NISSAN MOTOR CO., LTD. (7201) Q1 2027 Earnings Call Transcript

Good evening, everyone. Sorry for the delay. We had some technical issues. It has now been fixed. So, let me very, very quickly just welcome you to the session. This is the follow-up to the Q1 financial announcement that we have today. This is the Investor and Analyst Q&A session. I'm joined today by Ivan Espinosa, Chief Executive Officer and Chief Financial Officer of George on this. Ivan will start an update on Renistan, followed by George's overview of the first financial quarters results and latest outlook. After a short summary from Ivan, we will then open the floor for questions. And without further ado, I'll hand over to Ivan. Thank you.

Good evening. Thank you for joining and apologies for the technical glitch. I will begin with an update on Renistan before I turn it over to George to review the first quarter results. Renetan is gaining traction with tangible cost improvements and momentum building in key markets. At the same time, we're navigating significant industry challenges and are taking decisive actions to strengthen the resilience, agility, and competitiveness of our business. When we shared our full year results for fiscal year 2025, we demonstrated the impact that our actions have delivered. We made measurable progress in our cost management efforts to build a new foundation for Nissan's future. Our strategy is now translating into momentum in key markets around the world. However, global industry challenges, particularly in China and the Middle East, have affected parts of our business. This reinforces our focus on building agility and speed into the business to mitigate the impact of shifts and respond to opportunities. First, let me talk about market momentum, the actions we have taken to strengthen our brands and connect with customers is shown in key markets like the United States and Japan our business in the US continues to deliver strong retail performance with sales growing more than 9% year-on-year the growth is supported by vehicles produced in the market Pathfinder sales increased 32% as the model deliver its best quarter ever this is a significant achievement given the 40-year history of the nameplate in the US. Total deliveries of the Frontier pickup grew 35% and the Nissan Rogue sales grew nearly 39% as we approach the launch of the all-new model with hybrid e-power technology later this year. Also Rogue earned the top spot in the JD Power initial quality study which was just released last month. We also see Infiniti making good progress as QX80 delivered its best Q1 sales performance in the model's history, and our all-new QX65 SUV is now on sale, bringing new buyers into infinity-ish programs. Importantly, our results were supported by incentive effectiveness, ensuring that spending remains targeted and aligned with growth. In Japan, we are seeing our strong product line-up and enhanced marketing efforts beginning to pay off after a challenging period sales in the quarter grew one percent deliveries of the rooks increased by 52 percent and we also have two important new models and we are seeing strong demand building up since the reveal of the all-new kicks with e-power technology we have more than 11,000 customer orders and our Eldran premium ban is off to a good start with more than 8,000 orders and deliveries starting last month these are strong indications that our plan is working driving sales momentum for Nissan and we have seen that continue with July sales pacing ahead of prior year totals we are sincerely grateful to our customers for the renewed trust they're placing in our brand that said China remains a significant challenge for Nissan and the broader industry in the first half of China's fiscal year the total industry volume declined 22% year on year reflecting a rapidly evolving and increasingly competitive market against that backdrop Nissan's performance has been relatively resilient in Q1 retail sales increased 7.2% year-on-year supported by a strong momentum from recent and serious launches Nissan's total first-half sales declined 15%, outperforming the broader industry decline and resulting in a modest gain in market share. The market's transition to new energy vehicles is accelerating rapidly. We have strengthened our position through several recent model launches and our focus now is to accelerate the shift to NEVs and capture the opportunities created by this transition. Encouragingly, our NEV lineup is already gaining traction with Chinese customers, led by the N6, N7, NX8 and Frontier Pro. We are also expanding our export business with shipments starting from July, creating additional opportunities beyond the domestic market. The uncertainty in the Middle East is another major challenge. While customer demand for Nissan vehicles remains resilient, we have seen disruptions to logistics and supply chains. We have identified alternative shipping lanes into markets in the region, mitigating some of the impact. However, elevated logistics costs associated with these alternative routes and the ongoing geopolitical uncertainty are expected to moderate profitability until supply chains normalize. Now let's shift to an update on re-Nissan cost management actions. In Q1, we saw the impact of our efforts grow further, with a combined total of $60 billion in fixed and variable cost savings recognized. Our 20% reduction target in engineering costs per hour has been achieved three-quarters ahead of schedule, and we have seen strong expense control deliver fixed cost improvements. On variable costs, we are driving greater implementation of ideas generated by our OBEA activities, working in partnerships with teams across the company and with our suppliers. Combined with the $255 billion in total fixed and variable reductions that we achieved in FY25, this brings a running impact linked to RINIs and actions to around 315 billion yen. If the work is not done, our actions ensure that we remain on track to deliver $500 billion cost reduction by the end of this fiscal year. Now, I would like to hand over to George to take you through the Q1 results.

