Honda lowers annual profit forecast amid rising EV costs and weaker sales across Asia

Honda cuts profit forecast sharply

Honda Motor lowered its full-year profit forecast by 21%, now expecting 550 billion yen instead of the previously predicted 700 billion yen. The reduction is attributed to one-time electric vehicle costs, weaker sales in China and Southeast Asia, and a shortage of critical Nexperia chips that is affecting production.

The company also reduced its global EV sales target for 2030 to 20%, down from 30%. Honda will focus more on hybrid vehicles while scaling back its full EV ambitions.

EV costs weigh heavily on Honda

Honda posted 224 billion yen in one-time expenses for electric vehicles in the first half of the fiscal year. Reuters explains that these costs contributed significantly to an operating loss in its automobile business.

The automaker now projects that EVs will make up only 20% of global sales by 2030. This is a clear retreat from its earlier 30% target, showing the challenges of rapidly scaling EV production.

Semiconductor shortages hit production

Honda’s reliance on Dutch chipmaker NXP (now Nexperia) has caused widespread production disruptions. The shortage arose from a geopolitical standoff in which the Dutch government seized control of Nexperia due to security concerns, prompting China to temporarily block exports of the company’s China-made chips, thereby disrupting global supply to automakers.

Production cuts have impacted North American plants, including those in Ohio and Mexico, according to EVXL. These chips control essential functions such as brakes, windshield wipers, and window systems, highlighting the critical impact of the shortage on vehicle operations.

Asian sales forecast drops

Honda now expects to sell 925,000 vehicles in Asia this fiscal year, down from a previous forecast of 1.09 million. Increased competition from Chinese automakers is pressuring prices and forcing higher incentives.

Executive Vice President Noriya Kaihara stated that no new models are planned for Asia through the next fiscal year. This pause signals a strategic rethink of Honda’s regional growth plans.

U.S. tariffs affect operations

Honda expects a 385 billion yen hit from U.S. tariffs, which is slightly lower than its earlier estimate of 450 billion yen. These tariffs affect vehicles and parts imported from Canada, Mexico, and Japan.

High domestic production in North America mitigates some impact. EVXL notes that 60% of vehicles sold in the U.S., including hybrids, are built locally, helping Honda maintain competitive pricing and strong demand.

Motorcycle business remains strong

Honda’s motorcycle division stayed profitable despite weaker sales in Vietnam. Reuters reports that strong demand in Brazil and Thailand helped offset declines in Southeast Asia.

This contrasts with the auto division, which struggled with one-time EV costs and chip shortages. Motorcycles continue to be a consistent revenue source and a stabilizing factor for Honda’s global operations.

EV strategy slows down

Honda plans 13 new hybrid models between 2027 and 2031. This aligns with a target of 2.2 million hybrid sales globally by 2030, showing a clear shift in strategy, according to EVXL.

Honda now officially targets EVs to account for 20% of its global sales by 2030. Based on today’s volume outlook, outside analysts estimate that would work out to roughly 700,000–750,000 electric vehicles a year.

Production adjustments in North America

Honda temporarily suspended output at its Mexican plant and adjusted operations in the U.S. and Canada. These actions aim to manage the ongoing semiconductor supply crisis.

The automaker expects to resume normal production around November 21. Disruptions resulted from relying heavily on a single chip supplier, highlighting vulnerabilities in Honda’s supply chain.

One-time EV expenses impact profits

Honda’s first half of fiscal 2025 showed an operating loss due largely to 224 billion yen in one-time EV expenses. EVXL explains that these costs include research, development, and production adjustments for EV expansion.

This emphasizes the financial risk of fast EV adoption. The loss contrasts with stronger performance in Honda’s hybrid and motorcycle divisions, highlighting where the company remains resilient.

Competition in Southeast Asia intensifies

Chinese automakers are aggressively undercutting prices and offering high incentives to attract buyers. Reuters reports this increased competition has forced Honda to rethink its Asian market strategy.

Honda does not expect to roll out major new models in Asia during this fiscal year or the next, a pause that signals a cautious reset in how it competes with fast-moving Chinese EV brands.

Global vehicle sales revised downward

Honda cut its total vehicle sales forecast from 3.62 million to 3.34 million units. EVXL attributes the decline to semiconductor shortages and slower-than-expected demand in key Asian markets.

The company also faces pressure from U.S.-China trade tensions, affecting operations. This combination of factors has forced Honda to adjust global production targets and strategic planning.

North American hybrid sales strong

Demand for hybrids in the U.S. remains solid, showing Honda’s local production strategy is paying off. High domestic output helps buffer the company from tariff impacts.

Production of the CR-V crossover is moving from Ontario to Ohio and Indiana. This move helps reduce costs from imports and tariffs while supporting continued strong hybrid sales.

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Tariff impact slightly better than expected

Honda says the latest outlook shows tariff costs easing slightly, thanks to higher North American production and ongoing efforts to adapt its manufacturing footprint. Producing vehicles locally in North America helps shield the company from full tariff exposure.

Despite this, the tariffs still create operational challenges. Honda continues to make adjustments to maintain profitability and minimize disruptions to production schedules.

Thinking about Honda’s future lineup? The new Honda Prelude is making a comeback with hybrid power, though fans might miss the manual transmission option.

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This slideshow was made with AI assistance and human editing.