Nissan Motor Co., Ltd. (7201) Earnings Call Transcript & Summary

[Interpreted] Thank you very much for attending the press conference announcing Nissan Motor's Fiscal 2020 Financial Results. Thank you for attending in such a large number. In view of the current situation, this meeting will be using the Internet system and livestreaming. First of all, let me introduce the attendees of the meeting: President and CEO, Mr. Makoto Uchida; COO, Ashwani Gupta; and CFO, Steve Ma. I ask for your kind of cooperation. Now without further ado, let me invite Mr. Uchida to speak.

[Interpreted] Thank you for joining us today. To begin with, I would like to express our sincere gratitude to all the health care workers around the world who are on the front lines of battling COVID-19. Nissan continues to place the highest priority on the safety of everyone we work with and serve, including the customers, dealers, suppliers, employees and their families. We are doing our utmost to prevent infections while running our operations. The fiscal year 2020 was a year of big changes dominated by the COVID-19 pandemic and impacted by multiple factors, including the growth of environmental awareness and political and economic changes. Despite the challenges, Nissan has been making steady progress in implementing Nissan NEXT business transformation plan, which we announced last May. As I said in February, we are seeing encouraging results, thanks to our employees who are doing their utmost every day to bring Nissan back despite the challenging climate and all our business partners who are working with us to overcome the difficulties. I would like to express my sincere appreciation for your strong support and contribution. Our COO, Ashwani Gupta, will cover the full year performance for the fiscal year 2020, and I will present the outlook for the fiscal year 2021. Ashwani-san, over to you.

