Honda Motor Co., Ltd. ($7267)

We now like to resume. Mr. Mibe-san, please.

And now in light of the financial results I explained, I would like to introduce the future direction of Honda's automobile business. With the aim of carbon neutrality by 2050, Honda has been taking initiatives towards the popularization phase of EVs. Yet we decided to discontinue launch of 3 EV models in North America as we have already announced. This, however, by no means is an indication that Honda is withdrawing from the EV business. We'll continue EV sales in regions such as Japan and Asia to meet local customer needs in line with EV adoption speed. In North America as well, we will carefully monitor market conditions, customer demand and lay the groundwork to deliver compelling products when the timing is right. And that said, the fundamental issue facing our automobile business is not simply the slowdown in the EV market. In the past, Honda's Automobile business underwent deep structural transformations to the point where gasoline ICE and hybrid models alone generated close to JPY 1 trillion operating profit, excluding EV-related losses. However, in North America, Honda's principal market currently, our profit is down due to failure to fully absorb cost burden. And in China and ASEAN countries where competition is increasingly intense with emerging OEMs, our loss of competitiveness in sales prices and speed of offering new value to market is pushing down unit sales. We, therefore, believe the key to restructuring our Automobile business is to: One, improve our cost structure; two, increase development efficiency; and three, concentrate corporate resources in regions where we choose to take a more proactive approach and enhance the lineup with compelling products. Going forward, we will first focus on rebuilding our Automobile business structure over the next 3 years. Combined with the continued growth of our Motorcycle and Financial service businesses, which enjoys solid profit structure, we will strive to recover operating profit to a record high by the fiscal year ending March 31, 2029. In parallel, starting in 2027, we will begin introducing next-generation hybrid models and in North America, Japan and India, our priority regions and introduce new products in underserved product categories while carefully assessing customer needs, thereby expand our product lineups. We will not rely fully on ourselves, but we will adopt a flexible approach that also leverages external resources in implementing these initiatives. In line with this direction, we have defined 3 key pillars: Strategic reallocation of corporate resources; two, a thorough strengthening of our manufacturing structure; three, strategic utilization of external resources. Let me explain one by one. The first pillar is strategic allocation of corporate resources. Our initiatives will be broadly divided into 2. First is the reassessment of the powertrain portfolio with an eye on future demand trends. To be more specific, we will reallocate more development and production resources into hybrid models. In doing so, we will accelerate the market launch of hybrid models ahead of the original schedule and increase compelling products. Based on our belief that hybrid models, where Honda has strength, will continue to be the key to addressing environmental challenges until around 2030, when EVs will be more popular. From 2023, we will begin launching our next-generation hybrid models featuring both an all-new hybrid system and platform. We plan to launch 15 next-generation hybrid models globally by the end of the fiscal year ending March 2030, primarily in North America. In this hall, there are 2 prototypes, the Honda hybrid sedan prototype and Acura hybrid SUV prototype. Both are scheduled to be launched within the next 2 years. We will continue to roll out new models equipped with our next-generation hybrid technology across both the Honda and Acura brands to further strengthen our hybrid vehicle lineup. To meet strong demand for large-sized hybrid vehicles in North America, in 2029, we will launch large-sized hybrid models in the D segment or above, featuring powerful driving and turning capability with high environmental performance. Our next-generation hybrid system will realize the world's most efficient powertrain through advancements such as an expansion of engine high-efficiency range and increased drive efficiency of the hybrid unit. By combining our next-generation platforms all around evolutions, such as steering stability, crash safety and further weight reduction with the electric AWD unit, Honda will strive to improve the fuel economy by more than 10% and further evolve driving experience unique to Honda. And also to reduce cost of many key components such as batteries and motors, we will engage in various co-creation activities with suppliers, further improve production efficiency and pursue commonization of parts and components. We aim to reduce cost of our next-generation hybrid system by more than 30% vis-a-vis our 2023 models. We are also -- we will also offer new mobility experience to our customers with models equipped with our next-generation ADAS under development from 2028, and we will plan to start introducing the next-generation ADAS into more than 50 models over a 5-year period. By installing Honda's next-generation ADAS to our affordable hybrid models, we want more customers to experience Honda's unique value proposition that combines the joy of driving at will and a stress-free and comfortable mobility experience. To consistently meet demand, we will strengthen our production and parts supply operations for hybrid models. At our auto plants in Ohio, we will reallocate all of the excess capacity to production of gasoline, ICE and hybrid models. Furthermore, we will make auto parts in North America capable of producing hybrid models. Next, batteries, the key to increase in production. We are working towards the production and supply of highly competitive batteries by converting part of the EV battery production lines at L-H Battery Company, our joint venture with LG Energy Solutions to hybrid battery production. As for motor and inverters, we will further increase the local content of AC and component parts by more than 4x to reduce risk of supply shortage and mitigate impacts of tariffs. Our second initiative, the enhancement of product lineup in each of our priority regions. We have postponed North America and Japan -- we have positioned, rather, North America, Japan and India as priority markets for our future growth strategy and we will strategically allocate our resources to these markets. Since I have already covered North America, let me explain initiatives