Honda Motor Co. reported a steep deterioration in earnings for the first fiscal half through September 2025, underscoring how trade frictions and currency swings have cut into margins despite resilient demand in parts of the business. Net profit fell 37% to ¥311.8 billion (about US$2.0 billion) from ¥494.6 billion a year earlier, while revenue slipped 1.5% to ¥10.6 trillion from nearly ¥10.8 trillion. The company said the downturn reflects higher costs tied to U.S. tariff policies and other macro headwinds that overshadowed strength in motorcycles.
Tariff Impact and Currency Headwinds
Honda attributed a significant portion of the earnings erosion to trade measures imposed by the Trump administration, estimating that tariffs reduced operating profit by ¥164 billion (roughly US$1.1 billion) over the six-month period. In addition, adverse exchange-rate movements shaved ¥116 billion (about US$756 million) from operating profit, compounding the pressure on results. The company noted that although its broad U.S. production footprint provides some insulation, the cumulative impact of tariffs on vehicles, parts and materials has persisted.
Honda’s disclosure follows months of guidance from the automaker and peers that the tariff regime would materially weaken profitability through fiscal 2026. Earlier this year, Honda flagged that its full-year operating profit could drop sharply as tariffs take effect across vehicles imported into North America, with potential hits measured in the hundreds of billions of yen. Independent reporting has likewise highlighted how a 15% tariff framework on Japanese autos reshapes competitive dynamics across the U.S. market.
Segment and Regional Performance
Despite the overall downturn, Honda’s two-wheel business delivered standout results. The company achieved record global motorcycle sales of 10.7 million units in the half, led by strong demand across Asia (excluding Vietnam). In contrast, global auto volumes declined to 1.68 million vehicles from 1.78 million a year earlier. Regional trends were mixed: sales rose in North America but fell in Japan, the rest of Asia, and Europe, reflecting uneven recovery patterns and supply constraints.
Operational disruptions also complicated production planning. A government intervention involving Nexperia—a Dutch chipmaker owned by Wingtech of China—triggered a temporary snag in component flows, prompting Honda to idle its Celaya plant in Mexico and adjust North American output schedules in late October. While shipments later resumed, the episode illustrated the vulnerability of global supply chains amid policy actions spanning multiple jurisdictions.
The company emphasized that, even with these constraints, U.S. operations benefited from localized manufacturing that offsets some tariff exposure. Still, rising costs for imported components and materials, along with selective demand softness in key markets, weighed on vehicle margins more than on motorcycles, where scale and pricing proved more resilient.
Outlook, Strategy, and Market Reaction
Reflecting the tougher environment, Honda cut its full-year profit outlook for the fiscal year ending March 2026 to ¥300 billion, a projected 64% decline from the prior year’s ¥835.8 billion. The new forecast is lower than the ¥420 billion projection the company issued in the summer, underscoring how tariff-related costs and currency effects have intensified into the autumn reporting period. Management signaled continued scrutiny of cost bases, product mix, and capital plans to defend profitability.
Broader context from recent months helps frame the revised guidance. Honda previously cautioned that industrywide tariff pressures could carve out a substantial share of fiscal 2026 earnings, even as the company scales U.S. production and explores efficiencies to offset part of the burden. The automaker has also deferred certain Canada-based EV supply-chain investments amid weaker near-term demand for battery-electric models and macro uncertainty, choosing to prioritize flexibility on the timing of large outlays.
Markets appeared to have anticipated much of the bad news. Following the earnings update, Honda’s shares rose about 1.8% in Tokyo trading, suggesting investors viewed the guidance reset as largely priced in and took some comfort from the motorcycle momentum and the company’s scope to shift production to tariff-advantaged locations if needed. Future updates will focus on the pace of normalization in component supplies, any changes to the U.S. tariff landscape, and Honda’s ability to balance investment in electrification with cash preservation.