Thank you, Ivan, and good evening, good afternoon, everyone. As Ivan outlined, our first quarter results reflect both the momentum we are building and the realities of a challenging operating environment. For the three months to 30 June, we missed and sold over 700,000 units. Unit sales were almost flat year on year, which is a solid result given the competitive global environment and continued volatility in the Middle East. Key markets, first China unit sales rose by 7.2%. Demand for Nissan's new energy vehicles enabled us to withstand increasingly challenging market conditions in the period from January to March. From April to June, the market conditions weakened further and Nissan sales declined 15%, but that was versus a 22% decline in total industry volume in the first half. In Japan, we have seen early signs of recovery with unit sales rising by 1.3% and strong customer demand for the new models such as the Kicks. In North America, sales were up by 4.2% and increased by 9.6% in the US market thanks to contributions from our core models, Road Pathfinder Frontier. In Europe, sales declined by 14.6% amid intense competition and portfolio optimisation. The rest of the world, sales declined by 16.8%, driven primarily by the disruption in the Middle East that Ivan talked about. Overall unit sales fell by 2.5% year-on-year, excluding China, and production fell by 4% as we adjusted output to meet the demand. Q1, financial performance. Turning to our performance. Consolidated net revenues rose by 9.5% year-on-year, primarily driven by favourable foreign exchange rate and additional support from improved revenue quality through pricing and product mix. Operating profit reached $77.9 billion, an increase of $157 billion from the prior year. Net income was positive, $3.8 billion, reversing the large losses in the prior year quarter. CapEx of $114 billion. This was an overall reduction, but we increased the CapEx spend in new product programs. R&D spending was $120 billion, demonstrating our continued investment discipline. In the automotive business, including eliminations, net revenue was $2.6 trillion. Automotive operating loss was almost break-even. It was a loss of $8.3 billion, including tariffs, and automated free cash flow improved to $3.324 billion. This is an increase of $67 billion year-over-year, but please understand that this excludes one-time impacts in the first quarter. If you exclude those, the improvement is more than 100 billion yen in the free cash flow. At the end of the period, net cash stood at 970 billion yen. We retained solid liquidity at 2.1 trillion of automotive cash and cash equivalents. I will now explain the operating profit bridge. Foreign exchange contributed a positive impact, 35 billion, largely driven by the depreciation of the yen against the dollar. High raw material costs, aluminium and copper, had a negative impact of 24 billion. Tariffs had a positive impact, $18.3 billion. Sales performance improved by $23.7 billion due to favourable pricing, selling expenses partially offsetting the raw material headwinds. Monozakuri savings contributed around $82 billion, reflecting re-nison-driven variable cost. Inflation remains a headwind, negative impact of $14 billion. One-time gains contributed $32 billion, including $61 billion related to U.S. FY25 U.S. tariff clawbacks. Other items contributed positive $4 billion. Taking all this into account, our operating profit achieved $77.9 billion. Now looking at our outlook, or yes, sales. Although sales volumes were broadly flat in the first quarter, we are revising our full year sales volume outlook to 3.15 million units. This reflects the impact from the deterioration of industry sales in China and the continued uncertainty in the Middle East. As a result, we're also revising production outlook to 2.8 million units for the full Next page on the profit and loss outlook, our outlook, we reaffirm our outlook for revenue of 13 trillion and an operating profit of 200 billion. This represents a revenue growth of 8.3% year-over-year and an operating profit margin of 1.5%. Net income, we're reaffirming and expected to be 20 billion yen. Quickly I'll cover the operating profit variance analysis. The key factors behind this outlook, of course we have continued pressure from raw materials, especially aluminium, copper and anything that has oil in its composition and these prices remain elevated. In the Middle East geopolitical tensions, we've got shipping constraints. These are expected to persist. We do have higher logistics costs in the quarter one and expected to continue. there's pressure on volumes in the region even though we have to say that demand for Nissan vehicles remains resilient. Given this involving situation we have to monitor closely of course and continuously check on the visibility we have. There might be some good upside from 4X if the yen remains at current levels even with the recent intervention that took place. In addition, one-time gains recognized in the first quarter, together with the other offsetting factors, we're expected to help mitigate some of these headwinds. Taking all that into account, and we're balancing here our risks and opportunities, we are reforming our outlook. That concludes my remarks, Ivan.

