Thank you very much for your participation in this part of business schedule today. I would like to now make a start of the financial results press briefing for the second quarter results of the fiscal year ending March 2027 of Honda Motor Corporation. To start with, I would like to introduce the participants today. Director, Executive Vice President, and Representative Executive Officer, Mr. Noriya Kaihara.
Kaihara speaking. Nice to meet you.
Executive Officer and Chief Financial Officer, Mr. Masao Kawaguchi.
Kawaguchi speaking. Nice to meet you.
First, Mr. Kaihara is going to present the second quarter financial results and consolidated earnings forecast for fiscal year ending March 2027, followed by Mr. Kawaguchi's explanation of the details of the financial results. Mr. Kaihara , please take the floor.
Thank you for your continued understanding of Honda's business activities. I would like to explain our results for fiscal H1 ended September 30th, 2026. First, a summary. Operating profit for the six months ended September 30th, 2026 was JPY 648.7 billion. Excluding JPY 484.8 billion of EV-related losses, adjusted operating profit was JPY 1,133.6 billion. In addition, R&D adjusted operating cash flow, funds available for future investment, came to JPY 1,354.3 billion.
We maintained strong cash-generating capability. Motorcycle business: Driven by increased unit sales, particularly in India and Brazil, we achieved record-high unit sales for the H1 of the fiscal year. Automobile business: Despite a struggle in China, demand in North America for compact cars and fuel-efficient vehicles, including hybrid models, increased unit sales due to rising gasoline prices.
Consolidated financial outlook for FYE March 31st, 2027: Despite strong first-half results, the one-time profit increase will not be a contributing factor in the H2. We have therefore revised upward our operating profit forecast by JPY 130 billion from the previous forecast to JPY 780 billion. Excluding EV-related losses, adjusted operating profit is now projected at JPY 1,300 billion, an increase of JPY 130 billion from the previous forecast.
Regarding shareholder returns, the annual dividend forecast for FYE March 31st, 2027 is JPY 70 per share. Going forward, while DOE 3% is a benchmark, we will strive to provide stable and continuous dividends. Next, investments for future growth. We decided on two new growth investments, one in the U.S., the other in Brazil.
In the automobile business, to strengthen our ability to meet the growing hybrid demand in North America, we decided to construct a new automobile production plant in Ohio. In 2029, we aim to expand our total production capacity in North America from the current 1.67 million units- 1.91 million units. In addition, from 2029, we will progressively introduce multiple large hybrid models in the D-segment and above to increase unit sales.
In our motorcycle business, we decided to expand production capacity at our Manaus plant in Brazil to meet growing motorcycle demand both within Brazil and overseas. In 2029, we aim to increase capacity from the current 1.6 million- 2.3 million units, thereby building a production system capable of steadily responding to future increase in demand and product lineup.
Based on customer demand, we will accelerate growth where we can leverage our competitive strengths and strive to enhance corporate value. Mr. Kawaguchi will provide the details of our results.
Here are the details of our financial results. First, at the first six months ended September 30th, 2026, total group unit sales vis-à-vis the same period last year were as follows: Motorcycle business unit sales increased mainly in Asia and other regions, such as Brazil, to 11,900,000 units.
Automobile unit sales decreased to 1,569,000 units, primarily due to lower sales in Asia, particularly in China. Power products unit sales decreased mainly in North America to 1,632,000 units. The year-on-year consolidated financial results for the six months ended September 30th, 2026 were as follows: operating profit up JPY 210.5 billion, reaching JPY 648.7 billion. Equity method investment profit up JPY 74.3 billion- JPY 85.2 billion.
Quarterly profit attributable to owners of the parent company up JPY 204.9 billion- JPY 516.7 billion. Excluding EV-related losses, adjusted operating profit is JPY 1,133.6 billion, up JPY 471.7 billion.
Next, the factors behind the year-on-year change in adjusted operating profit excluding EV-related losses. Adjusted operating profit increased by JPY 471.7 billion year-on-year. A sales impact, strong motorcycle sales plus higher automobile unit sales in North America and other factors pushed up profit by JPY 111.4 billion.
