HMC Q1 2026: ¥200B EV losses drive first auto loss since FY2020
- Reduced Tariff Impact: The company benefited from a tariff reduction—from a 25% rate to an effective 15% rate on key automotive imports—which helps lower cost pressures and supports margin improvement.
- Optimized U.S. Production Strategy: Honda’s focus on localizing production, including plans to boost U.S. manufacturing capacity with additional shifts and sourcing core hybrid components domestically, minimizes supply chain risks and tariff exposure, potentially improving profitability.
- Strong Motorcycle Performance in Emerging Markets: Robust profitability in its motorcycle segment—especially in high-growth regions like South America and Vietnam—demonstrates effective market positioning and revenue diversification, underpinning a bullish growth outlook.
- Tariff Uncertainty and Margin Pressure: Discussions highlighted several uncertainties regarding tariff rates, including the transition from a 25% to a 15% rate and the lack of clarity on components like CBUs and parts imported from Canada and Mexico. This uncertainty could lead to unexpected cost pressures and margin compression.
- Resurgence of Losses in Key Segments: The Q&A noted that the last period with automobile operating losses was in fiscal 2020 during the pandemic, implying potential recurring challenges as losses have reappeared in the first half and could affect recovery.
- Weak Performance in Strategic Markets and EV Segments: Persistent declines in China’s sales—declining for 17 consecutive months—and significant EV losses raise concerns over Honda’s ability to rebound in critical growth areas, which could impact overall performance.
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Tariff Impact
Q: Tariff cut's profit impact explained?
A: Management explained that lowering the automotive tariff from 25% to 15% benefits profitability and customer pricing, though uncertainty remains about details for Mexico and Canada, while US production strategies stay focused. -
Tariff Forecast
Q: Full-year tariff assumptions clarified?
A: They outlined assumptions covering CBUs, parts, and raw materials, noting a recalculation that brought the gross tariff impact down to 450B yen, with further supplier reviews ongoing. -
EV Losses & Price Hikes
Q: US price hikes and EV losses details?
A: Management was cautious on price hike specifics due to market sensitivity but mentioned nonrecurring EV-related losses of roughly 200B yen in the first quarter, contributing to an overall loss impact near 650B yen. -
Auto Losses & Market Declines
Q: Why did auto losses and sales decline occur?
A: They noted that auto losses, unseen since FY2020, stem from competitive pressures and challenges in launching hybrids in several markets, with declines in regions like Europe and Asia. -
China Sales & Nissan Deal
Q: How will China sales and Nissan talks proceed?
A: Management acknowledged 17 consecutive months of declining China sales and stated that while capacity adjustments are under review, no definitive agreement with Nissan has been reached yet. -
USMCA Tariff Specifics
Q: Can you share examples of USMCA tariff rates?
A: While details are sensitive, they indicated that crucial hybrid components incur higher tariffs, whereas many CBUs and parts benefit from exemptions under USMCA, reflecting a nuanced approach to cost management.
Research analysts covering HONDA MOTOR CO.