Honda Motor (HMC) Q3 2023 Earnings Call Transcript

Honda Motor (HMC -0.49%)
Q3 2023 Earnings Call
Feb 10, 2023, 1:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Unknown speaker

I thank you very much for taking time out of your busy schedule to attend our briefing today. We would now like to start Honda Motor Company Limited's 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 -- Head of Accounting and Finance Supervisory Unit

Good to see you, everyone.

Questions & Answers:

Operator

Mr. Masao Kawaguchi, general manager of accounting division, accounting and finance supervisory unit.

Masao Kawaguchi -- General Manager, Accounting Division, Accounting and Finance Supervisory Unit

Good to see you, everyone.

Operator

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

Over to you, Mr. Fujimura.

Eiji Fujimura -- Head of Accounting and Finance Supervisory Unit

First of all, I would like to thank all of 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. So, now explain 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 companywide 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 a good profitability, cash level, and future fund requirements, the board today approved a resolution to acquire ¥70 billion of our own shares. When added to the ¥100 billion already acquired this fiscal year, the total comes to ¥170 billion. Honda will continue to accelerate its efforts toward electrification and new growth to enhance corporate value.

Next, I will explain the status of our automobile business in major markets. In the first nine months of the fiscal year, unit sales in major markets declined for the same period year on year. The third-quarter period was affected by semiconductor supply shortages and pandemic in China. The unit sales in Japan were higher while sales in the US and China were lower than in the same period of the previous year.

In Japan, the N-Box was the No. 1 selling new car consumer, and the Freed was the number one 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 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-VAN. 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 nine months, unit sales exceeded year on year in major markets.

In the third quarter, unit sales in major markets exceeded that same period last year due to the replacement of sales models, utilization of automotive parts, and the effect of new model orders, 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 previous sales forecasts for FY '23, reflecting the current strong sales trend.

As forerunners of the global launch of electric motorcycles, Honda announced the EM1 e in Europe in November and three commuter EV models in China in January. Next, our overview of FY '23 nine 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 ¥62.2 billion to ¥733.9 billion year on year due to price increases commensurate with improved product value, increased motorcycle unit sales, and foreign exchange. Profit for the year amounted to ¥583.1 billion, up ¥1 billion from the same period last year.

Unit sales and income statement are as shown. Next, FY '23 consolidated financial forecast. Despite declining automobile unit sales and upward cost pressure due to inflation, we are maintaining our previous forecast of ¥870 billion for operating profit, reflecting price increases commensurate with improved product value increase in motorcycle unit sales, mainly in China, and companywide efforts to further improve profitability. The profit for the year forecast of ¥725 billion is also maintained.

Exchange rate assumptions for the fourth quarter and full year are ¥138 and ¥135 to the dollar, respectively. Unit sales and income statement are as shown. Next, I will cover the dividend information. The prospects for fiscal-year dividend for fiscal year 2023 is at ¥120 per share, unchanged from our previous announcement.

At the board of directors meeting held today, we have resolved to acquire own stocks. With the objective of enhancing capital efficiency and enabling flexible capital strategies, we will acquire own stock up to the maximum total amount of ¥70 billion. Next, Mr. Kawaguchi, general manager of accounting division, will explain the details of the financial results and forecast.

Masao Kawaguchi -- General Manager, Accounting Division, Accounting and Finance Supervisory Unit

Allow me to start the explanation. To begin with Honda Group's unit sales for nine month 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, 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 pre-tax profit for the three quarters compared to the same period last year. Pretax profit was ¥859.3 billion, which was higher by ¥14.1 billion compared to the same period last year. Operating profit was ¥733.9 billion, which was higher by ¥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 ¥97.1 billion. Impact from selling price and cost, while there was a 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 ¥17.1 billion. Next, expenses.

Due to increase mainly in setting expenditures and other factors, this gave us a negative impact of ¥65.6 billion. R&D expenses led to a decline of ¥11.5 billion, and currency effect resulted in 253.7 million positive impact . Next to explain the sales revenues and operating profit by business segment. For motorcycles, operating profit was ¥376.5 billion.

