Nissan Motor Co., Ltd.
Q2 2021 Earnings Call Transcript

Published: 14 May 2022

[Sadayuki Hamaguchi:]

Ladies and gentlemen, we would like to start the Fiscal Year 2021 First Half Financial Results of Nissan. Thank you very much for joining us in a great number. Thank you. COVID-19 pandemic is on the decrease, but from the point of view of preventing further infection, we use the Internet conference system as well as live streaming for this presentation meeting. First of all, we would like to introduce to you the participants on the podium

[Ashwani Gupta:]

Thank you, Hamaguchi-san. Hello, everyone. Thank you for joining our earnings session for the first half of fiscal year 2021. Let me first start by apologizing to our customers for the inconvenience caused by delayed deliveries due to the impact of the semiconductor shortage and the pandemic. We thank you for your patience and understanding. I would also like to pay tribute to Nissan's employees around the world who have worked through such a hugely challenging period while always keeping their focus on the customer. Their hard work and resilience positions us strongly in the face of ongoing challenges, keep us focused on delivering value to customers and being well placed to emerge from this period as a stronger company in line with our Nissan NEXT transformation plan. Let me start with an overview of our business performance. As you may be aware, in the second quarter of fiscal year 2021, the whole automotive industry saw an ongoing adverse impact from continuing pandemic disruption and the supply chain volatility dominated by the global semiconductor shortage. As a result, the total industrial volume declined 12% year-on-year. The impact we have felt at Nissan was in line with the global trend, with our overall quarter 2 retail volume declining by 10%. On the positive side, despite these challenging headwinds, Nissan delivered a strong performance in quarter 2 in our key markets of the United States, China and Japan, with our unit sales outperforming the average. However, we have felt the semiconductor impact most strongly in our European markets, where pandemic disruption has continued to distort demand, impacting our retail volume, which has fallen 12 points below the market average. This is due to prioritization of product mix and market mix for the business continuity. Because of challenging external market environment, the reported unit sales performance was negatively impacted even if we outperformed the industry as a whole in key markets. In Japan, we saw year-on-year sales decreased by 11.6% to 106,000 units, by 9.2% in China to 354,000 units and by 8.6% in North America to 274,000 units. In the most challenging environment, Europe saw a year-on-year decline of 31.3% to 81,000 units. Our remaining markets saw a stronger overall year-on-year performance, growing sales by 8.6% to 139,000. I'm pleased to report that our newly launched models have been well received by our customers. For instance, the Aura in Japan has received 21,000 orders year-to-date through to October. And the Qashqai in Europe has received 58,000 orders over the same period. In United States, our new Pathfinder and Frontier products, both of which started sales this summer, are helping us to grow market share. The Pathfinder segment share has grown to 4.7%, an increase of 1.7 points. The Frontier share is now at 9.9%, a leap of 5.3 points. Models launched earlier during the Nissan NEXT transformation plan have also showed continuous positive momentum after being well received by our customers. In quarter 2, the Note and the Kicks in Japan performed well, with the Note growing market share by 2.9 points and the Kicks by 3.6 points. Similar growth was seen in the United States with the Rogue and the Sentra. The Rogue grew share by 2.3 points and Sentra by 1.8 points. In China, our Sylphy grew at an impressive 4.5 points over the quarter; and in India, the Magnite at 4.4 points. These trends show how our products are being well received by more customers, and that momentum is building in the business. This momentum is founded on our products, capturing customer needs market by market. Our commitment to invest in enhancing our products, technologies and manufacturing facilities has continued strongly through the quarter. The new Nissan Z was unveiled in August in the United States, paying tribute to the original Z through its iconic styling. The new Z continues our legacy in sports segment. As we drive forward with our focus on electrification, we are bringing to the market the new Kei EV, an all-new electric mini vehicle scheduled to be launched in early FY 2022. Again, Nissan is the first to enter kei segment, which occupies 40% of the total Japan market with a battery electric vehicle and most important state-of-art driver assistance technologies like ProPILOT. We have also accelerated the rollout of our e-POWER technology in China. With our joint venture