Thank you for waiting, everyone. Good evening. Welcome to Nissan's press conference. My name is Lavanya Wadgaonkar, CVP for Global Communications, Nissan. Before I begin, let me go through a few hygiene announcements. If you can put your mobile devices on mute. Today, we will cover our FY24 third-quarter results, as well as some additional topics. So let me first introduce the speakers for today: Mr. Makoto Uchida, President and Chief Executive Officer; Mr. Jérémie Papin, Chief Financial Officer and we do have our Executive Committee members joining us on stage as well. Thank you. Without waiting, let me hand over to Uchida-san.
皆さん。[Foreign language]
Thank you all for joining today. While this press conference is for our financial results announcement, I would like to start by making some comments regarding the business integration discussions with Honda, which was announced earlier. Following that, our CFO, Jérémie Papin-san, will explain the Fiscal Year 2024 third-quarter results. After that, I will Takei you through the update on our turnaround actions that we announced back in November with the progresses. As announced earlier, our company held a board meeting today and decided to terminate the MOU for discussions toward a business integration with Honda, which was announced on December 23rd of last year, and this has been agreed between the two companies. We also decided to cancel the MOU, the three-party MOU, which involves Mitsubishi Motors Corporation's involvement.
Post-signing of the MOU, Nissan and Honda began discussions in the Integration Preparation Committee, and we reconfirmed that significant synergies could be expected as part of the initial stage of considerations. However, during this process, Honda proposed to change the integration structure different from the framework agreed in the MOU to a complete acquisition of Nissan through a stock exchange. This revised structure was suggested by Honda with an intention to realize synergies quicker. Hence, the integration needed to be carried out quickly. Subsequently, we carefully and sincerely considered it at our board meeting, but ultimately reached the conclusion that we could not accept the new proposal. There were several reasons for this, but I will discuss the most significant ones. Let me reiterate that the purpose of implementing the business integration was for both companies to join forces and become a stronger entity to compete in the global market.
However, with the proposal suggesting that Nissan would become a wholly owned subsidiary of Honda, we were not confident that our autonomy, this is our opinion, we were not confident that our autonomy would be preserved or that Nissan's potential could truly be maximized. This led us to ultimately reject the new proposal. With this decision, discussions regarding the business integration between the two companies have been terminated. However, we will continue to focus on exploring strategic partnerships that aim to create new value and achieve synergies through efficient methods. That's all for me. Now, I would like to hand it over to Jérémie Papin, our CFO.
Thank you, Uchida-san. Good evening, everyone. My name is Jérémie Papin, and I am honored to be the Chief Financial Officer of Nissan since January 1st. I will now Takei you through our nine-month-to-date results for Fiscal Year 2024. First, allow me to summarize with three main figures. Our net revenue was JPY 9.1 trillion, our profit was JPY 64 billion, and net income was JPY 5.1 billion. On this slide, we see retail sales year-to-date and Q3 standalone. Year-to-date, global retail sales decreased by less than 2% to 2.4 million units. If we exclude China, our unit sales increased slightly. This reflects growth in North America of 2.4%, which offsets declines in both Japan and Europe. In China, the market remained challenging, with our retail sales down as a result.
Looking at retail sales for Q3 alone, excluding China, we see an increase of nearly 2%, in particular, an increase of close to 10% in North America, where new models are ramping up. Now, let's look at our key financial performance indicators. On a consolidated basis, net revenue was flat at JPY 9 trillion. On the same basis, operating profit decreased to JPY 64 billion, and net income decreased to JPY 5 billion. Our free cash flow year-to-date was a negative JPY 506 billion, and our upcoming product offensive maintains CapEx and R&D at higher levels than last year. In the automotive business, our net revenue remains around JPY 8 trillion. We had a negative operating profit margin of 1.8%. We finished the nine-month period with JPY 1.2 trillion in net cash in the automotive segment, with gross cash at over JPY 2 trillion and unused committed credit lines over JPY 1.7 trillion.
This slide shows the variance factors year-to-date. Foreign exchange had a positive impact of JPY 31 billion, and better raw material costs added JPY 23 billion. However, our sales performance declined by JPY 214 billion due to lower volumes, increased selling expense, and continued investments in marketing to support new model launches. Monozukuri costs had a negative impact of JPY 59 billion, while inflation also had a negative impact of JPY 106 billion. We saw a total negative impact of JPY 89 billion in others, which includes the effects of net credit losses in our sales finance and higher remarketing expenses. Overall, the results are due to a mixture of Nissan-specific challenges and a competitive industry. However, we also see signs of progress from our actions. We have said that our new vehicles will be a major driver of a stronger second half, and we are seeing positive contribution while those sales increase.
Some highlights include the new Patrol in the Middle East, the Kicks, the Infiniti QX60, and Armada in the US. Now, I'd like to move to our outlook for 2024. In terms of sales and production volume, we are maintaining the outlooks we announced at our Q2 financial announcement. This includes retail sales of 3.4 million units and global production of 3.2 million units. Despite maintaining our sales and production volume outlook, we have trimmed our net revenue outlook by JPY 200 billion - JPY 12.5 trillion, in consideration of slightly lower wholesale volume and higher variable expenses, marketing expenses. We have reduced operating profit by JPY 30 billion- JPY 120 billion and operating profit margin from 1.2% to 1%. The net income forecast for FY24 includes the current initial estimate of approximately JPY 100 billion for restructuring costs, which is expected to be finalized in Q4.
