash flows. FY '22 in nine months free cash flow of nonfinancial services business was JPY 178.3 billion.

Cash and cash equivalents at the end of the period was JPY 2.416.8 billion. And moving on to FY '22 consolidated forecast. Honda group unit sales. Motorcycles forecast is revised downward from the last forecast to JPY 17.04 million reflecting drop in mainly Asia.

Automotive business, despite shortage in semiconductor supply and research of COVID-19 infections, the rebid forecast remains unchanged, i.e., 4.2 million units. Life creation business, reflecting mainly the drop in North America, we are forecasting 5.95 million units. Let me proceed to explain FY '22 forecast change in profit before income taxes compared to the previous forecast. Profit before income taxes is forecasted to be JPY 1.020 billion, up JPY 160 billion from the previous forecast.

Operating profit is forecast to be JPY 800 billion, up JPY 140 billion from the previous forecast. Operating profit, excluding currency effects, as plus JPY 130 billion breakdown is the revenue model mix, etc., despite drop in consolidated automobile unit sales, the low inventory and incentives control resulted in a forecast that is up JPY 40 billion. Regarding shortages semiconductor supply, though we have seen improvement in the nine months versus the previous forecast. There was a flood in Malaysia in the fourth quarter and drop in production due to the research of COVID-19 pandemic.

Yet, group automotive unit sales forecast remains unchanged, i.e., 4.2 million units for the full year. Consolidated other mobile unit sales in North America is down due to the research in COVID-19 cases. And next is SG&A is up, we had JPY 11 billion. And due to other expenses being capital and in addition, reduced warranty expenses.

And the FY forecast compared to the actual results of last fiscal year, profit before income taxes is up JPY 105.9 billion. Operating profit is forecast to be plus JPY 139.7 billion, excluding currency effects. The major breakdown in items or revenue model mix despite a decrease in automobile unit sales due to incentive control, etc., it's up to JPY 4.7 billion. Cost reduction, etc., despite the impact of searching material costs, we saw a cost reduction and price increase effects.

This combined cost reduction is JPY 35 billion minus. And lastly, FY '22, capital expenditure, depreciation, and R&D and the forecast is as shown. This concludes my presentation. Thank you for your attention.

Noriko Okamoto

[Foreign language] Thank you very much for your attention. So now we'd like to move on to our Q&A session. [Operator instructions] The first question is from Yomiuri newspaper, Mr. Katagiri, please.

So Katagiri -- The Yomiuri Shimbun -- Staff Writer

[Foreign language] Thank you. This is Katagiri from Yomiuri newspaper. Can you hear me?

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] Yes.

So Katagiri -- The Yomiuri Shimbun -- Staff Writer

[Foreign language] I have two questions. The first question about the automobile production situation currently. Domestically, the utilization ratio when compared to the forecast, it says in the whole page, well, it is as planned. But I will say that -- I would like to know what is happening to the production overseas, that is China.

And well, I do hear that there is such an impact of production overseas, but this reduction in production does not necessarily seem to be impacting the forecast. So can I ask you about the stability of production overseas?

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] And the second question?

So Katagiri -- The Yomiuri Shimbun -- Staff Writer

[Foreign language] And the second question, I would like to know more about the increase in profit, the reason? Well, you say that you control the incentives. And at the last meeting, in North America, you said that normally is around JPY 200,000, but it's a little more than half. But in the past three months is the case when you further reduce the incentives. And this trend, even if the lowest inventory and shortage of automobiles were to be resolved will this continue? And also in China, I think that the prices are going up, but are you still going to control the incentives going forward? And you said that the warranty expenses and other expenses have been controlled.

But can you elaborate on what this actually contains or includes.

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] Well, let me start to answer about the current production situation. Well, currently, globally, there are no factories which have staffed production. So in automobile factories, the production is normal. When in the third quarter, including our suppliers, we have made all our effort resulting in a recovery in production earlier than expected, and unit production has recovered to some 1.08 million units, whereas the omicron research, especially in North America, the supply chain overall, they have a lack of labor and therefore, it is difficult to carry out production currently.