partners, Dongfeng Motors, we will begin e-POWER offerings in our products, starting with the Sylphy. As we continue our product momentum, we are simultaneously making our factories greener and smarter. We announced our first EV36Zero hub in U.K., representing an investment of up to GBP 1 billion in a unique electric vehicle manufacturing ecosystem. Last month, we have introduced our first Nissan Intelligent Factory at our Tochigi plant, a smart factory which will manufacture next-generation vehicles using innovative technologies, all with the aim of supporting our commitment to carbon neutrality. The first half of the current year also endorses our focus on customer excellence and demonstrate strong acceptance of our products. The human-centric innovations we pursue to enrich people's lives are definitely resonating with our customers, be it electric technologies like e-POWER or e-4ORCE or driver assistance technologies like ProPILOT. On top of it, it is gratifying to see appreciation for our products and services by prestigious third-party organizations. In quarter 2, approximately 20% of our sales were driven through digital platform for the sales conversion, providing seamless customer journey with an increase of 6 points than quarter 1. We have expanded this digital online sales initiative to more markets, and we are glad to see good customer receptivity. Dealer engagement is an additional priority for us, with good products and strong collaboration helping to motivate our key sales partners. It is evident that the combination of customer experience driven by great products and technologies and the efficiency of customer touch points managed with strong dealer collaboration have profound influence on our growing brand power. In Nissan NEXT, we made a strong commitment to change our business culture, prioritizing value over volume, with a focus on profitability rather than maximizing volumes. And you can see the definitive progress here. Net revenue per unit is on a very positive trajectory year-on-year, growing 11%. Thanks to higher-grade sales, residual value improvements and disciplined price management, these have led to higher revenues. As a result, we have further reduced our breakeven point by 15% year-on-year, while enhancing our investments in products and technologies for sustained growth. Now turning to the financial performance for the first half. We delivered stronger-than-anticipated results despite the challenging environment. This slide shows our key financial performance KPIs on both the China joint venture proportionate basis and equity basis. On an equity basis, which is without our China joint venture operations, our operating profit for the first half was JPY 139.1 billion, with an operating margin of 3.5%. Net income for the first half was JPY 168.6 billion. Free cash flow for the automotive business was a negative JPY 349 billion due to working capital usage as a result of low production resulting from semiconductor supply shortage. The net cash for the automotive business was JPY 552.3 billion. On a proportionate basis, which is with our China operations, our operating profit for the first half reached JPY 199.7 billion, with an operating margin of 4.3%. This is well above our Nissan NEXT operating margin milestone of 2% for this fiscal year. The net cash for the automotive business was JPY 949.8 billion. We continue to maintain strong levels of liquidity. Our cash and cash equivalents for the automotive business was approximately JPY 1.4 trillion on an equity basis. We also have approximately JPY 1.8 trillion of unused committed credit lines. Turning now to the operating profit variance analysis. This slide shows the variance from last year's operating loss to this year's operating profit. Foreign exchange had a positive impact, primarily due to strong U.S. dollar and Canadian dollar. The increase in raw material prices had a negative impact of JPY 39.8 billion. The main drivers for the year-on-year improvement in profitability was due to our continued efforts to improve sales performance and Monozukuri. The sales performance had a positive impact of JPY 263 billion. A significant portion of this came from higher-grade sales, residual value improvements and disciplined price management, which is a result of our initiatives to improve quality of sales as well as tight market environment due to semiconductor supply shortages. Monozukuri performance had a positive impact, primarily due to improvement in operational efficiency. Other items had a positive impact of JPY 10.6 billion. Next is the income statement for the first half on an equity basis. Net revenue improved by JPY 854.3 billion from the previous year to JPY 3.9 trillion, which is 27.6% above than previous year. Operating profit increased by JPY 297.9 billion to JPY 139.1 billion, representing an operating margin of 3.5%, which is 8.6 points above than previous year. Net income increased from the previous year by JPY 