Price and cost impacts. Despite positive effects from price revision, due to rising raw material costs and other factors, profit was down JPY 11.0 billion. SG&A, JPY 109.5 billion positive. R&D expenses was a positive JPY 16.4 billion. Foreign currency was a positive JPY 148.3 billion. Tariffs, one-time factors including refunds increased profit by JPY 97 billion. Next, operating profit by business segment. Motorcycle business, JPY 439 billion.
Automobile business posted a loss of JPY 5.7 billion due to EV-related losses. Excluding EV-related losses, adjusted operating profit was JPY 479 billion. Financial services business was JPY 210.9 billion. Power products and other businesses, JPY 4.4 billion.
Motorcycle business operating profit increased by JPY 70.7 billion- JPY 439.1 billion year-on-year. As for the factors behind the changes, regarding sales impact, mainly due to increase of unit sales and such in India and Brazil, operating profit went up by JPY 23.7 billion. Selling price and cost impact. Despite the positive effect of the price revisions, operating profit decreased by JPY 4.5 billion because of soaring raw material prices and so on.
SG&A expenses impact, operating profit increased by JPY 5.4 billion. R&D expenses, operating profit decreased by JPY 4.9 billion. Foreign exchange impact, operating profit increased by JPY 43 billion. Tariff impact, due to one-time factors including refunds, operating profit increased by JPY 7.9 billion. Adjusted operating profit for automobile business increased by JPY 328.3 billion- JPY 479 billion year-on-year.
As for the factors behind those changes, regarding sales impact, due primarily to an increase in unit sales in North America, operating profit increased by JPY 70.7 billion. Selling price and cost impact. Despite the positive effect from price revisions and so on, operating profit decreased by JPY 7.4 billion because of the soaring raw material prices and other factors. SG&A expenses, profit increased by JPY 71.2 billion.
R&D expenses, profit increased by JPY 21.3 billion. Foreign exchange impact, profit increased by JPY 87.3 billion. The tariff impact, due to one-time factors including refunds, operating profit increased by JPY 85.1 billion. Next, regarding the cash flow situations.
Free cash flow for our operating companies, including the financial services businesses, was JPY 266.4 billion. The net cash balance at the end of the quarter was JPY 3 trillion 403.5 billion. Adjusted operating cash flow after R&D was JPY 1 trillion 354.3 billion.
Next, I'll explain the consolidated earnings forecast for the fiscal year ending March 2027. Regarding group unit sales compared with the previous forecast, for motorcycle business, reflecting an increase mainly in Asia, expected unit sales will be 23.3 million units. For automobile business, reflecting increase in North America and reduction in China, unit sales will be 3.16 million units.
For power products business, reflecting a decrease in Europe and so on, expected unit sales will be 3.6 million units. With regard to the consolidated earnings forecast for the fiscal year ending March 2027 compared to the previous forecast, operating profit will be up revised by JPY 130 billion- JPY 780 billion, excuse me. Profit attributable to owners of the parent is up revised by JPY 100 billion- JPY 500 billion, up by JPY 100 billion.
Adjusted operating profit is revised up as well by JPY 130 billion- JPY 1 trillion 300 billion. Forex assumption for the full year is set at JPY 156 for a US dollar. Next, I will explain the factors behind the changes in operating profit compared to the previous forecast. Adjusted operating profit is expected to increase by JPY 130 billion year-on-year.
As for the factors behind those changes, for the sales impact, thanks to the strong motorcycle sales in Asia as well as the higher automobile unit sales in North America, JPY 20 billion increase is expected. Selling price and cost impact, due to the positive effect of price revisions and so on, JPY 30 billion increase is expected. SG&A expenses impact, JPY 41 billion increase is expected. The foreign exchange impact, JPY 39 billion increase expected.
Next, I'll explain the factors behind the changes in adjusted operating profit year-on-year. Adjusted operating profit is expected to increase by JPY 260.6 billion year-on-year. The factors behind those changes, sales impact, due to unit sales increase for motorcycles and so on, operating profit is expected to increase by JPY 286.7 billion.
Selling price and cost impact, despite a profit increase due to cost reduction initiatives and price revisions, because of the impact of soaring raw material costs and so on, profit will be squeezed by JPY 283 billion. SG&A expenses, a JPY 33 billion increase. R&D expenses impact, a JPY 10 billion increase. Foreign exchange impact, reflecting the changes in exchange rate assumptions, a JPY 67 billion increase is expected. Tariff impact, JPY 147 billion increase is expected.
