Nissan Motor Co Ltd (OTCPK:NSANY) Q2 2023 Earnings Conference Call November 9, 2022 4:15 AM ET
Company Participants
Sadayuki Hamaguchi – Chief Communications Officer & Corporate VP
Ashwani Gupta – COO & Director
Makoto Uchida – CEO, President & Director
Stephen Ma – Executive Officer & CFO
Conference Call Participants
Operator
Sadayuki Hamaguchi
We would now like to start the presentation of the financial results for the first half of fiscal year 2022. Thank you for joining us today. We appreciate your kind participation. With regard to the [indiscernible] meeting, we are used with the remote system as well as live distribution for the presentation today. First, I would like to introduce the attendees from our side. President and CEO, Mr. Makoto Uchida; COO, Mr. Ashwani Gupta; CFO, Mr. Stephen Ma. With the [indiscernible] and cooperation, I would like to invite Mr. Uchida to say a few words.
Mr. Uchida, the floor is yours.
Makoto Uchida
Thank you for taking time out of your busy schedule to join us today. First, COO, Gupta will present the results for the first half of the fiscal year, followed by my presentation of the outlook for the full fiscal year. Before I begin, I would like to say a few words.
Global challenges, including semiconductor supply shortage, supply chain disruption, rising energy costs and raw material prices triggered by COVID-19 pandemic are impacting our business more significantly than our initial expectation. Despite these challenges, Nissan’s performance is recovering, and we are delivering results that exceed our business plan. We believe this is an indication that Nissan’s next initiatives are bearing fruit and improving Nissan’s business. Although the severe business environment is still continuing, the entire company will continue to work together as one team on Nissan Next to build a solid business foundation for future growth.
COO, Gupta will now explain the results with the first half of the current fiscal year. Gupta-san the floor is yours.
Ashwani Gupta
Thank you, Uchida-san. Hello, everyone. I would like to add my welcome to Nissan’s first half and second quarter results for the period ending September 30, 2022. First of all, I would like to retaliate that our #1 priority is to deliver cars to our customer at the earliest. On behalf of Nissan, I extend our sincere apologies to any customers patiently awaiting for delivery of our new vehicles. We are doing our utmost every day to overcome the disruption and delay caused by the global semiconductor shortage and pressures on automotive supply chains. While these difficult conditions may persist and cause delays in delivery timing, we are making company-wide efforts around the world to increase our production and complete deliveries as soon as possible.
I would like to express my thanks to all our employees, suppliers, partners and dealers, their hard work and dedication enabled Nissan to navigate extremely challenging times. In addition, we are grateful for the large number of orders we have received for our latest offerings, including Nissan Ariya, Sakura, Z, Qashqai, and X-Trail.
As Uchida-san said, despite the volatile environment, Nissan continues to deliver on our plans and have shown strong commitment to our business culture, driving value to our stakeholders. Please allow me to take you through our latest results. I will explain the key metrics for the volume and unit sales during the latest quarter.
Overall, Nissan has put our production on the road to recovery in most of our markets globally. As a result, we expect retail sales to recover soon. Globally, excluding China, the production volumes rose by 13.6% in the second quarter to 563,000 units as we have managed supply chain and COVID disruptions, and output has started to normalize. This improvement was offset by the production challenges in China, where the output fell 23.5% to 242,000 units due to continued semiconductor shortages, but most important impact of the COVID lockdowns in China. As a result, overall production was flat year-on-year at 806,000 units. This resulted in a slight decline of 0.9% year-on-year to 1.618 million units for the first half of fiscal year 2022. Year-on-year retail sales fell 21.4% to 750,000 units during the second quarter of FY ’22. This is primarily due to the difference in inventory availability. In transit and seasonal inventory in the last 2 weeks of September were important factors as well to convert into the retail sales, which definitely is being converted in the month of October.
Export model production during this period, such as X-Trail for Europe, Ariya for the United States will be reflected in sales for the subsequent quarters as shipments are completed. The sharpest decline was in China, where the sales fell by 30.2% to 247,000 units, mainly driven by COVID-lockdown and supply shortages. In contrast, sales in our home market of Japan rose 9.8% amid encouraging demand for new models and higher production levels.