498.6 billion to JPY 168.6 billion due to the improvement in the operating profit as well as positive non-operating income resulting from the significant positive contribution from equity method companies and extraordinary income, which included the gain on our sale of Daimler shares in quarter 1 of this fiscal year. In addition to the improvement shown in the first half on a year-on-year basis, the columns on the right show the progress we made in quarter 2 year-on-year. Turning now to our outlook for the remainder of fiscal year 2021. Based on our H1 performance, despite the challenges of supply chain, we are revising our outlook from JPY 150 billion announced in July to JPY 180 billion. Due to the change in the foreign exchange assumptions, which reflect the recent devaluation of yen, we are forecasting an additional improvement in foreign exchange, regulatory and product enrichment costs. In addition to the ForEx, one of the main reason for the upward revision is our continued focus on sales performance. While the semiconductor shortage continues to be a challenge for the automotive industry, we anticipate that our sales performance efforts, including our quality of sales initiatives and sales finance business, will more than offset the reduction in the sales volume resulting from these challenges. As a result, we are forecasting an improvement of JPY 20 billion in our performance. Investment in new vehicles remains unchanged as we pursue future growth. We are also maintaining our assumptions for the increase in the raw material prices. We see the semiconductor shortage impact to the automotive industry has been larger than anticipated. Quarter 2 global market was down by 12%. Most recently, September was down by 19%, and October was down by 17% year-on-year. Specifically, in the United States, Japanese OEMs were down 23% in September and 28% down in October. We anticipate November to start recovering, but we see the operating environment to remain volatile in the second half. Given these uncertainties, it is difficult to reforecast the global market. At Nissan, we are revising down the FY '21 global sales volume outlook conservatively from 4.4 million units to 3.8 million units. For the full year financial outlook, we are revising our profit forecast upwards. In line with our sales volume decrease, the net revenue is expected to be down by JPY 950 billion to JPY 8.8 trillion. However, the decrease rate for the net revenue is smaller than the sales volume, which demonstrates the improvement in quality of sales. We are revising upward our outlook for the operating profit by JPY 30 billion to JPY 180 billion. This equates to operating profit margin of 2% based on equity basis. Including our China JV operations, this amounts to JPY 280 billion, a 2.8% operating profit margin. This is primarily due to better-than-expected results for the first half, in particular on the improvement of quality of sales and sales finance performance. We revised our net income guidance upward by JPY 120 billion to JPY 180 billion, primarily due to the contribution of our better operating profit performance and also better profit contribution from partner companies under equity method as well. In summary, despite volume reduction, the decrease in net revenue is less than the rate of volume reduction. This means our shift from volume to value is translating into improvement in operating profit and net income. With the upward revision of operating profit margin at 2.8% based on proportionate basis with China, we are confident to exceed the Nissan NEXT milestone of 2% operating margin this fiscal year. With this, we will continue to be on track to deliver our goal of 5% operating profit margin in fiscal year 2023. In conclusion, let me reaffirm Nissan's commitment to sustainable growth. With Nissan NEXT, we committed to making a significant strategic shift in our business and build a durable foundation. We pursued sustainable growth by rationalizing our business, putting priorities on core markets and core products, delivering a continuous stream of innovative products while being meticulous in our financial management and ensuring a shift in mindset to deliver value over volume. As I said during the last quarter, we move forward with cautious optimism, embracing disruption, prioritizing products in demand and maximizing our operations efficiency. Time is right for us now to bridge from where we are today to where we want to go. We will announce our long-term vision on November 29 and inform you of our strategic priorities and how these will develop beyond the Nissan NEXT time line. As a company driven by our purpose of driving innovation to enrich people's life, we set an ambition to empower mobility and beyond, and we will do this together with our employees, our partners and the wider society. On behalf of Nissan, I invite you all to join us as we embark on the next phase of our transformation journey. Thank you.