And in Malaysia, there was a flood. And once again, we see that the semiconductor supply chain is impacting us. In the fourth quarter, originally, we were estimating normalization of production, and looking at the fourth quarterback in 2019 before the COVID, it was JPY 1.35 billion. We are expecting it to reach that level.

But given the current situation, you had to revise. But from the third quarter to fourth quarter, we think that sales is about plus 11%. And so for the full year, we can retain this forecast of 4.2 million units. Well, whether this is directly linked to production.

Well, it depends on the situation about sales and marketing. Well, it depends on the inventory of different models. So the production impact does have an impact on some but not so much on others. It depends.

But it is true that the production is having an impact directly on our sales and marketing. But there is some uncertainty about COVID-19 going forward, but we want to continue to increase our revenue and profit and maximize our sales. That is all. Thank you.

And the reason for the increase in profit, Takeuchi will explain.

Kohei Takeuchi -- Director and Senior Managing Executive Officer

[Foreign language] Yes, about the incentives that was asked. Well, as Katagiri-san said, the incentives yes, in terms of the consolidated unit sales, it is a negative number. But with the control of incentives and also reduction in warranty expenses, we have managed to offset that. Well, just looking at the incentives, especially in North America.

Last time, it was about $2,000 per unit, but it's almost half, as I said, but still at the dealers, well, I think that they have a very low stock in terms of the days. And in the second half, we believe that the incentives in the second half of the year will be half or even less than the $2,000 incentives. Well, the inventory at the dealers -- this has been posted as a cost at the dealership. And therefore, this also is resulting in reducing the stock inventory and reducing the incentives.

But about the inventory at the dealerships, well, this is true in Japan as well as China. But in North America, we see this significantly. And so the North American incentive reduction is the major contributor. And also the warranty expenses that are included.

Well, normally, warranty expenses include a claim. And also we -- when being us, our customers and well, there's a recall expenses. And it accounts for 1.1% of total sales. But I think we have been able to curve this, meaning that we are making improvements in our quality.

And this -- therefore, we are estimating that the ratio will be less than 1.1%. In the fourth quarter, mainly in North America and also due to the research in the omicron virus, production is not progressing. So we have to revisit our cost expenses. And having done that, we have concluded that we have both revenue and profit increase.

Thank you.

Noriko Okamoto

[Foreign language] Thank you. Then we'd like to move on to the next question. We have from Asahi newspaper. We have Mr.

Kameyama, please. Mr. Kameyama, can you hear our voice?

Keiji Kameyama -- President and Chief Operating Officer -- Asahi Shimbun

[Foreign language] OK. This is Kamiyama from Asahi newspaper. Yes. I have two questions as well.

My first question is about the semiconductor shortage. The impact of that to production. So from April to December so far, I just want to know how much of a production decrease has happened because of the semiconductor. And then for the January and March, I think you said that you will try to recover this for production.

So I'd like to ask for your prospects for procuring semiconductors. And then the last financial results briefing, you said that you will try to use the semiconductors in major markets like states in China. If there are any further new actions that you're doing to recover this, please let us know. That's my first question.

My second question is about the surging raw material prices. So what are you doing against that? So overseas manufacturers, they -- some of them, they are raising the vehicle prices to be sold in Japan due to the material prices hike. I wonder if you're ever considering it. I don't think that's ever happened in Japan so far, but I'm just wondering what will be the difficulty if you ever try to raise your product prices in Japan? Thank you.

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] OK. Then let me start with the semiconductor shortage. In the three quarters total actually, we -- for 97 terms, we were planning for 5 million units actually initially. However, against that target, right now, we are saying 4.2 million.

So it's 0.8 million units for the year. So for the three quarters, so maybe at about 100 and I believe we were making progress up to 130,000 in volume. So that is the situation as of now for the third quarter. And for the semiconductor shortage, what we are doing against that is, as we have been mentioning to you already, across the globe, we are doing some production adjustments around the world, and we are developing alternative parts and dual sourcing.

Those are the things that we are doing. And longer-term, reviewing the suppliers. That will be another auction, which we are taking on as well. But unfortunately, there are some things that can take longer time and some others that can be done immediately.

