Honda Slashes Profit Forecast by 21% Due to EV Costs and Weak Sales

Honda Motor, Japan's second-largest automaker, has announced a major cut to its profit outlook, lowering its full-year operating profit forecast for the fiscal year ending March 2026 by 21% to 550 billion yen ($3.65 billion), down from an earlier projection of 700 billion yen. This significant revision comes as the company grappled with substantial one-time expenses of 224 billion yen related to its electric vehicle (EV) initiatives during the first half of the financial year.

Furthermore, Honda experienced a decline in sales in key markets like China and other parts of Asia, a trend exacerbated by intensified competition from Chinese automakers, particularly in Southeast Asia. This competition has led to increased pricing pressures and higher incentives offered to consumers. Consequently, Honda has revised its expected global EV sales ratio for 2030 downwards to 20%, from a previous target of 30%. Its vehicle sales target for Asia, including China, for the current fiscal year has also been reduced from 1.09 million cars to 925,000 vehicles.

In the July-to-September quarter, Honda reported a 25% drop in operating profit to 194 billion yen, falling short of analyst expectations.

**Impact** This news indicates significant headwinds for Honda, reflecting challenges in the global automotive industry, particularly the high costs associated with the transition to electric vehicles and intense competition, especially from Chinese manufacturers. The lowered EV sales target suggests a potentially slower adoption rate or increased strategic challenges in the EV market. For the broader auto sector, it signals potential margin pressures and the need for agile strategies to navigate evolving market dynamics and competition. The shortage of parts, specifically mentioning Nexperia chips, also points to ongoing supply chain vulnerabilities. Rating: 6/10

**Difficult terms explained:** * **electric vehicle costs**: These are the expenses Honda incurred for developing, manufacturing, and deploying electric cars, which were higher than anticipated and impacted profitability. * **operating profit**: This is the profit a company makes from its core business operations before considering interest payments and taxes. A drop here shows reduced profitability from selling cars and related services. * **incentives**: These are special offers or discounts provided to customers to encourage them to buy a product, such as lower prices or added benefits. Increased competition leads to more incentives. * **fiscal year**: This is a 12-month period used for financial reporting. For Honda, it ends in March, not necessarily aligning with the calendar year.