For Q4, our forex assumptions are JPY 150 to the $1 and JPY 161 to the EUR 1. Here, we see the variance factors behind our revised outlook to JPY 120 billion of operating profit, which is a JPY 30 billion reduction from our previous update. Based on our revised assumptions, we expect forex and raw materials to each contribute JPY 5 billion positive. However, we now anticipate JPY 20 billion higher sales expenses, JPY 5 billion higher Monozukuri cost, and a negative JPY 15 billion from other factors. I would like to point out that, as shown on this slide, we have managed to implement first improvements such as fixed cost savings in manufacturing, marketing investments, and G&A spending versus our previous outlook. I will now turn the presentation back to Uchida-san for an update on our turnaround actions.
Yes. Thank you, Jérémie. Let me now move to the next topic, an update on the progress of the turnaround actions. As outlined in November last year, our turnaround actions are grouped into stabilizing and right-sizing the business. I understand that we need to ensure sustainable profitability and cash generation for healthy future growth, even at an annual unit sales level of 3.5 million units. To drive the initiatives with speed, we are revising the organization and top management while making processes more efficient. Before talking about the details, let me remind you of the assumptions of the turnaround actions. The Arc midterm plan initially called for 4.5 million units of global sales in Fiscal Year 2026. However, after defining The Arc, the markets have continued to be increasingly challenging. Since we expect to continue facing a difficult environment, we have revised the sales assumption to 3.5 million units.
This is the basis of the sales volume I referred to. We will be introducing competitive new products and creating new revenue opportunities toward 2026. At the same time, there are many risks that may impact our revenue and profit, including forex volatility, investments for future growth, and increases in CO2 emission regulatory costs and fixed costs. Therefore, if we continue conducting our business as usual, our operating profit is expected to remain at the Fiscal Year 2024 level or a slight increase from this year's level despite boosting our sales volume. It is imperative to align the cost structure with the present sales plan to maintain a healthy level of cash flow and increase profitability. And in order to generate 4% of operating margin in 2026, we have to reduce variable expenses by JPY 100 billion or more and fixed costs by JPY 300 billion or more.
This chart represents our break-even sales volume, excluding China. We have to change our structure to one that enables us to make profit in the auto business, which is our core business, to ensure sustainable growth for the company. Without the turnaround actions, our break-even point would be 3.1 million units in Fiscal Year 2026. By cutting fixed costs and variable expenses, we will reduce it to 2.5 million units. As a result, even if our annual sales, excluding China, remain at 3 million units, we will be able to generate enough profit. Let me start with the actions we are taking to stabilize and right-size. Let's look at details and progress in our actions in fixed costs and variable expenses. Concrete actions are finalized, and many of them are currently being implemented.
As I said in our previous slide, if we do not act, fixed costs in 2026 Fiscal Year are expected to remain stable against the Fiscal Year 2024 level. To hit an operating margin of 4%, we need to reduce fixed costs by JPY 300 billion or more. We expect to reduce SG&A expenses by about JPY 200 billion. We are streamlining the organization by cutting the number of positions while reducing new recruitment and expanding the scope of voluntary separation programs to reduce the indirect headcount by 2,500 globally. We are also transferring 1,000 full-time equivalent worth of jobs to shared service centers to cut unit labor costs. At the same time, we are cutting spending across the board. We are reprioritizing all marketing initiatives and sponsorships to maximize the Return On Investments.
We are transforming our planning and buying strategy for media and changing our advertising approach to streamline foundational fixed costs. We expect to reduce approximately JPY 100 billion in manufacturing. We are planning to reduce headcount by 5,300 in 2025 Fiscal Year and 1,200 in 2026 Fiscal Year in vehicle and powertrain production plans to right-size and reorganize our manufacturing footprint. Specifically, we are planning to close three factories, and the first factory in Thailand is scheduled to close in Q1 of Fiscal Year 2025, followed by the closure of other two factories in Q3 of 2025 Fiscal Year and Fiscal Year 2026. Additionally, we will implement shift change at Smyrna and Canton factories starting in Fiscal Year 2025.
As a result, we aim to achieve fixed cost reductions of JPY 47 billion annually through plant and line optimization, as well as shift pattern changes, and we anticipate further variable cost reductions, JPY 40 billion. At the same time, we are optimizing the cost required for preparing new model production and reducing depreciation costs, mainly in capital investment. Our global production capacity will be reduced by 20% from 5 million units today to 4 million units by Fiscal Year 2026. Actions are already underway. In 2023 Fiscal Year, we used to have 1.5 million units of capacity in China. As a result, the closing Changzhou plant and adjusting operations, including changes in shifts, our capacity has been reduced to 1 million units today. Given the upcoming launches of new energy vehicles, we will explore further opportunities for reduction by discussing with our partner in China.
