Mitsubishi Motors Corp

Thank you very much for taking the time out of your busy schedule to attend our financial results meeting. In the fiscal year 2022, we started in an uncertain business environment due to the lockdown in the Shanghai region of China, a worldwide shortage of parts supply and logistics disruptions. On the other hand, our performance improved significantly year on year due to the results of our efforts to improve sales quality and gross profits. which we have been working on since the previous fiscal year, and then also the currency exchange rate worked in our favor as well. The net sales for the first quarter increased 22% year-on-year to 528.7 billion yen. The operating profit improved significantly year-on-year to 30.8 billion due to the big contribution of new model launched in the previous fiscal year, normalization of sales activities and improvement in mix and selling prices in the ASEAN market. The OP margin improved to 5.8%. The ordinary profit was 49.5 billion yen due in part to the impact of foreign exchange rate. The net income was 38.6 billion yen. The global sales volume increased to 217,000 units. Please turn to page four. This slide shows the operating profit variance between FY 2022 Q1 and the previous year. The volume and mixed selling price combined improved by 12.7 billion yen year-on-year. Mainly in ASEAN, Australia, New Zealand, and Japan, we saw an increase in unit sales and an improvement in mixed selling price. With regard to the selling expenses, the incentives improved by 5.6 billion yen, while the advertisement expenses increased in line with the plan, including for the introduction of new models. As a result, the total sales expenses improved by 4.6 billion yen. The price hike in raw material cost and marketability enhancement deteriorated the material cost by 14.5 billion yen. That was partly offset by the 7.6 billion improvement generated through cost reduction activities, However, in addition to transportation cost, planned cost deteriorated due to operating losses associated with the Shanghai lockdown. As a result, the overall spend deteriorated by 15.1 billion yen and the R&D expenses increased as planned to prepare for the introduction of new models for the next fiscal year. It deteriorated by 3.8 billion yen in others section. Both other after sales and subsidiary performance were better than last year, resulting in an improvement of 4.3 billion yen. With regard to the foreign exchange rates, the yen depreciated in general, but against the US dollar and the Australian dollar in particular, resulting in a positive effect of 17.5 billion yen on year. In total, the operating income increased by 20.2 billion yen year-on-year. Please turn to page five. Next, I would like to explain about our global sales volume for the first quarter, FY 2022. Due to delays in the delivery of parts caused by the Shanghai lockdown, the production volume was constrained. resulting in a 6% decrease year-on-year to 217,000 units. Compared to the fiscal year 2021, there has been a significant decrease in Europe due to a decline in the model lineup and the impact of the shutdown of car supply due to the Russian and Ukraine issues, and China, where economic activity itself had been stagnant due to the impact of the Shanghai lockdown. In the next page, I would like to explain the sales status of our core market, North America and Japan. Please turn to page six. First of all, I would like to explain about the mainstay ASEAN region. In Thailand, the number of new infection cases of COVID has been decreasing since April, and the restriction of movement is gradually being relaxed. They have resumed accepting tourists as well. On the other hand, the shortage of semiconductor and other parts has not improved significantly, and this is affecting the overall automotive demand. We were affected by the parts shortage due to semiconductor supply issues and the Shanghai lockdown, particularly for our core models, Xpander Triton and Pajero Sports. The new Xpander launched this spring has been well received, and we have achieved top market share in that segment. Similarly, in Indonesia, in particular Expander, has been severely affected by production constraints due to part supply constraints in the Shanghai lockdown. However, the number of orders itself has been favorable, and we have prioritized to respond to the back orders. It is predicted that the supply of components will continue to be unstable. We will boost the sales of models and grades with less supply constraints. while focusing on following up the customers who are waiting for our product. In the Philippines, where economic activities are starting to recover due to the relaxation of movement restrictions, the bank loan screening, which was a bottleneck for our sales activities, is moving back to normalization. We saw a recovery in sales of Mirage since May, which was struggling with a stricter loan approval standard and new expander, was also launched in May. As a result, the unit sales grew as well as the market share. In Vietnam, transportation demand has recovered, particularly for Xpander and Atrage, due to the revitalization of the domestic tourism demand and the deregulation of inbound travelers from mid-March. In addition, the market expanded significantly due in part to a last-minute surge in demand thanks to the government's economic stimulus measures implemented until May. After that, although there was a reactionary decline in June, it began to recover again. On the other hand, due to the impact of the Shanghai lockdown, we were unable to fully accommodate to the growing demand. Similarly, the Malaysian market is recovering steadily, and our sales are also