3 line summary
The company is expected to record a loss of up to 1.12 trillion yen due to a fundamental review of its EV strategy, resulting in an operating deficit for the full year of FY2026. Bearish. The revised full-year forecast has worsened from FY2025's operating profit of 1,213.5 billion yen to an operating loss of 270 billion to 570 billion yen. The stock price will take into account a large temporary loss and the rebuilding of the earnings structure starting from the next fiscal year, and the outcome of the HEV conversion will be a turning point in the medium-term evaluation.
[Summary]
The view on Honda Motor Co., Ltd. is currently bearish. Due to the review of the EV electrification strategy announced on March 12, 2026, the development and market launch of EV models for North America will be canceled, and operating expenses of up to 1.12 trillion yen and China equity method losses of 110 billion to 150 billion yen are expected to be recorded due to impairment and amortization of related assets. The full-year operating profit forecast for FY2026 has been revised from the previous 550 billion yen to an operating loss (270 billion to 570 billion yen). The dividend forecast is to maintain the annual dividend of 70 yen, but the EPS forecast has changed to a loss. The medium-term evaluation will be whether the company can rebuild its earnings structure by shifting its strategy to HEVs and reducing fixed costs. Full-year results are scheduled to be announced on May 14, 2026, and the short-term focus will be on the final determination of losses and the initial outlook for next fiscal year.
Overview
Honda Motor Co., Ltd. is a global transportation equipment manufacturer whose core businesses include automobiles, motorcycles, and power products, as well as financial services. Sales amounted to 21,688.8 billion yen in FY2025, making it one of the largest domestic automakers.
In the cumulative third quarter of FY2026 (April to December 2025), sales revenue was 15,975.7 billion yen (-2.2% year-on-year) and operating profit was 591.5 billion yen (-48.1% year-on-year), a significant decline. Changes in the EV market environment and the impact of US tariffs pushed down profits in the automobile business.
Comparison with FY2025 results (full year ending March 2025):
Sales: 21,688.8 billion yen Operating income: 1,213.5 billion yen Final profit (attributable to parent company shareholders): 835.8 billion yen YoY: Plans for FY2026 have been significantly revised downward in the disclosure on March 12th
EV-related extraordinary losses have reached a scale that has almost completely rewritten the full-year results, and it is accurate to position FY2026 as the year in which temporary losses will be recorded.
Financial Highlights (Simple Table)
| Indicators | Contents |
|---|---|
| FY2025 full year sales revenue | 21,688.8 billion yen |
| FY2025 full year operating profit | 1,213.5 billion yen (compared to previous year) |
| FY2026 Q3 cumulative revenue | 15,975.7 billion yen (-2.2% compared to the same period last year) |
| FY2026 Q3 cumulative operating profit | 591.5 billion yen (-48.1% compared to the same period last year) |
| Revised operating profit/loss forecast for FY2026 | ▲270 billion to ▲570 billion yen (disclosed on March 12) |
| Factor 1 | Impairment/amortization of EV-related assets (Cancellation of North American model)/Equity method loss in China |
| Factor 2 | Deterioration of profit margin in the automobile business due to changes in the EV market and US tariffs |
| Dividend forecast (full year FY2026) | 70 yen per year (35 yen paid in the interim, 35 yen planned for the end of the period, increased from 68 yen in the previous year) |
*EPS forecast is revised ▲105.07 to ▲172.62 yen (loss)
Quantitative evaluation
| Indicator | Recent | Comparison | Interpretation |
|---|---|---|---|
| EPS (Q3 cumulative) | 115.53 yen | 169.69 yen (▲32%) for the same period last year | Core earnings have fallen significantly even before the temporary loss |
| EPS (FY2025 full-year results) | 178.93 yen | — | Baseline before recording temporary loss |
| FY2026 revised EPS forecast | ▲105 to ▲173 yen | — | Loss conversion due to EV impairment |
| Dividend forecast | 70 yen | FY2025 actual result: 68 yen | Maintained according to DOE standards; note that it is not linked to profit |
| Share buyback (9 months) | Approximately 450 million shares | Approximately 8.5% of the 5,280 million shares outstanding | Large-scale capital returns are continuing |
| Total assets (as of December 31, 2025) | 32,849.6 billion yen | 30,775.9 billion yen at the end of the previous fiscal year | Increase in lease assets and the impact of the weaker yen |
| Parent company stockholders' equity | 12,465.7 billion yen | 12,326.5 billion yen at the end of the previous fiscal year | The impact of EV loss will be determined at the end of the future fiscal year |
*PER is meaningless because it converts EPS loss. PBR's latest stock price cannot be confirmed, so it is omitted from this article (please refer to Yahoo Finance etc. for the latest data).