So we -- as of now, we believe that even into the next fiscal year, there will be impact lingering. So to Mr. Takeuchi to answer the second question about the raw material price hikes.

Kohei Takeuchi -- Director and Senior Managing Executive Officer

[Foreign language] So currently, the -- because of the surge in prices of raw materials. So right now, we are thinking that about the precious metals, we are expecting a JPY 270 billion raw material increase or so. So this time, this will go up actually to JPY 290 billion. So where the JPY 20 billion difference coming, whereas this is the steel price in North America is about to go up.

So because of that, we will incorporate into the fourth quarter numbers. But is that -- can we pass that on to the sales in Japan? So in North America, what's happening is because the steel material or the other metals prices going up. So we are a making efforts to reduce the cost internally. However, the price surge was too high that we are planning for that in some markets like in North America.

However, for Japan, we do not have any plans to raise any prices. But if we have to in consideration of competition with other manufacturers, we might have to consider that going forward.

Noriko Okamoto

[Foreign language] Thank you very much, Mr. Kameyama. Next question. Next, Nihon Keizai Shimbun newspaper.

Mr. Abe? Abe from Nikkei, please.

Kotaro Abe -- Nikkei Asian Review -- Journalist

[Foreign language] First question going forward there will be an interest rate hike in the United States. If that is the case and the financial service business will be impacted, I think. So what sort of impacts are you considering and another question is about electrification. Last time at this meeting compared to that time, for example, the including EV, electrification, investment, total investment, or models, a number of models, EV models.

Are there any new pieces of information that you can announce today?

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] All of a sudden, as I say about the U.S. interest rate hike. The Fed is trying to move toward that direction. And therefore, this has had an impact on the debt market -- long-term debt market in the U.S.

Now the cars that we're selling in the U.S., 60% to 70% are being financed by our Honda America Finance. And the procurement interest rate will also increase and this procurement interest rate, this will have to be applied to our new customers. So we do expect that customers will have to pay more. But rather than say that it's a revenue because the costs will increase and if sales will increase, then there will be a slight time gap and an impact on our revenue, but not too long.

But if there's an interest rate hike, there is inflation. So I think that the consumers will be reluctant to buy. And so I think that that is a source of concern to a certain extent. Well, about electrification, but we so far have made announcements that Honda globally will move toward electrification and carry out a number of activities.

We're exciting our efforts and product lineup of batteries. We want to tie up with the optimum partner for each market. But as for specifics about the progress, when the time comes, we would like to make the announcement. So we thank you for your further indulgence until that time comes.

Noriko Okamoto

[Foreign language] Thank you, Mr. Abe. I would like to move on to the next question from The Wall Street Journal. We have Mr.

Sean McLain.

Sean McLain -- The Wall Street Journal -- Staff Reporter

Yes. Hi. Sean McLain from The Wall Street Journal. Pardon the question in English.

A question on what you said, about labor shortages in the U.S. If you could provide a greater explanation of what you're referring to and how big an impact it's had on your production numbers there? And then you mentioned that you saw the impact of COVID carrying into -- in the semiconductor issue carrying into next fiscal year. Do you see it having an impact on the entire next fiscal year or just the first half or second half? What is basically, when are things going to get better?

Noriko Okamoto

[Foreign language]

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] With the pandemic spreading in North America, first of all, in our factories at the supplier sites as well, there is spreading the omicron variant is having a bigger impact. So they are finding it very difficult to secure manpower for the production. So because of that, there were some situations where the production got sluggish for some time. But it is not that there was a major impact as big or starts from semiconductors.

However, because it was simply not predictable. So production never fully stopped. But depending on the production lines, which line it was, it is continuing that some stopping suspended from time to time. But in any case, suppliers and ourselves, we are utilizing their indirect demand power for production.

So currently, our production lines, I believe, have recovered, but still going on for the future, it's still unknown. In any case, for the next fiscal year, the omicron expansion resurgence and the semiconductor impact will continue to some extent, unfortunately. As I said, we are taking different actions to address those, but there are some things that cannot be addressed short term. And at the same time, it's like everyone is grabbing to get the supplies of semiconductors and so for next fiscal year as well, we are not really in the position to be able to come up with a clear sales volume.