firm. Although we anticipate the demand will continue to recover, In all countries, the outlook remains uncertain due to the consumer appetite impacted by the high crude oil price and higher consumer goods prices, which was triggered by the worsening of the Ukraine situation and production constraints stemming from component shortages. We will continue to promote sales measures in each country while closely monitoring these factors. Please turn to page seven. In Australia, the overall demand was sluggish due to the persistent vehicle supply constraints Our sales were focused on selling Outlander and Pajero sports, which we managed to prepare inventories. And as a result, we were able to secure the unit sales volumes as well as the market share. The total demand for automobiles in New Zealand was robust for PHEV and EV models and other electric vehicles due to clean car discount program. But this was not enough to compensate. for the decline caused by the billing system based on the carbon dioxide emissions launched in April 2022. In such circumstances, our market share increased year over year by strengthening the sales of the CCD program subsidy models, Eclipse Cross PHEV model and Outlander PHEV model. Going forward, In Australia, we anticipate the risk of a decline in sales momentum due to a lower business sentiment and a drop in the consumer confidence index. Even in New Zealand, which is currently firm, an increase in the inflation rate is likely to cool down the consumer expectations. While closely monitoring the situation, we will minimize the impact of unit production constraints coming from the shortage of semiconductors and maximize the sales of new models. Please turn to page 8.

Next, I would like to explain the current status of our North American business. In the North American market, supply of new vehicles has not caught up with robust demand due to delay in parts supply caused by shortage in conductors and Shanghai lockdown, resulting in sluggish total market demand. We have enjoyed strong sales of the new Outlander, and although we are prioritizing supply for retail sales through dealers, we are unable to accommodate the strong demand. These disruptions have caused our new vehicle inventory to continue to be at a historically low level, and we expect that it will take some time to improve the supply and demand balance. On the other hand, due to the falling used car prices and the sharp rise in the interest rates, we need to closely monitor the risks of increased incentives and recession. We will continue to strive to achieve a shift to sales that do not rely on incentives but promoting our product competitiveness through further sales promotion of the new Outlander, which has achieved a monthly sales volume of more than 3,000 units for 13 consecutive months. Please turn to page nine. Finally, I would like to explain the status of our domestic market. Like in other countries, overall demand in Japan remained at the low level due to continued production constraints caused by the shortage of semiconductors and Shanghai lockdowns. In this environment, we had robust sales of the new Outlander PHEV model and the EK-Cross EV, and the production delays improved more than anticipated. As a result, we had strong sales in the first quarter. Going forward, while the business environment surrounding us remains uncertain due to the chronic shortage of the semiconductors and concerns about economic slowdown caused by inflation, we will strive to improve the quality of overall sales by maximizing the effect of strong sales of the new models and by focusing on improving the quality of customer service. Please turn to page 11. This is our business outlook. In the first quarter of FY 2022, we made a good start of the year, acknowledging that we were largely helped by favorable exchange rates. In light of the fact that the result of the first quarter exceeded our initial forecast, we have revised the full year forecast for the FY 2022 as shown in the slide. We have revised our net sales from 2.29 trillion yen to 2.35 trillion yen, operating profit from 90 billion yen to 110 billion yen, ordinary profit from 93 billion yen to 120 billion yen, and net income from 75 billion yen to 90 billion yen, respectively. On the other hand, we anticipate that the unstable business environment that has been anticipated since the beginning of the year will continue for some time, and we understand that we need to factor in the risk of a global economic downturn. We believe that we must be adequately prepared for the uncertain future, and therefore we have decided to keep our initial forecast almost unchanged from the second quarter onward. We will continue to do our utmost to achieve our revised full year forecast by implementing each of the measures planned for the subsequent quarters without being satisfied with the current conditions. Please turn to page 12. The factors behind the change in the operating profit forecast for the fiscal year 2022 compared to the previous fiscal year are shown in the slide. Regarding the impact of volume and mix and selling price, although the impact of the vehicle supply shortage remains, we anticipate a total positive impact of 67.6 billion yen by achieving the unit sales target, as well as improving the quality of sales as planned at the beginning of the fiscal year. With regard to selling expenses, we were able to curtail the incentives more than we had expected in the first quarter. This gain, together with the advertising expenses to be spent as planned with consciousness about cost effectiveness, will result in a forecast of a 6.8 billion yen decrease in profit. In materials and transportation costs, we will absorb the