In North America, our retail sales were down 25.4% to 204,000 and down by 20.9% in Europe to 64,000 as inventory shortages. Sales in other markets were down by 15.1% to 118,000 units. Taken together, global unit sales for the first half were 21.6% lower than — lower at 1.569 million vehicles.
The next 2 slides show our key financial performance indicators on both the China JV proportionate basis and equity basis for the second quarter and the first half. On an equity basis, which excludes contribution from our China joint venture operations, our net revenues for the second quarter rose by 30% to ¥2.52 trillion from ¥1.94 trillion in the same period of 2021. On the same basis, operating profit for the period was ¥91.7 billion with an operating margin of 3.6%.
For the second quarter, the net income was ¥17.4 billion. The decline versus previous year can be explained by onetime loss from the exit from Russian market this year and impact of COVID lockdowns. Due to these factors, our net income was slightly lower than the prior year. Our automotive free cash flow significantly improved in the second quarter to a positive ¥206.6 billion. Our net cash for the automotive business was also significantly increased to ¥1.04 trillion. On a proportionate basis, which includes our China operations, our net revenue for the second quarter rose to ¥2.78 trillion from ¥2.28 trillion last year. Operating profit under this major reached ¥113.7 billion for the quarter, representing an operating margin of 4.1%.
In the second quarter, automotive free cash flow improved to ¥184.8 billion versus a negative of ¥169.9 billion in the prior year. Net cash for the automotive business reached ¥1.56 trillion on this basis. Nissan also continues to maintain strong levels of liquidity. The key highlight of this quarter is that for the first time in the last 3 years, Nissan’s automotive profit, including intersegment eliminations became positive. The challenge is to continue in the following quarters to strengthen the sustainability of our core business. The next slide highlights our key financial indicators for the first half.
On an equity basis, which excludes contribution from our China JV operations, our net revenue for the first half rose to ¥4.66 trillion from ¥3.95 trillion in the same period of 2021. On the same basis, operating profit for the period was ¥156.6 billion with an operating margin of 3.4%. For the half, net income was ¥64.5 billion, as I previously mentioned for the second quarter, the decline versus the previous year can be explained by the onetime loss from the exit from the Russian market this year.
In addition, last year, there was onetime gain from the sale of Daimler shares. Excluding the onetime gain and loss, our net income was almost flat from the prior year. Free cash flow for the automotive business was negative ¥98 billion for the first half. As previously noted, our free cash flow significantly improved in the second quarter to a positive ¥206.6 billion. However, it was not enough to cover the negative free cash flow in the first quarter, which was due to low production. We expect our free cash flow to continue to recover in the second half of this fiscal year. On a proportionate basis, which includes our China operations, our net revenue for the first half rose to ¥5.26 trillion from ¥4.6 trillion last year.
Operating profit under this major reached ¥212.6 billion for the first half, representing an operating margin of 4%. Auto free cash flow was a negative ¥115.7 billion for the first half. Net cash for the automotive business reached ¥1.56 trillion on this basis.
Now let’s look at our H1 financial performance. This is the income statement for the 6 months ending September 30, 2022, on an equity basis, which excludes contribution from our China JV operations. Net revenue increased by ¥715.3 billion from the previous year to ¥4.66 trillion. Net revenue increased year-on-year despite the decrease in sales volume, which was primarily driven by improvement in net revenue per unit as well as the weakening of the yen.
Operating profit increased by ¥17.5 billion from the prior year to ¥156.6 billion, representing an operating margin of 3.4%. I will explain about the variance on the next slide. Net income for the first half was ¥64.5 billion. The decrease from the previous year was primarily due to onetime factors such as sale of Daimler shares and exit from Russian market.