Thank you, Uchida-san. Good afternoon, everyone. This year has been indeed an evolutionary journey for Nissan and a true test of our resilience and agility. Amidst all the uncertainty, we have been clocking regular progress, thanks to the hard work of our employees and partners who are relentlessly driving forward Nissan's business transformation. Let me now go over the fiscal year 2020 performance and the progress of Nissan NEXT. First, as you can see on the left graph, our global retail sales for FY '20 is 4.052 million, which is 0.9% ahead of our sales volume forecast. Second, quarter-by-quarter, we continue to adapt to the new normal and have been meeting the growing needs of our customers. Third, through the end of the fourth quarter, Nissan has achieved sales growth ahead of the average industry volumes, underscoring the importance of our recovery efforts. Despite many headwinds, pandemic, supply chain constraints, including semiconductor shortage, in the fourth quarter, our sales grew by 18% with respect to the market growth of 2%. This growth was fueled both by the performance of our current models and the newly launched ones, including all-new Rogue in the United States, all-new Note in Japan, all-new Magnite in India and others. With regards to current models, we saw an increase in segment share for models like Juke in Europe, Sylphy in China. Now to recap, last year, we began our 4-year Nissan NEXT business transformation plan based on 3 pillars. At first, rationalization. It was focused on reducing our fixed cost in line with our sales potential from 7.2 million to 5.4 million capacity. Number two, prioritization and focus on core markets with core products and technologies to strengthen quality of sales by shifting from volume to value. Number three, growth plan and prepare new products and technologies to drive growth during and beyond Nissan NEXT. Through FY '20, Nissan made steady progress. We were able to balance our immediate performance recovery efforts with foundational elements to bridge to the future. Now let me go through each pillar. First, rationalization. Over the course of the year, Nissan has undertaken several key initiatives to reduce fixed costs across our operations, leading to a significant overall reduction. We are optimizing production capacity. We decided to close 2 plants and moving worldwide operations from 3 shifts to 2 shifts, thereby reducing cost by 7%. With a clear focus on customer value, we decided to streamline our product portfolio from 69 to 55 models by '23. In fiscal year '20, the plan is on track, bringing product-related costs down by 5%. For marketing and sales, Nissan has made significant progress, reducing costs by 27% as we strategically allocated budget toward a more focused impactful mixture of marketing, sponsorships and motor shows. Our enhanced efforts in digital sales experience resulted in 12% of our global sales coming through digital customer journey. To optimize general and administrative cost, we made some radical decisions from consolidation of 7 diversified regions into 4 equivalent regions: Americas, Japan ASEAN, AMIEO and China. To efficiently manage the assets and facilities, these efforts led to an 11% reduction of G&A costs during the FY '20. Altogether, we have delivered over JPY 350 billion in cost reductions, exceeding our objective of JPY 300 billion reduction versus FY '18. With this fixed cost reduction, we are now able to bring down operating profit breakeven sales volume by 12%. In FY '18, our breakeven volume was approximately 5 million units, but now we can start generating profit with approximately 4.4 million units. This reinforces our strategy to pull profitable growth by value. Turning to our efforts to prioritize and focus on Nissan's strengths. During FY '20, Nissan made significant improvements to the quality of our sales globally, which is critical to achieving long-term profitable growth. If we look at our 2 top most indicators, throughout FY '20, we steadily grew revenue rate per unit quarter-on-quarter through value pricing and by delivering attractive all-new models and technology that meet customers' aspirations. Second, in line with our sales transformation plan, we moved from push to pull strategy. With this, our inventories were optimally managed, contributing to quality of sales, but most importantly, generating operating free cash flow. And finally, for each of our core markets, quality of sales was a central priority as Nissan focused on value-based core offering for our customers. In the United States, all of our business transformation indicators are in the right direction. Nissan improved net revenue per unit by 3.8% and at the same time, reduced incentives by 4.6%. We have also seen improvement in the franchise value for our dealers demonstrating strong business engagement and confidence. The response by customers to the all-new Rogue has been positive with 7.4% segment share. This has helped lift our overall market share during the fourth quarter to 5.8%. Similarly, in Japan, while models like Nissan Kicks e-POWER and Rogues continue to do well, the introduction of the all-new Note e-POWER drove Nissan's segment share and overall market share to 11.4% with an increase in the net revenue per unit. Our strength as a technology brand is demonstrated well in Japan, our home market, with more than 0.5 million customers driving e-POWER. By the end of FY '20, 50% of our cars have advanced driver assistance features, allowing customers to enjoy the choice of delegation or control. In China, we kept our discipline on incentives for existing models while gaining market share, which remains an all-time high for Nissan. This minimized the impact to net revenue per unit despite market transaction prices going