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Honda Motor(NYSE: HMC)
Q1 2025 Earnings Call
Aug 07, 2024, 2:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Thank you very much indeed for your participation despite your busy schedule today. And now, I would like to start a press conference, financial results press conference for the fiscal first quarter ended June 30th, 2024. To start with, I'd like to introduce the speakers today: managing executive officer, CFO, Mr. Eiji Fujimura.
Nice to meet you. Operating executive, head of accounting and finance supervisory unit, Mr. Masao Kawaguchi. Nice to meet you.
So let's start with Mr. Fujimura's presentation about Quarter 1 of the FY 2025 results and the forecast of the FY '25 or full year. And Mr. Kawaguchi will elaborate a little bit later.
Eiji Fujimura -- Chief Financial Officer
Thank you very much for your understanding of our business activities as usual. Let me present our first quarter business results of FY 2025. Starting with the highlights of the financial results. Unit sales in the motorcycle business in the first quarter increased globally, mainly in India and Brazil.
In the automotive business as well, we had a robust sales of hybrid models. And thanks to the pricing scheme that reflects improved commercial values, the profits increased year on year in both motorcycle and automobile businesses. As a result, operating profit of the entire company marked the highest-ever quarterly profit, over 484.7 billion yen, or 9% of the operating profit margin. For China, where a tough market environment still continues, we will revise the volume forecast down by 220,000 units, whereas we will maintain our previous guidance of the operating profit margin and the profit for the period attributable to the owner of the parents.
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Forex assumption will stay the same because the recent fluctuation of the currency is substantial. Then let me explain the outline of the financial results. Speaking of the main market, the situation of the automobile businesses, hybrid models have been successful, making the unit sales increased in Japan and in the United States. In China, due to expanding new energy vehicle market and aggressive price competition, the unit sales declined year on year.
In the motorcycle businesses, unit sales declined due to economic slowdown in Thailand. However, the unit sales increased year on year due to steady demands in India and Brazil. Thus, on the whole, the total business increased year on year in this segment. Regarding the financial results of the Q1 FY 2025, operating profit marked 484.7 billion yen, up by 90.2 billion year on year.
Shares of profit of investments accounted for using the equity method was 1.4 billion, which was down by 41.4 billion. Profit for the quarter attributable to owners of the parent was 394.6 billion, up by 31.1 billion. Operating profit marked the highest ever as quarterly results. With regard to the consolidated business outlook for the FY 2025, operating profit will be 1.42 trillion yen.
Our previous forecast will stand the same. Shares of profit of investment accounted for using the equity method will decline due to the unit sales in China being revisited. However, profit for the financial year attributable to the owners of the parents will be 1 trillion yen, for which the previous forecast will be maintained. Full year forex assumption will stay the same at 140 yen for a dollar, no change of our previous guidance.
Annual dividends for FY 2025 is expected to be 68 yen per share and no change of the previous guidance. We announced the share buybacks in the press conference on May 10th, for which the progress as of the 31st July was that we have acquired a total of 12.36 million shares worth 20 billion yen altogether. By the way, Honda is working on the improvements of the corporate governance as one of the priority issues of our business management. Recently, in the stock market, we are seeing the trends of reviewing the cross-holding of the shares.
Honda will aim to unwind the cross-holding practice soon in order to enhance our disciplines on corporate management furthermore. In July this year, Honda shares, owned by non-life insurance or banking institutions, have been sold off in the public as much as 500 billion worth. Having those shares available in public will help broaden our shareholders base, and a wider range of our shareholders can support us for medium and long-term perspective. Bringing them in co-creation with us, Honda will aim to build a stronger brand and a business foundation in order to realize the further improvements of our corporate values.
In addition, Honda sold the shares that we have been holding for those non-life insurance and banking institutions as well. Honda will take the lead to unwind cross-holding policy so that we can improve our corporate governance further on. Next, Mr. Kawaguchi will explain the details of the financial results.
