Honda Motor Co Ltd
TSE:7267
Earnings Call Analysis
Q2-2024 Analysis
Honda Motor Co Ltd
Honda's Q2 FY 2024 earnings revealed a company shifting into higher gear with a surge in operating profits and solid performance in key markets. Mr. Shinji Aoyama, Executive Vice President, highlighted the success in the motorcycle division and the automotive business's profitability jump, largely due to the North American sector's production recovery and delivery of competitive products. Operating profit ramped up significantly to JPY 696.5 billion—a JPY 243.1 billion increase with a 7.2% operating margin. The quarter also saw robust free cash flow at JPY 732.9 billion, eclipsing the previous year's figure.
Despite headwinds in China and Asia, Honda is optimistic about its financial trajectory, upgrading its forecast for sales revenue, operating profit, and profit for the year. This confidence stems from strengthened profit structures and favorable foreign exchange impacts. As a token of this financial health, dividends to shareholders are set to climb by JPY 24 from a previously record-high dividend, reaching JPY 174.
Honda reports vigorous demand in the US auto market, supported by secured semiconductor supplies and restored production, boosting significant year-on-year results. Unfortunately, China's competitive landscape, amplified by the expanding new energy vehicle market, resulted in lower outcomes compared to the previous year. However, the overall sales outlook for FY 2024 paints a picture of growth despite the need to down-revise expectations in reflection of China's ongoing challenges.
Honda is accelerating its electrification efforts with the upcoming launch of new electric vehicles (EVs), the Acura ZDX and Honda Prologue, at the beginning of 2024. Additionally, forming strategic partnerships, such as ChargeEscape with BMW and Ford in North America, signifies a move towards energy services that utilize EVs for a stable power grid. In Japan, a collaboration with Mitsubishi Corporation signifies a dive into the commercialization of energy management businesses.
Honda's first half of FY 2024 demonstrates resilient performance despite warranty expenses, showing a hefty year-on-year increase in operating profit to JPY 696.5 billion. Therefore, the company has revised the operating profit forecast upward for FY 2024 to JPY 1.2 trillion and expects a profit attributable to owners at JPY 930 billion. Dividends mirror this optimism, and shareholders can anticipate an interim FY '24 dividend of JPY 87 per share and a full-year dividend of JPY 174, marking an increase from the earlier forecast.
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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 second quarter of fiscal year 2024.
First of all, allow me to introduce the attendees today. Mr. Shinji Aoyama, Director, Executive Vice President and Representative Executive Officer and Chief Operating Officer.
Good to see you, everyone.
And Mr. Eiji Fujimura, Executive Officer, Chief Financial Officer.
Good afternoon, everyone.
Mr. Aoyama will first present an overview of the financial results of first half of financial year 2024 and the full year forecast. Then Mr. Fujiwara will present the details for the results and the forecast. Over to you.
Thank you very much for your usual understanding on Honda's business activities. I will explain the financial results of the second quarter of our FY 2024 and this full year forecast.
Let me touch upon the highlights of the results. Regarding the cumulative results of the -- until second quarter FY 2024, we had high profits in motorcycle businesses in addition to the significant improvements of our profitability in automotive businesses where production volume had recovered mainly in North America and delivered competitive products to customers.
Operating profit increased by JPY 243.1 billion to JPY 696.5 billion, and operating profit margin was 7.2%. Free cash flow of the operating companies, excluding that of the financial businesses, reached JPY 732.9 billion, well exceeding the level last year-on-year.
In terms of the business forecast of the FY 2024, although tough market environment exists in China and Asia, we will up-revise the previous forecast of sales revenue, operating profit and the profit for the period, reflecting additional strength in the profitable structures as well as the foreign currency impact.
For shareholders' returns, we plan to increase the dividend by JPY 24 from the highest-ever dividend of the JPY 150 until the share split to JPY 174. We announced share buybacks at the financial press conference on May 11, 2023. And the amount of the share buybacks as of October 31 was at JPY 163.5 billion, for the upper limit of JPY 200 billion.
Let me explain about the automobile business in the main markets. In the United States, demands are solid. Semiconductors have been secured, and productions have recovered. Thus, with the highly competitive new models that were launched last year, the result marked significantly higher year-on-year. In China, because of the impact by expanding the new energy vehicle market and intensifying price competition, the results ended below last year.
In terms of the sales outlook for the FY 2024, we anticipate incremental unit sales in Japan. Nevertheless, tough market environment in China will continue for some time now. So we would like to down-revise the previous forecast. However, overall, we will achieve higher results year-on-year.
