Toshihiro Mibe, Honda Motor Co. Director, President and Representative Executive Officer:
Good afternoon. Thank you for taking time in your busy schedule to join us today.
It has been 2 years since I became the Global CEO of Honda. Today, at the start of a new fiscal year, I would like to update you about 1) what basis we have been operating on based on the direction we shared at my inaugural conference and 2) what kind of advancement we will be pursuing in the future.
This is the 3rd consecutive year for us to hold a briefing in April, and we would like to continue this trend as we value this briefing as an opportunity for us to communicate with members of the media and other stakeholders.
Now, let me share the list of five "key factors" Honda is focused on for the advancement of our mobility.
The five key factors are…
- Carbon neutrality of power units
- Resource circulation
- Energy management that enables the use of power units as an energy source
We believe that the pursuit of these five key factors will not only lead us to the realization of "zero environmental impact" and "zero traffic collision fatalities" but also to augment the possibilities and value of mobility.
As our mobility products get more connected with other mobility products and traffic infrastructure through our connected technologies, mobility products will support and augment human capabilities and enable the prevention of traffic collisions.
Moreover, we will become able to offer personalized services which will be kept up to date, through software updates.
Through such updates, our mobility products will create new value as a "living space" and also as a "partner" that grows together with the customer.
In addition to offering value at the time of vehicle sales, through the continuous offering of value that is integrated into and optimized for each individual's daily life, we will strive to increase the total value we provide to our customers throughout their lifetime from a longer-term perspective.
Also, the electrification of power units will enable mobility products to create new value as "energy storage," in addition to the value as a mere means of transportation.
Through home charging and public charging, we will accelerate our initiatives in the area of energy services, with an aim to create new value by utilizing the power supply capabilities of electrified mobility products.
In the meantime, the cost of the battery accounts for a large portion of the cost of electrified mobility products, especially EVs, which makes it challenging to improve the profitability of EVs.
To address this issue, in addition to developing innovative next-generation battery technologies, we will take on challenges to reduce battery costs from a long-term perspective. Such initiatives include securing critical minerals, which are the raw materials of batteries, and realizing "resource circulation."
Honda will strengthen its initiatives toward resource circulation and the use of sustainable materials because they will not only enable us to stably secure critical minerals, but also become increasingly valuable as society as a whole becomes more conscious about the pursuit of zero environmental impact.
From the perspectives of "living space" and "energy," we will 1) enhance the value of our EVs themselves which serve as a partner of our customers and 2) increase the value Honda provides to our customer throughout their lifetime.
In other words, by focusing on the five key factors, we will 1) increase the added value of our EVs and 2) reduce battery costs. In doing so, we will strive to establish a business structure that enables us to secure stable earnings even in the EV era.
To this end, in addition to continuing the independent efforts of Honda, we believe it is essential to build a new value chain. So, from a long-term perspective, we will continue accelerating our initiatives by building strategic partnerships with a broad range of companies.
For new value creation, we believe it is important to aggressively reinvest free cash flow generated from our ICE business including HEVs, for which we have strengthened the business structure, into areas directly linked to the competitiveness of our future electrification business.
By aggressively investing in priority areas represented by the five key factors, we will enhance the competitiveness of our electrified business and establish a solid foundation for earnings.
By doing so, we will reinvest our profit for further growth and realize shareholder returns through stable and continuous dividend payments.
Now, let me update you on progress made in strengthening our business structure.
Honda has been making company-wide efforts to improve earnings structure.
As for automobiles business, we have been steadily improving earnings structure by implementing various measures including the introduction of "series planning" for new models, reduction of the total number of variations at the trim and option level for global models and optimization of production capacity at our production operations around the world.
As a result of these initiatives, the amount of fixed costs for FY2023 was reduced by more than 10% compared to FY2019.
Even in the face of rising costs due to inflation, with pricing that reflects increased product value and the improvement of marginal profit, the break-even point of our automobile business based on the percentage of production capacity utilization for FY2023 was roughly 80%, a significant improvement from roughly 90% in FY2019.