Our global capacity, excluding China, is expected to decrease from 3.5 million units to 3 million units by optimizing production lines and adjusting operations. The utilization rate will improve from the current 70% to 85%. Let me explain how we are improving development efficiency and how this will help reduce costs by JPY 30 billion or more. I will elaborate on it on the following pages. By making a drastic revision to our planning and development processes, we will shorten the lead time by 15 months for the lead model and by 20 months for subsequent models. Adoption of the family development scheme is expected to reduce costs by JPY 20 billion. Further, we will achieve the plan by making better use of outsourcing services and cost-competitive engineering teams around the world.
Under the new process, closer collaboration between the planning and the engineering teams will help reduce digital development lead time and the number of physical prototypes required. The first model to undergo this new process will come to the market in Fiscal Year 2026. Additionally, by applying it to some ongoing projects as well, we expect to start seeing its benefits from 2025 onwards. Let me talk about 100 billion JPY reduction of variable costs. We are taking two main actions to cut variable expenses. One is a 60 billion JPY reduction by reviewing product design and optimizing costs to align with market standards, starting with six key global models to provide value to customers at competitive prices.
At the same time, we are improving the efficiency of our supply chain and warehousing by reducing parts complexity by 70%, improving production plans, and reducing storage costs both in production and after sales. I will now outline what we are doing to build stronger products and ensure our growth in the future. To increase our competitiveness, in Fiscal Year 2024, we launched many new models in the markets to increase our competitiveness. For example, in Japan, the updated Note and Aura became leaders in the compact car segment and are driving our electrification efforts. In the United States, sales of all new Kicks remain strong thanks to its practicality and styling. The Infiniti QX80, our flagship SUV that is recognized for its luxurious comfort and advanced technology, is gaining traction around the world. The Armada full-size SUV and Murano crossover SUV have also been well received.
In the Middle East, demand for our Patrol, renowned for its outstanding off-road performance, remains strong. Nissan Shatai Kyushu, which produces the popular Patrol, Armada, Infiniti QX80 models, is preparing to increase production of these vehicles. We will continue updating our product offerings to maintain the momentum. As part of these efforts, we will launch a plug-in hybrid version of Rogue and an e-POWER version. In Japan, we will launch a mini vehicle and large minivan to enhance our offerings. We will also launch an all-new LEAF globally and a compact EV in Europe. Moreover, in China, the long-awaited new energy vehicle, the N7, will arrive in the market this year. We will fully leverage our partnerships with Renault, Mitsubishi Motors, and Dongfeng to implement these actions efficiently. e-POWER is one of the pillars of our electrification strategy.
The third generation of the e-POWER system will be available on the Qashqai this year, followed by Rogue and a large minivan. The third generation e-POWER enjoys significant better performance, fuel economy, and costs through the evolution of dedicated engines and the integration of electric powertrains than the first generation, particularly in overseas markets where long-distance travel is common. We expect to achieve a 15% improvement in high-speed fuel efficiency compared to the second generation, reaching class-leading levels. We continue to focus on the development of intelligent technologies that are unique to Nissan. In 2026, we will concentrate on the evolution of intelligent cockpit and driving assistant technology, along with many other differentiated innovations. In the mid to long term, we will revolutionize autonomous driving experiences with door-to-door autonomous driving technology and next-generation collision avoidance features using LiDAR with the goal of widespread adoption.
Beyond that, we will work towards the practical implementation of driverless mobility services, contributing to creating a safe and comfortable mobility society. Let me talk about driving top-line growth. These 2.7 million units is what we expect to sell this fiscal year with new model launches and entry into new markets. We plan to sell 3 million units globally, excluding China, in Fiscal Year 2026. Meanwhile, we are holding strategic discussions on topics including further partnership opportunities, introducing competitive products, and maximizing sales opportunities to exports from China. Let me talk about streamlining organization and processes. On the left, you see the top management. We will significantly reduce the number of executives starting in April this year, and these will be limited to CEO and the heads of each function region.
We will discontinue the current Corporate Officer system with the current officer's transition to a newly established position, which is called Corporate Executive. We will reduce the number of executive positions by 20% from what we have today. This will expand the areas of responsibility and scope of each individual while eliminating layers, which will enhance the speed of decision-making and execution. Additionally, by promoting the selection of younger talent, we aim to foster the next generation of leaders and energize the organization. As you can see in the middle, by increasing the area of responsibility to each individual, we can increase the speed of the decision-making. With regards to role and responsibility sharing of regions, we will centralize upstream functions in the global headquarters and decentralize downstream functions. This will streamline the headquarters functions and improve overall operational efficiency. This is the status of our turnaround actions.
We are accelerating its implementation to deliver the results as soon as possible. Given the latest performance of our company and changing environment, it is essential to explore all the options without any taboo and carry out a deeper structural reform. To this end, we will further define with which market we will continue, how to continue and operate, and how to run the operations to optimize our businesses and portfolio. We will also reprioritize products, platforms, and powertrains to identify what to stop and what to retain. We will expedite the ongoing projects with existing partners, including the Alliance Partners and Honda. We are identifying all the opportunities for asset optimization that contributes to cost reduction and better efficiency. In order to increase our operational efficiency, we are studying possibilities of carving out asset integration and leaseback. These efforts are already underway.
