Analyst - Japan Autos, Hirakata Office

Noriaki Hirakata, CFA

Analyst - Japan Autos

Hirakata Office

Thematic (Sector/Industry)

Japan Automobiles / Thematic (Sector/Industry)

<h2><strong><span lang="EN-US">2017 SAAR Forecast</span></strong></h2><p style="text-align: left;"><span lang="EN-US">Regarding the SAAR forecast for 2017, which should be a concern for investors, the viewpoint of each automobile manufacturer is consistent with a flat performance to a slight decrease. </span></p><h2><strong><span lang="EN-US">Expectations from Sell-side look too Optimistic</span></strong></h2><p style="text-align: left;"><span lang="EN-US">With slightly increasing incentives associated with the risks of automotive financial service business, FY2017 business guidance would be the combination of a small decline in revenue and deeper than expected profit decline. </span></p><h2><strong><span lang="EN-US">What's New?</span></strong></h2><ul><li style="text-align: left;"><span lang="EN-US">You should look at Subaru's new SUV, the "Ascent". </span><ul><li style="text-align: left;"><span lang="EN-US">While it looks very nice, it is a high cost product. We need to watch the pricing strategy on this model.</span></li></ul></li><li style="text-align: left;"><span lang="EN-US">Other models worth looking at are from Honda's Clarity series. </span><ul><li style="text-align: left;">On April 12, Honda unveiled the "Clarity Plug-In Hybrid" and the "Clarity Electric" for the first time.</li><li style="text-align: left;">The Clarity Plug-In Hybrid seems to have a big handicap in terms of cost and weight in comparison to Prius PHV with battery loading of 8.8 kWh and Outlander PHEV with 12 kWh.</li><li style="text-align: left;">With a heavyweight battery, Clarity EV drive range (40 miles) is not very different compared to the Prius (about 42 miles) and the Outlander PHEV (38 miles).</li><li style="text-align: left;">It is difficult to find the competitive edge at vehicle appeal or technological advantage.</li></ul></li></ul><h2><strong>Conclusion</strong></h2><ul><li>We got the opportunity to talk with several US investors with the request of Morgan Stanley in New York. To our surprise, some investors believe Honda is leading other companies with E-drive technology. We touched upon this on the previous note, but we are afraid that Honda is overestimated for its technology development capabilities in the capital market.</li><li>Although there is a challenge for both Ascent and Clarity, it is obvious to us which model will win under the stress scenario ($/Yen 100 yen, US SAAR 16 million, mild credit-crunch situation).</li></ul>

2017 SAAR ForecastRegarding the SAAR forecast for 2017, which should be a concern for investors, the viewpoint of each automobile manufacturer is consistent with a flat performance to a slight decrease. Expectations from Sell-side look too OptimisticWith slightly increasing incentives associated with the risks of automotive financial service business, FY2017 business guidance would be the combination of a small decline in revenue and deeper than expected profit decline. What's New?You should look at Subaru's new SUV, the "Ascent". While it looks very nice, it is a high cost product. We need to watch the pricing strategy on this model.Other models worth looking at are from Honda's Clarity series. On April 12, Honda unveiled the "Clarity Plug-In Hybrid" and the "Clarity Electric" for the first time.The Clarity Plug-In Hybrid seems to have a big handicap in terms of cost and weight in comparison to Prius PHV with battery loading of 8.8 kWh and Outlander PHEV with 12 kWh.With a heavyweight battery, Clarity EV drive range (40 miles) is not very different compared to the Prius (about 42 miles) and the Outlander PHEV (38 miles).It is difficult to find the competitive edge at vehicle appeal or technological advantage.ConclusionWe got the opportunity to talk with several US investors with the request of Morgan Stanley in New York. To our surprise, some investors believe Honda is leading other companies with E-drive technology. We touched upon this on the previous note, but we are afraid that Honda is overestimated for its technology development capabilities in the capital market.Although there is a challenge for both Ascent and Clarity, it is obvious to us which model will win under the stress scenario ($/Yen 100 yen, US SAAR 16 million, mild credit-crunch situation).

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