Due partly to the contribution of motorcycle business, which has already established a strong earnings structure, we have been able to secure a sufficient level of free cash flow despite the tough business environment including the semiconductor shortage.
As we have made such significant progress in strengthening our business structure, going forward, we will aim to achieve the ROS of 7%, which has been Honda's FY2026 target, by steadily recovering its automobile unit sales volume.
Although it is still taking time, we are taking various measures to resolve the impact of the semiconductor shortage, which has been a constraint on our effort to increase sales volume.
Let me explain the direction Honda is taking.
Currently, in the face of the global semiconductor shortage, Honda is not alone in experiencing a production impact. However, stable procurement of semiconductors is becoming increasingly important as the electrification and digitization of mobility products continue.
To address semiconductor shortage issues, as short-term measures, we have been further strengthening our relationships with Tier 1 suppliers and discussing inventory allocation adjustments and production adjustments globally, on a weekly basis.
In addition, we are continuing the dual sourcing of key parts and the development of alternative parts. As a result, for the current semiconductor shortage issue, we started seeing a certain level of improvement.
In the meantime, for long-term measures to secure stable procurement of semiconductors, we have been enhancing our risk-sensing measures and building cooperative relationships directly with some semiconductor manufacturers. Through these initiatives, Tier 1 suppliers, semiconductor makers and Honda are working closely together to pursue drastic solutions for this issue.
As one of the initiatives based on this direction, Honda has reached a basic agreement on a strategic collaboration with TSMC, the world's largest semiconductor manufacturer.
Next, let me introduce the direction of our electrification business, mainly in the areas of carbon neutrality of power units, resource circulation and energy management.
First, in the area of the battery.
The most important factor in the pursuit of electrification is the competitiveness of our batteries.
Including the use of critical minerals, we position batteries as strategically important components. Therefore, in consideration of trends in government regulations in each country, we will take a long-term perspective and prioritize the establishment of a new value chain, which includes securing battery resources and resource circulation.
Starting with North America, where rapid expansion of EV sales is forecast, we will speedily establish a framework for local procurement including raw materials and production of batteries.
As for lithium-ion batteries, which we need now and for the current time period, we are taking an approach based on the globally optimized procurement from battery manufacturers, and we are now on track to have good prospects for stable procurement in each region.
In North America where demand for EVs will continue to expand, we have decided to produce batteries through a joint venture with LGES from 2025 onward.
Moreover, from the perspectives of securing critical minerals, Honda will form a comprehensive partnership with Hanwa and POSCO Holdings. And from the perspective of recycling we have signed partnership agreements with Ascend Elements and Cirba Solutions.
In the meantime, to secure our long-term competitiveness, Honda will take on challenges to independently develop next-generation battery technologies in time for the expansion of EVs in the second half of the 2020s.
We are taking a multi-layer approach that enables us to handle multiple scenarios, including semi-solid-state and all-solid-state batteries in addition to the advancement of lithium-ion battery performance.
In the collaboration with GS Yuasa, which we announced this year, after working together in the area of hybrid vehicle batteries for 10 years, the two companies will move on to the next stage and develop high-capacity, high-output lithium-ion batteries for EVs. The two companies will pursue this collaboration with a hope to contribute to the acceleration of electrification in Japan.
Furthermore, we are pursuing initiatives toward the advancement of next-generation battery technologies.
As for semi-solid-state batteries, through our investment in SES, we are conducting joint development with the aim of realizing safe, highly-durable and high-capacity batteries.
And for all-solid-state batteries, which are expected to be the innovative batteries of the future, we are making progress in research toward the independent development of the batteries.
Next year, we will begin operation of a demonstration line in Sakura city, Tochigi, Japan. Aiming for the market introduction in the second half of the 2020s, we will further accelerate our initiatives.
In addition, simultaneously with our initiatives in the area of the battery, we would like to further enhance our charging services in the future, keeping pace with the enhancement of our EV lineup.