Turning now to the operating profit variance analysis. For the first half, this slide shows the variance factors from first half of last year to this year. Foreign exchange had a positive impact of ¥93.9 billion, primarily due to the strong U.S. dollars as tailwind, but also headwind in other currencies like the Mexican peso and Chinese yuan. The increase in raw material prices had a negative impact of ¥122.8 billion, primarily driven by price hikes in materials such as steel, aluminum and plastics. Sales performance had a positive impact of ¥190.6 billion. The continued improvement in quality of sales was the biggest contributing factor with the decrease in incentives as well as improvement in the pricing with value content like ProPILOT, e4ORCE and connected services.
Monozukuri performance had a negative impact of ¥24.7 billion, primarily driven by cost inflation in manufacturing and logistics. Other items deteriorated by ¥119.5 billion from the previous year. Part of this was to onetime gains of ¥35 billion last year from the release of credit loss provisions and increase in used car prices. We were also impacted by factors such as increasing costs for regulatory and product enrichments, profit decline in sales finance business due to the decrease in assets, increased administrative expenses and other items.
Turning to the operational highlights of the current year. Despite facing volatile uncertainties such as inflation, ForEx and raw material cost, Nissan is taking action to build sustainable momentum across our business. We are closely monitoring our operations and external factors to remain agile. As lockdowns have continued in China, our total production has been unstable and remains uncertain looking ahead. While uncertain conditions may persist, we have taken effective steps to contract the impact of semiconductor shortages and recover production during this fiscal year.
Nissan has made encouraging progress with our dual supplier sourcing strategy between alternative and standard IC chips. As an example, for the — for one of the major component that caused continuous shortages in fiscal 2021, we have more than doubled the supply through usage of alternative chips. Thanks to these efforts, we expect to increase our production further during the second half of fiscal year 2022. And we aim to grow our business sustainably amid unprecedented headwinds.
Nissan NEXT is on the right trajectory, driven by the 3 pillars of rationalization, prioritization and focus and societies for the future with a demonstrable progress of our electrification strategy. With both zero-emission and e-POWER equipped vehicles as the key drivers our total global sales for the electrified vehicles has reached 13% for the quarter. Our home market of Japan is the leading example globally of accelerating sales across our compelling zero-emission and e-POWER model range with 52% of our sales consisting of electrified vehicles during the quarter. This is a result of our customer accepting the value of products from our wide offering starting from K segment cars to the luxury crossovers.
And with that, I will hand over to Uchida-san to discuss about our outlook for the remainder of the fiscal year. Uchida-san.
Makoto Uchida
Thank you, Ashwani. So turning now to our outlook for the fiscal year 2022. During the first half of the fiscal year, the automotive industry continued to face a challenging business environment due to the semiconductor supply shortage and the impact of the China lockdown and our production and sales were lower than expected. The supply chain situation is improving, and we expect our global sales volume in the second half to increase significantly by 35.8% from the first half. However, the pace of recovery continues to be slower than our initial expectations. As a result, we are lowering our global sales volume forecast from 4 million units to 3.7 million units.
We will continue to work on improving the quality of sales and optimize our operation by closely monitoring the situation. This is the revised full year forecast for fiscal year 2022 on an equity method basis. Despite the decrease in sales volume for the fiscal year, we have revised upward forecast for net sales to ¥10.9 trillion, operating profit to ¥360 billion, which represents an operating profit margin of 3.3%. The exchange rate assumptions for the current fiscal year have been revised from ¥120 to ¥135 for the U.S. dollar and from ¥130 to ¥137 for the euro.
The upward revision for revenue and operating profit is not only due to the depreciation in the yen, but also due to the increase in net revenue per unit resulting from our initiatives to improve quality of sales, including lower sales incentives and pricing revisions. Through these efforts, this is expected to offset the negative impacts from the decrease in sales volume and increase in raw material prices. Our forecast for net income is ¥155 billion. We are only making a small revision as we incorporated an expected extraordinary loss of approximately ¥100 billion due to the exit from Russian market. Without the onetime impact of Daimler share sale in the previous year and Russia exit this year, our net income would have increased significantly from the prior year. This slide provides the operating profit variance from the previous outlook.
