7280.T

• Overall Consolidated Performance

  • The second quarter recorded 167.3 billion yen in consolidated sales and 9.9 billion yen in operating profit, with overall lower revenue and profit year-over-year. This decline was driven by a drop in four-wheeler production volumes and the negative impact of yen appreciation, which reduced sales by 6.1 billion yen and operating profit by 0.6 billion yen, partially offset by strong performance from two-wheeler and information services businesses that added 1.4 billion yen in value. A 1.6 billion yen increase in personnel costs (driven largely by Japanese wage hikes) also pressured margins, partially offset by a 0.5 billion yen reduction in logistics and other expenses.
  • Balance sheet health improved: equity ratio increased 2.3 percentage points year-over-year, and net D/E ratio improved 0.1 percentage points due to interest-bearing debt reduction and retained earnings growth.

• Strategic Portfolio Transformation (Four-wheeler Market)

  • Mitsuba is prioritizing growth in thermal management and chassis system segments, which are increasingly in demand for EVs and hybrids. Mass production of brushless fan motors for electric vehicles will start next year, first launching in North America followed by Japan, with orders already secured from 4 OEMs.
  • The company secured new orders from a previously non-supplied Tier 1 customer for electric power steering, with mass production starting in 2026, launching first in Japan and targeting global expansion if demand grows.
  • For the core visibility and comfort segments (existing core business), the strategy is to improve margins and pursue incremental expansion, with new front wiper orders secured from new customers/regions for 2027 mass production start.

• Strategic Portfolio Transformation (Two-wheeler Market)

  • While two-wheeler electrification is progressing slower than four-wheeler, preparation is well underway: development of the two-wheeler EV drive system (integrated motor + controller) is complete, with a mass production line planned to launch in India next year. The first commercial application is for the Japanese small mobility vehicle "mibot", with mass production starting ahead of its December 2025 launch.
  • Internal combustion engine components (fuel systems, engine auxiliaries) remain a core growth segment, with large production increases planned starting 2027 in India, Brazil and ASEAN to meet growing demand for ICE two-wheelers in these markets.

• Investment Plan

  • Mitsuba plans to invest a total of 50 billion yen over the three years starting this fiscal year, up from 20 billion yen over the prior two years, with 33 billion yen allocated to growth investment.
  • Investment allocation: Japan/North America for four-wheeler electrification; India for two-wheeler and four-wheeler expansion; ASEAN/Brazil for two-wheeler capacity. The planned investment for India has already been increased from the 9 billion yen planned six months ago due to stronger-than-expected order growth.

• India Expansion Strategy

  • The Indian market is projected to grow 40% for two-wheelers and 30% for four-wheelers over the medium term. Mitsuba targets doubling its Indian revenue over five years to reach 70 billion yen by FY30, outpacing market growth, after already doubling revenue over the past five years.
  • Market share targets: increase two-wheeler engine auxiliary share from 40% to 50%, fuel system share from 16% to 40%, and four-wheeler visibility system share from 30% to 50%, targeting growth with both leading Japanese and local OEMs including Maruti Suzuki India, Tata Motors and Mahindra & Mahindra.
  • Infrastructure expansion: the company currently operates 4 production sites in India, with ongoing construction of a new factory building at the Gurgaon plant, conversion of the existing Ahmedabad warehouse to a production facility by FY28, and 2.5 billion yen planned for factory construction alone. A new R&D center with headquarters in Chennai and a satellite site in Gurgaon is being established to develop locally optimized products using local supply chains, reduce costs and speed up development.
  • Progress to date: orders are already sufficient to push revenue above 50 billion yen by FY27 (two years from now), with additional RFQs outstanding that support the FY30 70 billion yen target.

• Rare Earth Free Motor Development

  • Mitsuba has been developing rare metal free motors since 2010 in response to prior rare earth export restrictions. It has already commercialized rare metal free front wiper brushless motors that replace neodymium magnets with ferrite magnets, maintaining equal performance in the same form factor via optimized control. Mass production started in 2023 and expansion is ongoing, with the design also reducing material costs significantly while mitigating geopolitical supply risk.

• Full-year US tariff impact is projected at 4.5 billion yen (operating profit base), with 1.5 billion yen impact recorded in the first half, partially mitigated to 0.75 billion yen net impact via internal mitigation measures.
• Mitsuba maintains its previously announced full-year earnings guidance, with no revisions as of the second quarter. Uncertainty from the Nexperia semiconductor supply issue, the US aluminum supplier fire, and Honda's global 280,000 unit/US 110,000 unit four-wheeler production cut cannot be reasonably estimated at this stage.
• Global vehicle production forecasts project 10% four-wheeler production growth and 30% two-wheeler production growth from FY24 to FY30, with the strongest growth coming from India and other Asian markets for two-wheelers, and Asia, US and China for four-wheelers.