[Sadayuki Hamaguchi:]

Okay. Thank you. We would like to move on to the Q&A session. [Operator Instructions] Nihon Keizai Shimbun, Asayama-san, please go ahead with your question.

[Ryo Asayama:]

This is Asayama from the Nikkei Shimbun. First, this full year guidance, what are the assumptions here? Net income of JPY 120 billion, this JPY 120 billion was improved for net income, whereas sales volume declined by 600,000 units, but the revenue was revised downward. But net income, why are you making such a big improvement in net income? What are the positive factors behind this better net income? Regional sales volume forecasts are not shown here, so could you give us -- including the regional breakdown, could you give us the numbers behind this? And as an assumption, this production, how are you -- how do you foresee the production going forward? Because semiconductor supply, COVID-19 in summer, I'm sure you are hit by these factors. But in the second half of the year, is it possible to recover your production? And how do you foresee the risk for the rest of the year? And how much -- how long will this risk last? These are the 2 questions.

[Ashwani Gupta:]

Thank you, Asayama-san, for this question. I think we can come to the Slide 11. And I think that is a very important slide to answer to your question. Why we are forecasting the profit upwards, simple reason on this slide, as you can imagine, that is the sales performance. The sales performance comes from United States. The sales performance come from Japan. The sales performance come from the other regions. Now what all is all included in the sales performance of plus JPY 263 billion is, number one, our pricing power based on the value content, which we have launched in the cars like Sentra, Rogue, Pathfinder and now the Frontier. The second is the lower incentives, which is, of course, coming by our sales discipline but also coming from the market. The third part of the sales finance is about -- sales performance is about sales finance, which is because of the lower credit losses because now in the United States, the customers are keeping cars for long. And then it comes to more our Monozukuri performance, which is, of course, driven by the strict cost discipline and the fixed cost, which we have achieved. And as we explained before, we have reduced our breakeven point. So if we extrapolate what all we have achieved in the first half, then please come to the Slide 14. That explains that -- this Slide 14, that explains that we are not changing the investment which we set in the start of the year, which is JPY 150 billion impact on our full year profit. We are also not changing our forecast for the raw material increase impact, which is JPY 185 billion. However, seeing what we have done in the first half, we are confident on the performance of JPY 20 billion coming from the sales finance for the reasons which we explained for the first half. Now your next question is what will be the impact on the -- of the semiconductor. So first half, we did the retail of 2 million. The second half we think we will do a retail of 1.8 million. However, in the first half, we had the inventories. But in the second half, we will increase our production, and we will increase our retail sales. That's why, as I said in my conclusion, that we are taking a very cautious, optimistic approach to forecast the second half. On one side, we are keeping our raw material increase. We are keeping our investments, but we are reducing our retail sales by 13%. Now how much confident we are on this retail number is, as I explained before, when we see the September global market, October global market, especially the Japanese OEMs in the United States, we clearly see the global market going down. Whether it is going to continue, I don't think so. Whether it will be improving, I don't think so. And I think this will continue. What we have to do is to improve day by day and keep a very conservative approach and keep our sales discipline and the cost discipline moving forward. Hope it answers your question Asayama-san. Thank you.

[Ryo Asayama:]

Yes, I understand. But operating profit is JPY 30 billion better, but the net income, what -- this remaining JPY 90 billion, what is the factors that is adding this JPY 90 billion on the net income? I'm talking about the net income. Why are you making such a big improvement in net income in the full year guidance?

[Stephen Ma:]

Asayama-san, so as you might remember, in Q1, we sold our stake in the Daimler share, and we had a gain of JPY 76 billion. That's below OP. On top of that, I assume you have heard in our affiliate company announcements, our equipment companies' performance also improved. So we reflected our share of their profit improvement also below operating profit. Those are the 2 main contributing factors to why the net income is so good.

[Sadayuki Hamaguchi:]

Okay. Moving on to the next question, NHK, [Taruno-san]. Taruno-san of NHK, please go ahead with your question.

[Unidentified Analyst:]

NHK, [Taruno] speaking. Can you hear me?

[Sadayuki Hamaguchi:]

Yes, we do.

[Unidentified Analyst:]

Okay. Starting with the first question, production reduction, what is the impact of the decline in production? Sales volume, full year guidance was revised downward by 600,000 units. I understand this. But in the first quarter announcement, you said in the full year, 250,000 units of production reduction will take place. And 250,000 units of production reduction, how does it change now? And this forecast of production reduction, how will it change over time? Could you elaborate on this reduction of production? This is my first question. And the second question, at the end, you were mentioning about long-term vision, which will be announced. That's what you said towards the end of your presentation. This long-term vision, is this long-term business plan following Nissan NEXT or electrification strategy? Is it something like a strategy? What is this long-term vision about? These are the 2 questions.