We will give you the details in the next month, one month or so. Considering the current business situation, I believe these actions alone will not be adequate. Therefore, we will maximize the effects of our current partnerships and, going forward, carry out a strategic review to find opportunities for new partnerships to maximize our corporate value. That concludes my presentation. Thank you for your attention.
Thank you, Uchida-san. We will now open up for Q&A. Today, we have a hybrid format, so we have people in the room as well as joining online, so we'll switch between them. For people in the room, if you have a question, please put your hand up, and our representative will come with the mic to you. Those online can just put their hand up on Zoom. After we call your name, please introduce yourself and the publication.
I'll start taking questions from the left, so maybe start with the first gentleman in the first row from the left side, please.
Sama desu. Nikkei Shimbun, Ochiai is speaking. Thank you for this opportunity. The first one is about Honda. Uchida-san, why did you decide to cancel the MOU? What's your honest feeling? The proposal to make Nissan as a wholly owned subsidiary, how did the employees react to it, and how did you perceive this new proposal and reach a conclusion not to accept it? And the second one is about the financials. Performance recovery may not be visible. What is the biggest cause for this poor performance, especially in the U.S.? In the third quarter, it seems tough. When do you expect the performance recovery? These are the questions for CEO.
Thank you for your questions, starting with the first one.
For the second question, today we have CPO Guillaume Cartier-san with us, so I would like to ask Guillaume to add to what I say. The business integration with Honda. One message that I would like to deliver is that on the 23rd of December, we decided to kick off the discussions on the business integration. Partially, media reporting is saying that we are too proud and we are concerned about the equality, but in the initial MOU, based on the circumstances of Nissan, the holding company's top will be nominated by Honda, and Honda will nominate the majority of the board of the top Co. That was the assumption. So rather than our pride or position, this integrated company should be stronger. That was what we expected.
And creating a holding company and have two brands underneath, and the new proposal from Honda, which is making Nissan a wholly owned subsidiary. If you compare the two, this is Nissan's opinion. While both companies have a long history, we were not sure whether we can how much we can reflect our autonomy or allow us to demonstrate the potential and strengths. That's one point that which was difficult to decide. Both companies are trying to become stronger for the future, and that's common between the two companies. And through the MOU, we wanted to make the business integration successful. That was my strong intention. But the new proposal from Honda, well, this resulted in a lot of discussions among the EC members and board members. Given the performance of the company, there is a difficulty to stand alone and how to evaluate the new proposal of Honda.
This has been carefully discussed. However, the initial assumption of business integration, making a holding company stronger and putting many functions in the holding company and being able to compete in the global arena, this was what we preferred. That is why, because this new proposal was different from this, we couldn't agree on this direction, which is very unfortunate. But we are looking forward. We are looking at the future to continue discussing about the strategic partnerships which are ongoing. We would like to make suggestions to look for the best way for the two companies' future development.
Second question. Based on the performance that we have announced, financial analysis will be given by CFO Jérémie Papin, and I would like to, after this, let me show you what we are going to do in the US, for example, that will be presented by Guillaume Cartier-san.
Before that, the cause of this performance, I believe there are various cause factors, but in the U.S. or North American market, our core models, our common models, volume fell short of the expectation, and the sales incentives were not achieving the expectation. So our variable marketing expenses in 2024 in Q1 increased. In Q2 and Q3, we have been reducing the VME, but given the competitive landscape, we believe that we need to spend a certain level of VME in Q4. That is the reason. At the same time, cost-wise, if you look at the cost structure, naturally, in the relationship with suppliers, there are inflation costs that we are compensating for, but there are legacy claims because of the volume decline in the past, and these costs are pretty significant as well.
So what's important is to make sure we have to have a further optimize the car flow to make sure that the production volume stays stable. That's how we need to be reorganized in 2025, and that is why we are setting this new full-year guidance. Do you have anything to add?
Just maybe just to say again in Q3, as mentioned by the CEO, sales performance was again a negative year on year, although it was a much smaller negative than what we had in the first half. In the US in particular, the sales were actually up 10% quarter year on year for Q3 alone. I think the teams were very focused on selling down the model year 24, which was done faster than last year, and growing the share of the new models. So there are signs of improvement in the US business in Q3. Okay.
Thank you. Yeah. Hello everyone. So in the U.S., I think some of the points have been said. The first point is Q3 is an increase versus Q2 because we sold nearly 210,000 cars. The ambition for Q4 is 260,000, so there is a recovery and improvement in the U.S. expected. The question that you may have is how, and here there are different factors. The factor number one is we have some new cars. In Q3 and Q2, we have launched the new Kicks, the new Pathfinder, and QX80. In Q4, we will have additional new products because we are launching Murano and Armada that will help also to increase the volume. The car flow is really important, so we are looking at it to make sure that we can reduce the inventory, and that's what we are aiming for.
