Japanese automaker Honda Motor reported a steep decline in first-quarter operating profit on Wednesday, as the impact of new US auto tariffs and a stronger yen weighed on performance.
Operating income fell by about 50% year over year to ¥244.17 billion, significantly below the ¥323.48 billion average estimate compiled by LSEG.
The sharp drop in profitability occurred despite a modest revenue beat, which rose to ¥5.34 trillion in the quarter ending June 30, compared to analyst estimates of ¥5.25 trillion.
Tariff impact less severe than feared
While US tariffs have clearly dented Honda’s earnings, the company said the full-year impact would be lower than previously anticipated.
Honda now estimates the tariff-related hit to be around ¥450 billion for the fiscal year ending March 31, 2026, down from an earlier forecast of ¥650 billion.
The reduced estimate comes amid shifting trade dynamics following US President Donald Trump’s 25% tariffs on imported vehicles, which took effect on April 3.
Last month, Trump announced a new trade agreement with Japan, which is expected to lower the rate to 15%, although no implementation date has been confirmed.
In response, Honda has raised its full-year operating profit guidance by ¥200 billion, or 40%, to ¥700 billion.
The upward revision was attributed to expectations that the yen will weaken further over the remainder of the year, offering some relief to exporters.
The US market is key
The United States accounted for roughly a quarter of Honda’s exports from Japan during the first half of 2025.
But even as Tokyo’s car export volumes to the US rose 4.6% year over year in June, the value of those exports fell 25.3%, according to data from Japan’s Ministry of Economy, Trade and Industry.
Overall global sales for Honda declined 5% during the quarter, reflecting softness in China, Asia, and Europe.
Auto exports to the US remain critical to Japan’s economy, making up 28.3% of the country’s total exports in 2024, based on Japanese customs data.
Honda is not alone in facing the brunt of global trade tensions and currency fluctuations.
On July 30, Nissan reported a first-quarter net loss of ¥115.8 billion, citing adverse exchange rate movements and the impact of US tariffs.
Toyota, which is scheduled to report earnings on Thursday, is expected to post its lowest operating profit in over two years, according to economists polled by Reuters.
This comes despite the company having achieved record global sales in the first half of the year.
Earlier this year, Honda and Nissan ended merger talks that could have led to the creation of the world’s third-largest automaker by sales volume.
The $60 billion deal was called off in February after months of discussions.
Tokyo pushes for tariff relief
As the industry reels from tariff-related headwinds, Japanese officials have stepped up diplomatic efforts.
Prime Minister Shigeru Ishiba said on Monday he would be willing to engage directly with President Trump to expedite the implementation of the reduced tariff rate.
Meanwhile, Japan’s chief trade negotiator Ryosei Akazawa departed for Washington on Tuesday to urge the US administration to formalise the lower tariff rate via executive order and confirm when it will take effect.
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