Thank you, George. Let me sum up the quarter. To sum up, we keep trying to progress in the first quarter. Sales grew in the U.S. and Japan, and our operating profit improved by $157 billion, with automotive operating profit nearly break-even, including tariffs and having positive net income. Cost reduction activities delivered more than $60 billion, which keep us on track to reach $500 billion by the end of the fiscal year, and we kept automotive net cash at around $1 trillion level. We continue taking actions to manage our inventory and leverage our NEV lineup to fight in the industry sales decline in China. And in the Middle East, cost increases to overcome logistics and supply chain challenges will continue to have an impact on profit, even though demand for Nissan in the region remains robust. With the progress we are seeing combined with one-time impacts, we expect to offset these significant challenges. All our financial targets, such as $200 billion operating profit and net income of $20 billion, are reaffirmed. And our revised volume outlook primarily reflects changed market conditions in China. Continuing to deliver these outlooks will take focused market-specific strategies in each region. In the U.S., we will continue to leverage our locally produced vehicles to grow our sales and prepare for the launch of very important new models like the new Rogue Hybrid ePower in the second half. And in Japan, we will build our recovery actions and leverage interest in the exciting new models like Kix and Eldrant in order to return to sustainable double-digit market share. In China, together with our JV partner, we will manage inventories in line with the market and rebalance our sales mix to grow our NED sales with models like the NX8, joining the NX6, N7, and Frontier Pro. This will better position us for growth in 2027. One of the biggest shifts under re-Nissan is how quickly we are responding to challenges and adapting to changing market conditions. I am really energized with the commitment I see from the Nissan teams around the world, whether supporting growth in our key markets, responding to customer demand in the Middle East, or strengthening competitiveness across our business. We are taking all the action needed to deliver our outlook. Thank you for listening.

That concludes the presentation. Thank you, Ivan. We are now starting the Q&A session, and if you would like to ask a question, can you let us know by using the race and function. Once we call your name, please unmute your microphone and ask your question. Please speak in Japanese if you are participating via the Japanese Teams link, and please speak in English if you are participating via the English Teams link. As a matter of fairness to the participants, please limit yourself to two questions.

Thank you very much.

CLSA Securities, Chris Richter, please. Mr. Chris Richter of CLSA, please unmute your microphone and go ahead with your question. Mizuho Securities, Ishiyama-san, please go ahead.

Mrs. Ishiyama, do you hear me? Yes, we do. Go ahead. Yes. Okay, I have two questions from our end. One is about the full year projection of 200 billion operating profit. Page 13 of the presentation material, please. Looking at this material, in Q1, there were one-off tariff benefit. Without the tariff benefit in Q1, it's very difficult to reach 200 billion yen. Am I right to say this? raw material, Middle East impact, sales performance, what is happening? Could you elaborate on this? What is different from the initial expectation? And without one-off factors, what will happen to the 200 billion yen for the projection? This is my first question, thank you. And second, oh, yes, second one, let me move on. Page 27, page 27, America, U.S. mix and the sales incentive pricing in q1 there seems a huge positive contribution what is happening behind this and is it sustainable going forward these are the two questions thank you thank you ishiyama-san for the one-off maybe we can show the the waterfall chart of a fluctuation 25 to 26 q1 no no that one, page nine, I think it is.

So I think the way of reading this, if you remove Forex and the one-time 32 billion that we have, 32 and the 35, we're basically seeing an improvement of 90 billion quarter over quarter, so year over year. So this shows the fundamental transformation that we have on the cost structure of a company. So even without these one-timers, we see very good traction on the on the performance so I hope these answers your first question we will continue as we said during the presentation we continue having a lot of activity you can see there the contribution up from Montezucre as well as the sales performance and we will continue fighting on those two fronts then on the second question maybe you want to elaborate yeah yeah so I know I know the page you're referring to.

