Japanese Auto Giants Suffer in Q1: Honda's Profit Halves, Toyota Lowers Annual Profit Outlook, Shares Drop

TradingKey - Japanese automotive giants Honda and Toyota released their Q1 financial reports for fiscal year 2025 on Wednesday and Thursday, respectively. Honda's operating profit plummeted by 49.6% and net profit fell by 50.2%, both missing expectations. Toyota saw an 11% decline in operating profit and a 37% drop in net profit, which was above estimates, yet the company still lowered its annual profit forecast.

On Thursday, local time, Honda (7267) and Toyota (7203) underperformed in the Japanese stock market, closing down by 1.65% and 1.51%, respectively.

According to Abhik Mukherjee, an automotive analyst at Counterpoint Research, Japanese automakers have faced significant profit pressures earlier this year due to increased import tariffs in the US and a stronger yen.

Toyota attributed its 450 billion yen loss to the US tariffs. Honda cited one reason for its profit drop as price reductions to maintain its market share in the US.

Recently, with the signing of a tariff agreement between Japan and the US, tariffs on cars imported from Japan and sold in the US have been reduced from 27.5% to 15%. Analysts estimate that the impact of tariffs will shrink to 1.9 trillion yen, with most automakers expected to achieve profitability in the fiscal year ending March 2026.

Mukherjee remains optimistic about the future of Japanese carmakers, suggesting that in the long run, Japanese brands could enjoy a competitive advantage over rivals from countries like Canada and Mexico, which still face higher tariffs, supporting a slow but steady recovery.

Honda announced that after analyzing the impact of tariffs and reassessing currency assumptions, it adjusted its forecast, lowering the projected full-year tariff loss from 650 billion yen to 450 billion yen, subsequently raising its full-year performance outlook.

However, some analysts remain concerned that despite tariffs being reduced to 15%, they still present a burden compared to the previous 2.5%. Additionally, the risk of a stronger yen squeezing automakers' margins could resurface, keeping Japanese carmakers in a precarious position.

Toyota's forecast also considers potential future risks, such as the cost burden tariffs impose on automakers and parts manufacturers, leading it to lower its annual operating income forecast by 600 billion yen to 3.2 trillion yen.

Market reactions suggest prevailing concern. Following the earnings announcements, both Honda and Toyota shares fell more than 2% amidst a generally rising Japanese stock market. Ahead of Thursday's US market opening, Honda (HMC) was down 2.05%, and Toyota (TM) was down 1.22%.