For home recharging, based on the Honda Smart Charge™, an EV charging service currently available in North America, we are planning to roll out energy services that utilize the power supply capability of EVs.
For public charging, Honda will work toward the establishment of an EV charging services environment for its customers in collaboration with providers of convenient and reliable charging networks.
In the future, we also aim to create "new energy services which start with electrified mobility products" and offer new added value beyond the mere means of transportation.
To summarize… in battery and energy areas, through strategic partnerships with various companies, we will "build a strong value chain with Honda as a hub." And by striving for "prosperous coexistence" with each partner, we will build a sustainable business foundation and strengthen our competitiveness.
In just two years, we were able to strengthen our initiatives with various partners to this point.
But now, we will continue increasing the speed of our management decision making and take an aggressive approach to further expand our value chain.
Now, let me move on to the areas related to software.
For value creation with the next-generation mobility products and services, based on the concept of "software-defined mobility," in which software defines the value of hardware and services, Honda will strengthen and accelerate software development.
Specifically, Honda is further advancing its E&E Architecture and developing Honda's original vehicle OS with the aim of adopting them starting from mid- to large-size EVs to be launched in North America in 2025.
Based on this vehicle OS, we will continue advancing our in-vehicle software, which will enable us to offer 1) continuously advancing automated driving/advanced driver-assistive functions, 2) value as a "space" for our customers, and 3) various digital services, even after the vehicle is purchased.
To further accelerate such software development, we will enhance internal and external development resources in each area, including in-vehicle software and UX/digital services, so that we can steadily strengthen our development capabilities.
To be more specific, we will double the originally planned number of new hires and further accelerate the recruiting of high-level software development experts.
Moreover, Honda will accelerate collaboration with partner companies which have strengths in software development, including the recently announced partnership with KPIT Technologies Limited.
Through such collaboration, Honda and partners will bring together their respective strengths, namely Honda's control and safety technologies and the software development capabilities of partners and strive to realize new value that can be created through software, as early as possible.
Furthermore, in the area of UX and digital services, we will pursue a drastic strengthening of our development capabilities, starting from automobile business in North America.
In the past, UX-related decisions within Honda were made by each operation or country. However, we will strive to offer consistent and customer-centric UX by consolidating all decision-making authorities.
This April, Honda established a new position of Global UX Officer, and the CEO of Drivemode, a Silicon Valley-based startup Honda acquired in 2019, will assume this role.
Software development requires an agile, customer-centered approach to work that repeats hypothesis testing.
By combining Drivemode's speed that is unique to a startup, with the "Challenging Spirit" Honda has possessed since its inception, we will further strengthen software development starting from North America, and accelerate global software development.
Furthermore, by taking a proactive approach in recruiting digital experts, we will further strengthen our development system and capability in the areas of UX and digital services.
As for the strengthening of our initiatives in the areas of electric power units and software, as we announced recently, we will further solidify our relationship with Hitachi Astemo.
By leveraging Hitachi Astemo's strengths in software development, Honda will enhance its initiatives in the areas of advanced technologies such as electrification and ADAS.
Let me move on to our initiatives in the electrification of our motorcycles and automobiles.
For motorcycle business, as we announced in September of last year, we are aiming to increase annual sales of electric models to the level of 3.5 million units, which is equivalent to approximately 15% of our total unit sales, as of 2030.
Commuter and FUN models combined, we will introduce a total of 10 or more electric models by 2025.
So far, we have sold more than 10,000 units of the BENLY e: mainly in Japan, but also in Thailand and Vietnam. Including the three-wheeled GYRO e:, our electric motorcycles are getting popular for postal service and delivery business.
In China, we have introduced three electric models developed for Gen Z. And in India, we are planning to introduce two electric models in 2024.
Also, we exhibited the world premiere of EM1 e: equipped with a swappable battery last November in Italy. And we are planning to introduce this model in Japan, Europe and Indonesia before the end of 2023.
Moreover, to expand options for customers to choose from, we are exploring a range of future models including those equipped with a power source other than swappable batteries, such as models for plug-in charging.
