Honda Motor Company, Ltd.

Thank you for your attendance today, despite such a short notice. Now, I would like to – we would like to hold a press conference regarding the timely disclosure and the press release announced today at 3.30. First, we would like to introduce attendants today. Director, President, and Representative Executive Officer Toshihiro Mibe. Director Executive Vice President and Representative Executive Officer Noria Kaihara. Director Managing Executive Officer Eiji Fujimura. First, Mibe will walk you through the background that led to the management decision this time, followed by Kaihara's explanation of the future direction towards reconstruction of Honda's automobile business in the long term. Now, the floor is yours, Mibe-san.

Good afternoon, ladies and gentlemen. This is Mibe speaking. Thank you for taking time to join us despite the short notice. As you may have come to know through sources such as our news release today, we announced our forecast revision in the fiscal year ending March 31, 2026. Though challenging, we will explain the background of this decision and future direction for rebuilding the mid- to long-term automobile strategy. Honda has been working to realize carbon neutrality by 2050. To this end, led by small-sized mobility products including passenger cars, Honda shifted strategic direction toward EV popularization based on a belief that EVs will be the optimal long-term solution. In this journey, we anticipated increasingly stringent environmental regulations would come into full effect in various countries in the latter half of the 2020s. For example, under the U.S. ACC2 automotive environmental regulation, penalties up to $20,000 per vehicle would be imposed on non-compliant vehicles. On this premise, we spent the last several years steadily preparing for widespread adoption of EVs. We decided to allocate more resources to EV business after a comprehensive study of various factors, including US IRA incentives and projected profitability of our ICE and hybrid models upon introduction of EV. Above all, we made the decision to take initiatives towards carbon neutrality. We believe this is our responsibility to our children and future generations as a mobility company. However, during the past few years, our business environment has drastically changed at a speed far exceeding our projection. First, in the U.S., as you know, easing of environmental regulations and discontinuation of EV incentives significantly slowed EV market growth. This trend is expected to continue for some time. In contrast, the EV market has expanded in China. Competitors have launched products and deployed electrification and intelligent technology faster than expected. Even in ASEAN, we are facing strong competition from emerging OEMs. In this competitive environment, Honda was unable to deliver products that offer better value for money, resulting in a decline in competitiveness. We recognize our automobile business is facing tough earnings due to various factors, including our ability to respond flexibly to changes and also the decline in our gasoline and hybrid model profitability due to newly imposed tariffs. Against this backdrop, we decided to cancel market launch and development of the Honda Zero SUV, Honda Zero Saloon, and Acura RSX. To achieve carbon neutrality by 2050, electrification is an unavoidable challenge. In this context, through the Honda Zero series, we have consistently pursued new value Honda aspires to offer in the coming age. However, due to the above changes in our business environment, EV demand has declined significantly, mostly in America. Despite our measures, it will be extremely difficult to ensure profitability of our EV models. If we were to move into the production and sales phase, this would likely result in further losses in the long run. We are fully aware many Honda associates, business partners, and those on the sales front line have devoted and embraced passion to the EV model sales, with high expectations coming from many customers. This decision was by no means an easy one. Nevertheless, we made this decision believing that introducing these three models without an outlook for business viability may result in early production discontinuation. cause concern and inconvenience to our customers due to damage to our brand and others. We believe introducing these models will not be in the best interest for the future of Honda. We take this decision seriously and will address each effective supplier partner individually with due care. Based on this management decision, we now expect to record impairment and write-off losses on tangible and intangible assets intended to be used for EV model production, as well as additional losses. The maximum total of losses estimated as of today is 2.5 trillion yen, of which approximately 1.3 trillion yen will be recorded as addition to the fiscal year forecast announced on February 10th. The estimated breakdown is 820 billion to 1.12 trillion yen operating losses. 110 billion to 150 billion yen, the loss of investments using the equity method in China and other regions. We plan to record the remaining losses of 1.2 trillion yen for the most part in next fiscal year ending March 31, 2027. It is regrettable that we must record such a large loss. However, what is expected of the Honda management team now is not to justify the past, but to face this reality squarely and transition our automobile business to a structure that enables mid- to long-term growth. Next, Executive Vice President Kaihara will explain the direction for rebuilding our strategy.

