HONDA MOTOR CO LTD Earnings - Q4 2025 Analysis & Highlights
Honda Motor Co., Ltd. reported record third-quarter results driven by strong motorcycle sales and effective pricing strategies, while facing significant headwinds from EV-related losses, tariff impacts, and challenging automotive market conditions in Asia and North America.
Key Financial Results
Operating profit for Q3 FY2026 was ¥591.5 billion, down ¥548.4 billion year-over-year.
Record high unit sales, operating profit, and operating margin achieved through the first nine months of the fiscal year.
Profit attributable to parent company was ¥465.4 billion in Q3, down ¥339.8 billion year-over-year.
Operating cash flow after R&D adjustment reached ¥1,855.8 billion, generating cash on par with the same period last year.
Free cash flow (excluding financial services) was ¥917.4 billion.
Net cash position as of end of Q3 was ¥3,170.7 billion.
Investment earnings from equity method investments were ¥24.0 billion, higher by ¥51.3 billion year-over-year.
Business Segment Results
Motorcycle operations generated operating profit of ¥546.5 billion, up ¥44.8 billion year-over-year.
Motorcycle unit sales reached 16.44 million units cumulatively through Q3, driven by increases in India, Pakistan, and Brazil.
Motorcycle operations achieved solid global unit sales led by India and Brazil, with the restriction on ICE vehicles in Vietnam having only limited impact compared to assumptions.
Automobile operations recorded operating losses of ¥166.4 billion, down ¥569 billion year-over-year.
Automobile unit sales were 2.561 million units cumulatively through Q3, declining due to semiconductor supply shortages and weakness in Asia, particularly China.
Financial services business generated operating profit of ¥218 billion.
Power products and other businesses recorded operating losses of ¥6.5 billion.
Power products unit sales reached 2.507 million units cumulatively through Q3, with incremental sales in Europe offset by declines mainly in Asia.
Capital Allocation
Full-year dividend forecast is ¥70 per share, unchanged from previous forecast.
Board of Directors approved cancellation of ¥747 million in Treasury stocks.
Capital expenditures are increasing to reflect acquisition of factory buildings and other investments for battery production joint venture with LG Energy Solution.
Industry Trends and Dynamics
Motorcycle operations saw solid global unit sales with favorable performance in India and Brazil markets.
The competitive environment for automobiles in Asia is intensifying, requiring increased incentives.
EV market growth has stagnated, with less stringent environmental regulations in different markets.
Semiconductor supply shortage experienced in Q3 now has good prospects for preventing recurrence.
Supply risks are emerging for other materials such as rare earth metals and memory chips.
Rare earth metals are subject to export restrictions from China, with exports taking longer to process and creating supply chain uncertainty.
Competitive Landscape
Honda maintains business characteristics that continually generate profit when excluding non-recurring EV impacts and tariff effects, leveraging expertise in internal combustion engines and hybrid technologies.
Emerging OEMs are intensifying global competition, requiring Honda to realize product features and cost competitiveness that overwhelm those competitors.
In China's EV market, local EV manufacturers have advantages in pricing, user interface, user experience, and software environments compared to Honda.
Honda is exploring alliance possibilities with Nissan and potentially other companies for co-development of software, E&E architecture, batteries, and eAxle to reduce development costs.
Hybrid models are performing well in North America with relatively lower incentive requirements compared to internal combustion engine vehicles.
Macroeconomic Environment
Tariff impact was initially forecast at ¥450 billion at the beginning of the term but is now expected to be reduced to ¥310 billion.
Tariff impact on automobile operations was ¥279.5 billion in Q3, with gross tariff impact of approximately ¥360 billion offset by ¥50 billion in recovery measures.
Foreign currency impact was negative by ¥111 billion in Q3, with negative impact of ¥62.9 billion specifically for automobile operations.
Exchange rate is assumed at ¥140 per US dollar for the full-year period.
Protectionism policies are causing a retreat of the multilateral free trade system.
The North America automobile market is facing further impact from BEV market weakness, with tax credits pushed toward the end of the period and BEV demand dropping dramatically.
Growth Opportunities and Strategies
Honda is working to complete settlement of losses related to EVs currently sold in North America within the fiscal year.
The company is making prompt management decisions aligned with EV markets, including disciplined expenditure control, EV product range review, and CapEx plan adjustments.
Honda is preparing to launch a next-generation hybrid system and equip hybrid models with next-generation ADAS to enhance earning capability of hybrid models.
For China's EV market, Honda plans to rebuild strategies from scratch, utilizing local suppliers and engineering companies to gain cost competitiveness while updating NOA and ADAS capabilities.
The timing of EV market entry launches will be revisited to ensure competitive positioning.
Honda is conducting a fundamental review of strategies to rebuild competitive strength in response to current business environment challenges.
The company is implementing multi-sourcing strategies for semiconductor suppliers and requiring appropriate inventory levels to prevent supply disruptions.
Honda is reviewing supply chain risks upstream and implementing appropriate risk assessment and inventory management practices.
Financial Guidance and Outlook
Consolidated operating profit forecast for FY ending March 2026 is ¥550 billion, unchanged from previous forecast.
Profit for the year attributable to parent company is forecast at ¥300 billion, unchanged from previous forecast.
Motorcycle unit sales forecast is maintained at 21.3 million units, representing the highest record sales.
Automobile unit sales forecast is maintained at 3.34 million units, unchanged from previous forecast.
Power products unit sales forecast is maintained at 3.67 million units.
Operating profit is expected to decline by ¥663.4 billion year-over-year for the full fiscal year.
Sales impact is expected to be negative by ¥162 billion due to semiconductor supply shortage and other factors.
Price and cost impact is expected to be positive by ¥230 billion due to effective price revisions.
Expenses impact is forecast to be negative by ¥106.5 billion.
R&D impact is forecast to be negative by ¥166 billion.
Foreign currency impact is forecast to be negative by ¥149 billion.
Tariff impact is forecast to be negative by ¥310 billion.
For consolidated financial forecast factors, sales impact is expected to be negative by ¥10 billion, expenses impact negative by ¥15 billion, R&D expenses impact negative by ¥40 billion, and foreign currency to provide positive impact of ¥65 billion due to exchange rate assumption change to ¥148 per dollar.
The company is maintaining its forecast despite uncertain business environment and competitive pressures in Asia.
EV Strategy and Challenges
One-time EV-related expenses had a negative impact of ¥267.1 billion on automobile operations in Q3.
Honda has incurred ¥270 billion in EV-related write-offs through nine months, with full-year expectations reaching approximately ¥290 billion plus ¥400 billion in R&D, totaling around ¥700 billion.
The ¥20 billion difference between nine-month actuals and full-year budget is dependent on ongoing negotiations with General Motors regarding compensation.
Excluding one-time EV-related expenses and tariff impact, operating profit would have been ¥1,148.5 billion.
Honda plans to communicate a review of fundamental medium to long-term strategy at an appropriate timing during the coming fiscal year.
Supply Chain and Risk Management
Honda experienced semiconductor supply shortages affecting 120,000 units in North America from late October, with expected recovery to 110,000 units affected and ¥150 billion impact.
Japan and China experienced limited semiconductor disruptions with sufficient capacity to recover lost production before fiscal year end.
Honda is implementing multi-sourcing strategies and requiring suppliers to maintain appropriate inventory levels to mitigate supply chain risks.
The company is reviewing supply chain risks from development stage onward and will conduct appropriate risk assessment and inventory management.
For rare earth metals, Honda is securing inventory and applying for export permissions on a timely basis as interim measures while developing long-term alternatives.