Masao Kawaguchi -- Head of Accounting and Finance
At this time, I'd like to explain the details of our results. First of all, Honda group sales volume for the 1st three months is as follows: Compared to the same period last year, sales in motorcycle business operations rose to 5,062,000 units mainly due to an increase in Asia. Due to a decline in China, automobile sales totaled 869,000 units. Sales in power product business operations totaled 822,000 units, mainly due to sales declines in North America and Europe.
The first quarter consolidated financial results for fiscal year 2025 is as explained earlier. I would like to explain the factors behind the increase or decrease in profit before tax compared to the same period last year. Operating profit increased by 90.2 billion yen, compared to the same period last year and totaled 484.7 billion yen. As to the increase and decrease factors behind this change, sales impact, although there was an increase in profit due to an increase in unit sales, an increase in incentives led to a negative impact of 28.4 billion yen.
Selling prices and cost impacts due to the effect of selling prices commensurate with the improvement of product value, a positive impact of 159.8 billion yen was realized. Expenses negatively impacted profit by 61.5 billion yen. R&D expenses, likewise, 27 billion yen. The positive impact of exchange rates resulted in an increase of 47.5 billion yen.
Now, profit before income taxes. Due to a decrease in sales volume in China, there was a decrease in equity method profit. However, operating profit for the quarter increased by 44.5 billion yen, compared to the same period last year and totaled 5.594 trillion yen. Now, operating profit by business segment.
Motorcycle business achieved a record high of 177.6 billion yen for a quarter. For automobile business, the total was 222.8 billion yen. The total for potential services business was 84.9 billion yen. The result for power products business and others was an operating loss of 700 million yen.
Free cash flow of operating companies, excluding financial business operations, was 73.9 billion yen. The quarter-end balance of net cash was 3,744.3 trillion yen. Operating cash flow, excluding R&D, which represents the source of future investments, totaled 435 billion yen. Next, let me explain the details of the consolidated forecast for FY '25.
Group sales volume for motorcycle business operations is 19.8 million units, unchanged from our previous forecast. The automobile business forecast has been revised downwards to 3.9 million units, reflecting a decline in China, as well as other changes compared to the previous forecast. Power products business operations' previous forecast of 3.6 million units remains unchanged. The consolidated financial forecast for FY '25 is as explained earlier.
The outlook for capital investment, depreciation and amortization, and R&D expenditures for FY '25 remains unchanged. This concludes my presentation. Thank you very much for your attention.
Questions & Answers:
Operator
Thank you for your attention. We will now proceed to the Q&A session. We would take questions via Zoom system as previously informed to media participants. Due to time constraints, each person is limited to two questions.
When asking your questions, please turn on your camera and microphone. We appreciate your cooperation. [Operator instructions] Thank you. First question from NHK, Mr.
Noguchi, please.
Shuji Noguchi -- NHK -- Media
Noguchi from NHK. Can you hear us?
Operator
Yes.
Shuji Noguchi -- NHK -- Media
Thank you. Two questions, please. First, Chinese situations, Chinese business. In China, the market situation is very tough now.
And in this fiscal year, you're revising your unit sales by 220,000. But you also have a plan to start a new plant for EV production. And what is your forecast or outline of upcoming production structures in China? Please explain. And can I explain the second question, too?
Unknown speaker -- -- Analyst
Yes, please.
Shuji Noguchi -- NHK -- Media
Question two, it is about forex, foreign currency exchange. And you have assumption of 140 yen for a dollar. That is same as previous guidance, but now it is fluctuating very dramatically, 146 yen, 147 yen as of today, which is very different from what it was yesterday. In addition, the Nikkei share price is also fluctuating very dramatically.
And how do you take this fluctuation?
Unknown speaker -- -- Analyst
Thank you very much, Mr. Noguchi. Speaking of Chinese situation, as we mentioned in the start of the fiscal year, we are thinking about 1.2 million capacity, 1.2 million cost production capacity in China. And by the end of this fiscal year, new EV plant with two new joint venture programs with the one and the other to start in sequence.