down. Now moving forward, with the all-new X-Trail and the Sylphy e-POWER, along with a robust future lineup, we will target an increase in net revenue per unit, leveraging our core technologies to meet the aspiration of tech-savvy market, China. Lastly, in Europe, our focused approach has delivered encouraging results throughout the end of the fiscal year. We achieved significant reduction of 34% in our fixed cost by rationalizing our production and leveraging the Alliance resources for the projects like EV van and [ e-Tech ]. This supported an overall improvement in net revenue per unit. Moving forward, Nissan will continue to electrify crossovers like Qashqai and X-Trail with Nissan unique e-POWER technology. Our third offensive contributed to our positive results with the Nissan Juke achieving an increase in sales and revenue per unit. With the launch of our core product, the new Qashqai, both ICE and e-POWER, we aim to further increase net revenue per unit in Europe. Customer is at the core of our product and technology strategy. We based our Nissan A to Z proposal on the needs and aspiration of today's customer and promised to deliver 12 new products in 18 months. We are proud to say that we are delivering on this promise with 11 models launched or unveiled to date, which are and will bring growth during and beyond Nissan NEXT. As we continue to invest in innovative technologies, here are the 3 key focus ones. First, e-4ORCE, an electric traction system that allows the driver to have full confidence and control, while at the same time, enjoy the excitement of electric motor drive in a variety of road conditions. Second, ProPILOT with Navi-link. Our newest autonomous human-centric feature that helps the driver to adjust vehicle control based on road conditions, including speed limits and sharp curves, et cetera. Third one, ProPILOT remote parking and automated remote parking system, which allows for control of the car from the outside to enter and exit narrow but also unmarked isolated parking spaces. Now finally, this slide illustrates our financial key performance trend quarter-on-quarter for fiscal year 2020. Despite the challenges faced by the automotive industry, we have continued our efforts to improve quality of sales and rationalize the cost base under Nissan NEXT. Our first quarter was negatively impacted by COVID pandemic, and we finished the year with operating loss of JPY 150.7 billion on equity basis and JPY 28.6 billion on China JV proportionate basis. For the 9-month period, quarter 2, quarter 3, quarter 4, our operating profit totaled to positive JPY 3.3 billion on an equity basis and a positive JPY 107.4 billion on China JV proportionate basis. Similarly, from quarter 2 to 3 to 4, our free cash flow for the automotive segment was positive JPY 424.7 billion on an equity basis and JPY 538.2 billion on China JV proportionate basis. For fiscal year 2020, consolidated net revenues were JPY 7.9 trillion. Operating loss totaled JPY 150.7 billion, and net loss was JPY 448.7 billion. Net revenues and operating profit decreased year-on-year, primarily due to the decline in unit sales resulting from COVID-19 pandemic, especially in the first quarter. For the fourth quarter of fiscal year 2020, operating loss was JPY 19 billion, which was an improvement of JPY 75.8 billion from the previous year. The net loss was JPY 81 billion for the quarter. This slide illustrates the variance analysis from the fourth quarter operating loss from the previous year. Foreign exchange had a negative impact of JPY 15.2 billion, primarily due to depreciation in the U.S. dollar. Volume and mix, part sales and others had a positive impact of JPY 27 billion, thanks to the increase in the sales volume. The most notable improvement came from pricing and selling expense, which resulted in a JPY 73.4 billion positive impact. This was primarily due to the enhancement in the quality of sales in United States, which contributed to more than half of this improvement. Monozukuri, fixed cost and others had a negative impact of JPY 9.4 billion. Increases in regulatory and product enrichment costs, raw material prices, manufacturing and other expenses were partially offset by reductions in purchasing cost. In February, we revised upward our operating loss outlook for fiscal year 2020 to JPY 205 billion. From this outlook, we reduced the operating loss by JPY 54.3 billion to JPY 150.7 billion. JPY 30 billion improvement from the sales performance, mainly driven by value pricing and JPY 20 billion came from the sales finance business and JPY 4.3 billion was from the other items. We continue to maintain strong levels of liquidity. At the end of March 2021, cash and cash equivalents were approximately JPY 1.9 trillion and our net cash was JPY 636 billion for the automotive segment. Furthermore, we continue to have approximately JPY 2.2 trillion in unused committed credit lines. As a summary, I can say, number one, despite headwinds, we have reduced our losses more than we forecasted due to accelerated transformation focused on rationalization and quality of sales while enhancing investments in new products and new technologies. Number two, quarter 2, quarter 3, quarter 4, positive OP and positive free cash flow even on equity basis, which is without China JV gives us confidence about the robustness of our operational efficiency and effectiveness. Number three, moving forward, our new breakeven point of 4.4 million volume gives us confidence to pull profitable growth for a sales potential of 5.4 million in Nissan NEXT with our strengths, achievements, learnings, but also cautious recognition of the remaining and new potential challenges we get into 2021. I will now turn over to Uchida-san to walk through the outlook of FY '21.