Yeah, we've had year over year, in particular, you know, in the US, we've had very good volume mix. One of the key strategies in the US has been to focus on our locally produced vehicles, our core models of Rogue, Pathfinder and Frontier. And we've also had good success in the imports, particularly the Armada and the QX80, which are produced in Japan. And there's been a heavy focus in dealer retail business in these areas with the backup also of marketing. and with the dealer programs we have in place is to really emphasize these cars because the cars that are locally produced do not have tariffs on them. So we're saving either 25% tariff from Mexico or 15% from Japan. So that's a positive evolution of our business in the U.S. And as Ivan said earlier, 9.6% growth in sales that we've had in the US alone year over year demonstrates that. On the incentives and pricing, we have been able to price in the US. But most of the sales performance that we show on the walk chart, some of that, $18 billion of that relates to the U.S. pricing, and there's been also some incentive gains in the program that we had with the dealers, the Nissan One program. There were adjustments made towards the middle and end of last year and we're reaping the rewards of those because the dealers are much more focused on how they're being rewarded and but that's also helped us to save some money in our bottom line without any interruption to either their motivation or their profitability from our business.

Yeah, maybe the one last thing is on the U.S., we will be launching the Rogue ePower hybrid later on the year. So, this will continue to support the good performance that we have, particularly around volume and also expense control. Because today, we are now accessing probably 40% of the segment in the U.S. is already moving to hybrid. and also we're spending a bit more than we would like to in order to keep customers that are coming back from lease and looking for a hybrid and we don't have that on the lineup. So we have to spend a bit more than we would like to retain those customers. So we should see a positive impact on the incentives on this vehicle line, which is one of the biggest in the U.S. once we have launched the e-power hybrid in the market. Hope that answers the questions, Ishiyama-san.

For the first question, in the full-year projection, phase 13, 200 billion yen, looking at the variance. Looking at this, it seems like one-off, without one-off and forex, it's very difficult to reach 200 billion yen. Am I right? Forex, besides forex and one-off, what are other upsides that you can talk about today?

I understand your concern in this area, and of course, we've got to balance a lot of things happening at the same time. First of all, on Forex, we do have some hedging in place. We have partial hedging in place, and we have most of our exposure is in the US dollar on our CBUs out of Japan, and after sales business as well. So we are hedged and I wouldn't worry too much about where the yen goes, you know, so long as it's hovering around 150, we have opportunity here in this forecast or above 150 because of that hedging. Now, you're concerned about other things that we have in our pocket. There are one time and others. There's a lot of work going on as a task force that is looking at, and I'm giving you this as a key example, but there are other things going on. There's a task force that's focusing on taking advantage of the current regulations in the US where we can get rebates on tariffs for US content of vehicles that are imported from Mexico. So we are importing two vehicles from Mexico, the Kix and the Sentra. And those cars, the team, the R&D team, combined with purchasing and many others, have discovered that we can claim off the U.S. government the tariff that's paid on those cars that's in relation to the content that has so-called U.S. content in it. And although there was some one-time adjustment from this matter relating to the previous year, there is also work being done on this year's run rate on that U.S. content rebate. And that's something that was never in our outlook at the start, and this sticks to the P&L on an ongoing basis. Okay, so that's the opportunity we have. We're always looking for fixed cost optimization, how we're dealing with some of our procured services. There's more to come in that area, and we're not just relying on Forex. And also in the Middle East, we're taking a view that the current situation of the Middle East carries on for the full year. In fact, that is a pessimistic scenario, we have to say. And if we take not an optimistic view but just a base view, we believe we can be showing some upside on the outlook that we have on the Middle East. As far as raw materials go, what we're seeing in the markets, and we have a team that reviews pricing by category, by segment, by grade, by country on a weekly basis, And we're seeing our competitors moving on raw materials. And as I said earlier, we've actually taken pricing versus last year, particularly in the U.S. If raw materials hang at these prices, I guess you would imagine that our competitors will move and we'll move with them on pricing.

Thank you, Ishiyama-san.

Next, Goldman Sachs. Yuzawa-san, please. I hope you can hear me. This is Yuzawa of Goldman Sachs.

I was on.

I have two questions. One follow-up question to the previous question.

Phase 13, how do we read Phase 13?

Overall, negative and positive factors, 50 billion each. That's my take. So is that the right picture, plus and minus 50 billion each? And the upside factor beyond that, U.S. is strong. So on an annual basis, what's the volume and profit outlook? And can't you expect more upside in the U.S. market? Second question, I deviate from the financial results, but according to press reports, Nissan OS-based alliance progress is being reported. To the extent you can share with us what kind of discussion is taking place, not just the OS, but if you can comment more broadly.