And then we are trying to bring it down to about 1.2 million capacity in the end, and we will try to reduce by 100,000 units reduction also. That was what we said in the beginning. And 1 billion in ICE and 200,000 units for EV. That was the plan for the reduction as we explained.
But as of today, in the first quarter, end of July, we have set the plan of 1.06 million, and then we are bringing it down to 140,000 units. That is the plan of the capacity as of now. And we are going to have the 500, 1,000 units to be adjusted. That is associated with the fixed cost.
And in China, such has been a very sensitive issue, and we couldn't explain too well about it. We couldn't disclose too much. But now, the Chinese headquarters have agreed with the partner company eventually. And then, as far as we could make a decision, we have addressed 1.5 million worth of the capacity and the rest of the 200,000 will be addressed sometime sooner.
So, 1 million or a bit less than 1 million ICE production capacity, that is what we are going to aim. And we have done whatever we could do for the end of the fiscal year this year. And ICE market has shrunk as more than we expected, and the NAV market is growing more than our expectations. And also, discount competition is continuing.
And then 400,000 yen reduction of the actual selling prices because of the discounts practiced today. Therefore, the commercial effort is very difficult over there. And going forward, as of now, we have not decided fully, but we will watch out the situations and then we'll make a decision. And then of course, we have to watch out our ICE market going forward.
And so BEV, a dedicated platform, is being prepared for the upcoming winter. And with that, we will try to improve our presence in the market. So, we will try hard on that. In conclusion, we explained in the beginning about optimization of the capacity.
We are working on the resources and the EV part with the more attractive products for EVs. We are preparing for that, too. Though the situation is tough, as we said in the start of the fiscal year, we are going to make our efforts as we explained before. And forex, as we mentioned earlier, 140 yen for the full year assumption.
We thought it would be a very conservative assumption as some people said. However, in retrospect, in the golden week holiday period, we had a swing to the yen depreciation. And we say with 145 yen and 135 yen for a dollar in the first half and second half, respectively. And now, the price is approaching 245 as we anticipated.
And practically speaking, in the first quarter press conference like today, we discussed and then thought we could say the FX forecast could be set 445 as we would disclose. But now, we had 20 yen down already in July. And last week onwards, we've had 10-year difference already. And now not just dollars but including emerging market currencies, the forex is going to be more difficult to handle, 145, 135, our first and second half split.
That was something that the situation is actually realizing itself. And then we decided eventually that we could keep the previous guidance. Our staff made great efforts to try to keep it that way. I'm thankful for their efforts, too.
But today, the currency is around 145 yen. Going forward, we don't know. Second half, 135 yen. I'm not too sure if that is good enough to contain the yen depreciation potential.
But in the first quarter, as of July, we have the yen depreciation, and then 12-yen effect for a four-month period, a 3-yen for one month, let's say. And then if that goes that way, maybe 3-yen depreciation further on based on this assumption. And then, we have about a 30-billion-yen effect on our business for a dollar change of the currency. And then again, for these currency matters, our principle is to produce the products where the demands exist.
Therefore, apart from those currency and money matters, we always find the place where the customer exists, and that is the place for activities of production and sales. And then we can earn money, and then we can reinvest the money earned there in the same place again for the investment. So this way, Honda can become the growing company, growing the market locally, too. And that is our principle since our founding time.
And eventually, we found that we have a very good pre-currency toughness, so to say, thanks to that principle. But now, your question will also pertain to the stock market fluctuation. But I'm afraid when that goes, some impact on the actual economy and then leading to more anxiety kind of mindset for the currency. But in the motorcycle businesses, we have businesses in Asia, where the volatility is really high.
Therefore, we have been tightening up our structure so that we can bring down the break-even points to be resilient and tough against such fluctuation in the market. The business structure have to be made that way. And also, if the finance situation in the market changes, we have a finance business that accounts for half of the balance sheet. The bad debt, for instance, or the residual value losses or the procurement situation, they get confused, so on.