The outlook for capital expenditures, depreciation amortization, and the R&D spending for the fiscal year ending March 2027 is shown on this page. Finally, regarding dividends, the expected annual dividend for the fiscal year ending March 2027 remains unchanged from the previous forecast at JPY 70 per share. This concludes my explanation. Thank you for your attention.
Thank you for your listening. We will now proceed to Q&A. Please ask questions via the Zoom we have provided you with. in the interest of time, we ask you to limit your questions to two per person. When asking a question, please turn on your camera and microphone. Those who have questions, please use the raise hand button, please. First question, Nikkei. Mr. Ryo Mukano, please.
This is Mukano from Nikkei. Can you hear me?
Yes.
About the results from April to September, you do see the operating profit increase significantly. What is your take on this? From the third quarter and after, what is your outlook? The second question, please. The second, about the Ohio new plant that you announced, you say that it can also flexibly adapt to production of EVs. Are you thinking of a line like at Marysville where you produce different models?
At this point in time, what will be the timing to switch over from hybrid to EV production? In order to achieve flexibility, how much investment will be required?
Mukano, thank you very much for the question. I will try to respond to both questions. First, about this last six months, yes, we believe that the rising cost and the inflation pressure in different countries, plus the rise in interest rates.
Furthermore, there were the geopolitical risks that were materialized in the Strait of Hormuz, putting an impact on the economy. So, I must say that it was a very demanding environment. As for the second of the six months, the operating profit, excluding the EV losses, it comes to JPY 1,133.6 billion. There is a one-time profit, but excluding that also, despite this very demanding environment, I think that our profitability was quite strong.
It was a very powerful result that we were able to achieve. Especially the drivers were in the automotive business. For example, in China, we are still struggling, but especially in North America, due to the high crude oil prices and small-compact cars, hybrid, low fuel economy, high fuel economy vehicles are strongly in demand.
Therefore, with our hybrid models, we were able to capture the demand. In the second quarter also, as a market share, it was in the latter half of the 9% range. So we were able to maintain this high percentage. In the motorcycle in India and Vietnam initially, there was the regulation EVs, and we thinking that we would not see a growth, but in reality, the EV regulation did not have such a major impact, at least as of now.
Therefore, Vietnam also, against our plan, we are doing well. Especially in Latin America, we have been enjoying good sales, and we were able to absorb the increase in cost and increase profitability. So, with both the motorcycle and automobile profit, plus the non-recurring profit, in the first six months, we were able to surpass our plan. About the EV-related losses, let me explain.
In this quarter, in the past, we have been communicating with our partners, and we have received responses by this summer. As a result, to the extent we can account for that, we have included JPY 484.8 billion as EV-related losses. Given this, in the H2 of the year, we will continue to experience high rising costs and geopolitical risks. Therefore, there is a lot of uncertainty ahead in our business environment.
We are trying to do everything to meet our customer demands for products and services, but still, in the H2, we have reflected these uncertainties in the numbers. So, that's response to the first question. The second question about our investment in Ohio. This time, the main focus of our factory is, mainly it will be large hybrid models. We want to expand our production capacity for large hybrid models.
In North America now, overall, the production capacity is slightly lacking. Therefore, each of the factories are reaching almost full production. If there were to be some irregularities, it will be difficult to recover. This has continued to be the case, especially in the U.S. market. Our large models, Pilot, Passport, MDX, these models' demand are rising. But regretfully, currently, we do not have the full capacity to meet these demands.
We are not able to approach customers who are wanting to purchase these models. Given this, we believe that we need to increase our production capacity, and that has led us to this decision. As for the overall direction, in the 2030s, the H1 of the 2030s, especially in North America, United States, electrification will be led by hybrid.
Therefore, for this factory, we are keeping in mind hybrid, and laying out the factory, keep in mind it will be producing hybrids. But as Mukano has said, in the future, we also understand that there will be an age of carbon neutrality arriving. At this plant too, in the future, we will be producing hybrid, gasoline, and EV, electric vehicles. We will have flexibility to produce all these different types, and it's designed to be such.
Based on this design, for example, for the body frame, we have the BEV-dedicated frame. We do have space to accommodate those frames. We are using AGV to carry the vehicles, and the layout can be changed flexibly.