Automobile operations profit was ¥112.9 billion. Operating profit from financial services was ¥220.3 billion. And for our power business and other businesses, operating profit came to ¥24.1 billion. Next, I will explain the cash flow. Free cash flow of the operating entities for third quarter of FY '23 came to ¥217.0 billion and, at the end of the term, balance of net cash came to ¥ 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, our motorcycle business, considering the growth mainly in Asia, forecast is for 18,730,000 units; in automobiles, 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'd like to explain the factor analysis of pre-tax profit compared to the actual results from last fiscal year. Pretax profit is forecast at ¥1,080 billion, up ¥9.8 billion from the previous year's results.

Operating profit is forecast at almost the same level as last year's results. To explain the factors behind the operating profit. The impact from sales was a -5.2 billion due to reduced income in financial services. The motorcycle unit sales group, selling price and cost impact is -¥93.0 billion due to surging material prices and inflation, though there was good effect from pricing in line with product value.

The expenses impact is expected to be -¥120.0 billion due to increase in the quality-related expenses and selling expenses. R&D expense impact is -52.0 billion yen, and currency effect is forecast positive of ¥269.0 billion. Next, the changes since our previous forecast. We are keeping our pre-tax profit and operating profit forecast unchanged.

To explain the factors affecting operating profit, impact from sales is -¥47.0 billion, mainly due to decline in automobile unit sales. Selling price and costs impact is positive ¥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 +¥32.0 billion due to a decline in quality-related expenses. R&D expense impact, a +¥15.0 billion, currency impact of -¥17.0 billion.

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

Unknown speaker

Thank you for your listening. And now, we'd like to proceed to questions and answers. We have informed members of the media the procedure. [Operator instructions] Let us begin with Yomiuri Shimbun newspaper.

Mr. Nakamura, please. Mr. Nakamura, can you hear me? Can you hear me? Yes, please.

I'm Nakamura from Yomiuri Shimbun. I have two questions. The first, the sales in China. I want to know the details about sales in China.

In November, due to the zero-COVID-19 policy, this plan had to be suspended. But what is the forecast for production sales in China January to March? And also, about trying to shorten the delivery time in Japan and 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.

Thank you, Mr. Nakamura, for your question. We have received two questions. First, about China.

Let me begin with China. Well, as you 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, in the coastal areas, it was the inland area of China, which was heavily impacted. And also, we have the Dongfeng Honda plant.

It's in Wuhan, and because it's in inland area, including production, there was a big impact. And the 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 -- again, as a result, the number of infection cases increased.

And so, in the third quarter, well, compared to original plan, in regards to China, we were short of 120,000 units. Of course, there is also the semiconductor impact included here. Now, in regards to the fourth quarter and January-March quarter, well, we came up with the January numbers recently. And due to the pandemic and others 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, but this was ended in 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 them in our plan. And at February, in the spring, we will be able to resolve these impacts.

We were looking at the market developments last year in calendar year 2022 in China. The passenger car market -- we are not involved very much in commercial vehicles. So, talking about passenger car market, it was around 33.5 million units. And into 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%. And so how are we going to compete, given this situation. The N-Series, well, we launched the series last year, and it is still -- we also have ICE, internal combustion gasoline engines.

So, we will have to compete with these. And of course, CR-V, 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 N-Series -- the second of the series will be launched within FY '24, and also Honda Connect. And we look on the intelligence.

Honda 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 the pandemic. 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, U.S., North America is a big factor. And well, relatively speaking, North America, when it comes to the price range of the vehicles, well, the vehicles will come with a lot of equipment which require semiconductors.

And therefore, North America is more impacted by this shortage. But in Japan and Asia, and including the measures that we're taking, we are increasing our units still. So, the semiconductor impact, well, we initially we're 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. About 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. 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.

Thank you very much, Mr. Nakamura. Let's take the next question. OK.

From Nikkei newspaper, Mr. Nabe.