If such things would happen, that might impact on our operation. However, the residual values, for instance, if we handle that too much, it would disrupt short-term business operations. So, that is not something we would do. But we have a very tough structure, a very strong structure against financial fluctuation already.
We have heightened our resilience for the economic fluctuation, and we've made our business structure to withstand such fluctuation already. So, I think we can withstand again. However, fluctuation in month period will be, of course, a very tough situation. Although we believe that stability is good, however, we need to try to be equipped with the resilient and tough business structure of Honda.
Operator
Thank you very much, Mr. Noguchi. Next question, Mainichi Shimbun, Mr. Okinaga.
Thank you.
Unknown speaker -- -- Analyst
My name is Okinaga from Mainichi Shimbun. Can you hear me?
Eiji Fujimura -- Chief Financial Officer
Yes, we hear you.
Unknown speaker -- -- Analyst
Thank you very much. So, my first question is regarding North American market. With the increase in interest rate, the incentive has been raised by other companies' manufacturers, and they're selling more units. However, they're not seeing more profits.
So, what is the outlook of the business? Is it growing? Can you please elaborate on that? And my question number two, that is regarding the partnership with Mitsubishi and Nissan. The positive impact from that is not reflected in the business plan for now. However, is there any possibility of positivity coming out from this term, or would that be from next term onward?
Mr. Okinaga, thank you very much for your question. As for the North American market, as Mr. Noguchi mentioned earlier in his question, from now on, due to the labor situation as well, I think their economy is declining slightly.
And also, the interest rate reduction will be happening in September by FRB and the recession will be supported, and soft landing is also forecasted. So, the presumption is those conditions will impact the future situation. And currently, we can say that our plan is going according to schedule. First quarter, as for the market, the situation is the same as last year.
However, as for our retail section, that is a positive 1%. Back in June, other manufacturers were impacted a little bit, and our dealership and management system went through a cyberattack. And we did have some impact as well at Honda. And that has been resolved as well.
However, due to that impact from the first quarter, the positive in retail by 10,000 units was impacted by 1%. So, as for the resale, in Mexico, for example, we had a confusion in logistics. So, there is actually negative 20,000 units. However, this can be recouped as well.
What's leading this is hybrid vehicles. As for the hybrid vehicles, such as such as CR-V, Accord, the sales is going well. And since June, we have launched Civic Hybrid on top of that. So, because of that, for consolidated term, we are aiming for 430 units or beyond.
And for example, CR-V and Accord, the 50% is hybrid, and the demand is there. However, we had to also consider the production capacity, so it'll be hard for us to further increase the production there. However, from next term onward, that will take time, but we aim for increase our production capacity for those models. As for the inventory, other manufacturers are increasing, and also their incentive level has come back to before corona level.
However, as I have mentioned repeatedly, since corona era, before corona or COVID, the inventory is standard days or 60 days, and we were in collaboration with our dealers and working with the inventory. And we decided to control the inventory situation, based on 30 days instead, due to the dealership system problem that I mentioned. It had some negative impact on the situation. However, excluding that, we have been able to control based on 30 days.
So, as for incentive level, ours is the lowest level in the industry. And we are spending some cash at a total of $1,600. And Acura is having a hard time. But as Honda overall, we have been able to limit that to a lowest level.
So, our assumption is for us to be able to go forward throughout the term, throughout this year, at the same level. And as for the partnership with Nissan and Mitsubishi, I'm not positive about seeing any positive impact from that in this term. As Mibe mentioned and explained, we are looking at the EV models coming in the future. Complementarity of models might happen even after that, but software development, investment, those things, we have been discussing.
So, we're at the phase of MOU. So, it's not like we will see anything positive from this term.
That's it from me. Thank you very much.
Operator
Thank you, Mr. Okinaga. Next question, Mr. Nakamura from Yomiuri Shimbun newspaper.
Please turn on your microphone and the camera, please.
Unknown speaker -- -- Analyst
Can you hear me?
Yes.