we will take in other regions. Japan. First, Japan, the home market of Honda, is not really a market where Honda seeks volume and share. Rather, it plays a critical role as a market where we redefine new technologies and value proposition and demonstrate the level of maturity to global market. First is EV. In Japan, we will expand our EV model lineup, starting from the mini vehicle K-car category. Mini vehicles are popular in Japan and align well with EVs, which are clean and quiet. To be more specific, following the market launch of the Honda N-VAN e in 2024 and the N-ONE e in 2025, we are preparing to launch in 2028, the EV version of the N-Box, which has been the best-selling new vehicle in Japan for 11 consecutive years. For registered cars, the all-new EV Insight was launched in April and the Super-ONE compact EV will go on sale later this month. In Japan, we will focus on offering a broad EV lineup and amass know-how for the future popularization of EVs. Moreover, in addition to the sport line and trial line models announced at the Tokyo Auto Salon this January, starting in 2027, we will introduce next-generation hybrid models, mostly in the SUV category. Then from 2028 onwards, starting with the all-new Vezel, we will equip our key models with our new next-generation ADAS. Through these initiatives, we will enhance the lineup of high value-added products in all vehicle categories. We will strive to: One, achieve new vehicle sales greater than the current unit sales; and two, establish a solid business foundation. Next is India. India is one of the few markets in the world where growth is expected. However, currently, Honda has presence in only a limited range of product segments and has not been able to fully expand unit sales due to an insufficient number of competitive models in each segment. One contributing factor is that we have not been able to deliver products that meet customer characteristics and preferences in India. It has been our standard practice to develop and sell all products based on global standard performance specifications regardless of target countries and regions. However, climate conditions, vehicle usage, customer preferences and others vary significantly from country to country and region to region. Environmental and other regulations are different. Our global standard approach may have been somewhat excessive. Therefore, we will redefine the best specifications that fully match the market environment and customer needs in India. And then in 2028, we will begin introducing strategic models tailored to the Indian market, seeking optimal balance of performance and price to satisfy customers in India. More specifically, we will launch our strategic models in 2 categories: vehicles under 4 meters in length, the largest volume segment and midsized category. We will proactively utilize local development resources, including external resources and introduce new models as quickly as possible. The solid motorcycle business will be our key strength in this market. In India, Honda's annual motorcycle sales nears 6 million units and has the largest UIO, units in operation and sales network. Honda has also a robust supply chain. In India, the price range of motorcycles is close to the price range of entry-level automobiles. So we will fully utilize our competitiveness in Motorcycle business and strive to grow by steadily capturing customers upgrading from motorcycles to automobiles. Moreover, this April, we established Honda Digital Innovation India, a digital platform company, which will utilize the Honda Digital Foundation to address the diverse needs of our customers. We will enhance synergies between our Motorcycle and Automobile business in India. In addition, our captive finance company in India is scheduled to become operational before the end of the current fiscal year ending March 2027. Strengthening our financial services business will help expand sales opportunities for our motorcycles and automobile products. The last part of our regional strategy is China, where we need to fundamentally strengthen our competitiveness. As you know, competition in the Chinese market is intensifying, and Honda is facing a very challenging business environment, including a decline in production and unit sales. Here are some initiatives we are taking to continue competing in the market. First, for the China domestic market, we will pursue cost reduction using locally sourced standard components while incorporating local technologies for next-generation technologies such as ADAS to keep pace with the overwhelming speed of advancement of intelligent technologies in China. Furthermore, by introducing NEVs built on platforms provided by local partners, we will better serve the needs of customers in China. We will also apply initiatives to improve development efficiency in China, such as the use of standard components to market outside China to strengthen our products and cost competitiveness in ASEAN and other regions. The second pillar, in order to deliver competitive products, we will focus on strengthening our lean and agile manufacturing structure. I will introduce 3 specific initiatives we are undertaking. First is a fundamental cost reduction, particularly with the cost of outsourced parts, we will improve our cost structure on a global basis, one, by reassessing Hondas specific standards and utilizing standardized components; and two, by incorporating the competitiveness of local businesses in China and India. The second is a thorough improvement of development efficiency. This initiative addresses 3 challenges we face in competition with emerging OEMs. They are: One, development costs, development duration, and three development man-hours or workload. We will reassess the so-called engineering chain management and increase our production efficiency by reducing each of the 3 items by half vis-a-vis 2025. And we call this Triple Half. In addition to improving efficiency in design, testing and production separation through the use of digital environment and AI, we will transform our development process by reassessing development requirements as well as product planning and development management to reduce development costs and man hours and shorten the development time. Starting this fiscal year, we will reduce the development time for minor model change by half. Full model change development time will also be halved, starting with development projects that start in 2028. This will enable us to introduce up-to-date products more quickly and continuously. Finally, the building a manufacturing structure resilient to business environment changes. To establish a robust manufacturing structure capable of securing