Due to the depreciation of the yen, foreign exchange is expected to have an additional positive impact of ¥125 billion. As for raw materials and logistics, although prices for some materials have fallen in recent months, overall, they have remained high and certain items such as battery materials continue to rise sharply, resulting in an expected additional negative impact of ¥70 billion. Performance is expected to increase by an additional ¥30 billion due to the positive effects of approximately ¥145 billion from our sales initiatives, such as mix improvement, incentives, reduction and price revisions, which is expected to more than offset the negative effects of ¥115 billion from the decline in volume. The investment for new vehicles is expected to continue a positive impact of ¥25 billion due primarily to the optimization of advertising expenses.
Despite the challenging environment in fiscal year 2022, we are making steady progress to reach the objectives set forth under Nissan NEXT, and we will keep investing for the future.
Now I would like to discuss about our dividend policy. Back in May, we said that we have — that the interim dividend for the current fiscal year was to be determined due to the volatile external environment. Our production and sales are currently on the recovery trend and our automotive free cash flow is also improving accordingly. Nissan’s automotive free cash flow, which was a negative ¥304.6 billion in the first quarter turned positive in the second quarter to ¥206.6 billion. However, the total amount of the automotive free cash flow from the first 6 months remains negative at ¥98 billion. Moreover, uncertainty in the external environment remains for the second half with risks such as a slowdown in the recovery of semiconductor supply inflation and rising interest rates. Therefore, we decided to forego payment of an interim dividend. We are forecasting a year-end dividend of ¥5 per share, but we will consider increasing this amount depending on the earnings and the automotive free cash flow for the second half of the fiscal year.
Improving shareholder returns continues to be 1 of our priorities, and we will work to increase the amount to an appropriate level in the future. We appreciate your understanding and support.
Finally, to reiterate, Nissan NEXT is making steady progress despite the difficult environment, and we are confident in our transformation. Regarding new products, which are the core of our business, all our models have been very well received by our customers and influential experts. In Japan, for example, the Sakura won the Car of the Year award from the Japan automotive Hall of fame. In addition, it was announced last week that 3 Nissan models were selected as the 10 best cars in the Japan Car of the Year and the RJC Car of the Year sixth best.
We believe that these high valuations validate our efforts to continually enhance our products to deliver greater value to our customers are beginning to bear fruit. In this fiscal year, we are also moving forward with efforts to realize our long-term vision, Nissan Ambition 2030 while firmly committed to business transformation through Nissan NEXT.
Under Ambition 2030, we aim to empower mobility and society by providing value that only Nissan can deliver with electrification, vehicle intelligence technologies, which are our strength. The alliance is one of our powerful tools that others do not have in realizing Nissan Ambition 2030. Nissan is currently engaged in discussions around several initiatives as part of the continued efforts to reinforce cooperation in the future of Alliance.
Why are we talking to Renault now. Let me share with you the background. The first factor is the external environment. Our company is expected to assume greater responsibilities for addressing global challenges, including the COVID-19 pandemic, climate change and societal issues. In terms of operations, we must deal with semiconductor supply shortages, rising raw material prices. The sharp yen depreciation that is occurring for the first time in 32 years, our dividend — divided world resulting from the geopolitical risks, including the situation in Ukraine and the changing customer mindset.
We see growing awareness of SDGs and disaster prevention, a shift from ownership to sharing and acceleration of digitalization. There is a growing need for a more sophisticated technologies, such as autonomous driving, connectivity, EV, battery and software-defined vehicle SDV as we adapt to the changes. In this context, we need to have clear priorities and address multiple challenges at the same time while leveraging the alliance and other partnerships.
Our alliance has been building a strong track record and trust over many years. Based on this foundation, we are engaged in open and constructive discussions on how to design the alliance in a way that will bring greater benefits to each partner. Regarding the new EV entity, which Renault Group presented yesterday at the Capital Market Day, we are deepening the reflection on how the entity would be beneficial for Nissan and how we would participate.
We will consider to invest in the entity following the ongoing discussions. The most important thing for us is to elevate the alliance to the next stage in order to increase Nissan’s competitive edge enable us to realize Nissan Ambition 2030 and ensure sustainable growth for the company.
You may have a lot of questions about the ongoing talks. We kindly ask you for your patience until we reach our conclusion, and we are ready to communicate in due course.