Also, for customers in the "digital generations," mainly Gen Z, we will be applying connected technologies on more models.
In this era of carbon neutrality, we will maintain our focus on the "joy of riding" and "joy of using," offering our customers unique motorcycles, featuring new added value unique only to electric models. This will be done mainly with connected technologies that offer new ways of using motorcycles.
For electric motorcycles, newly emerging manufacturers are becoming increasingly competitive in India which will be the major market in the future, and in Indonesia where rapid market expansion is expected.
However, as the world's top motorcycle manufacturer, Honda will lead electrification of motorcycles globally, by offering products which feature unique and attractive technologies only Honda can offer.
Now, let me introduce our initiatives in the area of automobile electrification.
Our goal is to increase the ratio of EV and FCEV sales to 100% globally by 2040, and we are planning for EV production volume of more than 2 million units annually in 2030 and beyond.
In North America, as models being co-developed with GM, we will introduce Prologue from the Honda brand and ZDX from the Acura brand, both in 2024.
In 2025, a mid- to large-size EV model which adopts the new E&E Architecture based on Honda's original dedicated EV platform will go on sale.
Then, we will expand the lineup of models that adopt a dedicated EV platform.
Also, for the development of highly attractive and competitive EVs, we will further strengthen our alliance with GM.
In addition to co-developing affordable EVs which will go on sale in 2027 and beyond, the two companies will continue exploring a broad range of collaboration which will combine the respective strengths of the two companies and increase competitiveness in the areas of core electrification components.
In China, as we recently announced at the Shanghai motor show, we will introduce the second set of e:N Series models, and the third set of e:N Series models, which will be SUVs, in 2024.
Then, including the fourth set of e:N Series models, we are planning to introduce a total of 10 EV models in China by 2027.
Moreover, we will accelerate the schedule to make EVs represent 100% of our automobile sales in China by 2035, and lead global electrification from this market.
In Japan, we will introduce 4 new EV models by 2026. In addition to a N-VAN-based commercial-use mini-EV model, we are planning to introduce a N-ONE-based model in 2025 and two EV models in the small car category.
Now, let me introduce our initiatives in the area of preparing our production system and capacity which will make our EV shift possible.
Currently, we are making progress in building our EV production operations globally.
Especially in North America, we position our production operations in Ohio as the Honda EV Hub for production in North America and will establish highly-efficient and highly-flexible production lines.
With an eye toward 2030, when we are planning to produce more than 2 million units of EV models, we will work on the preparation of dedicated EV production plants.
In order to accommodate rapid expansion of our EV lineup while continuing to be environmentally responsible, we need to pursue reform of our art of manufacturing things from three perspectives.
- Establishment of production lines which pursue automation and application of intelligent technologies in consideration of future changes in the workforce.
- Establishment of highly efficient factories and supply chains which will enable a shift to EVs in a short period of time.
- Shift to production processes which reduce CO2 emissions to the utmost limit and assume the resource circulation approach.
To this end, with an eye toward the production of EV models scheduled to go on sale in the second half of the 2020s, we have begun working on the global reform of our production system with dedicated EV production lines.
We will strengthen our initiatives in this area with an aim to realize the world-leading and environmentally-responsible manufacturing.
It is essential to pursue initiatives toward carbon neutrality and resource circulation not only in the areas of battery and electrified product development, but also for the entirety of Honda's corporate activities.
As part of such initiatives, we are working to reduce CO2 emissions in the area of manufacturing through the establishment of CO2 reduction technologies and the use of 100％ clean energy through the utilization of renewable and other energy sources at the Automobile Plant of Saitama Factory, which will become Honda's first carbon neutral plant in FY 2026.
At Honda, with our 2050 goal to realize a circular or resource-recycling society which aims for "zero environmental impact," we are pursuing various initiatives in the three interrelated focus areas of the "Triple Action to ZERO," which are carbon neutrality, clean energy and resource circulation.