Thank you. I would like to elaborate on the direction for the rebuilding the met to long-term strategy. First, we will reassess the allocation of our resources, previously focused on EV business, and towards the second half of the 2020s, we'll introduce new hybrid models, improve immediate profitability, and strengthen the foundation of our automobile business. As for EVs, assuming that EVs demand will grow again in the future, we will maintain investment discipline to lay the groundwork from a long-term perspective. In addition, as part of our original strategy, in addition to the U.S. and Japan, we will define India as our focused country and strengthen our initiatives. In the U.S. market, in light of this change in resource allocation, in addition to the existing plans, we are planning to introduce new hybrid models towards the second half of the 2020s. Moreover, as we've been saying, from 2027 onward, we will start applying our next-generation hybrid system to key models in stages. In the D or larger segment, which represent a significant market size, we are planning to further expand our HEB lineup by applying a newly developed large-size hybrid system. In addition, this is already in the developmental phase with on-road testing in the U.S., but we plan to apply our next-generation ADAS to key hybrid models and continue to expand the lineup. By making the new hybrid models equipped with the next-generation ADAS as our main access, we will improve the model mix, through which we will further grow our North American operations in both volume and profit. In the Japanese market, in addition to the recently announced support line and trail line model launches, we will start full-fledged application of our next-generation hybrid system from 2027 onwards. The next generation ADAS will be introduced to Japan market by fully matching to the complex road environment and the unique driving preferences of customers in Japan. The next generation ADAS is a novel technology for most customers in Japan and we believe it could change the concept of driving for them. That's why we would like to offer our next-generation aiders to as many customers as possible, and we will apply it to all new Vezel. We will offer them in an affordable and competitive price range to popularize them in Japan. Through these initiatives, we will elevate our product lineup, which currently has a high ratio of mini and small size models, and further strengthen the Honda brand in Japan. In India, we are not ready to share any details today, but we are discussing various initiatives. We will talk to strengthen our automobile business, including enhancement of the model lineup by introducing new models tailored to demand in India. Meanwhile, in China, where the preconditions of the business environment, including the progress of electrification, is different from other regions, we take regional characteristics into account and enhance the application of intelligent electrification while building a competitive supply chain optimized for the Chinese market to fundamentally enhance our product and cost competitiveness. In addition to these regional strategies, in order to fundamentally enhance the competitiveness of our automobile business and ensure sustainable growth into the future, we will transform our manufacturing operations focused on shortening the development period, improving production efficiency, and strengthening supply chains. We would like to share more details on each initiative at a later time. But as for supply chains heavily impacting our automobile business, In addition to stable procurement of high-risk components like semiconductors and rare earth materials, we will enhance our supply chains based on the business environment in each region. In North America, where new tariffs significantly have impact on our business, We will further increase the local procurement ratio, mostly with our next generation hybrid models, which will be launched from 2027 onward. Especially as for batteries, one of the core components of a hybrid system, discussion is moving forward as part of a joint venture partnership with LG Energy Solution to localize production on hybrid batteries. by converting EV battery production lines to hybrid battery lines at our joint venture company, LH Battery. With this approach, we will strive to respond to high demand for HEV in North America, mitigate the tariff impact, and achieve stable operation of LHB all at the same time. While pursuing these initiatives, from a financial perspective, we will thoroughly control disciplined expenditure to achieve a fixed-cost structure appropriate for the business scale. To be more specific, we will tighten the criteria for setting investment caps based on earnings, and we will enforce even more disciplined decision-making than before. Based on the strategic importance on profitability, we will be more selective and focused in making investment, and we will continue monitoring past investment earnings performance. Due to these EV-related impairments, this time, our consolidated earnings will bottom out in the fiscal year ending March 31-26 and March 20-27. However, excluding the impact of these one-off losses, we estimate operating profit will remain at the level of ¥1 trillion. Furthermore, through the initiatives outlined today, we will put our automobile business back on growth trajectory. In particular, from the fiscal year ending March 2028 onward, positive effects of introducing new models in the U.S. and next-generation hybrid models globally can be expected for multiple models and for the entire fiscal year. With these efforts, we will steadily regain the inherent earnings power of our automobile business.