So the plan that we are having is to reduce the inventory in between the end of December and the end of March by more than 20%. So that will help, of course, as it was said by Jérémie, to have the right model year in due time. We have changed the organization because, as you know, we have a new chief of U.S., which is an American that has worked in Nissan previously and after in Egypt, and he has a key role, of course, to engage the employees, but also the dealers. So dealer engagement is certainly one of our focuses that we are working on on a daily basis, and that's what we are aiming for in Q4. Finally, to underline, we are changing our marketing to be more efficient, amplifying the launch of the new car, but also taking care of the current lineup.
To give you confidence on the number, if I look at the volume, purely private, the growth in between Q4 and Q3 is moving by 25,000, out of which we are expecting 22 coming from the new product with Kicks, Murano, and Armada.
Thank you all. Let me move to the middle row now. Third row, gentlemen from the left, first, please. Yeah. I'll come back to all of you, please.
[Foreign Language] NHK OB, thank you for the presentation. I have two questions to Mr. Uchida. First of all, the most recent performance has declined. Uchida-san, personally, how do you feel about your own personal responsibility over the management of the company? Secondly, in your presentation, strategic partnership is to be studied, you said. Hon Hai is considering participation in the management of Nissan. Can you clarify the facts, and how will you consider such cooperation going forward?
What is the basic principle going forward?
Thank you very much. First of all, on the first question regarding responsibility as the President and CEO, the deterioration of performance and concerns we caused on the part of these sTakeiholders, I feel that my responsibility is very, very major. Of course, the decision is to be made by the nomination committee, the compensation committee, and the sTakeiholders, but my mission is to stop the deterioration of the performance and turn around the performance, and I will endeavor to work and do my best towards that mission and then hand over the baton to my successor. On your second question of strategic partnership, I mentioned that we will be conducting a strategic review. That's the name we are using. When we think about the future, we know that it's going to be extremely challenging to do everything alone on a standalone basis.
So we will seek partners in various areas, not only OEM, but we will be seeking various types of partnerships. And of course, there are alliance members, and there's also the possibility of expanding cooperation with Honda. So focusing on those points, we will seek partners in this area and seek business opportunities. So we will try to create the brightest future prospects for Nissan, and we will be taking action with agility. Hon Hai's approach to Nissan, that was part of your question. According to some press reports, various things are being reported, but there is no fact that we have discussed anything between Hon Hai and our management level. But as we continue our strategic review, there could be various proposals from various parties, and should that lead to a rise of enterprise value for Nissan, then we will consider those proposals positively and engage in discussions. Thank you.
We'll move to the right row. Maybe the first gentleman from the right side. First row.
TBS Umeda is speaking. In the beginning, you were saying that Nissan's autonomy may be damaged as a result of becoming a wholly owned subsidiary of Honda. Specifically, which part of autonomy would have been damaged? So what is a specific aspect that you were concerned about with regards to autonomy? As I said earlier, on the 23rd of December, we signed an MOU which has an assumption of creating a holding company, and below this, we had two brands. And in the holding company, in the process of preparing for integration, we defined which functions will go to holding company and how these functions in the holding company translate into the competitiveness in the future. That was the initial expectation.
If that were the framework, well, we have an experience of alliance with Renault. So while demonstrating the strength of each company, and this translates to the competitiveness in the global market, that was what we stressed in particular. So given this, the new proposal of becoming a wholly owned subsidiary of Honda, it was hard to maximize the strength of Nissan. From our viewpoint, we thought that it will be difficult to maximize the strength of Nissan. This is the biggest reason. Of course, Honda has its own opinion, I believe. I mean, we need to be very speedy and fast in these circumstances. So I think Honda made a new proposal to make it speedy, and that is why we thoroughly discussed this option. But it's very unfortunate that we couldn't agree on the direction. That is why we reached the conclusion.
For the future, as I said, Nissan is ready to explore other opportunities with Honda, which will continue. One more thing. What's Nissan's direction going forward? Business integration. There are two parts to this, two benefits, short-term and long-term. For the long-term, I believe EV software development would have been the benefit for long-term. For the short-term, today, Nissan is facing that you don't have a good hybrid in the US, for example. So how about mutual supply of products? So short-term actions would have been implemented if we had a business integration with Honda. Now it's becoming harder once you reach this conclusion. So in the short term, how are you going to revive the operation? You say that it will be done by turnaround actions, but turnaround actions is enough? What's your evaluation here?
Strategic partnerships discussion with Honda will continue, and one of them, in August, I talked about it. There are a lot of mutual complementarity, and the short-term benefits where we can gain support from Honda or something that we can provide to Honda are what we are ready to discuss about. Even if we are not doing a business integration, I think there are a lot of opportunities or avenues that we can explore, which we are ready to continue discussing and gain support from Honda when it's beneficial. For the long run, for the long-term, turnaround plan is up to 2026. Breakeven point should reach 2.5 million units and generate 4% operating margin, but we have to make sure we are growing beyond this. If you look at the business climate today, this is not adequate, as I said.