[Interpreted] Yes. Thank you. Coming to our full year outlook for the fiscal year 2021. For fiscal year 2021, the global auto market is expected to remain uncertain as the semiconductor supply issue continues to impact the industry and Nissan is no exception. We expect to see the impact mainly in the first quarter. Though it is difficult to forecast our sales volume for the year at this time, we currently estimate Nissan's units of sales to increase by 8.6% over the prior year, in which we saw a huge decline due to the impact of COVID-19 to 4.4 million units. This is the financial outlook for the fiscal year 2021 based on the global sales assumption of 4.4 million units. We are forecasting net revenues of JPY 9.1 trillion and an operating profit coming out even. Our net loss is expected to be JPY 60 billion. Despite ongoing challenges, Nissan continues investing actively for future growth, including R&D expenses and capital investments. This slide provides the year-on-year analysis of the operating profit variance for the fiscal year forecast. External factors, including foreign exchange fluctuations, an increase in regulatory and product enrichment costs are expected to have a negative impact of approximately JPY 100 billion. Performance improvement in sales in Monozukuri is expected to have a positive net impact of about JPY 550 billion, which is significant, while costs associated with new product launches will impact operating profit by JPY 150 billion. These are necessary investments towards achieving Nissan NEXT and the growth beyond. The company faces huge business risks such as the global shortage of semiconductor and surge in commodity prices for the year. Excluding these factors, we expect to achieve an operating margin of more than 2%, including the proportionate consolidation of results from the joint venture operation in China. As we make every possible effort to minimize these risks, we forecast an operating profit to come out even for the fiscal year at this time. Nissan remains focused on actions to mitigate the negative impacts of the challenges, including semiconductor shortage and we'll update as needed in the first quarter earnings announcement. Our focus for this year will continue to be on delivering on the Nissan NEXT plan. Our challenge ahead of us is to maintain the financial discipline and our focus on better quality of sales and raise the company's earning capability through our products, which is at the heart of our business. The results of our initiatives are starting to take shape. Customer confidence is improving, as indicated by the J.D. Power Customer Satisfaction Index and Sales Satisfaction Index in the United States and China. Nissan Rogue in the U.S. has the highest overall buyer satisfaction ever across our lineup. Qashqai, which created the SUV segment in Europe, enjoys strongest demand among our products in the market. The all new X-Trail that was revealed in the recent Shanghai Motor Show is earning accolades across the markets, including the best upcoming new car award. The all-new Note e-POWER in our home market, Japan, receives high acclaim as a superior compact car that offers driving performance and upscale feeling. In addition to these models, this year, Nissan is introducing the all-new Ariya crossover EV, the all-new Z sports car that represents our DNA and the INFINITI QX60 that opens a new era of the INFINITI brand. We will be introducing to the markets these models that express who we are. And the all-new Ariya crossover EV, a fusion of SUV and EV strength will open a new era of EV providing a seamless user experience and EV values beyond what customers see today and open up a new era. With around 200,000 hand-raisers, we expect it to grow into a model that symbolizes our brand. The all-new Kei car EV, which we are jointly developing with Mitsubishi Motors at NMKV will be introduced in Japan ahead of our competition. We are also widening the application of the e-POWER system across our models and extending it beyond Japan's success to China and Europe. In China, we are applying the e-POWER system to 6 models by 2025, starting with Sylphy this fiscal year. In Europe, Qashqai will adopt the world's first variable compression engine which is mass-produced engineered by Nissan VC-Turbo as an engine dedicated for power generation. We also plan to introduce all new X-Trail e-POWER next fiscal year in the market. Nissan will be delivering additional e-POWER-equipped models in Japan. We will keep on delivering compelling products that enhance our profitability and brand power to eventually hit 5% operating margin, which is the final goal of Nissan NEXT into fiscal year 2023. In January, Nissan has set the goal to achieve carbon neutrality across the company's operations and the life cycle of its products by 2050. As part of this effort, by the early 2030s, every all-new Nissan vehicle offering in key markets will be electrified. To address electrification in CASE, ongoing investments are inevitable. Nissan will continue spending enough amount of capital investment and R&D expenses towards this. Nissan is an EV pioneer who has been promoting EV penetration and the realization of a zero-emission society. Recently, many carmakers began launching EVs in the market. However, Nissan is the only player globally that has the 10-year rich experience and knowledge in taking a holistic approach towards the entire life cycle. To increase penetration of electrified vehicles, we need to update the technology and reduce the costs at the same time. This requires a long-term strategy and continuous efforts. Nissan is increasing its competitive edge in developing batteries and electrical powertrains, the core components of electrified vehicles by maximizing the use of the Alliance leader-follower scheme. We are developing batteries according to a long-term road map. We are seeking economies of scale and greater competitiveness in technology by aligning specifications and increasing commonization within the Alliance. At the same time, Nissan continues to working on [ varying ] innovations, including development of cobalt-less battery and all solid-state batteries. The company is not only sharing powertrains within the Alliance but also further promoting common use of EV and e-POWER components such as motor and inverter. Furthermore, the on-road onboard gasoline engine that will be used for a generator for the next-generation e-POWER system will reach the world-leading 50% thermal efficiency for better fuel efficiency, CO2 emission reduction and cost competitiveness. Nissan's efforts are not limited technological advancement. On the manufacturing shop floor, our team is driving innovations for better efficiency of vehicle assembly and development of eco-friendly plant. As we introduce the Nissan Intelligent Factory into Tochigi this year, we are going to start production of the new Ariya. This March, Nissan announced plans for a major expansion to renewable energy generation at its plant in Sunderland, United Kingdom. This would result in 20% of the plant's energy coming from all on-site renewables enough to build every single zero emission Nissan LEAF sold in Europe. We will expand the initiatives to build the next-generation factories in and outside Japan. Nissan does not only intend to sell EVs but also make various contributions to society through EV. EV batteries are already used for mobile energy storage on many occasions, including energy management of a household or a building and an emergency power supply. The company has signed over 125 agreements under the Blue Switch program that is designed to address societal issues in Japan by using EVs. Nissan is recycling and repurposing used batteries through operation by 4R Energy Corp. Nissan LEAF batteries are given second life to store solar energy and help stabilize power supply. Nissan is engaged in a number of field operation tests, working with authorities and partner companies around the world in the areas of new community development and mobility service capitalizing on electrification and autonomous driving technologies. The company is also working with local communities in Yokohama City and Fukushima Prefecture to solve local societal issues and build new communities. This initiative of contributing to actual society by leveraging automotive technology that we have been developing for years is an approach which only Nissan can afford. Under the spirit of "dare to do what others don't," which is our core belief, Nissan is taking on challenges with passion and is driving innovations. We have been providing new values to our customers through innovative products and services, empowering their journeys and our society. This is Nissan-ness and raison d'être of our company. We will continue taking on challenges with a strong focus on enriching people's lives. Thank you for your kind attention.

