Honda is only the second automaker in our coverage universe to lower full-year operating profit guidance this quarter. While Honda expects to benefit from a 14% reduction in anticipated tariff costs compared to last quarter, management acknowledged its plans to raise US vehicles prices to mitigate tariffs have been constrained by muted competitor pricing actions. The low historic profit margins and negative outlooks by S&P and Fitch increase the importance of Honda’s tariff mitigation strategies, which have thus far been vague and focused on increasing shifts at US plants, moving production of the Civic hybrid to the US, and securing more components locally.

Management affirmed its FY26 wholesale unit guidance for the Motorcycles and Power Products segments but lowered its Automobiles segment guidance by 8% to 3.34 mn units. The lower Automobile segment guidance reflects an anticipated 10% YoY decline compared to FY25.

The lower FY26 automobile volume guidance in Asia is broadly split between China and other Asia, which management attributed to increased competitiveness, especially from Chinese OEMs in China and other Asian countries. Management stated it needs to focus its attention on the profitable models, stabilize and then increase volumes, and enhance the profitability of its ICE and hybrid vehicles by rationalizing fixed costs.

Management lowered its FY26 consolidated operating profit forecast from ¥700 bn last quarter to ¥550 bn. The downward revision is driven by lower automobile volumes, weaker pricing expectations, partially offset by a smaller currency headwinds and lower tariff impacts. Full-year tariff impacts are now expected to total ¥385 bn (~US$2.5 bn), down from its ¥450 bn (~US$2.9 bn) estimate last quarter, based primarily on the parts tariff offset expansion.