Thank you for your attention.
Question-and-Answer Session
A – Sadayuki Hamaguchi
Thank you for your attention. We’d now like to take your questions for the Q&A session. Today, we’re focusing on financial results. So we’d like to take questions that are focused on the financial results. As for questions outside this topic, we’ll take them after these questions are taken. With regard to the discussion for [indiscernible] alliance, as Mr. Uchida mentioned, this is an ongoing discussion. So we will not be able to respond to any questions on this matter. We appreciate your kind understanding beforehand. So we take questions about the financial results.
Operator
[Operator Instructions]. Okay, shall we start with the Q&A session. Starting with NHK, NHK Yamana-san [ph] of NHK, please.
Unidentified Analyst
Depreciation of yen has made a big contribution to the earnings. And looking at the latest ForEx, and there may be a volatile, what are the pros and cons of the volatility of the ForEx going forward on the earnings? That is my question.
Makoto Uchida
One by one. Shall I answer? Yes. Thank you for your question, [Yamana-san]. Well, in such a historical weekend, after 32 years, we are seeing in this level, in terms of earnings, it has been a positive contribution. But in the mid- and long-run, and looking at it from the cost, whether it’s materials and the operation, for example, in North America, China. If you look at all these aspects, it doesn’t necessarily mean that in the mid and long term, this sharp yen depreciation or even yen appreciation, this volatility of ForEx, in terms of sustainability, the operation will generate a lot of challenges for us. So in that sense, we need stable ForEx. That’s more preferable for us. When we look at the mid- and long-term perspective, localization or if you think about the presence of localization stable foreign exchange is preferable for us.
Operator
Okay. Next question, please. Yes, go ahead.
Unidentified Analyst
Last one, excuse me. And production is recovering, you said. And — it has been a contribution of the earnings and the raw material price hike, what’s — how will until when will it last? Maybe it’s very, very difficult to project on the raw material price hike, but how do you see it?
Makoto Uchida
Well, I will give you a big picture. Raw material price is increasing compared to the prior year. As I showed you, it’s generating more than ¥300 billion of negative. So well, we are taking many actions, including the usage we are optimizing or reducing the costs internally. And on the other hand, what will happen going forward, the projection. There are a lot of uncertainties today. So we need to continue to carefully monitor the situation, especially when you look at the raw materials, this will have a large impact on the suppliers whom we deal as well together with the suppliers, we are discussing and monitoring the situation and anticipating things. That’s the only thing that we can say for now.
So on this point, we are not — we shouldn’t be optimistic and we need to continue carefully monitoring the situation and run the operations accordingly. I would like to hand it over to Ashwani-san who is heading the operations, if you have anything to elaborate.
Ashwani Gupta
Thank you. Thank you for your question. Yes, it’s very important for us to find certainty, amongst all the uncertainties we have. So that’s why the agility and resilience of the organization is the most important thing. On one side, we have suppliers who are facing the challenges on their cost structure because of increasing inflation, increasing energy prices, increasing raw material prices. On the other side, we have customers who are paying for the value of the products and are waiting for the new products. So there’s a very fine balance between what is raw material prices going up between how much is the productivity we can do to absorb those raw material prices and how much we can convert into the value which customer is willing to pay. And in our view, I think it will continue in 2023 also. But after that, the things should stabilize. But we do believe that it will continue in next 1 year also. Thank you.
Operator
Moving on to the next question Nikkei Shimbun [ph]. Yumaya-san [ph] please.
Unidentified Analyst
Nikkei Shimbun, Yumaya speaking. Thank you for this opportunity. I would like to ask you about the financials for CFO. And one question. Q1 and Q2, if you look at the 2 quarters, operating profit, looking at the variance analysis, we can see that the sales performance is generating a big contribution, especially in terms of volume and mix. Could you elaborate on this point? What was the drivers really. Could you elaborate on this so that we can have a better understanding? That’s my question.