We've injected this know-how so that in the future, once the age of EV arrives, we can change the production process and equipment. The change can be made quicker than in the past. So, that is the type of design that we are making. By doing so, we don't know when the EV market will come. At this point in time, it's very difficult to predict.
Currently, the BEV preparation is being made, BEV, but looking at the market developments, when the time comes, we, with this flexible design, will be able to, in a short period of time, switch to producing battery EV to meet the market demands. That is all from me. Thank you. By the way, investment,
Yes.
We are introducing a flexible design, but we have not included in this investment amount investment for specifically EV.
Thank you very much.
Thank you, Mr. Mukano. Next question, please. Yomiuri Shimbun , Mr. Rina Ukita, please.
Hello. Can you hear me?
Yes, please.
In relation to the earlier question about Ohio business, the investment amount is large, I believe. For instance, already, for instance, expansion or enhancement of a current plant, you could do it. However, what is the reason why you decided to have this bigger decision, especially in North America? It is a very important market for you.
Please tell me about that. Also, about the financial results, the unit sales for automobiles, a little bit slowing down, I suppose, 3.16 or 3.39 million, then still you have a revision of the full-year business results. Are there any other reasons behind your expectation being up-revised? Please tell me about that.
Thank you very much, Ms. Ukita. Question one, I will address. If numbers needed, Kawaguchi, W ill support.
As for the investment in Ohio, as was already explained earlier, currently, our company in North America has a full capacity in the current plants and factories. Therefore, we don't have any leeway. Just like last year, when we had our impact by the semiconductor businesses, which inhibit the production, it was difficult to recover that time.
Actually, that situation still continues today. Nevertheless, we'd like to increase the production capacity. Now, EV demands, as of today, are not really coming in a faster speed. For some time, the market situation will be perhaps mainly supported by the hybrid vehicles. Therefore, until now, we had a Civic, Accord, CR-V, rather smaller cars lineup. We have a hybrid offering, but large size, we do not have a hybrid setting.
Because of that, we want to add new hybrid vehicles in these segments, large car segment. Therefore, we can capture the market of big cars like that. In order to fulfill that, we need to have a right production capacity so that we can provide attractive and acceptable products to the customers.
That way, we can provide values to the customers in that domain. That is why we made the decision for the new factory. Thinking about the future, as I said earlier, in the future, EV environment will come for sure, we believe. Therefore, we should be able to address the EV demand as well. The plant is to be designed to cater for the EV demand in the future in the States.
We produce 1 million unit plus, and we are going to add 240,000. We are going to have a 1.3 million capacity in all in the future. Along with that, we would like to increase the sales unit as well. That is for the question one. For the question two, as for the unit sales, the numbers were already shown to you.
Simply speaking, we have dropped some out of that specifically because of the China unit sales being soured. In China, as you know, we are in a very tough situation. Sales unit in China have to be revisited, because of which we needed to have this impact on the unit sales situation. Other than that, basically in North America, we will have a growth of the unit sales, and that will cover the shortcoming of other regions.
Because of the increase in North America, we are in an advantageous position for the revenue because of that. Automobile businesses can recover the revenue because of the situation like that. In the motorcycles, the unit sales is growing as compared to the previous forecast, because of which we have this number in the financial result.
Thank you very much.
Thank you.
Thank you, Ms. Ukita. Next question. Mr. Takahiro Fukui from Japan Automotive Daily.
This is Fukui speaking. Thank you for the explanation. I also would like to ask about the U.S. and your additional investment in the U.S. Honda, you are going to improve productivity through automation, digitization at the new plant. Regarding production in North America, there is a rising wages, and the suppliers are reluctant to enter into the United States, I hear.
The economic outlooks are unclear, and the supply chain is very difficult, meaning the procurement of components might be difficult. So in trying to produce more in the United States, what is your thinking on the supply chain? That is the first point. About this morning, on page 16, about the profit and increase, you say that cost reduction. I think this is the impact of the raw materials.
Am I correct in interpreting? This is due to the Middle East situation, raw material costs and energy costs are rising. I think that this is impacting your business. Other OEMs are saying that this was more than what they were initially anticipating. About the cost reduction, what are your thoughts for the H2 , please?
Thank you. About the first question, I would like to respond. The second, Kawaguchi will respond. About the first question, as Mr. Fukui mentioned, about the new factory, automation or IT is one key element.