That is why we would like to do something deeper. That's what I mentioned earlier. It's a structural reform. And in order to grow our business, standalone plus offer on this point, we are doing a strategic review to explore a variety of opportunities fast. Otherwise, beyond 2026, even if we are much stronger, there will be challenges if we try to do alone. That's why we explained about the turnaround actions and what's beyond.
Thank you. We have several hand raisers online, so I'll Takei two questions from the online audience and come back to the room. The first one is Hans. Hans, please go ahead.
Hi, this is Hans Greimel from Automotive News. Thanks for taking my question. You can hear me fine, correct? Yes, we can. Okay, great. Thank you.
I just want to ask you a little bit about the job cuts and the plant closures that you mentioned in your presentation. I think there are 6,500 job cuts that are employee reductions that are denoted there. The goal is to get to 9,000. Does that mean that there are still like 2,500 or so that are left unaccounted for, or have they already been achieved? Can you give us a little bit of an outline about how you'll get to that 9,000 figure that you were once talking about? And regarding the plant closures, what is your rationale for picking which plants to close and which plants to streamline through shift changes and other scale downs as opposed to closures? And what can we expect from the other two plants that aren't named here? What kind of criteria do you use for picking plants to close?
Regarding the plant reorganization, like changing the shift system or closure of factories and what criteria we apply, we would like to ask Sakamoto-san to respond. Regarding the number of people, 6,500 in manufacturing, but before that, in SG&A, 2,700 people. We've quoted that number, sorry, 2,500. So that added up 9,000. That's the logic behind. Sakamoto-san, please go ahead.
I am Sakamoto, Chief of Monozukuri. Hans-san, thank you very much for the question. What's the criteria to be applied? Line closure or plant closure or shift change? So for all those methodologies, it would depend on the market requirements and right-sizing the volume of production and the capacity of production. That's the criteria. As we reported to you today, the size of the production facilities and market demand is being evaluated in order to right-size our operations and to raise the utility ratio of operations.
Already, we are in the execution phase, and we are expecting high effect in 2025. Therefore, we are putting into execution those plans. Hans-san, did that answer your question? I'm wondering if you can talk a little bit about how the tariff effect in North America might affect your calculus about closing plants there, especially in Mexico. Are those plants perhaps under reconsideration because of tariffs there?
As I've said before, various new environments are developing, and we need to respond flexibly. At this juncture, which plant in the United States will be subject to change, we are putting under consideration at the right timing. We will be making announcements. But one point we'd like you to understand, as was presented, and there were many press reports that the number 9,000 is unclear.
We have to respect our relationship with the union, and shift and line change is being studied, so please understand that we will choose the right timing in order to share information with you. Thank you.
Thank you. To the one, we'll Takei one more question from online. Kudo-san, could you please ask your question?
Do you hear me? Yes, we do. Go ahead. Yes, thank you. Freelance automotive journalist, my name is Kudo. Thank you for the opportunity. Do you hear me? Yes, go ahead, so because of my profession, I often ride your Nissan cars. For example, in Saudi Arabia, new Patrol is what I tested. And today, I tested many 4WD models. And my impression is as follows. Nissan's technological excellence, they are excellent indeed. Earlier in your presentation, third-generation e-POWER system was described. This is what I am looking for.
But besides the fuel economy, what are the benefits in terms of performance and other aspects, and which models will adopt a third-generation e-POWER system? Thank you very much.
Yes, thank you for your question, and thank you very much for testing our cars and providing us with feedbacks. Today, that third-generation e-POWER is what I refer to in my presentation because e-POWER, besides the highway mode, we see benefits. That's what the market is saying. But highway mode fuel economy was a question. So that is why we said that we are going to improve it with the third generation. We are very confident about the third generation. This will come in Europe first. Afterwards, it will come to Europe. And we believe that we can achieve a certain level of competitiveness. Third-generation e-POWER, besides these benefits, what are the technological benefits or strengths?
Engineering, Uncertain-san will give additional comments. Yes, thank you for your question. CTO Uncertain is speaking. As Uchida-san mentioned earlier, if you look at the history of e-POWER, in 2016, we launched it first in Japan. And this is not known, but in 2020, e-POWER dedicated engine was developed. And at that time, fuel economy was enhanced by 10% at that time. And we delivered them in the global market. And next one, the third generation. As Uchida-san said, this third-generation e-POWER system first, this year, this will come in Europe, Qashqai. After this, this will be applied on US and Japan and other markets. Besides fuel economy, what are other benefits? Originally, e-POWER is strong in 100% motor driving performance. So quietness is what it excels. In the third generation, it's much quieter and 100% motor driven. So control is well done.
So the Rogue and Ariya, you know, e-4ORCE technology. And those e-4ORCE users appreciate this. They are saying that in any road conditions, they enjoy the off-road performance. So they really appreciate it. But this e-4ORCE technology, well, globally, this technology will be applied in Japan, Europe, and North America. So 100% electric driving is what we are going to leverage on so that the technology and the car's attractiveness can be delivered to the customers in the market. Thank you very much. Thank you. Did that answer your question? Yes, thank you very much.