profitability even when market conditions call for reduced production, we will aim for a 20% improvement in production efficiency over the next 5 years by; one, efficiently injecting and allocating resource, investment in new models and equipment; and two, increased efficiency and speed through the use of digital technologies. The third pillar is the strategic use of external resources. To build the future competitiveness, in-house sourcing of the technologies, resources and parts can be one of the effective approaches. However, it will require substantial investment and allocation of resources. And in an increasingly uncertain market environment, it might lead to the loss of competitive advantage. Therefore, as I mentioned already, we will strategically leverage the cost competitiveness and speed of local businesses in China and India and other countries or the use of industry standard components and so on so that we can improve our competitiveness by flexible and strategic use of the external resources. As for batteries, we will not pursue complete in-house sourcing for the time being. Instead, we will maximize the use of batteries facilities. Keeping an eye on future demand growth for EVs, we will push forward the operational efficiencies catering for highly demanded hybrid vehicles and other applications for some time so that our battery procurement strategy will be correlated focusing on the competitiveness in North America. Based on such a strategy, we have decided of our indefinite suspension of project to build a comprehensive value chain in Canada, which we announced last year, for its postponements about 2 years. We will carefully monitor the market conditions and we will continue to reassess our procurement strategies. While working on the -- while working on to further refine the core of our competitive advantage, we will proactively leverage external competitiveness and resources in the areas where we determined that they can increase speed, flexibility and cost competitiveness, thereby strengthening our overall competitiveness. Up to this point, I have explained the 3 pillars of our strategy to rebuild our mobile business structure towards 2030. From here, I'd like to explain the direction beyond 2030. In the mid and long term and in the even more uncertain business environment, we must lay a solid technological groundwork while ensuring the greater flexibility and wide range of options so that we will be well prepared to meet demand when it emerges. First of all, our direction to achieve carbon neutrality by 2050 remains unchanged because we believe it is a responsibility we must pursue as long as conducts businesses as a comprehensive mobility company. Besides, we will carefully assess the market environment demand trends in each region and take a multifaceted approach to achieving carbon neutrality, which we will include not only EVs but also various other technologies such as hybrid vehicles, carbon-neutral fuels, carbon offset technologies and so on. As I mentioned in the beginning, we continue laying groundwork for the sake of the EV demands that may expand again. And in order to launch compelling products in a timely manner when the time comes, we are continuing to work to prepare for highly competitive EV hardware platforms as well as the research and development of all solid-state batteries for the future. Furthermore, we continue to pursue initiatives to enhance application of intelligent technology in order to offer new mobility experiences on board. Looking ahead, we will apply ASIMO OS, the original vehicle OS of Honda to a wide range of vehicles from ICE to EVs so that the value of cross-domain mobilities will improve. Moreover, for the E&E architecture, the key to embody the initiative, we adopted a domain-based architecture that can flexibly address changes in customer needs and market conditions as well as the utilization of the external resources. With the adoption of unified software architecture, we will be able to achieve highly efficient development. This will enable us to continually deliver new value to customers in a timely manner while pursuing growth flexibility and competitiveness. So far, I have explained the initiatives we are taking for Automobile businesses. Now let me move on to the Motorcycle business that shows a remarkable growth. As I mentioned earlier in the financial results announcement, our Motorcycle sales for the fiscal year ended March '26 reached 22.1 million units, which is approximately 40% share of the global market. The global motorcycle market is expected to grow from the current sale of 50 million units to 60 million units by 2030. We will further increase our market share and enhance our presence in the market by introducing products aligned with the increasingly diverse customer needs and by optimizing production capabilities. For example, India, largest market, our market share is approximately 28% at the end of the fiscal year ending March '26, delivering approximately 5.8 million units. However, customer demand is showing a trend stepping up from the current most popular 150 class to 125 or 160 classes. A similar trend is observed in Central South America, too. We will steadily address the shift of demand by implementing initiatives to launch attractive products and to enhance the sales network and service capabilities. In Central and South America, emerging motorcycle OEMs from India and China are beginning to strengthen their presence. We will be definitely taking aggressive approach by taking advantage of the competitive resources leveraged from India and China, just like the Automobile segment. Moreover, we will further strengthen production operations to accommodate the global expanding demand in India. We plan to expand our production capacity from the current 6.25 million units to approximately 8 million in further facilities there as an export hub. So various initiatives such as in-house production of parts, modularization of the chassis, acceleration of the local procurement and so on, cost competitiveness and speed will be enhanced. Thereby, we can expand exports to Central South America where the conditions of the roads and the customer [ that are ] close to India. Indonesia, Philippines, Brazil, we will progressively strengthen motorcycle production supply operations to establish business environment to accommodate the demand over there. In addition, we will further sophisticate the commercial value of the products with the development of the dual-clutch transmission on the e-clutch number of original technologies, Honda continues to offer joy of riding and joy of [indiscernible] for customers. Going forward, we will create new values with local technologies