Speaking of our actions for electrification, we announced the launch of the new EVs: Acura ZDX and Honda Prologue early 2024.
In North America, we agreed with BMW and Ford to establish a new company, ChargeEscape, in order to provide energy services that will contribute to stable power grid network by utilizing EVs. In Japan, we concluded a memorandum of understanding with Mitsubishi Corporation in order to explore commercialization of energy management businesses.
Next, let me talk about the motorcycle businesses. In the first half of the fiscal year, overall motorcycle business performed higher year-on-year due to incremental unit sales, thanks to the solid demand in Indonesia and Europe. During 3 months of second quarter, we had more unit sales due to solid demand in Indonesia and Brazil. However, our businesses fell short at the same time last year because of the unit sales decline due to economic slowdown and so on in Vietnam and China.
Regarding sales expectations for FY 2024, reflecting decline in Vietnam and China, we will down-revise the previous forecast. On the whole, the business will be at the equivalent level year-on-year.
Speaking of our actions for electrification. In the Japan Mobility show the other day, we exhibited our SC e: Concept, which [indiscernible] 2 sets of the Honda Mobile Power Pack e: for replacement batteries.
Next, this is the outline of the first half of FY 2020. Despite impacts by warrant expenses, thanks to incremental unit sales and the pricing that reflects improved commercial values, the operating profit marked JPY 696.5 billion, up by JPY 243.1 billion year-on-year profit attributable to the owner of the parent during the first half, it was JPY 616.3 billion, up by JPY 277.7 billion.
This is the focus of the consolidated business performance of FY 2024, despite a tough market environment in China and Asia as well as the increase of warranty expenses that occurred in the first half, reflecting the fortified earnings structure and ForEx impact, we have revised the operating profit expectations to JPY 1.2 trillion, up by JPY 200 billion. Profit for the period attributable to the owners of the parent is expected to be JPY 930 billion, up by JPY 130 billion. Foreign currency assumption is set at JPY 140 for $1 in the second half as well as for the full year.
Expectations of unit sales and P&L are shown on the slide.
Interim dividend for FY '24 is expected to be JPY 87 per share. And the dividend for the full year will be JPY 174, up by JPY 24 from the previous forecast of JPY 150. That was based on the criteria before the share splitting.
Next, Mr. Fujimura will explain details of the financial results and forecast.
Okay, then, allow me to start the explanation. To begin with Honda Group's unit sales for the first half of fiscal year 2024. In motorcycle operations, unit sales grew year-on-year, mainly in Europe, to 9,262,000 units. Automobile sales came to 1,934,000 units, mainly due to growth in North America.
And in Power Products operations, unit sales came to 1,826,000 units, mainly due to the decline in North America.
Next, I would like to explain the factor analysis of pretax profit for first half year compared to the same period last year. Operating profit grew by JPY 243.1 billion compared to the same period last year. To give you a factor analysis of the operating profit, impact from sales was an increase of JPY 219.2 billion due to unit sales growth in automobiles. Selling price and cost factors was an increase of JPY 205.7 billion due to effect of pricing in line with the enhanced product value and lower prices of precious metals and other raw materials.
Expenses gave us a negative impact of JPY 214.3 billion due to an increase in warranty expenses and other expenditures. R&D expenses led to a profit decline of JPY 30 billion and currency effect resulted in a positive impact of JPY 62.4 billion.
Pretax profit led to an increase of JPY 363.4 billion, resulting in -- resulting from the valuation gains of foreign currency denominated bonds and interest received.
Next, to explain the sales revenues and operating profit by business segment. Operating profit was JPY 253.3 billion for Motorcycles JPY 301.3 billion for Automobiles, JPY 137.0 billion for operating profit from Financial Services, and JPY 4.8 billion for Power Products business and other operations.
Next, I will cover the cash flow situation. Free cash flow of the operating entities, excluding financial operations, for the first half of fiscal year '24 came to JPY 732.9 billion. And the end-of-term balance of net cash at the end of first half came to JPY 3,356.6 billion.
Next, I would like to talk about the forecast for fiscal year 2024. Firstly, speaking of Honda Group's unit sales, compared to the previous forecast, in Motorcycle operations, considering the decline mainly in Asia, forecast is for 18,080,000 (sic) [ 18,800,000 ] units. In Automobiles, 4.1 million units, considering the decline mainly in Asia. And in Power Products, 3.85 million units in view of the decline mainly in North America.