Nakamura speaking from Yomiuri newspaper. Nice to meet you. Earlier, NHK generally stressed the question about the interest rate. The Bank of Japan is voicing today that they cannot raise the interest rate if the market is not really good.
And how do you take those policy? And U.S. presidential election today, including your U.S. businesses, what is your forecast or outlook about businesses in the U.S. with regard to the election?
Thank you very much, Mr. Nakamura. So, Mr. Uchida, the vice president of the Bank of Japan, because of his statement, the market kind of stabilized or settled down in a way.
But we are not really looking for very drastic changes that is almost causing sort of a panic reaction. It is not something we would wish, of course. And if the market reacts with that sort of attitude in place, it is good. One hundred and fifty-five yen was the level from two weeks before or last week even.
At that time, we thought that the interest rate hikes by the Bank of Japan was already factored in. And we were surprised after all. And to manage our operations, it was a bit of a surprise. However, of course, we are subjected to any changes.
That could happen at any given time. And we will try to toughen up our business structure to be able to withstand. However, if the changes are too dramatic and too fast, it is not easy to catch up, of course. And the impact of the presidential election, I don't think it is appropriate to say who would win then.
But based on the current situation in the United States, before the presidential election, things coming up already. We've had EV market in the United States stalling, coming to a stagnant stage. And the used car prices of EVs in the U.S. is staying very low.
That means the EV users, the customers who bought EVs, then see that the same type of the car they bought, sold at a very cheap prices. They thought they bought EVs because it is one of their kind. But now, the prices are not high. And they don't find the EVs have a good value as one of the assets they should own.
So, then relate to the confidence in the companies like ours. And we want to respect our customer loyalty as well, and that is being impacted maybe. And in the presidential election questions, you may like to hear from us, how we would take the regulations and so on going forward. Mr.
Trump or the Republicans would have a certain tendency for the regulation matters. And this is something you already know of, so I'm not going to explain for myself today. But by 2028 or no matter -- about the presidential election till '28 or so on, our business aim is going over the longer perspective, 2035 or so. That is to try to resolve the social issues, and those have to be handled and addressed by the society on the whole.
And we want to realize our targets in the long run, and we want to focus on such long-term target without being distracted. And then, of course, politics matters in some cases. However, those changes or impact will be within the four-year period of the tenure. And then we will have to try to craft our business management way so that we can go and withstand the period.
Operator
Thank you very much, Mr. Nakamura. Next question is from Shukan Toyo Keizai, Mr. Yokoyama.
[Technical difficulty] Excuse me. It seems that the connection is not going well. So, we'd like to go for the next questioner. Mr.
Yokoyama, thank you very much.
Unknown speaker -- -- Analyst
Thank you. I'm Yokoyama from Toyo Keizai. I have two questions as well. The first one is regarding the consolidated outlook, I would like to confirm something.
So, the profit progress seems like it's going well based on the operation profit. As for motorcycles and automobiles, you said you're not making any projectional change. And so, the risk and opportunities based on those two, I was wondering why you did not change anything there. Maybe you were looking at the second half of the year, and because you mentioned earlier that expenses are expected to increase in the second half.
So, please elaborate on that. Question number two, this is regarding supplier support, the incentive or cost of shouldering for the inflation and against inflation. What kinds of support or initiatives are in place? If you know, including figures, if you could elaborate on that, that would be great. Thank you very much.
Eiji Fujimura -- Chief Financial Officer
Thank you, Mr. Yokoyama. So, for question number two, maybe, Kawaguchi can answer, including concrete figures. So, the financial results for the first quarter, as for motor motorcycles and four-wheel drives or automobiles, rather, both are performing very well.
Our RRS, 9%, which is the highest level in our history. In Thailand, there is some fluctuations there and also some problems in Vietnam. But overall, we are seeing upward trend. Brazil, India, and Turkey are leading that trend.
As for India, until July, the top share has been achieved in the past four months. And for this month, they were aiming for achieving the first place, so that's what's happening in India. And since 2018, their target -- or they have achieved 5 million per quarter. And they have achieved that, so it's going strong.