So currently, for the fourth quarter, right now, have about $1.15 million. So multiple of that, by four, you get $4.6 million. So for next year, we're estimating that in the second half, things will improve. So we would like to aim for production and sales better than that.

That's what we can say. That's all we can say at this point in time. Thank you.

Noriko Okamoto

[Foreign language] Thank you very much. Mr. McLain. And next, Weekly Toyo Keizai.

Mr. Yokoyama, please.

Unknown speaker

[Foreign language] Toyo Keizai. Mr. Yokoyama, speaking. Can you hear me?

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] Yes.

Unknown speaker

[Foreign language] I have also two questions. First, about battery. In North America, well, already, you are going into a secure battery from GM. But going forward, what are your plans for securing battery SES? You had entered into an agreement with SES to develop the lithium secondary battery.

Is this just for North America or others? What is your thinking on tying up with SES? That's the first part. And second, about Tesla, on the other day, they announced the financial results, and they have more than 10% annual profitability and also more than 900,000 units. Well, yes, you say that as a business model perspective, how do you see Tesla's perspective? It could be a personal perspective. But how do you see Tesla's business model?

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] About the battery, as I said in different markets, we are trying to tie up with the optimum partner for that specific market and carry out the procurement, which is fit for the market. As for the specific situation, status, when the time comes, we will make an announcement. So please wait until that time comes. About development with SES.

Well, this is development is a joint development agreement. And in North America, GM, and China's CATL. It's not like that when we're talking about procurement. But as a next-generation battery as candidate, we are working with them to develop the future battery.

That's all. Thank you. and Tesla, well, yes, this is another company and competitor. I would like to refrain from making any specific comments.

Noriko Okamoto

[Foreign language] Thank you very much, Mr. Yokoyama. OK, then I'd like to take the next question from a Daily newspaper -- Automotive newspaper. Mr.

Fukui, please.

Unknown speaker

[Foreign language] OK. This is Fukui from The Daily Automotive newspaper. Thank you. Somewhat detailed question.

But in the full year outlook for the automobile business sales for Japan, you had it was plus North America negative. So I just would like to know the background of why your forecast came out this way. And another one is for when did the analysis of operating profit so the variation, variability you have the curbing of volume incentive and then the reduction in sales. So that was JPY 40 billion.

So I'd like to know about the details of that and also the cost reduction and the raw materials detailed.

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] OK. About the sales of automobiles. For North America, because of the omicron variant impact, so there was a shortage of manpower. And then for temporarily, that led to production and then that led to lower production.

That's the main cause. On the other hand, for North America, even though it declined on a global basis, this -- we did a reallocation of semiconductors around the world. And then for Japan, the orders are coming in very steady and many customers are patiently waiting for long-term time. So those have helped.

For the -- I would like to ask Mr. Takeuchi to talk about the operating profit analysis.

Kohei Takeuchi -- Director and Senior Managing Executive Officer

[Foreign language] So giving you the previous time and this time, the forecast, so there's a JPY 40 billion-plus the details of that you want to know. So the volume I talked about it earlier, in total, so including the global sales volume, including China, that was JPY 4.2 million. So we have not changed that target. But because this is talking about OP, we're only looking at the consolidated ones.

So which means this about JPY 1 million minus for automobile. This is mainly coming from North America. So that has about JPY 70 billion impacts. And also the incentive reduction that the dealer that we talked about in North America because the inventory level went down at the dealers.

So plus was about JPY 85 billion-plus. And then so with that in a lesion, there was a bit of a plus upside on the financial finance as well. So we have about JPY 40 billion. And also cost reduction, minus JPY 37 billion.

So of that, so the steel price raises in North America. And then, so we netted some other factors and then it came out the total of the changes in the raw material prices.

Noriko Okamoto

[Foreign language] Thank you very much. Next question, Automotive News. Hans, please?

Hans Greimel -- Automotive News -- Editor

[Foreign language] Can you hear me?

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] Yes.