Next, I would like to explain the factor analysis of pretax profit compared to the actual results from last year. First, operating profit is forecast at JPY 419.2 billion, up from last year's results.
To explain the contributing factors. Impact from sales is forecast at positive JPY 371.6 billion due to growth in unit sales of automobiles. Selling price and cost impact is positive JPY 394.0 billion due to effect from our pricing in line with enhanced product value as well as lower raw material prices.
Expenses impact is expected to be negative of JPY 321.4 billion due to warranty-related expenses and increase in selling expenses. R&D expense impact is negative JPY 51.1 billion. And currency effect is forecast positive JPY 26.0 billion. Pretax profit is forecast at JPY 515.4 billion higher, considering the decline of JPY 42.4 billion in equity in earnings of affiliates due to a decline in automobile unit sales in China and gains of JPY 138.6 billion from higher interest received.
Next, I will explain the contributing factors in comparison with the previous forecast. Operating profit is forecast at up JPY 200 billion compared to the previous forecast. To give you the breakdown. Impact from sales is a negative of JPY 69.0 billion due to unit sales decline. Impact from selling price and cost is a positive of JPY 129.0 billion due to effective pricing in line with enhanced product value and lower prices of precious metals and other raw materials.
Impact from expenses is a negative of JPY 163.0 billion due to increased warranty expenses. Impact from R&D expenses is a positive of JPY 9.0 billion, and currency effect is expected at JPY 294.0 billion.
For pretax profit, our forecast is up JPY 210.0 billion, considering the decline in equity and earnings of affiliates of JPY 110.0 billion due to decline in automobile unit sales in China, and increase of JPY 120.0 billion from higher interest received.
Lastly, the forecast for capital expenditures, depreciation and amortization and R&D expenditures for fiscal year '24 is as shown.
This completes my explanation. Thank you very much for your attention.
Thank you very much for your attention. Now I'd like to take the questions from the floor. And we have already provided the [indiscernible] network for the questions from the media. And because of the interest of time, please limit your questions to 2 questions per 1 person. Thank you for your cooperation. [Operator Instructions]
The first question, from Yomiuri Shimbun newspaper, Mr. Nakamura, please?
Nakamura from Yomiuri. I have 2 questions. First one is our semiconductor procurement the situations, please, in Japan, China, North America, in the different regions, what is the status of the semiconductor procurement? And what is the outlook for the future about semiconductor?
Second question is the sales reduction, decline in China. What do you think is the reason for that? And do you have any idea to recover the sales after the third quarter onward, please?
Thank you for the question. So let's start with the semiconductor procurement. On the whole, recently, we have made great improvements on that. This fiscal year, specifically in the second half, we have no problems, almost problems today. In this first half, we had a little bit of the issues remaining. However, as of now, we have no such problems in China, Japan and United States.
The differences in the regions, actually, there's none, at all. No regional differences. Last year -- last fiscal year, we started direct conversation with the semiconductor suppliers. And for most of the semiconductors, we have our alternative sources and so on. And thanks to those efforts, we have made good improvements recently.
And then last year-end, we had a priority of the [indiscernible] semiconductor procurement in North America so that we can support the production and sales in North America. And that was actually what happened as well.
And for this fiscal year, in China, market is a little bit slowing down. Our business is there is slowing a little bit. And we now decide to use the semiconductor parts for the Japanese marketing [ stand ]. With that, we can increase the number of the sales volume -- sales volume in Japan.
And going forward, in this spring at TSMC, and we had a decision to have a strategic collaboration, and we also have other collaborative relationship with the other semiconductor suppliers, we now have a software-defined trend and demand for the semiconductors will be higher going forward. So that what we like to do is to be ready to catch up with that.
And second question is sales decline in China. And there are 2 factors behind here. And one is, as you know, tax deduction measures like for NEV, new energy vehicles. With that, the NEV sales is expanding in China. And Honda has ICE -- or have hybrid. Those are our multiple lineup there. Because of that, we have some difficult situation. However, though it is only a bit of a decline, in the ICE market, it is very specific market of ICE impact, like a big category SUV, we're not winning by other companies. We have some struggles there.
But as we are turning to the [ BEV ] focus more. And from 2024, we are going to launch 4 models of [ BEV ] as soon as we can catch up with the market. Thank you very much.
Thank you very much, Mr. Nakamura. The next question is from Mr. Noguchi from NHK. Please?