Yes. Thank you for your kind attention. Now we would like to entertain questions from the floor. [Operator Instructions] Now I would like to ask Nikkei Shimbun, [ Hatano-san ].

[Interpreted] I am Hatano from Nikkei Shimbun. There are a couple of questions. This full year outlook in Nissan NEXT, you were aiming at 2% operating margin, but you are falling short according to the full year guidance. How do you assess this projection? And in fiscal year 2023, 5% is what you are aiming at. And how are you going to work on this 5% operating margin by 2023? This is the first question. And there's another one, which is about North America sales forecast as well as the latest situation of the sales in North America. Compared with other carmakers, it seems like you are a bit weak. But you are focusing on quality, and that is why. If possible, could you share with us how you assess the sales performance in North America?

[Interpreted] Thank you for the question. For the North America sales projection, I would like to ask Gupta-san to answer. But starting with the first question, which is about 5% operating margin in Nissan NEXT. Here, as I said -- as we showed you in the results of fiscal year 2020, the goals of Nissan NEXT are all achieved so far by ensuring financial discipline, and we are increasing our part to deliver value based on new products. Rather than expanding the sales, we are focusing on quality, and we have better quality of sales. If you look at these results, with the new -- upcoming new cars, we will be able to deliver new value to the customers, and we believe that we can achieve 5% operating margin eventually. But if you look at the immediate challenges today in fiscal year 2021, there is a big impact semiconductor and commodity price hikes. So at this point of time, operating -- in operating profit, we are foreseeing coming out even in equity basis or 1%, including the joint venture in China. However, we will continue taking actions. And in the end of July, when we show you the results of Q1 of this fiscal year, we will show you the clearer outlook for the full year [ at need ]. And the second question, which was about North America. Overall, in North America, our quality of sales are definitely improving. I'm sure you recognize it. But in order to answer your questions, I would like to ask COO, Gupta-san, to answer the question. Thank you. Ashwani-san, over to you.

Before getting into the detailed answer, let me again remind how we are managing the United States transformation plan. At first, we are changing the culture in United States, the way we do business. And to change the culture, at first, we changed the product. With the launch of Sentra and all-new Rogue, we have renewed roughly 1/3 of our business in the United States. Moving forward, renewing all-new Pathfinder, renewing all-new Frontier, we will be renewing 2/3 of our products with the latest technology and the latest designs. That's how we are changing the product. Number two is changing the business with the partners. And we have changed the way we do business with our dealers, creating more and more dealer confidence and dealer engagement. And number three is the change, the people, and we had the new leadership team, which has taken charge of United States in -- since 1 year now. So we've changed the product, changed the business, changed the people, finally achieved change the culture. This is what we are doing in the United States. As we shared before, quarter 4, we have started seeing the retail sales growth, but not only the volume but also in line with volume to value, our net revenue per unit is increasing. Now to answer precisely to your question, we will keep the discipline on the sales -- quality of sales. However, as Nissan globally, we have touched the breakeven point of 4.4 million, and now with the new products and the new technologies and the new business confidence with our partners, especially the dealers, we will move forward for the growth, and this is what we have shown in quarter 4, and this is what we will show moving forward in 2021. So at first, we are competing with ourselves before we compete with the competitors. Maybe in quarter 1, when we will meet again, at that time, I will answer the question how we are better than the competitors. But today, what I can say that Nissan is much better than what Nissan was yesterday in the United States.

[Interpreted] Thank you. Okay. Moving on to the next question. NHK, [ Uwe-san ].

[Interpreted] In fiscal year 2021, you showed us an outlook and business risk will have an impact on your performance. The semiconductor impact and the commodity price hike were indicated. And what's the breakdown of the potential impact? What is the biggest impact that you foresee? And the second question, in the sales projection of 4.4 million units for the fiscal year 2021. From the end of this year, you have been recovering your sales. And after you -- as you continue the sales recovery, I think you are seeing the business risk. What is the assumption on which you calculated this 4.4 million units? These are the two questions.