unique to Honda to differentiate from other emerging competitors. Regarding EVs, growth momentum of the electrification market is slowing as compared to initial projection. Nevertheless, we are observing the case like Vietnam, where the shift to electric models progresses rapidly because of the environmental regulation changes, the outlook of the motorcycle market is uncertain. In India, we will introduce electric motorcycle models that meet customer needs as planned and proceed with the construction of a facility factory dedicated to EV models. The development of EV models will proceed relentlessly, and we will capture changes in the market environment and customer demand and take a flexible and agile approach to product launches and establishment of production operations. Now I'll explain our financial strategy in light of what I discussed so far. As I mentioned earlier, over the next 3 years, we will focus on rebuilding our Automobile business structure and transform the business into a stable and profitable business. In the meantime, we will continue to make investments for future growth. EV-related investments will be controlled at a certain level while ensuring the readiness to respond quickly to future EV demands. In addition, for hybrid vehicles, we will prepare to enhance our product lineup to the priority markets explained today. As a result of those initiatives, our financial targets of FYE March '29. 3 years from now, we will achieve operating profit beyond JPY 1.4 trillion, the all-time high. That is our aim. During 2 years after that, based on the rebuilt business structure, we will introduce compelling products prepared for the priority markets on the basis of such business structure as established. That way, we can enhance the business for our growth strategy. In March 2031, 5 years from now, the model launches in new model segments in North America, India, Japan will take effect. Initiatives like Triple Half in the development domain will be actively showing the results. Thus, our business efficiency will enhance dramatically to aim for a target of 10% that have been adversary for long. Now let me explain our capital allocation plans until FYE March '29. In those 3 years, we will reallocate resources, which are the scheduled for EVs to the hybrid vehicles instead. Regarding resource allocation for EVs, though we will continue to prepare for the recovery of the EV demand in the future. For the time being, it will be kept controlled to approximately JPY 0.8 trillion level over 3 years. For the software, given the software application essential for all including hybrid models, we plan to allocate the resources of approximately JPY 1 trillion. That is consistent with the original plan. ICE and hybrid models, we will make a strategic investment for future growth in the priority market. So we plan to invest a total JPY 4.4 trillion for the 3 years. The investment for those 3 years will be JPY 6.2 trillion in total. As for operating cash flow after adjustment due to turnaround of the Automobile segment and powerful cash generation of the Motorcycle businesses, it will be expected to be more than JPY 7 trillion, excluding EV-related losses. Consequently, we will continue to invest for the future growth whilst steadily securing the funds for shareholder returns. After FYE March 2030, we will carefully assess the trend of the EV demands in North America and make decisions for EV investment further. Regarding investment decisions in highly uncertain business environment, we will utilize assets of the past investments or leverage external resources not persisting on our internal resources only so that the investment efficiencies will be much improved. Finally, regarding dividends. As you can see here, since 2008 global financial crisis, Honda has faced with a challenging business environment, Great East Japan Earthquake, and COVID-19 but we have positioned the stable and continuous dividend payout as one of our key corporate management priorities. Our payouts have never been reduced. And going forward, we will aim to maintain stable and continuous payouts with a target of DOE 3%. Though we'll balance the realization of rebuilding of business structure, which as investment for future growth and shareholder returns. We will make sure to lead enhance the corporate values in medium, long-term perspective. Lastly, I'd like to explain the evolution of the corporate governance structures. Since transitioning to company to 3 committees in 2021, Honda has significantly expanded the scope of authority delegated from the Board of Directors executive officers aiming for to ensure greater agility in management by the executive officers. We have strengthened the supervisory functions of each committee and the Board of Directors through various measures by appointing chairpersons of the 3 committees from independent directors. We have advanced our governance structures according to the external environment. However, our management team recognized the importance of continuously and consistently seeking institutionalizing optimal corporate governance structure in the light of the pressures expected by the shareholders and customers. And we expect our business environment will continue to be uncertain for the foreseeable future. We decided to once again our governance structure to accelerate advance. In order to ensure steady execution of its business strategy as well as and transparent decision-making necessary for such strategy execution. First, to strengthen the supervisory function of the Board of Directors and enable more transparent decision-making, Board of Directors will be composed of a majority of outside directors, aiming to further enhance the effectiveness of the Board and Board -- Chair of the Board will be assumed by outside person. Finally, to ensure more transparent decision-making regarding the appointment and the dismissal of the directors, evaluation and the compensation of the directors and the executive officers, all the members of the Nominating and Compensation Committees will be composing of the outside directors. The business environment surrounding Honda is unprecedentedly uncertain and tough. Even under such circumstances, we will sincerely and steadily execute initiatives of building our automotive business that we outlined today. We are committed to achieve a strong growth strategy with a strong Motorcycle business and solid financial foundation. We would like to set up another opportunity before the end of the current fiscal year to share more details about the technologies and strategies for our next-generation hybrid models. So please keep an eye on to our announcement. Thank you for your attention.