Thank you, Yuzawa-san. I do understand your question. I will provide with you some figures that we're working with, because I know it's important to what you're doing. On raw materials, we've taken the view of looking at the past six months of spot indices, etc., and oil price, SWTI, and this was pre-war, during war, post-war, ceasefire, and what we've had up to the 30th of June, and we've costed that out for our business, including the impacts on our vehicle production as well as our supply chain, because oil price, of course, impacts our ocean freight and inland freight, et cetera, and we think that around 60 to 70 billion yen is the risk in this outlook, 60, 60 to 70 billion yen on raw materials. On the Middle East, I want to go back a little bit here. Remember that we said that we were imagining, in May, we were imagining at that time an impact on the first half of around 19,000 cars and 15 billion yen well in this outlook and that was the first half in this outlook we pretty much we're very close to that where we from what we see now with our partners in the market and the sea freight cost etc we see a hit of around 18,000 cars and around 20 billion yen the 20 billion yen is not so far from the 15 billion we estimated the difference is that the logistics costs have taken us by surprise because there's a lot more demand for the routes going into the Middle East our demand is actually holding up especially on our higher end cars which is really good news for us so we want to secure more routes to the Middle East having said that some of the cars that were destined for the Middle East we've reallocated those to other markets including in the US where we think the demand for those cars for example Patrol converted to Armada and to QX80 where there's not that much difference in the parts bin and there's not that much difference in the homologation. On the 4X, you can imagine around 40 to 50 billion yen of upside relative to the 150 we have in our outlook, and on the one time and others, around 60 to 70 billion yen.

So by giving you those numbers, I hope that that gives you some comfort that this is obviously not an easy outlook considering all those factors but it's it's realistic as well on the US yeah I think on the on the US we do see a bit more potential as explained many of the vehicle lines are having very strong performance year over year we mentioned about Pathfinder Frontier we have also Murano that is trailing better than last year. QX80 as well. Centra also has a very good performance year over year, 9,000 units better, with very strong mix. We have the concentration on the top two grades is 14% better than previous year. So we have multiple opportunities around. So the answer to your question is yes, we could foresee some good opportunities in the US which we are of course capturing same thing can be said about Japan I'm a bit more prudent because it's a market that has been a bit more difficult for us but we have received a very good response to kicks as mentioned more than 11,000 orders in a matter of a few weeks same goes for El Grand and Brooks has improved more than 50% year-over-year in terms of volume so we start seeing a good traction in Japan as well so those are the things that could help us offset the difficulties that may come as you saw on the page raw materials and Middle East then answering your second question about discussions with Honda I think you said the lines but it's probably around Honda as you you mentioned the OS so we are working on several projects with them first is a collaboration around SDV And this is not only the OS, as you said. It starts with the hardware. So this architecture utilizes a centralized ECU that is the foundation of the whole system. And sharing this, both the, of course, the engineering costs as well as the sourcing of the components is what we are discussing with them as a foundation or level one, let's say. And then on top of that, we're discussing up to what level we harmonize the software, starting with the OS. But also you have, when you talk about SDV, you have a big component, which is the development environment of the software development vehicle. You also have cloud costs for data that can also be shared and procured together. So there are multiple areas in that front that we are discussing with them. On top of that, we have discussions around vehicle sharing, especially in the U.S. We're talking about supplying some product to Honda, a product that they don't have today in their lineup. We're also discussing about hybrid components, both for these frame vehicles that we will be preparing in the future. We are considering whether parts of those components are commonized with some of the Honda products that they are planning as we speak. And also we have the discussion around having full hybrid powertrain for some of our products, which are not frame-based but more the traditional vehicle lines that we are offering in North America. So, this is hopefully giving you a better overview of what we are discussing with them, Yusawa-san.

Thank you. That was clear about the first question. For the second question, there are a lot of things that you are discussing. Is there any comprehensive update? When will be the timing? Is it within the calendar year where you can give a comprehensive update? What is the timeline about the alliance announcement with Honda?

I think there will be stages because all the projects are moving at the same speed, Yusawa-san. The one priority that we are focusing on is this SDV component because we are moving with the development, and, of course, we need to try and conclude the agreement soon. So this is the one that is taking most focus as we speak. The rest will be probably more subject to a discussion or announcement, I would say, more towards the end of a calendar year. on FVB. We're hopeful that we can come out soon with more information to all of you. Thank you for the question.

Thank you. Moving on to JPMorgan Securities, Kishimoto-san, please. Kishimoto-san.

Kishimoto-san.

Kishimoto-san, do you hear me?

Kishimoto-san.

Kishimoto-san, we don't hear you.

Kishimoto-san.