What happened (most important)
Quantity/Sales
The decline in Q3 cumulative sales revenue (-2.2%) was mainly due to the depreciation of foreign exchange rates, and the motorcycle business increased both volume and revenue. In the automotive business, strategic reallocation of resources in response to changes in the EV market is said to have led to a decline in the competitiveness of existing ICE and HEV models, and this has had a particularly large impact on the Asian market.
Price/Cost
The 48.1% decline in Q3 cumulative operating profit from 1,139.9 billion yen in the same period last year to 591.5 billion yen was due to EV-related upfront investment costs, the impact of US tariffs, and intensifying price competition in major markets. Although it is said that there was partial support from price and cost improvements, the increase in expenses exceeded this and reduced profits.
EV-related temporary losses (structural conversion costs)
The March 12 disclosure significantly changed the full-year FY2026 results. Due to the cancellation of EV models planned in North America, the following losses are expected (consolidated basis):
- Operating expenses (impairment, amortization, development cancellation costs): 820 billion to 1,120 billion yen
- Equity method investment loss in China: 110 billion to 150 billion yen
In addition, extraordinary losses for non-consolidated companies are expected to be between 340 billion and 570 billion yen. The company has clearly stated that the cumulative losses related to the EV strategy could reach up to 2.5 trillion yen, including future periods. This is not a temporary recognition, but rather needs to be seen as the cost of structural change that spans multiple periods.
Exchange
Negative foreign currency translation has been confirmed as a factor that pushed down the figures for both Q3 cumulative sales revenue and operating profit. If the yen continues to appreciate, downward pressure will likely remain on the yen equivalents of Honda's sales and profits, which operate globally.
Separating structural and temporary factors
The -48.1% operating profit as of Q3 is a figure before the temporary loss (EV impairment loss) is included, and is mainly due to the decline in core earnings due to structural headwinds such as the EV market, tariffs, and exchange rates. The large-scale loss recorded after March 12th is a separate temporary factor, and the full-year results will be a combination of both.
What the market should look at is the extent to which basic profitability, excluding temporary losses, has fallen, and whether the conversion to HEVs will actually lead to a recovery in profits.
Latest materials (3 months)
February 10, 2026: Simultaneous announcement of Q3 financial results and organizational restructuring
On the same day as the cumulative financial results for the third quarter (end of December 2025), Honda R&D Co., Ltd. announced the implementation of an absorption-type company split that will transfer automotive product development and SDV development functions to Honda R&D Co., Ltd. The effective date of the reorganization is April 1, 2026, and the aim is to transition from the previous separate systems of head office development and R&D subsidiaries to an integrated system that works as one from theme setting to market launch.
March 12, 2026: Review of EV strategy and major revision of performance forecast
The company announced that it has decided to cancel the development and market launch of an EV model for North America and will fundamentally review its EV electrification strategy. The reasons for the review include a slowdown in the EV market due to the US tariff policy and the reduction of tax incentives for electrification, and a decline in the competitiveness of Honda products due to intensifying competition in the SDV and ADAS fields in the Chinese and Asian markets. As a result, the full-year earnings forecast for FY2026 has been significantly revised downward. It has also been decided that the president and vice president will voluntarily return 30% of their monthly compensation for three months.