[Interpreted] Thank you for the questions. Starting with the business risk assumption for the fiscal year 2021 forecast, semiconductor supply issue is approximately in 2021, 500,000-unit level is the impact on production volumes that we foresee. But in the second half of the fiscal year 2021, about half of this impact is what we intend to recover. That's the assumption of this calculation. And commodity price hike, every day, the price is hiking. So based on what we see today, as we have shown you in the step chart, this is the business risk that we foresee. But with our effort, we would like to come out even with the operating profit. And this is what we foresee as of today. And the sales volume, needless to say, in Nissan NEXT, in fiscal year 2020 -- looking at the results of 2020, if you look at TIV, it's very difficult to forecast TIV. And as we assume the market presence and upcoming new models' impact, based on these factors, we came to 4.4 million units, including the semiconductor supply shortage impact. The regional breakdown, Ashwani-san, if you have anything to add, could you elaborate?

Thank you for this question, Uwe-san. Just to give a hypothesis why we are confident on the sales numbers which we are projecting. Roughly, the 2020, the global automotive market was roughly 77 million. And out of 77 million, we did roughly 4.05 million as retail sales. In FY '21, we anticipate that the global market will be around 85 million, which is 10% increase year-on-year. And when you look at our forecast, which is 4.4 million, it is close to 9% year-on-year. So basically, market by market, we are growing in line with the market. And obviously, this is after we incorporate the semiconductor risk. And more and more, we recover the semiconductor risk, more and more, we will grow in terms of volume and market share. That's the hypothesis we have taken to forecast this 4.4 million.

[Interpreted] Next question [indiscernible] Shimbun [indiscernible].

[Interpreted] I am [indiscernible] of [indiscernible] Shimbun. I have two questions. First of all, with regard to electrification strategy, the older companies are now trying to increase electrification. Now what is your strategy once again? Could you elaborate on that? In that case, the procurement of batteries and also development engineering will be important. So could you share with us the ideas regarding these points? Second point, Nissan NEXT. Up to now, in the Japanese auto market, what kind of impact did it create? And what are you going to strengthen in terms of Nissan NEXT?

[Interpreted] Thank you for your question. Now in Nissan, electrification strategy, that is the question. The pillars of our strategy is fourfold, earlier as we explained. Based on that explanation, I'd like to say that for one thing, what is very important is that every country -- various countries are moving very rapidly in order to achieve decarbonization. Against this background, we have to align ourselves to market situation in order to launch our products in order to come up with the strategy. I think that alignment is very important vis-a-vis electrification speed of every country differs from 1 country to another, from one region to another. Therefore, depending on that difference and depending on the market needs, we have to have our strategy with electrification. That is EV, e-POWER, electrification. We are going to launch EV and e-POWER. Depending on region, the total cost of ownership is different. Therefore, we have to closely watch that. Therefore, we need to launch cars which are accepted by customers in order to increase the corporate value of Nissan. On the other hand, having said that, in compared to ICE, electrified vehicles' competitiveness, if we look at that, what is important? There are twofold. One is technology innovation. With regard to technology innovation, for example, in our alliance, as was mentioned briefly earlier, we are going to integrate specifications to have economies of scale. On the other hand, we want to optimize development costs. So such technology innovation and also commonization efforts, we can raise a third pillar. That is a cooperation strategy with suppliers and also localization effort. So in this regard, we have to have a comprehensive midterm strategy, which is now being discussed. In order to increase cost competitiveness in our key markets, localization would be very important, therefore, on this matter as well. As of now, I have nothing to disclose you -- to you. But within Alliance framework and also cooperation with governments of various countries, we'd like to pursue cooperation. Lastly, Nissan's strength is electrification, and we want to go beyond that framework of electrification. As I said earlier, we have a 10-year long experience in this area. Therefore, we would like to have a comprehensive efforts covering the life cycle that will lead to greater value of Nissan. And also, we would like -- I think we can get the recognition by customers that will lead to higher sales volume. So in doing so, we are going to continue with Nissan NEXT with electrification endeavor. Perhaps additional comments, supplementary comments regarding battery? Ashwani-san, could you give further comments regarding batteries?

