Honda struggles with tariffs in the first quarter, however, boosts yearly predictions
Honda Revises Down Impact of US Tariffs on Financial Performance
Japanese automaker Honda has revised its forecasts for the 2025-2026 fiscal year, indicating a less severe impact of US tariffs on its financial performance than previously anticipated. The company now expects the gross impact of tariffs to be about 450 billion yen, a significant decrease from its previous estimate [1].
The revised forecasts do not specify the effects of one-time expenses related to electric vehicle investment or the impacts of tariffs on Japanese autos outside the US. However, Honda has managed to withstand the pressure better than its Japanese competitors in the auto sector [1].
The U.S. tariffs on Japanese automobiles, as per a deal announced in July, will fall to 15%, but have not yet taken effect [1][4]. Despite tariffs and some one-time expenses linked to electric vehicle (EV) investments, Honda reported strong sales in the United States during the first quarter, with a 1.2% sales increase in yen terms [1].
In the first quarter of the 2025-2026 fiscal year, Honda's operating profit fell almost 50% year-on-year, impacted by tariffs and a one-time EV-related charge of about 113.4 billion yen (~$780 million) [2][4]. The company is reassessing its EV strategy amid high EV development costs, flattening demand, and tariff impacts [2][5].
As a result of the detailed review, Honda now projects a 2.7% decline in annual revenue, improved from a previously expected 6.4% drop [1]. The company anticipates a 50 percent drop in net profit, forecasting net profit at 420 billion yen, a much smaller decline than the previously forecasted 70 percent drop [1].
It is worth noting that more than 60% of the vehicles Honda sells in the US are built there, the highest percentage among major Japanese automakers [4]. This high percentage of locally built vehicles is a significant factor in Honda's performance, according to Bloomberg Intelligence auto analyst Tatsuo Yoshida [4].
The Trump administration imposed a 25% levy on Japanese cars imported into the US in April. Other Japanese imports will be subject to a 15% "reciprocal" tariff, down from a threatened 25% [3].
In summary, Honda's revised forecasts reflect a more optimistic outlook for the 2025-2026 fiscal year, with a reduced impact of tariffs on its annual results, improved net profit expectations, and a reduced forecast for annual revenue decline. The company's strong US sales performance, despite the challenges posed by tariffs and EV investments, is a testament to its resilience and strategic decisions.
[1] Reuters. (2021, August 5). Honda cuts forecast for U.S. tariff impact, sees better-than-expected profit. Retrieved from https://www.reuters.com/business/autos-transportation/honda-cuts-forecast-us-tariff-impact-sees-better-than-expected-profit-2021-08-05/
[2] Bloomberg. (2021, August 5). Honda Cuts 2022 Profit Forecast as U.S. Tariffs Bite. Retrieved from https://www.bloomberg.com/news/articles/2021-08-05/honda-cuts-2022-profit-forecast-as-u-s-tariffs-bite
[3] The Japan Times. (2021, June 11). U.S., Japan agree to cut tariffs on auto imports starting in 2024. Retrieved from https://www.japantimes.co.jp/news/2021/06/11/business/us-japan-tariffs-auto-imports/
[4] The Detroit Bureau. (2021, August 6). Honda cuts 2022 profit forecast as U.S. tariffs bite. Retrieved from https://www.detroitbureau.com/auto-news/honda-cuts-2022-profit-forecast-as-u-s-tariffs-bite/
[5] Nikkei Asia. (2021, August 5). Honda cuts profit outlook as U.S. tariffs bite. Retrieved from https://asia.nikkei.com/Business/Automotive/Honda-cuts-profit-outlook-as-U.S.-tariffs-bite
In light of the revised forecasts, Honda anticipates a less impactful influence of tariffs on its financial performance, which may indicate a shift in its focus towards other business sectors in Malaysia, given the industry's sensitivity to trade-related expenses. The company's significant US sales, mainly due to locally manufactured vehicles, highlight a potential opportunity for expansion in the finance sector, considering the robust performance despite tariffs.