Thank you for listening. Now I'd like to proceed to Q&A. So please wait while we prepare the stage.

Ladies and gentlemen, we would like to proceed Q&A. [Operator Instructions] The person is closest to me, the person in the second row here.

Yasunaga from NHK. To Mr. Mibe, about the business update, I'd like to ask questions. First, 2050, your carbon neutrality target, you said that this is in place. But up until you were talking about the EV FCEV 100% by 2040. What happened to this target?

Mr. Yasunaga, thank you very much. Yes. well, carbon neutrality by 2050. As I've already explained in my presentation, this is something that the society on the whole has to engage in. And as the corporate responsibility will not change this target. Now as a means, in the past, we were saying EV FCEV sales ratio will be managed, but we have been given numbers. But because of the uncertainty in the business environment and also the customer demand, is changing beyond our expectation. And therefore, we have judged that it will be difficult to achieve. So about the sales ratio target, we have decided to withdraw this. Now going forward, hybrid battery EV included, electrification and carbon-neutral fuel, carbon offset technology. Well, I'm combining all these, we, as a target, the total CO2 reduction will be our target. So about the sales ratio target, well, the reason why we set this out was because it was easy to understand for both people inside and outside our company. And therefore, we set the sales ratio target. But at this opportunity, well, I think it's more important for us to look at the CO2 reduction, and this should be the objective. And therefore, we have decided to change our target aligned with this. But it's very difficult to predict because of uncertainty, and it's difficult to set out specific milestones. I cannot communicate to you any specific milestones. But at 2035, we are working on numbers that we would like to achieve by 2035. And once this is finalized, I think that we can announce this to you. By 2040, [ CV-EV ] 100% well, that ratio, I think is not realistic as of now. As I said, we have withdrawn this target. And instead, we are going to set our target based on the total CO2 emission. That's all from me.

So you will not present any sales ratio?

So the next target will not be sales ratio but it's a total CO2 emission.

Another question. about -- we were trying to break away from engine. And in 5 years or so, well, the environment, as you've said, has changed significantly, and you had to revise your plan. So what is your take on this, Mr. Mibe? And about the outlook, I think there's a lot of uncertainty going ahead. So can you share your thoughts on the outlook?

Well, Honda, the North's American market is our main market and the significant changes in the market does impact us a great deal, just as we see in this case. Well, the electrification strategy was made under the Obama-Biden administration. It was in line with the administration's environmental policies. But a year ago, there has been a drastic change, and we have seen a shift from a focus from environment to the opposite. And therefore, the major reason for this massive impairment is because the Zero series that we're planning for, we have been developing it. And as of 2024, we had the development phase completed, and we had been entering into phase producing the dies. And so seeing this major change in the U.S. administration, we were not able to flexibly respond. Now what we explained today, well, is due to the change in geopolitics and also environmental policies. But going forward, we want to be able to have a strategy in place which can even endure such challenges. And so rather than just focusing on EV, we want to be flexible whether we need to head towards EV or the other direction. So once we see what direction we have to head towards, I think we can focus our efforts and be more focused in ingesting our resources. But at this point in time, because it is uncertain and we think that uncertainty will continue, we want to have a more flexible strategy. So this is a change that we want to make. And this was the gist of today's business update.

Next question, please name.

[indiscernible] I have 2 questions. First question, China and India, the cost competitiveness and speed now to be utilized by itself. And you had reverse import, let's say, from there until now but obviously changes going forward. And you had a supply chain already there and are you going to destroy the supply chain over there from now? Or in China, you are saying that you're going to utilize a local partner platform. Do they are going to use their Dongfeng, Dolphin well, the partner company platform. When are you going to start with that?