Hans Greimel -- Automotive News -- Editor

[Foreign language] This is Hans from Automotive News. I have two questions. Can I ask in English?

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] Yes.

Hans Greimel -- Automotive News -- Editor

The first question is about the incentives in North America. A lot of automakers are benefiting now from low incentives. But when the market returns to normal situation with better inventories and better supply, how do you see the overall market reacting to this? Do you see a shakeout of companies that are going to have to rely -- some companies will have to rely on higher incentives again? And how confident are you that you can keep incentives low when it returns the market returns? My second question is about the allocation of chips, the global allocation of chips. You said that you are able to reallocate global chips to Japan.

Can you talk a little bit about your strategy for allocating chips and does that mean you're reallocating them from North America to Japan or from other -- some regions to other regions? Thank you.

Noriko Okamoto

[Foreign language]

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] We'll answer the North American incentives. So about the incentives and the future trend. Well, as we have been explaining, these incentives, the reduction in expenses or costs. Of course, the unit price and compared to the price, the incentives are kept low, and we are able to do business with low incentives.

And as we said, against the dealer's inventory, we allocate the incentive based on the inventory. And because the inventory is low at the dealers, it's only some 11 days worth in case of Honda. And therefore, this is also a positive for us. These combined has -- we have seen a better forecast.

Now going forward, if the supply were to increase as Hans know, the American customers, they will buy from the inventory. And therefore, once we have an increase in the inventory to a certain extent, it's not the unit price, but the overall price will have an impact on it. Therefore, for the unit price from next fiscal year going forward, we will expand and have new models. And therefore, we want to try to keep down the incentives as much as possible.

But we have to consult the dealers as to how much inventory the dealers will hold. And this part, this -- it might be some margin to increase the incentives due to this. Well, about the allocation of chips. Well, currently, we had identified where the chips are shortage.

We are on a daily basis, bordering the chips. And if there are pluses or minuses, we globally across the world try to adjust the production based on the available semiconductors. But strategy. Well, people are going after the limited availability of chips.

And where they have a large number of production and sales, chips will be allocated. This is natural. And also, those products where there's a strong demand by customers, we would try to allocate the tips to those models. And likewise, for the highly profitable products, we will give priority to allocating the chips to such products.

We're doing this on a daily basis. But as for the strategy, this is as far as we could explain. That is all for me. Thank you.

Noriko Okamoto

[Foreign language] Thank you very much. Sorry, but due to the time restriction, we'd like to make the next question the last for this session today. Thank you. The last one would be from Nikkei Automotive.

Mr. Honda, please.

Unknown speaker

[Foreign language] OK. Thank you. I hope you can hear me.

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] Yes, we can.

Unknown speaker

[Foreign language] Concerning the Malaysia flooding and the resurgence of the COVID, from January to February, I believe that you have announced reduced production. Are you doing something -- some kind of specific action for the supplier was considering the impact to the production of the components, the parts, and components of the suppliers. So I'm just wondering what you are doing.

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

[Foreign language] So basically, what we are doing is with the -- we work depending on the circumstances of the parts suppliers and the semiconductor part suppliers. Of course, if the -- if they have some supplies and parts and inventory, we might ask them to for those to us. But basically, it's up to how we can -- we just -- all we can do is ask for the optimum allocation with the suppliers for their supplies in line with where we need the supplies pumps.

Noriko Okamoto

[Foreign language] Thank you. Thank you to Mr. Honda as well. With this, we'd like to conclude our financial results press conference.

We have the material on our website. So please refer to it. Once again, thank you very much for your participation and attention today. Thank you.

Duration: 72 minutes

Call participants:

Noriko Okamoto

Seiji Kuraishi -- Executive Vice President and Chief Operating Officer

Kohei Takeuchi -- Director and Senior Managing Executive Officer

So Katagiri -- The Yomiuri Shimbun -- Staff Writer

Keiji Kameyama -- President and Chief Operating Officer -- Asahi Shimbun

Kotaro Abe -- Nikkei Asian Review -- Journalist

Sean McLain -- The Wall Street Journal -- Staff Reporter

Unknown speaker

Hans Greimel -- Automotive News -- Editor

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