OK. This is Nabe from Nikkei paper. I hope you can hear me.

Yes, I can. Please go ahead.

OK. Thank you. 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 to ask about 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 incentives to go from here? Well, the word recession is a mention. So, I just want to ask how you see the demand in the states.

Eiji Fujimura -- Head of Accounting and Finance Supervisory Unit

OK. Thank you very much, Mr. Nabe. Concerning the financial services operations and the states and the incentives -- OK, Mr.

Kawaguchi will cover all the details about the financial services. For the financial services, 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 -- I mean, new vehicles. So, the used car market's prices has been going up.

So, in 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 -- so, the two, three years, there has been -- the negative risk factors has been very low. So, we used to have got ¥330 billion operating profit. However, now, those risk factors are coming in. So, we used to have this.

We are thinking, expecting something like ¥250 billion to ¥260 billion for throughout the year -- for the full year. So, that is the effect that we are seeing. So, so far, without going -- without the risk expenses, but those are now coming back. That is the big reason behind these reduced earnings.

You have anything to add, Mr. Kawaguchi?

Masao Kawaguchi -- General Manager, Accounting Division, Accounting and Finance Supervisory Unit

OK. Mr. Nabe, thank you for the question. As Mr.

Fujimura explained the overview of our financing services business, as he said, if we look just at the three quarters -- third quarter compared with the third quarter last year, we have lost about 14 million operating -- in the operating profit. Two big factors for this. One is that, as Mr. Fujimura explained, those are default.

Those are losses associated with the default as well. To repeat myself, last fiscal year, in the States particularly, we had a very good business with the government subsidies. So, without -- the defaulting percentage was very low. But now those subsidies, because the pandemic came to -- coming to an end, those subsidies are coming to an end so the normal defaulting ratio has been coming back.

However, in case of Honda, the customers -- 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 delinquencies or default. So, it is a gradual increase in the defaulting percentage, fortunately. And another thing is that the credits of the loans, this balance 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 and so is 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, now, we are getting our reduced number of loans and lending. So, the lending volume has been going down. So, those are the two factors that contribute to this.

OK. Thank you then. Let me try to answer the second question about the incentives. As you said, those are hitting their 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 even if you look at the other OEMs across the market, there has been a situation. However -- but 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 at minimizing the inventory dealer.

When it comes to keeping down the incentives, this is something that American 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 a model, there would 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 used to put into this before. I hope those answered your question.

Unknown speaker

Thank you, Mr. Nabe. Next question, NHK, Mr. Toma.

This is Toma from NHK speaking. Can you hear me?

Yes. Can you speak a bit louder?

This is Toma from NHK. About your operating profit of the automobile business, well, you 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 models, can you talk about possible price increase?

Toma-san, thank you. About operating margin at 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 automobile business, the fact that it's low, well, it's after the Lehman shock, and we were struggling.

And we had this a goal of achieving 6 million 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 was pointed out that it's not increasing.

We want to try to have common parts globally and also improve the profitability of 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 for new models recently from last year's. Civic Accord, CR-V, HR-V, Pilot, our core models, being renewed. So, I think in terms of our profitability, we have put in a lot of new measures and come this far.

As for a capacity, well, I said that we were aiming for 6 million units globally is currently 5.14 million. But regretfully, due to the semiconductor and the pandemic situation, it is less than 4 million right now but at around 70% of what we are aiming toward, with the 5.14. Well, this 1.4% operating margin is low. And so, we have to think about how -- first, how to secure the necessary semiconductors so as to improve our top line.

But despite this very low utilization rate of our 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 two years, we have had a cost increase impact of 700 billion over the past two years. And we have 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 margin, 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 tried to try to price it commensurate with the product value.

And so, what we are thinking here is that the car and the service, that we have to focus on how our customers will appreciate the value. So, this is a first factor that will be important. And we need to try to enable our customers to recognize the value of our products or service. And 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, well, it 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 would 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 existing customers who are already using our models, we would undermine the asset value of these vehicles.