Compared to existing plants, production efficiency will be higher, and cost competitiveness will be high. That is our intention. In the future, we will be using physical AI and set automation targets. Currently, how much efficiency has not been disclosed, but it will be the state-of-the-art factory, and so it will have a top-level efficiency.
About suppliers. Regarding suppliers, already, we are communicating with them, and we are studying and having them study what to do. One thing regarding this, there are suppliers with whom we will ask to invest, and others, by changing the working style, they may be able to respond to our needs.
In either case, the suppliers, in the future, we are saying 240,000 units increase in capacity, so this will require a certain amount of investment and also a certain amount of manpower. So with our suppliers, we would like to collaborate closely so that when we start production in 2029, we will for sure be able to meet all the requirements. That is all. Thank you.
About your second question, allow me to respond. Please, can you show page 16?
You were asking about the cost reduction part, this minus amount that we have here, and whether cost rise is included in the JPY 436 billion. Yes, it does include that, plus the semiconductor memory cost increase are included here in this number. About the cost increase, when we were putting together initially our annual plan, we were thinking of increase of JPY 360 billion cost increase.
Naturally, different raw materials, copper, aluminum, and also precious metal, others. Looking at the prices for these, there are some where the prices are rising, whereas others, like precious metal, where the prices are coming to drop. So, there are different cases. Looking at the first six months, compared to last year, we think that it is about JPY 170 billion, both motorcycle and automobile, an increase of JPY 170 billion in cost increase.
We will have to follow the price developments, but the JPY 360 billion cost increase that we put in initially remains in place. That is our outlook. About how we will respond going forward. One way of addressing this is to pass this on to the selling price. The other is, with our suppliers, try to reduce costs on our own and absorb the cost increase.
Currently, we are looking at the competitors' prices. Just directly adding on to the selling price, the cost increase is not realistic. That is our understanding. Therefore, we have to work together with our suppliers so as to try to reduce the cost. It will take time, but we will have to absorb the cost increase. We will have to follow the price trend of different materials and think about what measures need to be taken. That is all from me. Thank you.
Thank you
Thank you very much, Mr. Fukui. Next question. Toyo Keizai, Mr. Yasuhiro Yamada, please.
Yasuhiro Yamada from Toyo Keizai. Thank you. Wait for the moment. Can you hear me?
Yes.
Thank you. The results this term, the full-year plans, the OP about JPY 650 billion for the H1, and then you have up-revised, right? For EV-related losses, about JPY -490 billion . Third, fourth quarter, JPY 140 billion OP expected, right?
Based on your capability, it should be about JPY 140 billion, and you have a JPY 780 billion plans. Would that have a kind of buffer included, or do you factor in for the conservative expectations because of some business environments? Unit sales targets or plans is up-revised as well. In the H1, I have 1.1 million units added. 500,000 also for the H2, I suppose, as compared to H1.
For the full-year basis, you have a kind of a narrowing down of those gaps. Tell me about those numbers.
Could you elaborate on the second question? You are talking about motorcycle unit sales volume.
Yes. The second question is for the motorcycle.
Yes. Yamada, thank you. Let me explain. Numbers will be given by Kawaguchi later, but the gap between the first and H2. I understand your question is about it. For the H2, the business environment on the whole, the external environments, business environments, as compared to the H1, is going to be tougher.
That is the expectations by which we put up those expectation numbers. With this, the crisis of Hormuz would give actual impact, and raw materials, aluminums, supply concerns will continue on.
Inflationary trend will continue, and interest rate will be up higher continually. That is our expectations. Because of that, in this environment, businesses have to be in a tougher environment. For the motorcycle business, we will see the steady trend demands going forward, especially in North America, oil prices hike would give us a kind of a positive thing.
However, interest rate hikes and impact on the gas crisis and so on, those are factored in in the H2 expectations. That is why it is looking worse than the H1. H1, H2, the unit sales in the H2 will be less, and that is usual, in fact. Every year, it is like that, and it is a usual situation for our outlook.
The raw material prices, the prices are soaring, and that had to be reflected in the cost expectations in the H2, and that is already considered. As compared to the H1, the units will be down for the automobiles. Cost increases and its impact. Because of that, JPY 300 billion impact is expected.