March 25, 2026: Sony Honda Mobility policy review
Sony Honda Mobility (SHM), a joint venture with Sony, has announced that it will discontinue the development and release of its flagship model ``AFEELA 1'' and its second model. Both companies will continue to consider the future direction of SHM's business, and the position of the joint venture itself is now in the phase of reexamination.
April 27, 2026: Disclosure of production, sales, and export results for March 2026
Monthly production, sales, and export data for March was disclosed, but detailed figures were not available at the time of writing this article.
May 14, 2026: Scheduled to announce FY2026 full-year financial results
Full-year financial results for FY2026 (ending March 2026) are scheduled to be disclosed on May 14, 2026 from 1:25 to 30 p.m. (Japan time). The short-term focus will be on the final outlook for losses as of March 12th and the initial outlook for the next fiscal year (FY2027).
Market reaction to stock price
The announcement of a significant downward revision on March 12th was a significant disclosure that included both EV-related losses and a strategic shift. Detailed market reaction figures (such as stock price fluctuations on the same day and the next day) cannot be directly confirmed at the time of writing this article, so they are omitted.
Business structure
Source of revenue
Honda's business is broadly divided into four-wheeled vehicles (automobiles), two-wheeled vehicles, power products, and financial services. Automobiles will be the largest sales pillar for the full year of FY2025, but the profit margin of the automobile business has declined in recent years, and motorcycles and financial services serve as stable sources of income.
In a disclosure on March 12, the company stated, ``We aim to maintain stable shareholder returns based on the strong earning power and cash generation ability of our motorcycle and financial services businesses.'' For Honda after changing its EV strategy, the earning power of these two businesses will support dividends and returns.
Profit margin
The full-year operating profit margin for FY2025 is approximately 5.6% (operating profit of 1.2 trillion yen on sales of 21.7 trillion yen). In FY2026, the company is expected to turn a loss due to the recording of EV-related losses, and it will be necessary to confirm the level of the basic profit margin excluding temporary factors in the May 14th financial results.
Strengths
As the world's leading motorcycle manufacturer, it has the ability to continuously capture demand from emerging countries. For automobiles, the HEV brand and technology accumulation are strong in the Japanese and American markets, and the HEV lineup, including the Fit, CR-V, and Accord, has a considerable sales base. The financial services business generates stable profits while supporting the sales of automobiles.
Weaknesses
As the recent shift in EV strategy showed, the company was late to the SDV/ADAS competition in the Chinese and Asian markets. The company itself admits that its existing development structure has been slow to respond to the shift in customer needs from hardware quality to continuously evolving software experiences. The period of upfront investment is likely to continue over the medium term, as the opportunity to recover EV investment will be lost and systems will need to be rebuilt for the next wave of electrification.
Implications for stock prices
Positive
The dividend forecast has been raised to 70 yen for the year (68 yen in the previous fiscal year), and by adopting the DOE (adjusted dividend on equity) standard, the company has a structure that makes it difficult for dividends to drop sharply even in the event of a temporary drop in profits. The company's large-scale share buyback (approximately 450 million shares in nine months) also indicates continued shareholder returns.
A clear strategic shift towards HEVs and organizational restructuring (Honda R&D integration) could have positive implications in the medium term in terms of concentrating resources on profitable segments.
Negative
The maximum amount that can be recorded as a temporary loss is 1 trillion or more, and the upper limit of cumulative EV-related losses is 2.5 trillion yen. The company itself has specified the possibility that additional expenses and losses will occur after fiscal 2026, and the scope of the losses has not been completely determined.
As the joint venture with SHM has come to a virtual standstill, it is now necessary to rebuild the business foundation for next-generation EV and mobility services from scratch.
Declining market share and intensifying competition in the Chinese market are ongoing risks to the earnings structure of the automobile business as a whole, beyond the current equity method loss.
Room for inclusion and evaluation
FY2026 is widely recognized by the market as a year in which losses will be recorded. If there is room for evaluation, it would be if EV loss falls within the expected lower limit (▲270 billion yen) in the full-year financial results on May 14th, and an HEV-based profit recovery scenario is presented in the initial outlook for FY2027 and beyond. On the other hand, if losses exceed the upper limit or indicate additional losses, it will take time to repair the evaluation.