Stephen Ma
Sure. Thank you, Yumaya-san. As we had repeatedly said in the last few quarters, I mean, as a company, we have focused on value over volume, and we really focus on quality of sales and discipline in how we sell the vehicles. In the performance, reflecting that. I believe you’re looking at Page 7, where you see the volume mix and selling expense and pricing, that’s a big contribution. Within that volume mix, obviously, the mix has improved a lot. That’s the main positive factor for us.
And within the selling expense and pricing, a majority of that is pricing and incentive savings. So they demonstrate that our focus on value of sale and a disciplined approach to focus on value has worked. And so far, the customers have reacted very well to all our new models that we launched in all the markets. And I believe we haven’t even seen the full effect as we had supply constraints. So I believe we will see also the continued effect of these value recognition by the customers going forward. Thank you.
Unidentified Analyst
Let me continue. Second question. Today, in U.S., especially the revenue is increasing. And looking at the segment profit by segment, I don’t think this is — I’m not sure whether this is a direct factor, but the sales finance — sales finance profit seems to be declining slightly since between April and September. But as the interest rate rises, what is the impact on sales finance because of the interest rate hike? What do you see today? What are your thoughts here?
Stephen Ma
So I’ll take this question as well. Thank you for the question. Obviously, with the recent multiple interest rate hike by the U.S. government, it does have a short-term impact on us. Of course, as consumers face the higher interest rate, they will be shopping around for the most affordable and reasonable interest rates. So in the short term, as you can see in the appendix also, our penetration, therefore, has come down a little bit, because of that as the customers are shopping around. Secondly, as you have maybe noticed also sales finance profit certain amount come down slightly, but that’s purely a function of our volume in the past has come down a little bit, and therefore, our portfolio is slightly less. So in terms of performance or profitability of our sales finance business is actually improving our profitability margin has actually increased year-over-year. So performance is good.
Right now, the interest rate is actually a big factor in deciding consumer behavior. And we think that as interest rates flattens out and slow down a little bit, it will catch up and this timing difference will not last for a long time. So we will see our penetration ratio come back up again in the near future. Thank you.
Operator
Okay. Thank you so much. Moving on to the next question. Yomiuri Shimbun, Suzuki-san [ph], please. Suzuki-san
Unidentified Analyst
I have two questions. The first 1 is about Japanese market pricing approach in Japanese market. Raw material price hike continues, and this has a large impact on your bottom line. And among the vehicle manufacturers, they are talking about price. What’s your pricing strategy going forward? That’s my first question. Pricing strategy.
Let me continue the second question. In the second half of the year and including 2023 fiscal year, what’s the sales projection? Looking at the latest results, incentive has been reduced and you are increasing the quality of the sales. I can see it. But going forward, as the shortage of the supplies improve and the backlog is solved, then will you need to spend more incentives at the end of the day? Do you think so? If this happens, can you maintain this high quality of sales, do you have any measure to maintain this high quality of sales?
Makoto Uchida
First, talking about pricing. As we have done in the past, considering customer and based on the customer value, we are determining the pricing. That’s the approach we have been taking and this will not change. But if you look at the raw material price hike and other logistics costs rise, according to the market trend, we will take the right measure. That’s what we need to look at going forward. And on the other hand, quality of sales in Nissan Next, this has been 1 of the big pillars to let the customers understand the value of Nissan products. In every quarter, we can see the results that are generated. Given the tough challenges, we will not change this. We will remain focused, deliver value to the customers rather than pursuing volume. That’s what we are doing worldwide.
And once customers acknowledge or recognize the real value of the products, and if they accept it, naturally, this will result in higher volume. Naturally, if we look at the market trend incentive, we will look at the incentive situation market by market. So we need to monitor the situation but our policy remains unchanged. And we will continue delivering the value, which is acknowledged by the customers so that the customers are ready to pay for. That’s what we are going to deliver as attractive cars.
If you look at the latest models under Nissan NEXT, these are all appreciated, well received in the market. As a carmaker, it’s good to see our cars appreciated by customers, and this is resulting in the value that we deliver. So we would like to nurture this. On the other hand, we need to ensure the basically needed volume. That’s our approach. Ashwani-san.