Usually every year, we have R&D, SG&A, those expenses are usually put up in the H2 more than the H1. Therefore, we have about a JPY 400 billion impact because of them. I said that through capability, JPY 1.4 trillion, you said. We have one-time factors too. Numbers will be given by Kawaguchi, but we have quite a few one-time things in there. When we say our true capabilities may be JPY 1.1 trillion, that is our true capability according to our assumptions.
Based on those concepts, we put up this outlook at this time. That's for the question one. Second question, please. I think I have not much to add. The one-time for the full year, the expenses, SG&A, about JPY 100 billion. Details, well, I'm not going to go details, but we have a bit of the reduction in some expense areas, and then the tariff.
Two things. Last year, U.S. tariff system, especially for the parts components. According to the sales turnover in the United States, we had a credit for the refund. The timing of the refund, some of them should have been given back to us last year. However, it is kind of put forward this term, and also IEEPA tariff.
The Supreme Court in the United States made a decision for IEEPA, and then the refund is expected, and it was put up in the H1, but also some part is going to be put for the full year basis too. Including all that in this SG&A, JPY 100 billion impact, and then including tariff, JPY 140 billion about the revenues pushed up by that.
Excluding all that, you can then talk about our true capabilities, as Kaihara said earlier. Then, as H2, North America automobile businesses, the market is rather uncertain, I don't know, because the competitors are quite strong, and also the oil prices and the Middle Eastern situations. We don't know what's going to happen there.
If those kind of souring, and then the automobiles, passengers, hybrid, maybe if they are to go for the large-sized ones, then we have to be prepared better. That is behind those unit sales expectations and incentives too. We have saved some in the second quarter, and it's a kind of preparations for the H2.
Maybe all that might make a first and the H2 gap looking greater. So, JPY 520 billion, that's the maximum, and it is going to be not carried over, right? EV losses. As Kaihara said in the beginning, as for the EV losses, according to the usual accounting standard, we have an obligation to make payments for that, and then we made our best estimates each time to include them in the expectations.
In the beginning of the fiscal year, we didn't have a good communication, and we couldn't have a right estimate. Then we had many communications from the suppliers. The communication with them have progressed since then. Therefore, now we have a reasonable expectation that is JPY 480 billion.
By the end of this fiscal year, we will continue on the adjustment and talk with the suppliers. For us and for the suppliers, for all of us, it is better to conclude all the things of the loss-related matters by the end of this fiscal year so that we can go forward, look forward for the future. With the time, we would like to conclude those loss-making matters by the end of the fiscal year. Then, we have JPY 480 billion for the H1.
We still have some continuing communications and talks, and we need to scrutinize further on. Therefore, JPY 520 billion expectation for this full year is still there because of that. We are now able to have a more reasonable, realistic estimate there. I wouldn't say that it will be so much different from the expectations in the end.
However, this will be the level that will be for the full year expectations of the EV-related losses, and we are working on that now. Thank you. The question to the motorcycle units. I think the concept is the growth in the H1, as compared to that, growth in the H2 may look too modest, I think. India, that is the largest portion out of that. They have a GST tax-related impact.
Since last year, from the early part of this year, they've changed their taxing system. In other words, the prices came down because of which the unit sales went up. The incremental portions have been already factored in in the H2 last year. Therefore, the H2 to H2, I doubt maybe the growth rate would not be so different year- on- year. Because of that, increments in India may not look so great.
That is how it impacts on the unit sales or volume. U.S., China, we expect some reduction too of the volume. Excuse me, U.S., it is going to be tough. Japan, the motorcycle 50cc, the ICE stopped, so it will have some impact. Also the earthquakes in Kumamoto had some shipment issues. We had to suspend because of that.
That also pushed down the volume. Therefore, the growth rate of the volume in first, H2 may not look too great. That is the factors behind that.
Thank you.
Thank you.
Next question. Kyodo News. Kie Koshika, please.
[Foreign language]
Can you hear me? [Foreign language]
Yes.
[Foreign language]
Thank you. Two questions about the Chinese market outlook.
[Foreign language]
Unit sales this fiscal year is expected to go down significantly.
[Foreign language]
Do you think that unit sales will bottom out this fiscal year?
[Foreign language]
I believe you have plans to introduce new models.
[Foreign language]
Do you think unit sales will recover next fiscal year, is my first question. About Europe.
[Foreign language]
Those cars produced outside of Europe might face regulation.
