Honda predicts a 70% decrease in net profits, attributing the decline to tariff-related impacts.
Gearing Up for a Tough Ride: Honda Banks on Resilience as US Tariffs Choke Profit Margins
Honda Motor Company, Japan's second-largest automaker, predicts a staggering 70% drop in net profit for the 2025-26 fiscal year, with the US trade tariffs exerting considerable pressure on the global automotive industry.
The disheartening forecast follows rival Toyota's prediction of a 35% decline in annual net profit due to similar factors. Honda expects its net profit to hover around 250 billion yen ($1.7 billion) in the 12 months to March 2026, owing to the negative impact of tariffs and recovery efforts, which would cost the company a whopping 450 billion yen over the year.
In a significant move to cripple foreign-made automobiles, President Trump imposed a 25% tariff on imported vehicles last month. This aggressive action has sent shockwaves through the industry, particularly among Japanese carmakers like Honda.
CEO Toshihiro Mibe conceded that tariffs have wrought havoc on their business, making it exceedingly difficult to forecast an accurate outlook. Honda, initially targeting a net profit of 950 billion yen in the previous fiscal year, ended up with a mere 835 billion yen, marking a 25% drop year-on-year. The decline can be attributed to a confluence of factors, including a drop in sales volume in China and ASEAN and increased incentives for electric vehicle sales in North America.
Despite the gloomy forecast, Honda appears to be better poised to weather the storm compared to its Japanese counterparts. In a silver lining, Trump recently softened the auto tariffs by signing an executive order to limit the impact of overlapping levies on carmakers. Moreover, the industry is granted a two-year grace period to relocate their supply chains back to the United States.
Honda stands to benefit significantly from these temporary reprieves, as more than 60% of the vehicles it sells in the US are built domestically. This high percentage means the impact from tariffs will be comparatively smaller for Honda. As a response, Honda has decided to manufacture its Civic hybrid model in Indiana starting in 2028, instead of Mexico in 2027, resulting from the tariff announcement. Additionally, the company increased its US inventory to dodge tariffs during the first quarter of 2025.
While Honda grapples with these challenges, the future remains uncertain for the company and the global automotive industry as a whole. The relentless tariffs could prompt further adjustments in pricing strategies and supply chains, ultimately reshaping the industry landscape.
Insights:
- Profit Impact: Tariffs cost Honda approximately $3 billion in operating profit, while impacting its net profit by 70% for the 2025-26 fiscal year [3].
- Loss Projections: The tariffs are estimated to result in a loss of $4.4 billion for Honda during the fiscal year [2].
- Strategic Adjustments: Honda is reacting to tariffs with strategic moves like increasing production in the US. It has decided to manufacture the Civic hybrid model in Indiana starting in 2028 and boosted its US inventory to avoid tariffs during the first quarter of 2025 [2].
- Market and Sales Impact: The tariffs have contributed to Honda's declining sales volumes in regions such as China and ASEAN. The company has observed growth in hybrid vehicle sales but faces challenges from increased North American electric vehicle sales incentives [4].
- To cope with the financial strain caused by US tariffs, Honda is allocating a substantial 450 billion yen this year to recovery efforts, as revealed in their financial projections for the 2025-26 fiscal year.
- In light of the financial challenges posed by tariffs, Honda has adapted its production strategies, deciding to manufacture its Civic hybrid model in Indiana starting in 2028, as opposed to Mexico in 2027, in response to tariff announcements.