[Ashwani Gupta:]

Thank you. Thank you for your question. What we have announced today is the retail sales from 4.4 million to 3.8 million. Now when it comes to the production, region by region, the way we convert our production into the wholesale and into the retail is different. For example, in United States, it's more sell from the stock; whereas in Japan, it's more order to build. So that's why it's very important to understand what is the magnitude we are talking about. So the magnitude, based on which we have assumed this 3.8 million, is when we started the year, everybody thought that post-pandemic, the global market will be around 86 million. Now after seeing the wave 1 of semiconductor impact, wave 2 of the semiconductor impact, and now we all are going through the wave 3 of the semiconductor impact, we estimate that the global market will be between 75 million to 76 million, which is roughly 12% to 13% down with the original assumption of the global automotive market. So if you look at that, we are almost in line with the 12% to 3% -- 12% to 13% of the retail volume down. However, what we are making sure that the drop in the retail volume should not be translated 100% into the net revenue, and that's why our net revenue is only 9% down. And we are completely compensating the impact of the volume down by the operating profit by adding the sales discipline but also the cost discipline. So this is how we have made our assumption. And as we move forward, obviously, the semiconductor situation becomes more visible, and we will be able to share exactly our production plan country by country and region by region. Regarding your second question, thank you for this question. I think this is something which we were asked in almost all the announcements that Nissan NEXT is clearly understood, but what after the Nissan NEXT? And the long-term vision, as I shared before, is not really the midterm plan. The long-term vision is what we want to be and where we want to be is what about the long-term vision. We will talk about the strategic priorities in this long-term vision. We will talk about in line with what we announced is the carbon neutrality. We'll talk about the sustainability. We'll talk about what we announced that by 2030, all of our Nissan products will have the electrification offerings. So with this -- with the focus on strategic priorities, including the electrification, we will talk about in this long-term vision on November 29. Thank you so much. Hope it answers your question.

[Sadayuki Hamaguchi:]

Okay. Yes. Thank you. Moving on to next question. Automotive News, Hans, please go ahead.

[Hans Greimel:]

Yes. May I speak in English, please? I'd like to ask about the chips, the microchip shortage and what the impact or the benefit of the Renault-Nissan Purchasing Organization has been in allowing you to deal with the chip shortage. Can you give us any concrete examples about how RNPO confers any advantage to Nissan or Renault in dealing with the chip shortage and what the -- how the alliance is actually better well positioned for this? The second question would be about the U.S. market. How do you imagine the U.S. market developing after we clear this chip shortage, with the pent-up demand? And do you see that there is going to be a sudden burst of activity in the market? Or will there be -- what will be the effect on incentives? Will the incentives suddenly spike as companies compete to grab a bigger share of that rapidly [expanding] market? How do you see the U.S. landscape developing after we clear this unusual period? That's all.

[Ashwani Gupta:]