Thank you. It's a great question being asked on financial announcement day. Thank you for asking this. As you know, Nissan is pioneer in the electrification. Let me start from a very simple statement that for Nissan, electrification is not the objective, it is the consequence of the customer's choice. Now we, as car manufacturer, with the stakeholders, we have to act as enabler for customer to make this decision of electrification. So that's what is Nissan looking for. Now how we can make customer choice easier and easier towards the electrification is our job. And I believe there are 3 things: number one is the competitive product offering in terms of driving excitement and driving experience, which should be better than ICE engine. And this is what Nissan is doing on Ariya, where the driving excitement in terms of acceleration is even better than a sports car. The second, where the question comes to your battery is the total cost of ownership seen from the customer should be less than an ICE car. Now how we can make this total cost of ownership better in the battery EV is a question. And the third is environment and whereas we need the awareness and importance of the environmental regulations, whether it is China 7, Euro 7 and so on. So now coming to the battery, how we can make the battery competitive in terms of technology, in terms of cost, but also in terms of the industrial sourcing. As you saw that Uchida-san explained in his presentation on the battery, Nissan has got the core technology of the battery development. We started with the first-generation LEAF, then the second-generation LEAF, and now we are coming up with the Ariya, which means we have already traveled more than 10 years in the battery development. Now moving forward, how we can make the battery more and more competitive is the technology breakthrough. And we are targeting to achieve less than $100 to a kilowatt hour in the NEXT technology, which we will develop. And then further to that, we are targeting to do $75 to [ 1 kilowatt ] hour, which means market by market, region by region, depending on the total cost of ownership, there has to be tipping point for a customer to decide that let's change from ICE to electric. Then finally, the question comes, the industrialization. Nissan has got the 4 electric plants in China, in Europe, in Japan, in United States, and these plants are attached with the battery plants. And moving forward, with the new technology, with the best cost which we are going to target and the 4 industrial locations, I think Nissan is very well placed to lead the electrification in the coming future. Thank you.

And the second question, which is about how do we assess Japan? I think that was the remaining question. In the past, when we announced the Nissan NEXT, I said that Japan is our home market. In home market, we want to demonstrate our potential. That's what I said, if I remember correctly. Last year, in terms of products, we have Kicks e-POWER, which are well received and a variety of new strengths, whether in Nissan Intelligent Factory in Tochigi, we are communicating many new values of Nissan in Japan. And while we demonstrate our potential in Japan, we would like to expand it to the rest of the regions to enhance the overall ability and power of Nissan globally. From this viewpoint, the objective of Nissan NEXT is achieved in Japan last year, and we are going to strengthen it further going forward.

[Interpreted] Moving on to the next question. Automotive News, [ Hans-san ].

Yes. I would like to follow on the question of the electrification and the net neutrality or net carbon neutrality by 2050. Can you achieve that goal with the ICE still in your lineup? In other words, some companies are going completely ICE-free, gasoline-free, diesel-free. Do you see a day sometime in Nissan's future by 2050 where you will have no more basically internal combustion engines in your lineup by that time? And as a related question, can you give us your current stance on hydrogen fuel cells? I think that Nissan hasn't been in that market or in that game for hydrogen for quite some time now, a couple of years, I guess. Can you give us maybe your future outlook? If there's a potential for that to be in your technology toolbox going ahead.

[Interpreted] Thank you for the question, Hans. I said in early 2030s, I said that we are going to electrify the new product offering in key markets. That's what I said. But at the end of the day, it's up to the customers. For example, whether it's a battery EV or e-POWER, these are chosen by customers. It's up to the customer's choice. So as I said, total cost of ownership. We need to deliver total cost of ownership which is customer value. If we can do this, we are able to take carbon neutrality in 2050. And in early 2030s, we will be able to electrify the vehicles and offer them to the customers. And don't we have any ICE by the time? That was your question. But that's up to the customers to choose. Needless to say, there are areas where we contribute to environmental friendliness. There are a lot of initiatives that we need to drive and customer needs. We need to strike a balance between the two and make sure the customers do recognize and appreciate it. This is the only answer that I can give you as of today. And the second question, which is about [ SVV ] technology. For the time being, under Nissan NEXT, we are going to focus on 2 pillars, which is battery EV and e-POWER technology. This is our position for now. Thank you.

[Interpreted] Moving on to Toyo Keizai. [ Tokoyama-san ], the floor is yours.

[Interpreted] Toyo Keizai, [indiscernible] speaking. Can you hear me?

[Interpreted] Yes, go ahead with your question.