soaring cost of raw materials like semiconductors partly through our procurement cost reduction activities. However, Due to the increase of transportation costs and worsening of factory-related expenses, we expect a total deterioration of 82.4 billion yen. R&D expenses are on an increasing trend toward the introduction of new models scheduled for the coming fiscal years, and we anticipate a deterioration of 11.3 billion yen. In addition, we assume an increase in personal expenses and general expenses due to worldwide inflation, which results in a deterioration of 25.1 billion yen. As you can see, the impact of exchange rates has been revised in line with the current level of exchange rates, and an upturn of 80.7 billion yen is expected. Please turn to page 13. Regarding the latest outlook for operating profit in the FY 2022, factors behind the change from the initial forecast are shown on this slide. Regarding the impact of volume and mix and selling price, Although we do not anticipate fluctuations in sales volume, we are forecasting an upturn of 8 billion yen by taking in the portion of selling price increase which exceeded our projection. With regard to selling expenses, we anticipate an upturn of 2 billion yen incorporating the favorable results in the first quarter. Materials and transportation costs are expected to deteriorate by 10 billion yen due to the soaring cost of raw materials, including semiconductors. With regard to the impact of foreign exchange rates, given that the yen depreciated more than initially expected, we are forecasting an upturn of 20 billion yen, including an upturn in currencies like the US dollar and Australian dollar, and a deterioration in the Thai baht. Please turn to page 15. The new expander, which was initially launched in Indonesia in November last year, has shown very strong order and sales and is highly regarded by many customers for its premium design and quietness of driving. The new Xpander is gradually rolled out in the ASEAN region, with the launches in Thailand in March, in the Philippines in May, and in Vietnam in July 2022. The Xpander has been received well in all of these countries, and the positive responses from these markets have significantly exceeded our expectations. Please turn to page 16. The automotive industry as a whole is encouraging a broader use of electric vehicles toward the realization of carbon neutrality, and our answer to this trend is the new EK cross EV. We believe that this vehicle should not be considered as a special vehicle, but should be an EV that is close to everyone's life and can be casually chosen. to this end. The EV was designed to be a K car that is easy for everyone to drive and handle, achieving a sufficient driving range for everyday use, and equipped with advanced driver assistance system and connectivity, and was launched for full-fledged sales on June 16th. Fortunately, we have been well received by many customers, and orders as of July 24th exceeded 5,400 units, a pace that is significantly higher than our expectations. In addition, the Eclipse Cross PA TV and the new Outlander PA TV, which have already been launched, have also been well received by many customers. In order to realize carbon neutrality, we will aim for further dissemination in order to fulfill our responsibilities as a pioneer in electrified vehicles. Please turn to page 17. We recently signed an agreement with the MUFG Bank regarding collaboration for the realization of a carbon neutral society. The two companies signed the agreement believing that by combining the Mitsubishi Motors electrification technology and KEV lineup and the MUFG Bank's broad customer network and insights of a total financial group, we can create a social impact at the level which cannot be achieved by one company. Specifically, as an initial stage, the MUSG bank will utilize its customer base and network to introduce to Mitsubishi Motors its corporate customers who are interested in our EVs like the EK-Cross EV and the MINICAB MEV. Promotion of electric vehicles is one of the effective means to advance carbon neutrality initiatives in Japan. and we believe it is important that this option should be considered not only by large corporations, but also more broadly by mid and small-sized companies. Replacing company cars with KEVs offering cost advantage can be a specific and accessible option for the customers of the MUFJ Bank for the realization of carbon neutrality. Further, the Mitsubishi Motors will continue our efforts toward the decarbonization throughout our supply chain, while receiving the wide-ranging solutions offered by the MUFG Bank and its affiliates based on the MUFG carbon neutrality declaration. I would like you to understand that this agreement is not just collaboration for vehicle sales, but collaboration from a higher perspective. Please turn to page 18. Recently, the resurgence of COVID-19 has been confirmed in different regions, and in Japan, the seventh wave appears to be rampant. On the other hand, many countries are not imposing behavioral restrictions and our lives seem to be returning to normal. Nevertheless, in addition to the prolonged shortage of semiconductors, uncertainties about the future seem to be increasing, as seen in the Shanghai lockdown in the spring, the situation in Russia and Ukraine where there is no prospects for a resolution, rapidly advancing inflation, changes in monetary policy of the central banks and concerns about an economic downturn. While it is difficult to navigate through such situations, we will always think about what we should do and concentrate on the top priorities so that we can make every effort to steadily achieve the plan. Thank you very much.