Yes. Thank you, Hans. So I think for the semiconductor, I think we may have many more questions. So please allow me to share with everyone the big picture of semiconductor. Why it happened, I would say there are 2 categories. The first category is the production losses during the COVID lockdown, and the second is the capacity constraints due to the sudden increase in demand, not only by automotive, but also by the non-automotive. Now in case of automotive, why we think that demand was suddenly increased is, of course, post-pandemic, but most important, all the new technologies we are putting in the cars because of regulatory but also the change in the customer behavior in terms of connectivity, in terms of driver-assist technologies and so on and so on. Now both of these categories led to capacity constraints. So the wave 1 was the capacity constraint at a very high level and an unfortunate incident which happened in Japan with one of the semiconductor plant. Then the wave 2 came, which was more about the Southeast Asia pandemic lockdown. It is improving, but the impact has not been fully recovered. And after wave 1, wave 2, now we are going through the wave 3 where the capacity constraints are evolving mainly driven again by the certain increase in the demand of non-automotive and automotive. That's why even if we see the improvement, but we think that this is going to continue. So what we are doing and we should do is to prepare ourself. How we can prepare ourself? We have to predict. How much predict we can do? How much prediction we can do? I think nobody has the crystal ball, but we can use different simulation to do the prediction. As I said before, 86 million becomes 76 million, then what happens next year? Now I would like to answer the question of alliance. Now I have talked about why it happened and where are we. But the most important thing is how we predict and how we prepare ourself. And here, so far, our supply chain was fully dependent on a forecast driven by the automotive demand. But as I said before, the problem didn't even happen because of automotive, it happened because of non-automotive also. So now in our supply chain tool, how we can include the forecast of automotive and non-automotive, that's the first thing which we are doing with Renault-Nissan and Mitsubishi. The second thing is, so far, we were limiting our supply chain with the traceability and the control till Tier 1 and Tier 2. Now the question is the dependency on the Tier N, which means the wafer supplier is so much that how we can be connected till the last point of the supply chain. I think these are the 2 things which, as alliance purchasing, we have started and we will be doing it. The last point, Hans, is we should also take this crisis as an opportunity to relook into the way we do business, the way we produce the cars, the way we sell the cars. When we were in a good situation, we used to make a production plan based on 3 months and 6 months. but now we make production plan on weekly basis, even keeping the just in time. At the end, what we have achieved, we have achieved a better operational efficiency in production as well as in the sales. So to summarize, I think this will continue. Only thing what we can do is predict, prepare and improve day by day. Your next question is on the United States. And thank you, Hans. I think you are following Nissan on the United States business transformation plan. And again, repeat what I said in the financial announcement, I think, 2 years before that what are the 5 things we are going to fix in United States. The first, we said that product. So we -- and since then, we have launched Sentra, Rogue, Frontier, Pathfinder. And I think within 1 year, 70% of our product lineup in the United States will be renewed. Second, we said -- we talked about our brand power. Brand power, driven by not only product but also all our customer touch points. And as I shared before, this is going in the right direction. The third, we said the dealer collaboration, engagement and confidence, and we have seen all the strong engagement from our dealers. Fourth, we said about our fixed cost, which is Monozukuri, and with the reallocation of our production footprint, we have achieved it. And fifth, we said about the quality of sales discipline by establishing our independent Board in the NNA with the independent adviser. These all 5 things have given us the success where we are today in the United States. Now moving forward, what is very important is what this crisis has taught us is resilience and agility. We should not expect that this crisis will be over and the new crisis will not be there. Something new will happen. And in United States, exactly that once the demand is -- when the supply is there, definitely everybody will go to come back to the market share to capitalize all the capacity everybody has got in the United States. So we should be preparing it. We should be predicting it and preparing it. And I think Nissan, we will keep our foundation of quality of discipline, but we will be very flexible in adjusting to the market with an objective that we are focusing on the value, which is driven by the profitability. It was a long answer, but I hope, Hans, it answers your question. Thank you.

[Sadayuki Hamaguchi:]

Thank you very much. Now next question, Toyo Keizai, [Yokoyama-san]. Please go ahead, Yokoyama-san of Toyo Keizai.

[Unidentified Analyst:]

Yes, I am [Yokoyama]. Do you hear me?

[Sadayuki Hamaguchi:]

Yes, we do.

[Unidentified Analyst:]

Okay. I have 2 questions. The first question, this is in relation to North America. Let me confirm about the incentive in the market. According to the research data for this fiscal term in October, incentive seems to be declining. And it's -- do you have an impression that incentive is too low? Or because of better product, incentives are lower? How do you elaborate or assess this level of incentive today? And talking about North America investment in battery, in 2030, you are going to increase the ratio of EV of sales to 40% or so. And today, last year, you are only at 1% when it comes to EV ratio. EV, how are you going to penetrate the market, this EV? How are you going to procure batteries? On 29th of November, you are going to talk about long-term strategy, but could you elaborate on the approach or philosophy behind this?

[Ashwani Gupta:]

Thank you for this question. I think on the United States question, I tried to answer some of it to Hans in the previous question. But again, I would like to emphasize the fact that the incentives are driven -- I mean, let me put it another way. When we change our culture from volume to value, we also changed the incentive from objective to consequence. So what we are seeing today, incentives are the consequence of what, it's a consequence of our product power driven by the value content. It's driven by our strict sales discipline on quality of sales. It's driven by our dealers' engagement and confidence. So all these factors are helping us in lowering down the incentives. Now the question is whether this is the right level or not, I think we have to wait a little bit because some of the impact is obviously coming from the market practice, which exists today because of the supply-demand gap, but some of the impact is, of course, coming by our own performance. And as we move forward, definitely, we will make sure that all what we have established as a part of our culture in the United States, we keep it but we will have the agility to adapt to the changing environment. That's what we want to do in United States moving forward. On the electrification, thank you for this question. As you know, that Nissan has been pioneer to launch the first electric car -- mass production electrical car LEAF in 2011. At that time, customer didn't ask for it, market didn't ask for it, but we did it. Why we did it? Because we wanted to demonstrate our innovation on the -- in the market. So why I'm trying to say that is battery is very important for Nissan because, for us, battery is the integral part of the electric car. And when we will talk about long-term vision on 29th of November, definitely, we'll talk about electrification. Definitely, we will talk about battery as part of our strategy. That's what I can share with you today. Of course, we have strategic partners, exactly as you said. We have strategic partners in China. We have strategic partners in Japan. We have strategic partners in United Kingdom. And moving forward, how we are going to expand our strategic partner base in United States, that will be the question which we will be sharing with you on 29th of November. Thank you for your patience till 29th of November.