Thank you. I'll go to the right. Can I have the second row, first person from the right, please?
Ikeda Naoto, freelance journalist. Thank you for explaining many points, but there's one point that I'm not persuaded.
You signed an MOU, you went as far as that, and you had discussions, and under the holding company, you were to have two equal operating companies. And it was only one month ago that such announcement was done. And then Honda suddenly came up with a proposal in less than a month, a proposal of a wholly owned subsidiary. As you have explained, turnaround Takeis time until 2026. After turnaround, integration was to Takei place. So Honda was impatient. It was so quick that their judgment changed so fast. I should be asking Ibe-san of Honda, but what's your Takei, Uchida-san, regarding this change of attitude on the part of Honda?
Thank you very much for the question. As you have rightly pointed out, at the December 23rd press conference, I said that turnaround will be done by Nissan and Nissan itself.
And we, as an independent company, will try to integrate towards looking towards the future. And that was the substance of the MOU signed on December the 23rd. And I think this is something that you need to ask Honda, but so many things are happening in our business environment, and we need to implement with speed. And the synergy in the initial study was to be estimated at a large amount. And our Takei was that they wanted to enjoy the synergy quicker, so they came up with this proposal. Then, do we accept such a proposal? And do we think that that proposal would maximize Nissan's potential? We were not able to make a decision that this will maximize our potential. So you understand the decision we delivered. That was the reason why.
But as I said repeatedly, does that mean that we're not going to do anything with Honda? No, because we have been collaborating with Honda prior to this discussion, and we still have that mindset to try to increase our competitiveness. And even after we've terminated our MOU on integration, that principle remains unchanged. So we want to continue to collaborate so that it will benefit both companies.
Thank you. Let me move to the lady in the middle row.
Thank you very much, Nikkei Asia. My name is Takei. I have two questions. The first question is about the turnaround initiatives. What are the next steps on the long run? Are you going to optimize further optimization portfolio, reprioritize, what to drop, what to retain? That's what you said you will be doing.
So what will be the criteria to make your decision to the extent that you can disclose? For example, when it comes to products, you have sports car and passenger vehicles or a powertrain. What will be the criteria to decide what to select? In the main market, you have North America, Europe, Japan, and China. What are you going to do about these key markets? How about India, which is a growing market? Are you going to focus on more growing markets like India? So what will be the overview? What's your policy going forward? And the second question, this is about short term. Under the Trump administration, there are a lot of tariff policies. As you conduct a turnaround, this will make your initiatives very difficult in these circumstances. As of today, for example, the tariffs in Mexico and Canada, what will be the implications?
How are you going to address it? Could you explain what you have in mind? These are the two questions.
Starting with the second question. Yes. From Mexico to US, we are exporting a significant number of cars. This fiscal year, which I mentioned last time, including Nissan and Infiniti brand, 320,000 units are exported from Mexico to US, and if the high tariffs are imposed, we need to be ready for this. And maybe we can transfer the production of these models elsewhere. If this were the decision, we will think how we can make it a reality while monitoring the situation. We are exporting a large volume to US, so if there's a high tariff, this will have huge implications on our business, so we need to monitor this carefully.
The first question, turnaround, I talked about the progresses of turnaround actions, 2.5 million units of break-even volume to generate the profit. That is the intention. Looking at the current business climate, well, earlier, well, going forward, if we anticipate what will happen around the world and the business integration with Honda, these talks are terminated, but how are we going to run the operation after 2026? We have to do things now. That is why including global portfolio, we are trying to revisit. Today, I feel responsible. JPY 150 billion is not visible now. Given these circumstances, we have to Takei additional action. That is why we said that we will devise deeper actions. What will be the priorities? At this point of time, I cannot disclose this. As I said, without taboo, we have to explore all the options available.
So we have to do things solidly and strongly. But depending on how you look at it, we can talk to other potential partners. Well, the discussions have already started. So that's what we need to figure out. And Nissan's platform, we have a number of platforms. Compared to our sales volume, we have a highly complex, big complexity of platforms. Even the ongoing programs, if we think about the future, we have to make a decision. So these are the things that we are going to discuss. If Nissan cannot deliver robust profit, it will impact the free cash flow. That is why we are also looking at the list of assets and maybe leaseback. We have a menu to look at. So after we develop a big picture, we will figure out what kind of business we can anticipate in 2026, 2027, and onwards.
That's what we want to design going forward.
Thank you, Uchida-san. Because there are so many questions, we'll still extend, but I request you to keep to one per person so we give more opportunities. Maybe we come to the gentleman in the red tie. Thank you.
Inoue, freelance, I have one question. Today, you announced termination of MOU with Honda. The resolution at the BOD was unanimous, or were there a few who were for continuation of talks towards business integration? And what about you personally, Mr. Uchida? Were you for or against as a member of the board? At the BOD, there were diverse debates. There was discussion on our current position. There was discussion on the future prospects. Can we continue to survive as a standalone company?