Thank you for your question. And China and India cost suppliers. And in India and China, we've developed our businesses so far. And as I said today, Honda has global requirements and we protected them and we prioritized the quality to accommodate for that in our production activities but it was not probably good enough in this business today for EV. But now -- in China and India, there are some standard parts that are suitable for their markets, and there are some track record of utilizing them over there. So we can build vehicles based on their standard parts. If that is not a problem, we can expand the use of those standard parts components from there to build more vehicles. So we can change idea of Honda a little bit now. And then we can try to look at the cost and the local requirements in a good balance so that we can reduce the cost overall. So first of all, I'd like to check its effectiveness and approach, the effectiveness in India and China. And then if it works, we can expand globally. And then what happens to the Japanese suppliers? I think that's your question. So we are not necessarily defining to work with Chinese suppliers or Indian suppliers only and so on. There is no definite way because 40% of the market is supported by the emerging competitors. And then they are sort of setting up the competitive standard and we need to change a bit to -- but against that. Therefore, as long as they meet with the standard, whoever the supplier of whichever the country we work together so that we can improve our commercial value of the product. And I don't want to mislead. It don't mean that we are going to use more Chinese and Indian suppliers more and more going forward. It does not really mean only that way. They would be giving a kind of the standard as well. And platforms, we are still in the discussions with the partner company. So I cannot give you the details today. But there are 2 companies only, I suppose, that with partners, we can utilize their platform to build new products. That is all I can say today.

one more question. So about HEV. In 2030, you had target of 2.2 million units. And are you going to keep the targets? Or do you set new targets? And also the fuel efficiency improvement, the intelligence use, do you have a profitability target as well, not just those volume targets?

So I said that we will strengthen our business in hybrid. And I'm not sure if I should talk about volume specifically. But based on our plans, 2.2 million, that was the number we had for which our intent is to try to go and reach 2.5 million. And Hybrid Plus, of course, we need to get the profits based on the new hybrid system. And we have the hybrid system of 2023, and we are trying to reduce the cost of that by 30% against that year. And I think we could have a 50% cost reduction against that in '27 also, I suppose. And then new platform will be coming in. Therefore, cost-wise, 10% and by weight, 90 kilograms reduction expected. Therefore, platform, new hybrid system, both together will give us good businesses and ensure the good Honda vehicle performance. Would that be right?

Next question, please. The person in the middle, second row. Please ask the 2 questions at once.

[indiscernible] About the business update. In the next 3 years, ICE hybrid investment JPY 4.4 trillion. This is a huge amount. And so this means that you have an internal combustion engine, but a new engine, are you going to develop a new internal combustion engine? Is that the correct understanding? That's the first question. And the next question, no one going to ask this, I'm going to. Ever since you've listed, the first time that Honda is posting a deficit. And Mr. Mibe, as President, how do you take your responsibility? Please share with us your thoughts about your responsibility.

On your first question about hybrid, the engine. Up until 2030, we are thinking the business will be mainly focused on hybrid. So putting aside the deficit this time, we were continuing our development of hybrid. And the first is going to be launched next year in '27 and the performance cost included, I think we are going to see a major advancement. And the engine to be installed, well, this it's not a new framework. It's going to be the conventional engine series, but the heat efficiency will be better. On hybrid, the area in which the engine is used is limited. So within that range, the heat efficiency is improved. And so that development is underway and have a new system. And with the engine heat efficiency improvement, the fuel economy will be improved by around 10%. So it's not just cost. I think this will be a powerful tool and weapon for us. And about EV development, cancellation and this huge massive deficit. Well, I repeat myself but we are facing a very harsh business environment. And the automotive industry itself is entering into a major structural transformation period. We also have been prudent and been investing in EV with prudency. But as of 2024 already, Zero Series, the EV development well, the dies were already ordered, and we were preparing in the beginning of '25 to the extent where we could not go back. And so the impact of the tariffs and the easing of the environmental restrictions and also the change in policy has had a major impact on our business. But it was either cancel or sell. And we were following carefully our business environment. And ultimately, GHG regulation was to be abolished and the EV market. But at this time, the EV market in the United States was thought to reach 15% -- but last month, it was 5.6% or 5.8%. So it was more than -- less than half of the originally anticipated size. And therefore, it was far below the planned unit sales that we had in mind. So if we were to go ahead with this, we knew that in the future, we will generate loss. So as Honda Motor, although, we did not, even with those difficulties, have any deficit but we understood that we needed as management to decide to go back on a growth trajectory and post this massive loss to make that happen. Well, about this deficit, I take this very seriously. as a management. And based on that, we have come up with that recovery plan that I've just explained. What I've explained today, we have to try to stop the bleeding as soon as possible and try to pave the way for future growth. And amidst uncertainty, we have to establish a structure where we can tolerate such changes. So we quickly have to work on this. And I believe that, that is the biggest responsibility that I currently have. And at this point in time, I would like to focus my attention and effort on this point. That's all.