And therefore, as I said, we are trying to keep the 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 agree to not just buy a new Honda, but we also have to attach importance to our existing customers who are using our products.

And with this in mind, we want to deter with this pricing. These are the thoughts that we have in regards to this subject. Thank you.

Thank you, Mr. Toma. OK. We'd like to move on to the next question.

From Automotive News, over to you, Hans.

Hans Greimel -- Editor

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

Unknown speaker

Yes, please.

Hans Greimel -- Editor

If I might ask a quick question in English, please. It's about your dealer strategy in the United States with Sony Honda mobility. It seems to be a somewhat sensitive issue with Honda dealers there. Your Honda dealers and Acura dealers seem to assume that they will have automatic rights almost 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?

Unknown speaker

[Foreign language] Thank you very much, Hans. For Sony Hondo Mobility, about the fusion of 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 with the joint venture and then as the project proceeds. But I'm sorry, I have to say this. But see, the Honda Sony Mobility's vehicle business and Honda's business, they can become competitors depending on the market where the joint venture dealer or our business work.

So, they would have to -- there are rules and policies and 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 have 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. Thank you very much, Hans.

From Yomiuri Shimbun, Mr. Midori, please.

This is Midori speaking. How do you do? Two questions. So, about the nine months and the full year, the operating profit and -- well, you talked about the gains and losses and the selling price and cost and you said -- I want to know -- and also 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 -- but the suppliers, I think I'm looking at their 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 a great question? Are you satisfying their request?

Eiji Fujimura -- Head of Accounting and Finance Supervisory Unit

Mr. Midori, thank you very much. About the breakdown, I would like Kawaguchi to respond to your question about that. But about the requests that we're receiving from our suppliers around their cost to the pricing and for us to accept their increase in pricing, well, this is true for ourselves as well.

But I do think that there is a big impact in various ways. Well, recently, there's been the foreign exchange, the raw material, energy price, the personnel cost increase. 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 we are asking the suppliers to put in place the necessary fixed asset to meet our requirements.

And therefore, I think that they are very much impacted by 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 will work out and try to supplement the shortcomings. But this year, just for this year, the energy price or, let's say, the inflation impact, production reduction impact, so all these included, we are trying to respond fully and try to support our suppliers in struggling with these challenges.

And it's not just the tier 1 suppliers or tier 2, tier 3 suppliers too, the supply chain as a whole, we are looking at how we can share the burden. Well, each will be negotiated. And so, I mean, our fourth quarter, I think that we -- we were thinking that a bunch of the costs will be posted in the fourth quarter. We are diligent case by case.

And 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 increases 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 situation, but there is a cost increase of 430 billion, of which suppliers also included.

They're having to try to deal with the supply situation in the full year. We, our suppliers, we are trying to reduce our cost and improve our earning structure. We, on 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 Kawaguchi.

Masao Kawaguchi -- General Manager, Accounting Division, Accounting and Finance Supervisory Unit

Midori-san, thank you for the question. About the full year, well, the slide that you saw earlier and also the selling price cost impact, -93 billion. About the raw material, steel, aluminum, and also the precious metal catalysts, these are the areas in which we're seeing quite a bit of an impact. To break down, precious metal, from last year -- well, especially recently, [Inaudible] budget volume of their market is something that is how we see it. And the semiconductor impact is easy.

And once the 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. Steel, aluminum, ever since last year, we have seen quite a bit of increase in price. And this has had impact on our business.

About the full year, -93 billion, and this explanation -- well, as Fujimura has already said, the overall cost is 430 billion, and this is included. And so, we are trying to make effort to reduce the cost and also to try to price in line with product value. So, through such efforts, we have tried to cover for this, but still, we have this 93 billion. Now the 430 billion raw material cost increase, also, as I explained, the suppliers, we can negotiate and talk with our suppliers and try to shoulder some of their cost, so that will increase our cost.