We've been discussing that for some time now, and we've had a few sessions at the board level. This is a big subject matter. So it's not that it was only on that day where the resolution was adopted that discussions had Takein place. Before that, many rounds of discussions had Takein place before the final decision was adopted. So what about my personal view? As I said, holding company through business integration, I thought, was the pathway towards becoming strong and competitive. So the most recent proposal by Honda was not towards that direction. I thought it was difficult to maximize our potential. So that's my opinion.
Thank you. We move to the right side. Second row, first person, please.
In April, what will happen to the top management? You said that you are going to reduce 20% of the executive positions. How deep are you going to reform the structure is my question.
Because of the poor performance since last year, but in January, you kind of reshuffled around, rotated some people EC. Are you going to make more changes in April? Because there are about 50 executives in Nissan, including outside directors. There'll be 60. Even with 20% reduction, it's 40, which is pretty big among the listed companies. Now you terminated the talks on business integration. Will the new top management be able to drive the turnaround after April?
In January, we announced the new management and in core markets. Now, in terms of increasing competency in the core markets, yes, we made these changes in January. But in April, we are going to do more changes on the top management. So at the latest, in March, by middle of March, we will announce the new top management.
Corporate officers will be reassigned to the Corporate Executives, and 20% may be too little. That's what you're saying. That will be the starter in April. We will look at the business case of the company. If we need more optimization, we will do so. It's not only about executives. Span of control. How many departments do we have in our organization? In the next era, well, we defined 4.5 million units in The Arc midterm plan. We are trying to adapt to the different assumptions and align the organization. While the speed of decision-making is required, we will reorganize ourselves so that we can make quick decision-making. That's what we are trying to do.
Thank you. Middle row, second row, middle person, please.
I have a follow-up question to the previous question regarding your responsibility.
You said that until you find brighter prospects for Nissan, but then announcement of restructuring will be announced shortly, you said. Depending on the restructuring policy, there's the likelihood that you will be able to show the prospects up to 2026. So will that be the timing that you have secured the prospects and stepped down from top management position?
The current decline of performance at Nissan is a concern for many sTakeiholders, and my responsibility is truly significant. And this time, we announced a downward revision. So how can we depart from this chaos? I think this confusion is the right description of the situation. And once I see that this will be resolved, then I'm prepared to hand over this position to my successor. But before we do that, just stepping down without any improvement is a bit irresponsible.
But under the governance, nomination committee, and the Executive Management Committee, and of course, shareholders will be the final decision-makers, but this is my personal feeling. So my personal feeling is to see to it that Nissan is on the track of turnaround. And I personally feel that that's my responsibility. But it's up to the employees to evaluate. It's up to the shareholders to judge whether that's the right way to think. And if everybody says we no longer need Uchida-san, it's not my intention to hang on to this position. And I said that at the AGM in 2020. And I recall that if that happens, please fire me. And that spirit remains unchanged.
Thank you. We'll Takei last two questions. Can I go to the gentleman with the yellow armband?
Asahi Shimbun Matsuoka is speaking. Thank you for the presentation. One question.
When you received the new proposal, when was it? How did you perceive it? Reaction, meaning earlier you talked about the conclusion. When you received the recent proposal, how did you feel? Did you think this was reckless or this was part of the expectation?
I don't recall the date. When was it? When I heard the recent proposal from Honda, I was wondering whether this will be successful. I wasn't confident because, as I said, doing things faster, governance, I respected what Honda said about governance and speed of decision-making. But will the newly integrated company be strong under this new scheme? When I received this proposal, I kind of, when I heard this new proposal, that's what I felt. I had a doubt whether this will be successful. But I knew that I had to look at this from all the perspectives.
So without just deciding on it on my own, I had a series of discussions among the executive committee members, and we also talked to the board members from different viewpoints and reached this conclusion. Having said that, the future, looking forward toward the future, it's not that we have ended the talks toward the future with Honda. In the strategic partnership talks, we believe that there are big potential synergies. And as someone asked, there are areas where we want to gain support from Honda. So we will continue the discussions on the strategic partnerships so that we can implement the actions in the area where we can have a win-win relationship.
Thank you. We Takei the last question. The same row, gentleman next to the.
Thank you very much.
Now, you will terminate the discussion over integration with Honda, but in the discussion, you had mentioned specific scheduling, but now you're going to be only having a strategic partnership with Honda. So what is the timeline you have in mind? Anything, any milestones decided in the timeline of the two companies in your strategic partnership? Are you going to go back to the status of August, or will there be any upcoming announcements by the two companies?
In principle, the announcement made in August, we will seek what we can do more together to create new synergy. That's my personal view. And I've said this so many times, but as I said, Nissan, 3.5 million 2026, including China, and what would happen thereafter, we have to think about that. Economy of scale is very important. One company alone cannot do everything.
There are business domains that cannot be done by just one company alone, and that was already a topic in our business collaboration. Then, what can we announce? We're not the only party. We can't make any announcements at our discretion. So we will continue to discuss these matters with Honda, and hopefully, we will be able to make some announcements to share information with you eventually.
Thank you very much. Sorry, we have already run over time. Apologize. We can't Takei all the questions, but please do forward your questions to Nissan Communications team. Thank you again for joining us, and please enjoy your evening.