Ashwani Gupta
Thank you, Uchida-san. No, I think pricing strategy is very important. We can make the pricing strategy, but at the end, it is the customer who decides what should be the pricing. So that’s what is our core before we decide the pricing. And that’s why in many of the markets, especially in Japan, we did not went straight away since last year to increase the prices. First, we are delivering the value, starting with Ariya, with Sakura — and then customer is recognizing and of course, then we are requesting customer to pay for the value they recognize.
For your second question, for the second half of the production, as we mentioned, that first half, our retail sale was 1.69 million. And for the full year, we today reforecasting 3.7 million which means that we will be doing close to 2.1 million sales, which means we have increased in the second half in the sales. If I convert into production, definitely, our production is increasing in the second half. So that’s what we have in the second half. Now looking at 2023, as I explained before, that we are getting the alternative chips and the dual sourcing, and this will continue and help us in improving 2023, but whether that is going to satisfy all of our demand, I don’t think so. So even 2023, we will enter with the supply chain challenges, especially driven by the semiconductors.
Now your last question was about the incentives. I think Nissan has got 3 things, which are very important to understand that what’s behind the sales power and what’s behind the incentive. The first thing is that how many of the customers recognize Nissan as a great brand, driven by the technology. And now what we see that all the 12 products which we have launched in 18 months the products everywhere from Europe, from Japan, China, United States, every product has been perceived well and our brand value has improved significantly in this market, which means what, which means that we are able to attract the higher household income of customers in the United States, but also in Japan because 50% of our customers of Sakura, of Note Aura are conquest customers who are coming from the different brands because they find Nissan cars to be more attractive. So that’s forced that our brand power is increasing.
The second is the content of the technology in our cars is increasing, which has got a value, which is increasing the customer-facing transaction price, whether it’s United States or Europe or everywhere, and customer is paying for it. So these 2 things are purely driven by our performance.
The third factor is incentive. And as we know that 2 to 3 years before, Nissan used to have much higher than the industrial average of incentives in the United States. So that was our nonperformance. Now when you see for last 1 year, we are almost close to the industrial average. In some months, we are better than industrial average. So first, we are removing that inefficiency in our incentive system from above industrial average to the industrial average. So that will always continue as far as we are disciplined and we are committed to be disciplined. Then if the volumes are coming back and the industrial incentives are adjusting as per the market, definitely, we will adjust because at the end, in the market, we are here to compete with our competitors to attract more customers.
Operator
Moving on to the next question [indiscernible].
Unidentified Analyst
[Indiscernible] from Nihon Keizai Shimbun. Can you hear my voice? Can you hear me. Can you hear me.
Operator
Yes, we hear you, sir. Please go ahead. We hear you.
Unidentified Analyst
Thank you for this opportunity. You talked about this a bit earlier. So the raw materials are increasing. And in certain models, so I understand that I think you’re moving to increase prices for some of the models. So — how do you tend to provide return to the component suppliers? How do you tend to provide return to the suppliers? I know that you’ve been working on such initiatives in the past, but this has been the rapid price in commodity prices. So energy costs and power costs are going to offer some subsidies to Tier 2 suppliers going forward? Any thoughts about this. I would appreciate your response.
Makoto Uchida
Thank you. Thank you for your question. With regard to suppliers, suppliers are very important business partners for us. So we are working to realize growth together with our partners. So despite the very difficult business environment, we have had very close discussions with our suppliers. So that being the case, the burden on the part of those suppliers, we are aware of this from the past with regard to raw materials. We have taken appropriate response vis-a-vis these suppliers in the recent. From this fiscal year, — the most significant has been in relation to the cost for semiconductors and also power, electricity power, electricity costs rather and also the logistics costs for the suppliers. This fiscal year has been very high. So that is why we have been taking very appropriate responses to our suppliers on these fronts. And going forward, we’ll continue to with regard to matters that are beyond the control of the suppliers will discuss with their suppliers so that we can take appropriate measures and so that we’ll be able to grow together. So that is how we’re addressing this matter.
Operator
Because of the time constraint, this will be the final question for the financials. Just 1 question, please. Toyo Keizai, Yokoyama-san please.