And the labor costs, logistics costs, inflationary impact all included. Now, this 430 billion, well, raw material -- just looking about the raw material, about 200 billion would be the portion that accounts for the raw material part. And of about the three -- nine months period, well, I said, of the 430 billion earlier, which 250 billion-plus has already been realized over these nine months. And raw material impact is about 150 billion-plus.

I hope I understand that that is the case. That is all. Thank you.

Unknown speaker

Thank you very much, Mr. Midori. We'd like to take the next question from -- Mr. Yokohama, please.

This is Yokohama. I hope you can hear me.

Yes, please. Over there.

OK. I have two questions as well. It's about your production planning, I would like to hear about your forecast. So, of course, for this year, you have shown the volume, but you talked about the semiconductors.

So, for the next fiscal year, in what direction you will 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 is thinking about. And then, about the deterioration in profitability for automobile business, this was asked earlier. If the unit volume goes up, I guess the profitability deterioration might get worse.

And I just would like to know what your prospects are for next business here onwards.

OK. Thank you very much, Mr. Yokoyama. About our production plans, our forecast -- well, I hope that we can head toward this capacity of 5.4 million units, but I guess that would be difficult, I would say.

So, we talked about the three-quarter results. So, the impact of COVID in China, so that consists of -- it is very difficult to split up into the impact from pandemic on semiconductor. But I would say -- I'd say the 210,000 units -- reduction, I'd say, more than half -- the majority would have been pandemic. So, I would say, for this fiscal year, that would be the 4 million units or so, and then the 4 million units would be the bottom.

So, how much we can build on top of it, that's the plan we have for the next business year. That's what we are thinking of. So, exactly what kind of numbers we can build up for that, 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 -- thinking 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, you know, 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 next fiscal year onwards. 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? As I said, are we consider 4 million units as the bottom. And then we are thinking of how much on top of it we can build up. So, this is only assumption.

So, at this point in time, I would prefer to refrain from speaking of it. I hope we can show you something more solid in May. Thank you.

Thank you, Mr. Yokohama. I apologize, but due to the time limit, the next question will be the last. Last question.

[Inaudible], please.

This is [Inaudible]. Can you hear me?

Yes.

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 are -- because you communicate with semiconductor manufacturers. But what specifically are you going to talk about, and 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 and this announcement, you, again, have repeated the shortage of semiconductors. Now, from November, I think that the shortage content, the amount of content might be different. And things might be improving in some places, or the types of semiconductors that 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?

Unknown Speaker

Ms. [Inaudible], thank you very much. You want us to give you some more specifics. Well, we -- when it comes to components delivery, we have been talking with 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 not very long, and therefore, we cannot just impose our requirements on tier 1 manufacturers.

We have to show understanding toward their situation. So, it's not possible to just make demands. And so, it is going to be several months, a year, or two years. I really cannot give you a definite answer.

But given the nature of the semiconductor, the lead time that is required, I think about what sort of information we should be providing them. 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, they -- I don't think that they will decide on their own to invest in such capacity.

So, we have to share our troubles and to talk about what can be done so -- that through that we can build up a relationship with our suppliers. So, I think that that is a sort of exchange that we hope to be effective. Now, about the outlook. Well, when we announced from November, well, ever since that time, excluding China, it's -4 million -- 40,000 rather, sorry.

So, it -- well, compared to plant, well -- and Japan and Asia is a plus, where -- others is a minus. And on the third quarter, for North America, compared to the second quarter or the previous year, we saw a positive. Well, in January, we have seen a positive increase and the market growth was greater than that of Honda's. So, I think that we are starting to see some good signs.

How can we resolve going forward? The measures that I explained will have to be taken one by one. I think that is the only 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 better procurement of semiconductors around that time. Thank you, Ms. [Inaudible].

Unknown speaker

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.

Duration: 0 minutes

Call participants:

Unknown speaker

Eiji Fujimura -- Head of Accounting and Finance Supervisory Unit

Masao Kawaguchi -- General Manager, Accounting Division, Accounting and Finance Supervisory Unit

Hans Greimel -- Editor

Unknown Speaker

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