This is Noguchi from NHK. For the results, financial results for the first half, I believe they look very good in terms of numbers. So I'd like to ask for your ideas on wage raise. It might be a little bit earlier to ask about this, but I'd like to ask you about your thoughts on raising wages. One question is okay? Yes. I'll just have that one question. Yes.
Okay, about raising our wages, wage hike. We need to, of course, think about this in terms of the global context. But for example, if you look at the States, U.S. market, the UAW issue was there. And then we, ourselves, of course, would like to take appropriate actions.
If you think about the wages in Japan, last fiscal year -- or sorry, this -- the salary base of the regular wage hike, we did it at the beginning of this fiscal year. But for next fiscal year as well, we would like to take proactive actions considering the government's guideline as well. And then we would like to think proactively towards raising wages possibly.
Anything to add, Mr. Fujimura?
Well, as mentioned, if you think about the Japan -- I believe you must have asked about the situation in Japan. But if you think about the recent inflation that is happening also in Japan, we need to consider that. And also because our business performance has been growing, and then of course, going forward, we will see new business where we will, well, go through this transformation to electric business, electrification of vehicles. So that will be our second transformation, which is supported by human resources. That's been our CEO's idea.
So for this year, fiscal year's salary raise, and then going forward as well, we would like to have a very earnest discussions. We have had earnest discussions between labor and management, and that's why we are here. And then so for -- going forward, we'd like to continue this trend, but still the spring offensive timing is still far ahead. So we will continue our discussion with the union. So we will -- and then we will think about investing into human resources or human assets.
Thank you very much, Mr. Noguchi. Next question, from Nihon Keizai, Mr. [ Okinaga ] please.
Nikkei Shimbun newspaper, Okinaga. I have 2 questions. First one, the up revision of the forecast Group results and recent China is now down-revised instead. And in terms of the sales revenue, for instance, [ Pac 3 ] restructuring or the other measures and so on. Do you have any idea about that?
And second question -- maybe we can start with the question one.
Our first question, in China, we have our production capacity, 1.49 million car production capacity. That is what we have. As we announced before, we have 2 joint venture entities over there. And we have 120,000-unit capacity, BEV specific production companies, in 2 places. And then that means we will have a $3.4 billion -- JPY 173 billion also. And we have, of course, discussions with the JV companies for the ICE production areas specifically, so that we could try to reduce the fixed cost of that ICE production, speaking of the restructuring plans and so forth for the factories.
And also incentives, as of now, ICE hybrid, those are our main business models. And we need to kind of support sales by using incentives in this forecast we are sharing today. Especially in the first half, we are going to support current level of the incentives to continue to support the current ICE businesses.
And the U.S., the economy is good and its sales rising. However, you have a little bit of a down-revision.
And what about we have delinquencies of those repayments, loans, what do you expect the economy in the second half onwards, including the yen depreciation.
A part of the question will be supported by Fujimura-san. And in terms of the interest rate hike, of course, is like a incentive kind of thing. American Honda Finance, a company has a business and American Honda has the business in relation to the incentives. But until now, we have a credit score assessment, and the customers we have, have a good credit assessment to start with. And then because of that, we do not have a big impact as of now.
And trading values of the cars, index shows a bit of a downtrend of the prices of the used cars. However, the level is still higher than the conventional used car price level.
And bad debts and so on, we have some provisions for that. However, it is not as much as it would impact on the statement of the finance to date. And also the residual values of the used cars, it does not have any impact on the P&L as of now. And maybe my colleague can support a bit.
I have nothing to add, numbers maybe. After corporate, in the United States, we have support to the families and so on, subsidies to them. And relatively delinquencies, the bad debts is actually a historic level that is very low at the moment and delinquency levels a little bit rising today. However, the bad debt rate is also rising a little bit.
However, still it is 0.5% of the bad debt levels. And in a way, this is the situation where the situation is returning back to the pre-COVID level. And it is a kind of course, low, sort of orientation to us. However, in the rate is a normalization, too.
During the corporate period, Finance businesses, we had a JPY 300 billion or JPY 400 billion. And it was like a reversal of the loss cost or something. However, for that amount, for that part, JPY 250 billion operating profit actually generated from the Finance businesses, and 2%, 3% of the credit will be financed. That is the kind of the businesses of Finance.
But what I can say is that it is being normalized. And residual value losses in relation to the used car prices. And we have a setting of the residual price level. And it is still on the positive side. That positive range is a little bit squeezed. However, we are now getting back to the normalization mode. And for the residual value part, it will take a little bit more time to have the total normalization. So we have those plans and we factor in the financial business implication. However, nothing really of a concern.