[Interpreted] Excuse me, with regards to North America, I have additional question. According to an institutional survey, your incentives are being reduced largely. That's my impression at least. So how are you going -- are you going to further reduce the sales incentive in North America? If you have a goal, in order to aim at the goal, what are the remaining challenges that you need to address in North America? What are the challenges in North America that you see? And the second point, earlier, Uchida-san, you said that in the first quarter result, you are going to show the updated outlook at need. But what the full year outlook that you are showing today will be improved in Q1, which is July? This is what I expect.

[Interpreted] With regards to North America, I would like to ask Ashwani-san to elaborate on it, so I would like to answer the second part of your question.

Thank you. So yes, very glad to see that you have recognized that we are moving in the right direction in United States. Yes, you are absolutely right. We are doing 2 things in the United States when it comes to the quality of sale. We are shifting from push to pull and from volume to value, which means the incentives are automatically coming down because customer is willing to pay by recognizing the value we are putting in the car, and we are making it so much attractive that it is becoming aspirational. Now moving forward, we are not setting up any objective of the incentive because we believe that if we keep the quality of discipline in the sales with a strong dealer engagement, the incentives will come down naturally. So we want incentives to come down as a result and not in an objective. Our objective is to keep the quality of discipline, which is to pull the business driven by the customer and the product aspiration. So as I said before, we have seen the significant increase in the customer profile in Sentra followed by all-new Rogue. Now we have Pathfinder, then Frontier, then Ariya. And with that, we will be renewing 2/3 of our product lineup. So once again, with the change in the product, with the change in the business we do, we are confident that we will move forward in the United States to bring back the profitable growth for Nissan.

[Interpreted] Yes. Going back to the second question, which is about the projection or outlook. Yes. Needless to say, as we run our business, we want to deliver good results as much as possible. That's our intention. But on the other hand, today, the impact from semiconductor and the commodity price hike, the speed of the impact is so big, so we need to criticize the potential impact and identify the plan which can mitigate the impact. And with transparency, we would like to show these information. And that is why we talked about operating profit at 0 coming out even as of today.

[Interpreted] Okay. Thank you very much. We are running out of time, so this will be the final question from the floor. Wall Street Journal, Sean-san, the floor is yours.

Two quick questions. Can you quantify for us the impact on production from the supply chain shortages in the previous financial year? And going forward, what do you think the impact is going to be specifically from the semiconductor shortage and maybe even to numbers, specifically from the Renaissance shortage on your production this year.

[Interpreted] You're talking about 2020 impact and this year. You are asking about two questions, right? So with regards to -- yes with regards to last year, I talked about it at fiscal year last year. Ashwani-san, will elaborate on that.

Thank you, Sean. So for 2020, the semiconductor shortage that global Nissan had was around 130,000. But out of 130,000, we could recover 50%. That's what was the actual in 2020 for Nissan. For 2021, as we said before, we expect 500,000, mainly coming from the Renaissance fire incident. However, the Renaissance is recovering much faster than we expected. So we anticipate that in the second half, we will be recovering half of the semiconductor shortage, which we anticipate in 2021. This is one part of the story. The other part of the story is, obviously, post pandemic, we all have learned many things from our supply chain mechanism. And when I say, we, which means not only Nissan, but I think all the automotive companies. And I think that these supply chain challenges will continue till the time we are closing the supply and demand gap, which did not only arise because of the automotive markets coming back but which also are arising because the nonautomotive market which are using the same [ tier and ] the small components common with automotive are in big demand. So to put it simple, I think supply chain will be under challenge in the coming year. However, it's up to us that how much resilient and agile we are in adjusting our production and the sales in line with this challenge on short-term. And on the midterm, how we are realigning our supply chain strategy to meet future risk, which are based on unpredictable scenarios. Because today, our backup plan for supply chain is based on predictable scenarios. So I think based on this learning, we need to define our supply chain based on unpredictable scenarios. So I think that answers your question. Semiconductor plus something will come up, but we are prepared for it. Thank you.

[Interpreted] Okay. Thank you, gentlemen. With this, we would like to conclude the Q&A session. Lastly, I would like to ask Uchida-san to say a closing remark.

[Interpreted] Yes. Thank you for many questions. Nissan is heading in the right direction, thanks to Nissan NEXT. Despite the business risks, Nissan will definitely hit the goal as long as we remain focused on the business transformation. I am committed to join forces with Nissan people who are passionately engaged in the reform around the world and make Nissan shine again. Thank you for your ongoing support. Thank you for your kind attention.

Before we close, we would like to show you Nissan's update on the A to Z video from this past year. Thank you, again, for joining us today. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]