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Honda Motor Co. has announced a staggering 61% decline in its third-quarter profits, primarily attributed to the impact of U.S. tariffs and restructuring costs associated with its electric vehicle (EV) initiatives. This decline positions Honda alongside several global automotive giants grappling with significant losses in their EV sectors, as demand for electric technology appears to wane.
Profit Decline and its Causes
The Japanese automaker, which is the second largest in Japan, revealed on Tuesday that it recorded an operating profit of 153.4 billion yen (approximately US$987 million) for the final quarter of 2022. This figure represents a dramatic decrease of 61.4% compared to the same period last year, falling short of the anticipated 174.5 billion yen forecast from analysts surveyed by LSEG.
The downturn in profits was exacerbated by Honda’s automobile division, which slipped into a loss over the nine months leading to December due to one-off costs related to EVs, including asset write-downs and the adverse effects of tariffs. Noriya Kaihara, Executive Vice President, acknowledged the company’s current challenge: “Our current challenge is to build a lean operating structure that can respond flexibly to changes in the business environment.”
Market Dynamics and EV Struggles
The company highlighted that the EV market in North America has seen a substantial downturn. With the fading of government incentives and a noticeable shift in consumer preferences towards more affordable vehicles, including gasoline-electric hybrids, Honda’s operating profit for the nine-month period was reduced by nearly 270 billion yen. U.S. tariffs further impacted the company’s performance by an additional 280 billion yen.
As the U.S. remains Honda’s largest market—accounting for over 40% of its global sales—these challenges have raised concerns about the company’s future profitability. This announcement comes on the heels of similar warnings from other automakers, such as Ford and Stellantis, which have also reported significant writedowns associated with their EV ventures.
Global Competition and Future Outlook
Honda’s difficulties are not limited to North America; the company is also facing challenges in China, the world’s largest auto market. Despite being Honda’s second-largest market, the company has struggled to keep pace with local competitors in terms of pricing and software innovation. Kaihara noted the urgent need for a strategic overhaul to enhance competitiveness against new entrants in the automotive landscape.
However, it is not all bleak for Honda. The motorcycle segment has continued to thrive, with strong global sales driven by demand in India and Brazil, offering some respite from the decline in automobile revenues.
The company has maintained its operating profit forecast for the fiscal year ending March 2026 at 550 billion yen. CFO Eiji Fujimura indicated that while there are potential risks to the outlook from ongoing losses in the U.S. EV market, these could be mitigated by favourable exchange-rate conditions and vehicle sales exceeding earlier projections.
Why it Matters
Honda’s latest financial results reflect broader challenges facing the automotive industry, particularly as manufacturers recalibrate their strategies in response to changing consumer preferences and market dynamics. The company’s struggles signal a critical juncture not just for Honda but for the entire automotive sector, as traditional players confront the rapid evolution of electric mobility amidst rising competition from new market entrants. The ability to adapt to these challenges will be crucial for Honda’s long-term viability and its position in the increasingly competitive global market.