Thank you very much, Mr. Okinaga. The next question is from Toyo Keizai, Mr. Yokoyama, please.
This is Yokoyama from Toyo Keizai. I have 2 questions as well. The first is about the financial results. So if you look at the first half and the second half, it looks like the second half is going to see lower operating profit. So I just want to see how you're viewing your numbers, the performance. So you downward revise for North America and then China is getting sluggish. So I just want to see how you view this.
And about the upward revision, so compared to the previous year, if you exclude the foreign currency effect, I guess your profit is going to get less. So in terms of real, real performance, let me know how you stand.
Second question is concerning this DM -- GM, sorry -- you said that you will discontinue development of EV together with GM. So I'm just wondering what the kind of impact that would have on the strategy? And then any countermeasure you have in your mind.
Okay. Thank you for your questions. So about the details of the numbers, Mr. Fujimura would provide some additional information.
But if we look at the first half and the second half, I think this probably is happening every year, but second half is slightly -- we tend to look at the second half somewhat conservatively. But at the same time, as a fact, we cannot -- in terms of expenditures, we tend to have a well, a bit of a bias on the second half, if you compare those 2 halves. That's true.
And then as you commented already, in North America, the downward revision in the North America, because regardless of semiconductors, in the first half, we didn't have a good supply situation in the first half. So maybe that was slightly over 20,000 units, it was a little bit over, and that happened in the first half. And so that's been incorporated into the first half.
And then the sales and -- production and sales in the second half, if you look at the capacity in North America, it's almost at full capacity. So some of the parts shortage we had in the first half at the -- first half at the supplier, we cannot really recover that in the second half, and that's why it looks like that.
If you asked about the real performance, so you said exclude the currency effect in our explanation, actually. This one compared with the, let's say, comparing with the last year, or the same period last year, the currency effect is very limited. The ones, the presentation you've seen, I'm sure you've seen it, the currency effect is only JPY 26 billion. So that is against the last year, last period.
And then particularly, if you look at the operating profit, it's a 53.7% increase, a lot of it is coming from automobile sales and -- production and sales expansion. And also, we were able to leave the sluggishness from the shortage of semiconductor. So because of that -- and then, of course, we had some temporary warranty cost. But we have been able to get to almost ROS of 5%. So we were at 4.7%.
So this is only -- we had some just temporary warranty expenses, but we were able to show a good expansion of automobiles now that the shortage of semiconductor has ended. So I guess that's the answer to your first question.
And then in terms of our assessment, so we are trying to get -- aim for 7% or higher ROS on 2026 fiscal year or later. And then this is a 6%, this JPY 1.2 trillion is 6%. But I think are making progress in line with our plans.
And about the second question, the terminating the joint development with BEV together with GM, of course, there is impact to the strategy. However, we will launch it from Honda's global BEV, mainly in North America, starting from '26 -- fiscal year '26. We want to maximize the use of this platform. And then -- so I think we can avert any impact from this termination of this joint development.
Any numbers you want to add to this?
Okay. Okay. So the gap between second half and first half. Before that, I would like to explain to you how the numbers for the first half were put together. As Mr. Aoyama just explained, the volume expanded in automobiles in North America, in particular, that was conspicuous. That was in the range of plus 240,000 units. So I think this unit sales contributed greatly to operating profit.
For motorcycles, almost it was 60,000 units. So it was just a bit of increase. However, the Vietnam, which is our most highest profit-generating market, even though they were in negative, Brazil, Thailand showed good growth. And then that was -- of course, we used to say that, if we stumble in Vietnam, it hurts a bit. But I think with other markets contributing, it has even out a lot for motorcycles. So that we have been able to earn some good profit in Automobile as well. So we got JPY 760 billion, so, 6% -- 7.2% ROS.
A bit of the disturbance was the warranty expenses for -- we had -- sorry, JPY 56 billion Automobiles, and then we had a JPY 56 billion another one for Automobile, so a total of close to JPY 120 billion for warranty claims. So that was a provision. So we inconvenienced our customers a lot.
But I think if we eliminate this -- I think we should have been able to attain ROS of close to 8% for the first half. And against that first half, I think we should be able to take away JPY 700 billion, we take away from JPY 1.2 trillion. So that will be JPY 500 billion. So the volume will be higher.