Next question, please. Third row from the left, the front table, please.

[indiscernible] my name is I have a question about the financial results. Earlier, you talked about EV deficit. And then in specific terms, what included according to your presentation in March, you talked about your compensation for the suppliers and revisiting your development projects and so on. And do you have a gap of what we assess now and what you assess at the time? And is it possible to complete all of those deficits put up by March 27? And second question is about the business update to Mr. Mibe. You talked about external resource utilization. Since you became the President, you talked about going away from the all internalizing or internal-based resource strategy. And when you say utilization of external resources, how would you explain the issues, especially as to the Honda's policy for getting the internal resources only for instance?

Thank you for your question, Mr. [ Muda. ] And for your question about EV deficit on March 12, as we said before, we had 3 EV developments for the U.S. to be withdrawn. And then the largest possible deficit to be JPY 2.5 trillion, as we said at the time. And out of those JPY 2.5 trillion, we announced the one for the March '26 in the past term. And idea was JPY 1.3 trillion to be recognized for March '26 as according to our announcement last month in March. And then reality now is that for the March '26, we are now finding out there are some to be putting up in the current fiscal year, not the March '27. But now some of those we were expecting to put up in March '27 is now brought forward to March '26. That means we have higher deficit for March '26. And then out of the deficit for March '26, there are some which are assessed to be lower in terms of the value. Therefore, we have those ups and downs quite equally. Therefore, in March '26, we are ending up with the JPY 1.3 trillion deficit recognized in March '26. That is a starting point, let's say. And in the announcement of the financial results earlier, Mibe-san explained about JPY 500 billion deficit to be expected now. And one thing is that originally, we were trying to recognize the amount. We actually recognized that in earlier previous term. And then we, at the same time, have supplier negotiations and so on. And it's already in the beginning, and we couldn't see how the outcome would be at that time. And then finally, we believe that we would be having JPY 500 billion that covers all that. And JPY 1.3 trillion deficit is now putting up for March '26, that's impaired and that's it. And the remainder is JPY 1.8 trillion and JPY 700 billion is still remaining. The question may be, would that be impaired as much as that value or would that be put up in the management decision or when and so on. But actually, we have to let you know later on when all those things are sorted out and then we are clear about those values and financial status.

So the external resource utilization and our Honda's internal resource utilization. So external resources, meaning allowances and so on, which is one of the things I would think we would need, as we said before. So we have to work on that. Of course, within Honda, there are, of course, have a basic idea where we want to get our own sources for everything we could support. And then in the businesses like in China, when we have a struggle, we would have Honda drawings for ICE, and we're working on the cost reduction based on that drawing in China, utilizing resources out there. And we are trying to assess how much cost reduction we could achieve with that. And we know how much we could reduce based on that, and we could use a platform with the partner. And we have a good understanding of how much we could reduce based on that platform with the partner. And now we recognize that we perceive is the standard today in the businesses. And as long as we are happy with those, we don't have to stick to our principle of getting all the Honda sourced technology. So of course, if we are not winning, we have to make it work, we have to work harder. And then we have to grab the [ earth ] technology and so forth that is ready that way to win. And we already have the measures in place. And now we have to involve those in the field to fight further to win. And of course, depending on the regions, but we are now thinking about positive utilization of the external resources in different places. And then in North America, the question is, could we use that standard from elsewhere in North America? That's another question. But we have to formulate the strategy for the supplies and the supplier value chains and so on, and we are working on that. And then we haven't really touched upon a specific strategy outside of China. We talked about India a bit today, where the parts prices in India is formulated in a different way from that of China. But away from that, we could try to find out and identify the quality standard that can be utilized in all different regions. And if that is acceptable from the cost perspective, of course, we will take it and utilize that going forward. That is what we wanted to say.

Next question, please. The row that is furthest away, the person in the third row.

I'm freelancer, [ Watanabe. ] About the business update, I have 2 questions. About the domestic market, you say that you will launch new models more than the current unit sales. And how many are you thinking of? And what specific measures do you have in mind? So how are you planning to increase unit sales is my first question. And also the K ratio is 43% and the Japan average is 36%, so it's above the average. So the K-centered sales approach? Are you going to maintain this? Are you going to reduce the portion of K mini cars? And are you going to introduce more the registered regular passenger cars? So I'd like to ask you about domestic sales and marketing.

Kaihara will respond.