1. Information Services Business: Previous year same period: 7.6 billion yen sales, 0.6 billion yen operating profit; Current period: 9.3 billion yen sales (+1.7 billion yen year-over-year), 1.1 billion yen operating profit (+0.5 billion yen year-over-year), with an increased share of consolidated revenue. 2. Two-wheeler Business (within Transportation Equipment Business): Sales increased year-over-year, with revenue contribution rising from 30.5% to 32.5% year-over-year. 3. Four-wheeler Business (within Transportation Equipment Business): Revenue declined year-over-year due to lower production volumes, dragging down overall consolidated performance.

• US additional tariffs are projected to reduce full-year operating profit by 4.5 billion yen; supply chain reconfiguration takes time, and full cost pass-through to customers has not been achieved as of yet.
• Four-wheeler production volumes declined 8.5% year-over-year in the first half, with particularly large declines of 4.7% in Japan and 21.0% in China for major Japanese OEMs. Key customer Honda has announced further production cuts due to supply chain disruptions, with uncertain full-year impact.
• Yen appreciation has created significant negative foreign exchange headwinds for consolidated revenue and profit.
• The Chinese market is facing severe headwinds due to declining production from key Japanese customers, with ongoing pressure to cut fixed costs and potential plant closures if performance does not improve.
• Geopolitical risks including rare earth export restrictions continue to create supply chain uncertainty for magnet-based motor production.
• Vietnam's planned engine vehicle entry restrictions in Hanoi (and potential regional expansion) may reduce two-wheeler sales in the near term.
• India's market has intense price competition, creating ongoing pressure to reduce costs to improve profitability.

Q: What specific steps has Mitsuba taken to improve profitability in India, which has a reputation for tough price competition? / A: The main drivers of improved profitability over the past two years have been two factors. First, higher sales volumes have improved factory utilization rates. Second, the company has steadily increased local procurement of components to reduce costs. These two factors have combined to deliver tangible profit improvements. For further improvement going forward, the key is deepening local production with local materials, which the new local R&D center will accelerate by enabling faster local development and design to drive greater cost reductions.

Q: What is the rollout plan for rare earth-free motors, and what product categories will it expand to? / A: The current commercialized product replaces high-cost, supply-risk neodymium magnets with low-cost, easily sourced ferrite magnets, delivering nearly equal performance via optimized simulation and control technology. The company plans to sequentially expand this design to drive motors, oil pumps, water pumps and other product categories. For higher output applications, it is also developing reluctance motors that do not use magnets, and is preparing to propose this design to customers.

Q: What is the outlook for China business, which has seen declining sales amid a difficult market? / A: The China market has gotten increasingly competitive, with large declines in production from core Japanese customers like Honda and Nissan weighing heavily on performance, though the business serves some European customers with varying performance across the portfolio. Mitsuba has been cutting fixed costs consistently, including headcount reduction when needed, and will continue further cost cuts while monitoring customer demand. If cost cutting is not sufficient to offset weak demand, plant closures are under active consideration as of now.

Q: What is the business outlook for the two-wheeler EV drive system beyond the initial mibot application? / A: Mitsuba has received inquiries from Japanese OEMs for other small specialty vehicle applications, in addition to the initial mibot order from KG Motors. It is also developing derivative versions for motorcycles, and is in commercial discussions with both Japanese and foreign OEMs, as well as Japanese and local OEMs in India. Some opportunities are close to awarding orders, while others are still in early stages. Mitsuba's core competitive advantage is supplying the full integrated system of motor plus controller.

Q: What mitigation measures is Mitsuba implementing to offset the 4.5 billion yen full-year tariff impact and Honda's production cut? / A: The company is targeting 7.0 billion yen in internal improvement and mitigation, with most of this coming from price increase negotiations with customers, plus global urgent cost cutting focused on general expenses. No upward market assumptions are built into the current forecast. Since the scope of the semiconductor supply disruption impact on Honda's production is still unclear, it is not possible to reasonably estimate the impact for a guidance revision at this stage. Price increase negotiations are focused primarily on four-wheelers, but are also being implemented for two-wheelers, and negotiations are ongoing as no customers have agreed to fully absorb the tariff cost.