Kishimoto-san, I'm sorry, we don't hear you. so we would like to move on to the next questioner UBS security Sakahashi some please go ahead yeah can you hear me we can hear you yeah thank you very much for taking my question two question um firstly in the slide 31 so in terms of So please correct me if I'm wrong, but in the presentation, I think George mentioned that the actual improvement, including one time, the free cash flow, the improvement was more than 100 PM. can you clarify that and what why what what the kind of in one-time impact increase it so and they're going forward this year's clearly the one of the most important part of KPI is to turn the free cash flow positive so concerning the historical track record Q1 negative one hundred it seems to be very discuss how to return to be profitable in a free basis so can you elaborate a little bit more why this year is different from previous two years that's one first question and the secondary I want to I want to discuss a deeper but new rope and so yeah I know it's a best-selling model and very important but at the same time the competitors especially Japanese OEM launching through hybrid model but some OEMs are struggling with like a lower than target point some OEMs are saying the margin of a hybrid model is lower than rice and this I think if my understanding is a new work and your low hybrid will be imported from Japan so what can the PPI you will monitor what should monitor for the new low hybrid self-volume incentive the margin so if we can add more color it will be appreciated. Thank you.

Okay it's a Kishimoto-san was it? Yeah Kishimoto-san thanks good good questions and thanks.

Takashi-san from UBS.

Oh I'm sorry Takashi-san yeah sorry Takashi-san thank you so much yeah Obviously, top of mind for us as management is automotive free cash flow. You know, we said this year that we're aiming to be automotive free cash flow, positive, excluding the impostor of tariffs, and we're not changing our view on that. And I want to explain to you the details of why I said more than $100 billion improvement year over year. Last year, our quarter one cash flow, free cash flow, was 390 billion negative, but that included 50 billion yen of asset sales, particularly in the USA. So if you take that out, we would have had a negative free cash flow of 440 billion last year in the first quarter. This year, we have negative free cash flow at $323 billion with insignificant asset sales, basically nothing like we did last year. So if you take the 440 from last year, adjusted for that one-time item and the 323, that's why I'm saying the profile of our free cash flow has improved by 120 billion yen. But that's not the only thing. We also, on page 29, you will see there our net cash inflow from P&L items is actually 75 billion yen. In the previous year, that number was more than 100 billion yen loss. So what I'm saying to you is that profile of our cash flow has improved and the profile of our underlying profitability has improved. In the rest of the year, we're expecting our quarter-over-quarter automated free cash flow to improve, and we're expecting it to improve on the basis of the variable cost reductions that will be coming through the P&L in the second half, particularly with the model year changes, as well as the volume, the volume that comes in the second half as As we ramp up our Japanese new models, there's new models also in Europe that are ramping up and the US as Ivan had mentioned, our ePower hybrid coming in the second half and some other initiatives we have on volume. That's where the profile of the free cash flow will improve. Quarter one is historically a dip in our business and I think everyone knows that. I think that's all I have on free cash flow.

Yeah, thank you, George. Now, on the question on Rogue, yeah, I confirmed that we are starting to supply the product from Japan as a CBU. And our expectation is a combination, Takashi-san. We do see that there will be incremental volume because today there are customers that we cannot access because they're simply not accepting something that is not hybrid, and today we don't have access to those customers. So we do see some incrementality of volume, and margins should directionally improve because even when the cost might be higher than the ice, we do see some improvement on the incentives that we are spending. So in general, the margins should be equal or slightly better than the ice. This is what we are aiming to have. And then it will be a combination, of course, of volume and healthy margin to drive a good mass of overall profit. This is how we are seeing the plan for the new ROG, Dr. Haishan. Hope that answers your question.

Yeah, thank you very much. So second question, so in the company guidance, in North San Francisco sales volume guidance, is actually almost Scottish from Q1, but it's just because of consultiveness, but you expect a foreign increase driven by law. Is that the right understanding?

We hope that we can see some positive momentum forward, Takashi-san. So the reality is the environment is very uncertain, so we also didn't want to overshoot the total volume. So we want to see – it's only quarter one, so we want to see how the overall markets behave and how it comes through. But we do see some potential upside. Again, if all things equal versus what we are seeing in the quarter one, all the vehicles are performing in a very healthy way. So that's what I can say. And we will have, of course, a model year changeover coming soon. So that should also help with some other potential good news, as Josh was saying, pricing to overcome raw materials and a few other things that we have in the plan.

Okay, thank you very much.

Thank you very much. This concludes today's session. And thank you very much for all your questions. Sorry for the inconvenience at the beginning of the call. Please feel free to contact the IR team if you have any follow-ups or any questions that have been left unanswered. We look forward to speaking with you again, and goodbye.