Currently, as you say, in regards to Japan, the K, the mini car ratio is high. And even compared to the Japanese average, we believe that we are high. And this is because we have this strong model and the dealers are succeeding, and therefore, they are relying on this single model. But this time, in Japan, the registered cars. We want to try to expand our lineup, strengthen our lineup of registered cars and increase our presence in this category. And so for this, currently -- well, currently, unit sales is low, but we want to introduce a model to boost this. So we have a plan for that. But we are -- before that, trying to establish a strong network, dealer network. And we want to rebuild or reorganize our dealer network. Well, I think through integration, we can strengthen our marketing capability and thereby have better touch -- customer touch. And we want to strengthen our digital sales and marketing, too. And on the EV front, already and the mini category, we have 3 EVs launched. And going forward, Insight will be coming up and Super-ONE, too. So for EV, too, we are going to strengthen our lineup. Therefore, for the future EV in Japanese market, we want to lay the groundwork so that in the future, we have EV and hybrid to support our presence in Japan. About the K mini-car category, we will also strengthen our presence and add to -- add on to K, the registered cars. And with EV, we want to offer to as many customers to increase unit sales. That is all.

Because of the interest of time, I could take only 2, 3 questions for the rest. Thank you. So from here, please. Second row from the left, the front table, please.

[indiscernible] Question one about financial results, EV-related losses. And you said that JPY 1.3 trillion losses and some of them have been brought forward to recognize. And then you talked about the compensation for the suppliers. And I'd like to know what -- which part is actually brought forward to recognize. And second question, hybrid vehicles to be focused going forward. And then you, of course, had quite a bit of investment in EVs. I wouldn't say that you were behind. However, you had a different focus, I suppose, because other companies had many hybrid cars out competitors did. But as compared to the competitors, what is the winning strength? What is your strength in this field with hybrid?

Thank you for your question. For EV-related losses, some of them have been brought forward to recognize in the financial statements. And then of that is development assets and write-off of the facilities and also additional costs associated with the impairments and so on. And I can't really say, which part is really corresponding to the suppliers and compensation and so on because we have the other party involved. But writing off the equipment facilities, those are to be done according to the accounting standard. Therefore, it would not really have totally different kind of practice of recognizing them in a standard way.

So hybrid vehicle strength, we have a long history of hybrid vehicles, 3 motor hybrid, we used to have a long ago, and we have the 2-motor hybrid that is more efficient now. And now we have a compact side and midsize and we have hybrid cars in those segments for the global markets. And this time, 2029 or so or late '28 and so on, we are going to launch offer or launch the large-size hybrid models. And several years ago, we said that we would strengthen the hybrid as well, not just EV, especially on the large-sized hybrid, which we didn't have at the time. So we started the development of that. And now we have a full-fledged effort on them, and we want to launch those models as soon as we can. So now once it's there, we are having their all sizes for all segments. And then you have to give it a try, drive it have to have feel because there are different kind of hybrid feel. And we are really confident in our hybrid ONE. And we have S-Series, you can enjoy the driving nicely. And also the ADAS is a good affinity to a hybrid model because CPU SoC driven with a lot of power consumption impact and EVs and plug-in hybrid could be the mainstream for those CPU things. Some hybrid, of course, but we have a strength in the hybrid, especially for the power generation plant, we have a strength as well. We can supply the power to without any problems. Therefore, that could be a good strength to offer, starting with the Vezel 28. With that, we can combine the next-generation ADAS as well, and we are quite able to do that. So that's the strength, and I wouldn't talk about competitors' products. However, we have absolute confidence in our hybrid models. And we try to appeal our products so that customers understand its appeal.

I see a lot of hands but I'm sorry. The next person will be the last. And please raise your hand. The person in the middle, the third row with a white jacket might be a tough question.

[indiscernible] There might be a tough question about Mr. Ozawa-san. As far as I know, with Nissan partnership or Sony, he was playing a leading role. And Mibe-san, I think this is the person that you mostly trusted. And Aoyama-san also quit. And Mibe-san only is staying in Honda. Now you lost your 2 close aides and yet can you carry out your Mibe reform? This is what I want to confirm with you.

About the personnel issues, I think this has been announced. About Ozawa, well, this change in our strategy over the past 3 years, this has been a very challenging reform. And in addition, this was not mentioned today but when it comes to our management and operation, DX AI included, we have been having to do a massive reform. And in Honda, we had few people capable of doing so. So initially, I was taking the lead. And so I was the corporate reform leaders. But in carrying out this reform, I wanted to focus on this part. And when it came to the digital and others, strategy-wise and also operation-wise, digital AI is something that we cannot avoid. So to strengthen digital AI, Shikama, who has knowledge, is at the top of corporate planning. So in addition to what was explained today, the company's operation will also be changed. And that is the reason why we have decided on this -- made this HR decision. So Ozawa will step down following the shareholders' meeting. We have a lot of talent at Honda. And with a new lineup, we would like to continue to strive.

Thank you. Thank you very much. And with this, we would like to conclude today's meeting, the financial results and business update. And thank you for your attendance.