So even if we consider incentive, it would be a bit of a JPY 120 billion provision. And then the provision for the warranty, that would be -- that doesn't happen with the first half, it was for the second half. So JPY 100 billion. So that would be JPY 220 billion. But as a total, that comes down by JPY 220 billion. So there was a bit of a difference between like JPY 400 billion between first and second half.
But if you look at the currency, of course, the yen-dollar rate is the same. But with the other currencies versus the dollar, they are getting better. So we consider that into the second half.
And then also, this is mentioned separately, but to the [ Yachiyo ] industry, we are doing a TOB -- will complete the TOB in second half against the [ Yachiyo ] industry. And then the same thing as Honda Lock last year, we will have a bit of an impairment loss for the second half as a temporary charge. So with the [ Yachiyo ] impair loss and the currency, it will be like second half will be lower by JPY 100 billion or so.
And then so we still have the performance a bit of a difference is JPY 300 billion. This would be -- majority will be the expenses. And also through the supplier, because they have suffered from inflation, so for Japan and in the States, for some of the suppliers, we do provide some -- we are allowing them to raise the cost a little bit to survive through this.
So that was a bit of a, well, disturbing noise. So you might have found it difficult to all put it together. But that's how our situation is.
Thank you very much, Mr. Okoyama. Next question, from Asahi Shimbun newspaper, Mr. Wakai, please.
Mr. Wakai, he has exited from the network. Next person then, from Nikkan Jidosha Shimbun, Mr. [indiscernible] please, Automotive Daily Japan.
[indiscernible] speaking, Nikkan Jidosha Shimbun. I have 2 questions. First one is numbers to confirm. From April to September, OP waterfall over last year and also forecast for the full year from that time. You have our ups and downs for the operating profits. And the impact by the prices, what is the breakdown about it?
And also for the suppliers, you may have price passed on, transfer of those incremental prices. That's the question one.
And second one is BEV. We have a EV demand being a bit slowed down, and I can see that in Ford and other companies, and they seem to be squeezing a bit on the investment on the equipment. But you say that you're going to be ready to produce 2 million BEVs [indiscernible] in 2030 or so. And I understand you have no change to those plans for the future. But do you have any idea to kind of stop and then decide to slow it down a little bit, for instance, because of those demands.
So I'd like to start with the second question first. So I have no idea to decelerate our speed of the businesses. However, I wouldn't deny the businesses are slowing or softening. And especially in the U.S. market, the demand is a little bit soft now. And as compared to the past speed, the growth speed is a little bit slowing down. And we really watch carefully the market trend. And that is what we are doing usually, watching out.
And in 2030, 40% of the advanced countries or 2 million BEV, that is our plan. And 2035, 80%. We have no idea to change those plans.
And in terms of the speed of the businesses, battery joint venture as well the new factories in North America, we have those years. And of course, the next things in mind as well, to try to form the ecosystem, finally, we'd like to steadily push forward those plans.
And the second question will be addressed by Fujimura-san.
So our first half operating profits and our previous focus about it. And the JPY 1 trillion for the full year, and we don't disclose the first half, a portion of that. But I just share with you the image of the results and forecast. And the JPY 700 billion that was the results.
And as compared to the budget level, in terms of the absolute value level, we have about plus JPY 10 billion level as ended. And then breakdown inside is we have a yen depreciation, now we have JPY 140 instead of JPY 125 billion, and we have JPY 125 billion impact by that. And warranty, we have about JPY 115 billion plus. And excluding everything else, it is almost offsetting everything around here.
And practically speaking, in the North America, the next number, volume, the suppliers -- some suppliers couldn't catch up with the incremental production of the volume. That is also the 20,000, also slowing down economy in China and Vietnam. We have a negative situation of the unit sales of the motorcycles, for instance. We have those decline of the unit volumes, and therefore -- the motorcycles, as I said earlier, we have Japan, Europe, U.S., brazil, we have the recovery to cover that. And we have about 40 million -- 40 million sales -- 40,000 sales and we have a JPY 50 billion negative.
And we had a cost reduction and the price optimization and raw material prices now getting more stable today. And other expenses are also squeezed too. And all in all, we are absorbing those JPY 50 billion, and that offsets, and plus JPY 10 billion the net -- with the depreciation of yen and so on. That is how that is kind of structured for the first half.
Thank you for the questions, Mr. [ Mishidori ]. I'd like to ask Mr. Kawasaki from [ Jiji Tsushen].
This is Kawasaki. I hope you can hear me.