Unidentified Analyst
Yes, this is Yokoyama [ph]. Just 1 thing about the Japanese operation by segment, if you look at the reference materials, there’s a big deficit or loss you are making. Are you going to make it profitable? Eventually, there may be specifics which are unique to Japan. What are the drivers of the deficit that you are generating in the Japanese market segment?
Makoto Uchida
Yes. First off, we want the customers to recognize the value of our cars. So including the existing cars we want to bring it up to the appropriate level. So while working together with the customers, we would like to boost the volume. And I think this is the immediate challenge. On the other hand, in terms of supply, we are asking customers to wait for a long time. So as soon as possible, we want to deliver the cars. This is the big approach, general approach. And talking about the details Ashwani-san will elaborate, please, about the Japanese operation.
Ashwani Gupta
Thank you. At first, yes, first priority is customer waiting time to be reduced as soon as possible. The second is how we get Japanese customer recognize electrified cars, and this is what we are working on with Ariya and Sakura. That’s the reason. In Ambition 2030, we announced that by 2030, 50% of our electrified mix in Japan will be higher than 50%. But thanks to the great success of Sakura and Ariya, we have already achieved in 2022, which means we are leading the democratization of electrification in Japan. The third deficit, which I would say is Japan is our home country, and we keep all of our new technologies in terms of process, product in Japan, and we invest and we are investing heavily in Japan in the plants, in the R&D, in the advanced R&D, which means we need volume domestic as well as the export volumes in Japan to grow Japan more and more profitably for global Nissan.
And that is purely dependent on the supply chain. So these are the 3 big deficits, which we believe in Japan we have, but we have — we want to convert these challenges into opportunities and make Japan a big growth profit pillar for global Nissan.
Operator
Thank you. We have several more minutes. Is there any question other than financials, we are ready to take some questions other than financials. Nikkei Shimbun, [indiscernible].
Unidentified Analyst
This is Nihon Keizai Shimbun, [indiscernible] speaking. It’s hard to ask. It’s about alliance. I’m not going to ask you about the details of the ongoing talks. But yesterday, Capital Market Day took place, and [indiscernible] talked about the intellectual property, for IP, you need to — he said he need to discuss IP for the past and the future. Specifically, what kind of differences in the opinions you have between — Renault and Nissan with regards to the IP. This is the first question. And the second question, Google and Qualcomm are ready to participate, and Renault will develop new products, what third-party non-alliance, third party will be involved in development work? And how do you perceive this?
Makoto Uchida
Thank you. As I said in the beginning, we are discussing how to increase the competitiveness within the alliance and how this benefits the growth of each entity. That’s what we are seriously discussing today. That’s what I would like to reiterate — and talking about the second question that you raised. Going forward in delivering a variety of services, especially in the front of electrification, the world is divided and the speed of each country defers and customer acceptance differ. In this context, collaboration with the partnership is a natural consequence.
Therefore, Renault as the next step of revolution decided to consider the discussion — started to discuss with these new partners, and that has been presented at the Capital Market Day, enhancing the value of Nissan together with other partners is what we need to think about. So this is a natural consequence or natural evolution. But as I said, for example, going forward, what how — if Nissan were to work together on the new entity with Renault, what are the potential benefits? And how should we do — that’s what we need to discuss on.
And going back to the IP subject, intellectual property. IP, I don’t know how to put it. As a common sense of business, we need to have a common sense based discussion with the partner. So if we worked with a new partner, we need to have the careful discussion. So it’s natural. So with the common sense, we need to have a good discussion. That’s what we have to do. I’m not sure whether this is answering your question. But what’s the most important thing is business transformation in carrying out business transformation, whom should we partner and what kind of value should we deliver as a company is a question? And what should be the strength or competitive edge of each company? And how should we treat the IP in this context. This is about the usual business, business as usual. So in that sense differences in opinion of IP, that’s what you mentioned, but that’s — as far as I know that doesn’t exist.
Sadayuki Hamaguchi
It’s time. After this, there will be a financial announcement by other carmakers. So with this, we would like to conclude the session for today. Thank you for joining.
Makoto Uchida
Thank you.
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