Short term (6 months)
The biggest short-term factor is the full-year financial results ending on May 14, 2026.
There are three things to check. 1) Whether the final recognized amount of EV-related losses will be within the expected range as of March 12th, 2) Whether the initial forecast for FY2027 will be presented and whether the effects of resource conversion to HEVs will begin to appear in the numbers, and 3) Whether the dividend of 70 yen and share buyback policy will be maintained.
In addition, the US administration's tariff policy trends remain as an external variable for recent stock prices. Honda has production bases in North America, but the impact of tariffs can vary greatly depending on the export ratio.
Mid-term (1 year)
In the medium term, the focus will be on the expansion of HEV models and the pace of profit recovery in each market. The company has identified Japan and the United States as its main markets, and has clearly stated that it will strengthen its model lineup and cost competitiveness in India, where there is room for growth. In Asia, the company aims to restore competitiveness by introducing next-generation HEV models.
It is necessary to confirm whether the integration of development functions into Honda R&D (effective April 1) will shorten the development cycle and improve product competitiveness based on the actual model launch schedule.
Regarding SHM's future direction, once the results of the discussions with Sony become clear, the company will once again be asked to redesign its medium-term strategy for EV and mobility services.
If motorcycles and financial services continue to generate stable profits, dividend sustainability can be maintained at a relatively high level. However, if automobiles suffer losses over multiple periods, the sustainability of the DOE-based dividend level itself will be called into question.
Scenario analysis
Bullish: 20% If the EV loss stays close to the lower limit (▲270 billion yen) in the full-year results on May 14th, and the initial outlook for FY2027 indicates a return to profitability on an HEV basis, it will be considered that the worst period for recording losses has been passed and the stock price will likely attempt a reversal.
Neutral: 50% If the loss is within the expected range and a plan is presented at a level that can be expected to recover on a profit/loss basis in FY2027, a flat to gradual recovery is likely to continue based on the evaluation of maintaining dividends and continuing returns.
Bearish: 30% If additional EV losses occur and exceed the upper limit, or if there is no prospect of a profit recovery in FY2027, stock prices will likely test the bottom as continued losses and the deterioration of the Chinese market are likely to occur. In addition, if tariff policies worsen, this will put further downward pressure on the economy.
Risk (simple table)
| Risk | Contents |
|---|---|
| Additional EV losses | The possibility of additional losses over multiple periods up to a cumulative total of 2.5 trillion yen is specified |
| Intensifying competition in the Chinese market | It is difficult to see a recovery in market share due to the rise of SDV/ADAS competitors |
| Tariffs and Trade Policy | U.S. import tariffs directly impact profitability of ICE/HEV businesses |
| Delay in HEV conversion | Risk that lineup enhancement, expansion into India, and integration of development systems will not proceed as planned |
| Foreign exchange | Swings toward a stronger yen are pushing down sales and profits when converted into yen |
| Future of SHM | If discussions with Sony become prolonged and the joint venture ends in a direction, there will be a long gap in next-generation business |
Summary
Honda Motor Co., Ltd. is expected to post a huge loss due to a fundamental review of its EV electrification strategy in FY2026, making a full-year operating loss inevitable. The disclosure on March 12th carefully explained the scale and history of the loss, but we will have to wait for the full-year results on May 14th to know the final amount of the loss.
What should be noted is not the size of the loss, but rather how quickly the subsequent HEV conversion will lead to profits. The company's stable earning power in motorcycles and financial services, as well as its continued large-scale share buybacks, are commendable, but it will take time for the automobile business to recover its competitiveness.
The next deciding factor will be the full-year financial results on May 14th, and the key will be whether or not the loss will end and the initial outlook for the next fiscal year will be released. At this point, we think it is appropriate to assume that the short-term outlook is bearish and the medium-term outlook will depend on the progress of rebuilding the earnings structure.