And for the consolidated year, year, it's still first three months, so we want to monitor a little more. However, we are expecting that they will surpass 20 million. And as for automobiles, centering around the head, it's going well in North America, and incentive increase is naturally there. However, we are only leveraging it slightly as for the price hike and pricing as well.
We are going according to plan from the onset of this fiscal year. For each model, we cannot increase the production capacity in North America any further. So, it's not like we can adjust it much more in line in this area. On the other hand, we have China's impact at 220,000 units, and we have negative of several or hundred million.
So, including automobiles or motorcycles, rather, we would like to recoup the negative of 1.48 trillion through our efforts, corporate efforts. And also, our outlook for the profit is also going down, unfortunately. However, the interest rate to shareholders, as for the first quarter, the tentative impact is seen on the corporate taxation system. So, we can offset our negativity through that.
And 1 trillion that we mentioned at the onset of the fiscal year or the term, we would like to maintain that because this is only the first quarter. So, the progress is going well. And like I said, there is some negativity from China. So, from that perspective, it looks like it's going well.
However, we do have to make more effort to maintain at a high level that we are aiming for it throughout the year. So, I believe I answered both of your questions. So, Mr. Kawaguchi will answer your question number two regarding the support for suppliers.
Masao Kawaguchi -- Head of Accounting and Finance
So, basically, of course, we have to have suppliers' support in order for us to do our manufacturing activity in order to deliver our products to our customers. So, of course, each supplier has their own reasons and background for their performance. So, we would like to collaborate well, and we are collaborating with each supplier in order for them to be able to perform well. And there is also inflation impact, including labor cost.
There is some burden on some suppliers. And if that's the case, we are ready to help them. Especially last year, we had a semiconductor problem, and our production was not stable. It was not only in Japan.
However, in North America, where inflation is quite significant, we have been discussing with suppliers, and we have been shouldering partially their costs as well. So, that is the current situation. And this situation will continue on in a similar manner this year. And it is hard to forecast the inflation trend.
But we cannot tell you specific numbers, but our cost is reflecting such a situation. And if for the first quarter and the documents that we shared with you today, there is a profit fluctuation factors compared to the same period last year, and there was an impact of selling price and cost, explained in one material, one document. And there is a 150 billion impact as I explained here. And this is an impact of a selling price, and this is slightly a positive impact.
However, this is the market situation of materials, including metals, and that has loosened compared to last year. So, excluding that, our cost is almost even. Not much change is happening there. So, the supplier's activity to counter inflation, we are supporting them in such an activity in the similar way as last year.
Unknown speaker -- -- Analyst
Thank you very much.
Operator
Thank you, Mr. Yokoyama. Next question, Mr. Inajima from Bloomberg, please.
Tsuyoshi Inajima -- Bloomberg -- Media
Bloomberg, Inajima speaking. Can you hear me? Thank you. So, some of the answers until now have already resolved my question. But as a follow-up question, especially that you don't change the full year forecast.
The forex exchange volatility is still high. Is that one of the reasons why you didn't change the forecast? And also, U.S. presidential election-related question. If Mr.
Trump is back in the Oval Office, they say that they're going to have some regulations that might affect the Japanese OEMs, who has the likelier high impact by the tariff increase, Honda as well. And maybe other companies might have to pass on or pass through those incremental tariff to the crises. That might kind of work positively for the business, as I thought. If you have a similar view, please clarify.
Unknown speaker -- -- Analyst
Thank you very much, Mr. Inajima. So, the reason why we didn't change the operating profit forecast for the full year, one of the reason is the forex currency because it is not a clear-cut trend we see. Therefore, we didn't change our outlook.
In the recent -- around two weeks changes, we couldn't make our decision for U.S. dollar, and also we have other currencies involved because we have a rather complicated price component transactions in different regions. The cross-transaction with the different currencies involved, quite complicated. Therefore, change of the forecast within a three-month situation would not be really justified, we thought.