[Foreign language]
What are your thoughts on this, please?
Thank you. I'll respond to both. About the Chinese market. Currently, we are in a very difficult position because China's economy is shrinking, and due to the impact of the Strait of Hormuz, gasoline prices are rising, and the market situation is changing significantly.
The overall market is shrinking, and also, because of the high gasoline prices, there is a shift from gasoline to EV models. ICE, the internal combustion engine market, is in a very difficult position, and that is the reason why we've cut down our unit sales prospects, and we are striving to achieve those numbers that we've just set up. Now, as for the future, we think the same will continue for some time.
First, in regards to gasoline models, we want to try to minimize the cost as much as possible, and tapping on our joint venture know-how and the capability of our suppliers, we want to gain competitiveness so as to contribute to sales. Second, about the future. [Foreign language] Using our joint venture platforms, we want to produce EVs.
This will take time, but this is a direction that we are looking towards. We want to maintain the current status and try to lead the way to future sales. In the future, we will be fully utilizing local resources so as to increase cost competitiveness and make our models more intelligent, leveraging the know-how of our partners. We want to expand our lineup in such a way.
We have a brand that we have built from the past. We want to retain our brand and try to enhance our presence. That is the direction we will be pursuing. Second question about Europe. Well, actually, at this point in time, for those produced outside of Europe, there is discussion ongoing within Europe, we understand.
Under the current situation, for example, for the European region, we invest and set up a production site that we think will be difficult. Therefore, the way of thinking is that we will approach the different countries' governments and try to maintain a fair and competitive relationship.
We want to approach them and deliver this message to the governments. We have trusted partners in each of the countries. Therefore, with these partners, we would like to approach policymakers in Europe so as to do outreach and, for example, try to apply the concept of FTA to Japanese vehicles.
If this were to be applied, then we will, in some way, think about local production. For this, there are many things that we have to take into consideration. As for now, we are following closely the discussions within the European Union. That is all. Thank you.
[Foreign language]
Thank you very much, Ms. Koshika.
So, I'm sorry that there are still many raising hands. However, next question is going to be the last one. Mr. Hideyuki Miura from Asahi Shimbun, please.
Thank you for your explanation today. Can you hear me?
Yes, please.
Two questions. Slide 15, outlook. What is the reason behind the upper revision, breaking it down, those factors? Main one is JPY 46 billion part, I suppose. You mentioned about the impact by the refund of the tariff. What is the impact by that? What is the largest factor for the upper revision for the expectation on the page 15?
Question two. Right at the beginning, you talked about a new factory. Up until then, up until the start of the new plant in 2029, there will be some time. In the meantime, though the demands is pretty steady, how can you adapt to the growing demands in the meantime? Up until the commissioning of the plant, how do you manage?
Kawaguchi is going to address the question one.
Thank you for the question. I think you are talking about Can you show the slide, please? This slide. You are talking about the expenses, others. You would like to know what is included in there, right? Is that correct? Yes. As I said in the beginning, today we have a one-time factors affecting both SG&A and tariff.
For the SG&A areas, I cannot give you too much of the details because of the people outside, the other party, because we have some reconciliation of the lawsuit. We have had some provisions for that before. After many talks around that, we would not require those provisions anymore. It is kind of reverted back. At the time when we were putting up those plans in the beginning of the year, it was not really expected.
However, now we have JPY 40 billion worth for that, and that was outside of our expectations. That is in here now. That is for the question one. Thank you.
Question two, I will address. Of course, as I said earlier, today our production situation is that we are having a full utilization up until the commissioning of the new plant, three-year period, up until then.
For that period, we need to manage within the current production capacity by managing the shift arrangements and the way of working. As of now, we have various ideas and arrangement of the working styles. We are trying to do something out of that. Of course, we need to have the suppliers also following suit as well. We need to give more consideration to how to do it.
Maybe some tens of thousand unit level, we can manage to generate, I suppose. Of course, it is not something that we can expect right now, but we have to communicate with the suppliers so that we can expand our capacity as much as we can in the meantime. Going forward, demands in the markets, stocks in the inventories, based on all those, we like to try our best to deliver the products safely to the customers.
Thank you.
Thank you very much. With this, we would like to end our media briefing. As for the materials, they are posted on our website for you to refer to. Once again, thank you for your participation.
Thank you.