I have 2 questions. First one is looking at the different OEMs, many have shown record high. So looking at your sales volume and then operating profit, net profit, if you have any record high, that's what I'd like to know. That's something, that's my first question.
And the other question is in the States, you have the GM Cruise, the autonomous vehicle. I believe in the States, you have some -- well, stopped, suspension of operation. Does that have any impact to your plans to start automated vehicle driving in Japan?
Okay. For the first question, Mr. Fujimura will answer that one a little bit later. To answer your second question about the States, the Cruise suspension of that. The GM Cruise activity, their activity itself is nothing I can comment on. However, for us to do in Japan, for -- as we announced with the GM Cruise, General Motors and Honda reforming joint venture and then starting commercial operation of taxi from beginning of 2026. But there has been no change to that plan at all so far.
However, having said that, in the States, the situation in the States would need to be monitored closely, and then we need to discuss them closely with Cruise and General Motors as well. But so far, our plan has not changed, well, including all the relation with the relevant authorities as well. That's what we would like to do.
Okay. So you asked about the record high. So to give you the numbers from our answers from first half, operating profit, pretax profit and net profit, we've -- on all of those, we have shown the highest. And then of the JPY 20 trillion and then JPY 1,200 billion in profit, that's a record high, the same as pretax profit as well. That's for the full year forecast.
Thank you, Mr. Kawasaki. From the Reuters, please, Mr. Daniel Leussink please?
Earlier -- it's kind of related to earlier question, the U.S. Cruise automated driving. Actually, they had to stop the services by the Cruise for some time. Do you think you will owe the Cruise? And if you need them really, you probably -- you may have an idea for further investment in Cruise, like Cruise, in the difficulty of business management, maybe you can support financially to invest in Cruise, if needed? Do you have such idea in case?
So for this question, whether or not we -- if we have that idea, as of now, we do not have such a practical specific idea. But of course, if there are changes of the business environment and conditions change and so on, if anything happens to Cruise, who we have a collaboration with, of course, there is room for consideration. We will listen to them. We will make appropriate decision as needed.
And as of now, we have -- for your question, of course, about whether or not we have that idea today, I should say no, we don't have any specific idea for the investment as of today.
Thank you very much for your question. The next question comes from Nikkei Business. Mr. [ Iyama ] please.
This is related to your earlier question, but the low price BEV, together with GM, why did you reach this decision? If you could tell us the background how you reached this decision, that will be helpful.
And another thing is about capital expenditures. I believe you've increased it a little bit. So if you can tell us a little bit more about it.
Okay, thank you. Why we decided to suspend development -- joint development with GM. Well, since we entered into agreement, we have done a lot of different studies. And as a result of that, both parties reached a decision that it will be better for both parties, win-win for both parties, if we don't do this together. That was the same for conclusion that we reached.
So if you asked why, we discussed and discussed, and we decided that looking at the current market and then looking at the potential or our approach to the reasonably priced BEV, we had differences about our -- in our thoughts.
Okay, about the additional capital expenditures. Compared to the previous forecast, we've increased, I guess that's what you're asking about. But this is because we've done some currency conversion. So compared to the last time, we raised it by plus JPY 40 billion, plus. So of course, we used to assume JPY 125 to a dollar, now we changed it to JPY 140. So for investment outside of Japan, we converted back into yen. So this -- that's why the substance has not changed.
So please, when you look at the chart showing the depreciation and R&D cost and capital expenditure, please look at it that way. Thank you.
Next question. Nikkei Asia [indiscernible] please.
[indiscernible] from Nikkei Asia. I have a question about the Motorcycle businesses. One is the sales focus in Asia, you said it is down-revised because of this year china and Vietnam. And could you elaborate on that, please? What is the -- what is happening in those countries that made you decide to revise your forecast? And according to your document, you have our main 5 markets information at present. If you have any notable situations about the countries too, please share with us, market trend today.
And second question is electrification and there was some exhibit on the Mobility show. And in the Automobile areas, infrastructure is not really catching [indiscernible]. And in the Motorcycle businesses, in the emerging markets, what is the situation of the electrification there? And to deploy the electric motorcycle, what is your plan?
So for the question one, in Vietnam, this year, as around the spring time, the macro economy around export businesses soured. Because of that, the market on the whole in Vietnam is shrinking quite sharply. And actually, the situation has hit the bottom already. And maybe in the fourth quarter this fiscal year, we would expect some rebound, recovery. And the market in Vietnam is sort of anticipated in the south of Vietnam where the export business is the main business they rely on. And because of that businesses of export dropped, we have the situation.