And then we have other segment businesses and regional businesses, and quite a few of those can be or are going on in line with our expectations, like Chinese yuan, the equity-based businesses, for instance. However, your question is operating profit related, right? So, the forecast of the OP with regard to the Chinese impact, Honda Motor received a royalty money from the parent company, China, and we send KG parts or components to China as well where we get some profit as well. But where we have less fewer number of the vehicles in China, we would have an impact. It will be like a loss of some tens of billions yen impact.
However, 1.24 trillion forecast still stands because we could absorb such impact with some efforts still. And again, a presidential election? In the previous Trump administration, we had a USMCA. We had a tariff in place, and then we still have an impact by that even today in relation to the Mexico business's involvement. The impact still is in place.
So, we don't know what sort of regulations they would impose. For instance, local content ratio, that may be one of the impact area. However, we need to know the details of what is coming up. And in comparison, CBU, complete unit, we don't have bigger portions of a CBU transaction.
However, what is the impact on that? That's another question because we don't send that to many CBUs from the U.S. or from Asia to the U.S. So, depending on the origin and the destination of those CBUs, impact will be variable. And from Canada to U.S., from Mexico to the U.S.
and other routes, the U.S. headquarters have a three-country or three-party trading, which is complementary to each other. And it might have some impact, but we could try to sustain our business. And from Mexico to America, maybe less impact to that perhaps.
But without details known to us, it is very difficult to explain.
Tsuyoshi Inajima -- Bloomberg -- Media
Thank you very much.
Operator
Thank you. Apologize, but due to time constraints, the next question will be the last one. Last question, Nikkan Jidosha Shimbun, Mr. Mizutori, please.
Unknown speaker -- -- Analyst
I'm Mizutori from Nikkan Jidosha Shimbun. Can you hear me?
Yes, we hear you.
Thank you. So, I have two questions regarding hybrid. The first one is regarding last page on the PowerPoint. The previous number of sales is there, I believe.
So, looking at the number, the hybrid sales units, it looks like it's increasing. You said it's going well in North America. But overall, there is a reason for a sales unit reduction, actually. So, can you please elaborate on that? And also, the second question is related to this as well.
The overall sales is going not so well in China. So, what is the positioning of HEV in China? Toyota is enhancing HEV in China, and they're trying to improve the situation even further. So, how are you going to deal with HEV positioning in China?
Thank you, Mr. Mizutori. So, as for the sales units of HEV in China, the 5% reduction in the passenger car category is what's being planned. So, the change in the category, including hybrid, we have seen a 30% reduction in ICE, including the hybrid.
On the contrary, NEV is increasing. So, the hybrid included in ICE is decreasing in China slightly. Last year, it was 60,000, but now it's less than half of that. So, that's impact from China situation.
So, excluding that, Chinese factors, the HEV for this quarter, about 60% increase is observed compared to last year. So, how it's going? In China, we had to still monitor. But as we mentioned at the onset of the term, last year, global model of hybrid at 800,000, we are aiming for 1 million this year. That is our plan correctly.
So, the unit sales in China is going down at the moment. So, we are still struggling in that area. But either way, this year, our target is to increase the production volume to 1 million in the ICE presence, including hybrid, in some way or another, we are going to have to support. So, in China, as market is strangling, we have to consider how to fight under such circumstances within ICE, we segment SUV.
For example, we are losing in ICE market as well with those models, so we also have to make effort in such categories as well. Either way, as I mentioned earlier, on top of that, the battery EV exclusive platform is what we are planning for, a full-fledged production in China for those models. So, we will be focusing on that category. Does that answer your question?
Operator
Thank you, Mr. Mizutori. This concludes our financial results briefing. The financial results materials are available on our company website.
Please refer to them. [Operator signoff]
Duration: 0 minutes
Call participants:
Eiji Fujimura -- Chief Financial Officer
Masao Kawaguchi -- Head of Accounting and Finance
Shuji Noguchi -- NHK -- Media
Unknown speaker -- -- Analyst
Tsuyoshi Inajima -- Bloomberg -- Media
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