[Sadayuki Hamaguchi:]

Okay. Thank you very much. Okay. There are people who are raising hands, but it's already close to the time, so this will be the final question. We are running out of time. Wall Street Journal, Sean, please go ahead with your question.

[Sean McClain:]

Ashwani and Stephen, I'm hoping you guys could help me out understanding your breakeven number and how it's changing. I noticed that you're projecting sales volume of 3.8 million, but I thought your breakeven was 4.4 million, I guess, or with the further reduction would be about 4.2 million. So maybe I'm just misunderstanding the numbers there, and if you could walk me through that. And then secondly, just to follow on Hans' question. I mean, are you happy with your market share currently? When sales eventually rebound and we get past these semiconductor shortages, a lot of people are aiming to ramp up their production. There's a lot of idle factory space and a lot of cars waiting to hit the market and a lot of car buyers who don't want to pay so much money for cars. I mean, are you guys going to jump in and chase your sales volume as well? Or are you happy with your market share to be fluttering around 5% right now? And by way of color, if you have any thoughts on the fact that Hyundai and Kia seemed to be very close to your market position these days. Are you sort of happy? Or do you even care that, that's happening?

[Ashwani Gupta:]

I think I will answer the second question. Then I will request Stephen to answer the question on the breakeven point. To answer your question, whether we are happy with our market share, I don't think so. On the other side, whether we can do better, yes, we can do better. How we can do better is 2 years before, we had a problem how to sell. But that's not a problem today. We have a good problem to solve as customers are waiting, and the problem for us is how much we can produce, which means the more we produce, more we sell and more market share we will gain. So that's the purpose of what we have. Now when I said, are we satisfied with our sales performance? Of course, yes. As you would have seen, all the models which we have launched in Nissan NEXT and also in this year, we have gained our market share product by product. Now moving forward, what we are looking at are only 2 things. Number one, how we convert our product power to brand power, and we have clearly started seeing our brand power moving in the right direction. That's why we are able to enjoy the pricing power in all the regions, which where we have launched the products. The second is how we are going to gain the market share, and this is only possible with a strong involvement, engagement and confidence of our dealer who are managing our customer touch points. So with these 2, we would like to increase our market share. But once again, we will not like to increase the market share at the cost of volume. We would like to increase our market share at value. So maybe, Stephen, you would like to answer a question on breakeven.

[Stephen Ma:]

Thank you, Sean. So I think you're asking is why with the 3.8 million units and we can make JPY 180 billion and the 15%. You're absolutely right, Sean. If you take just the straight numbers, the breakeven point probably reduced more than 20%. What we're showing here 15% is more on a real sustainable basis, meaning we normalized and took out all the one-off good news that we had in the first half. That's market like loss provision releases or used car value, those don't want to take credit for as our performance. We just said, okay, if you strip those out, what is our real underlying performance? And based on that value, what is the breakeven point? That's how we came up with 15%.

[Sean McClain:]

Then can I understand that the breakeven point is like right around 4.2 million, if I did some back of the napkin math? I'm just trying to figure it out.

[Stephen Ma:]

As said earlier, 4.4 million and 15%, that's about 3.7 million, yes? And right now, roughly, that's the number. If we take out all the one-off good news, of course, we have potentially more raw material and fixed costs going forward. We will aim to keep our cost base as low as possible to maintain this level.

[Sadayuki Hamaguchi:]

Okay. Thank you, gentlemen. With this, we would like to conclude the financial announcement for the first half of fiscal year 2021. Thank you for joining the session, and good night.