On China, the ICE vehicles -- ICE motorcycles, excuse me. it is declining more than our expectations and incentives against competitors that is in place, but we couldn't achieve enough our share in the market. Because of that, we down-revised it. But Motorcycle businesses, we have the decline of the business in China, Vietnam. However, we have already factored in those decline, to have this 11.8 million unit sales, of our focus.
And then other notable events, trend. Maybe someone else talked about that before, but we have advanced level of countries, Japan, U.S., Europe and Brazil, together, we are getting more profits there. And Motorcycle business is kind of mainly coming from the Asian countries. But now those plus developed countries are getting us good businesses, and that is kind of the particular trend we are aware of.
And for the electrification of the motorcycles, already in China, there is a clear the emerging market of electrified motorcycles in China that's in place. But in the next months to 3 years, the India will be more kind of notable motorcycle electrification market. And for the fiscal year 2027 or '28, we are going to try to hit 1 million of those records. And 2030, 3.5 million or above. That is the number of the units we are aiming to.
And earlier this fiscal year, we now have this new organization focusing on the electrification of Power Products, Motorcycles, so on. And we have dedicated resources there for electrification to deploy those ideas. And then next year, in 2024, we already announced it though, EM1 e: Mobile Power Pack based, more, better type vehicle to be deployed in Indonesia. And Mobile Power Pack e: based other vehicles will be launched, and we will announce later on about the specific news about that later.
Thank you very much, Ms. [ Take ]. Sorry, but due to time limitation, we'd like to make the last -- this next question the last. Mr. Ikeda from Sankei Newspaper.
This is Ikeda from Sankei Newspaper. I have 2 questions. The first one is about the Automobile business. The operating profit ratio, how to read this, how to interpret this. It's 4.7% right now. So that's a big improvement. But is this just simply contributed by the sales volume growth or is it because of the vehicle mix that you are selling? So that your most profitable models sold best or something like that?
And then also for the second half later, the operating profit ratio, if you look at it from the industry standard, I don't think it's sufficient. But for your design and development and car manufacturing and then new models that should be launching into the future, what are you vision -- what is your vision for the profitability of automobiles? That's my first question.
The second question is, as mentioned already, for the Chinese business, do you have any structural reform? Of course, I guess you would need to do something about your ICE business. But what kind of time line are you thinking of for changing your business? Is that something you're going to start within this fiscal year? Is it that kind of short term? Or is it going to be something for later, you will be spending more time to do something, and then you need to reduce your fixed cost? So maybe some of the fixed equipment might have to be disposed of or you might have to do some adjustments to human resources. Would that have an impact on your business performance? If you could tell me about those ideas to the extent you can, that would be helpful.
Okay. Thank you very much for your questions. This 4.7% of the operating ratio, it's not that I'm satisfied. But we had some temporary warranty costs. So if we exclude that, I think we are above 5%, I believe.
And then for 2027, we wanted to bring it to over 7%. And then so we wanted to have it higher than 5% already this fiscal year. So in that sense, I think we are getting to the level -- that we're getting close to the -- close to the level we're trying to get. Of course, the volumes -- sales service volume contributed, but we have been doing something particularly for the North American market, that we wanted to have a lean manufacturing management.
So starting from model year '21 civic and then Accord and CRV, those midsized vehicles cost structure, that has improved. And then also, we have been able to do a good pricing in line with the product value. So the combination of those 2 led us to this current profit ratio.
And then going forward actually, it's -- if you ask us if we had a very profitable vehicle models, the product mix don't change really. We have a C segment, this CRV and Civic, and then we have D sedan, Accord. That's our best-selling volume cars. So that hasn't changed. However, in each of the models, we have been able to raise our marginal profit ratio. That's the situation.
But as you've said, if you look at the -- across the across the industry, I'm not -- I'm aware that it's nothing really to be proud of.
Okay. Next, about the China business structure reform. We would like to start something at an early stage. We are keenly aware of that. However, having said that, we have a joint venture partner, so we need to discuss and then thoroughly, persistently discuss with the joint venture partners to come up with some plans for structural reform.
I don't have anything I can tell you specifically. Anything you want to add?
No, I don't have anything to add here.
Okay. Thank you very much, Mr. Ikeda.
Okay. So with this, we'd like to complete our financial results briefing session. About the financial results material, those are listed on the website. Thank you very much for your attention today.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]