As I mentioned today, Honda is taking a comprehensive approach toward our goal, including…
- Carbon neutrality of power units
- Carbon neutrality of our production plants
- Utilization of renewable energy
- Initiatives for resource circulation
- Increasing use of sustainable material for our products.
Today, I introduced a wide range of our ongoing initiatives. And in the areas of fundamental technologies which will become the basis of our initiatives, we will make steady progress for the future by constantly securing an annual budget at the level of 100 billion yen for fundamental research activities. This is mainly in the areas of carbon neutrality technologies related to the five key factors Honda is focused on, such as the application of intelligence technologies, advancement of batteries, utilization of hydrogen and sustainable materials.
In addition, we have allocated an annual investment budget of 10 billion yen for open innovation with startups, including strategic investments, through which we will continue strengthening our collective strengths mainly in the area of R&D.
To date, Honda has already invested in a wide range of startups which have cutting-edge technologies such as AI, synthetic fuels, battery recycling and nuclear fusion power generation technologies.
Furthermore, we have newly established Honda Innovations Co., Ltd. in Japan this month, which will serve as the global head office function for Honda's open innovation activities.
We will further strengthen our open innovation functions through close coordination with Honda's corporate strategies.
To sum up…we will accelerate our transformation by aggressively investing the funds we generate through the strengthening of our ICE business, including HEVs, in new growth and new value areas such as electrification and software.
Today, we provided updates on the initiatives Honda is pursuing mainly in the area of automobile business, to accommodate the ongoing trend toward electrification and digitalization.
1) Preservation of the global environment, 2) achievement of zero traffic collision fatalities and 3) responding to changes in the industrial structure are essential factors for Honda to continue our businesses.
However, for Honda to continue to be viewed as a company society wants to exist in the midst of this period of the great transformation, we determined that we need to re-clarify "what we want to be and what we really want to achieve" as well as the "value proposition" of Honda, which exists beyond our business strategies, such as electrification and digitalization.
With such a background, we redefined the existing Honda Global Brand Slogan
– The Power of Dreams.
First, please take a look at this video which explains our thoughts and passion behind it.
<Global Brand Slogan video>
The Power of Dreams has been our Global Brand Slogan since 2001.
This time, we added a new tagline – "How we move you."— to convey the message that "the creation of mobility through the dreams of each and every Honda associate will "move" people physically and also "move" people's hearts.
And we also added three key words – Create, Transcend, Augment.
These key words represent our message that…
Driven by dreams and the intrinsic motivation of each and every person working at Honda, the company will create "the mobility Honda dreams of" to embody the essential value of all mobility products and services. These are...
- to enable people to transcend the constraints of time and place, and
- to augment their every possibility.
Through the creation of the mobility Honda dreams of, Honda will become "The Power of Dreams" of more and more people. That is how we will move people and society forward.
To make such passion of Honda clear, we defined our Global Brand Slogan.
Augmenting the value of mobility through electrification and digitalization is something all OEMs and startups around the world are now working on. And in fact, I don't think there is much difference in the direction all of us are heading.
Under such circumstances, we thought about what would be the driving force that makes the differences between different companies.
Then we came to the conclusion that the driving force is the ideas, thoughts and inspiration of the individuals who work there at each company.
And we realized that the sources of such ideas and inspiration are our "dreams" and the "intrinsic motivation" toward what we really want to do.
Honda is committed to becoming a company that generates originality while valuing the dreams of each and every associate and partner working at Honda.
Also, Honda management is committed to focusing on "dreams" and "speed" and making speedy decisions to realize our dreams.
Going forward, we will let this redefined Global Brand Slogan represent our commitment to the value creation unique only to Honda and accelerate our initiatives to transform each of our businesses, as we discussed today, as well as the areas where we pursue our further growth.
In all of our initiatives, we will strive to embody,
- the "raison d'etre" of Honda,
- what Honda really wants to achieve,
- as well as the "value proposition" of Honda at a high level.
Honda will appreciate your continued understanding and support for our future challenges.