Honda’s Profit Buckles Under Tariffs and Currency Drag

Honda Motor’s first-quarter operating profit plunged by a staggering 50% year over year to 244.17 billion yen, well below the 323.48 billion yen forecasted by analysts. 

Despite this setback, revenue reached 5.34 trillion yen, outperforming analyst projections of 5.25 trillion yen. The drop in profit is largely attributed to the combined blow of U.S. auto tariffs and an appreciating yen, both of which eroded margins in a key export market.

Since April 3, a 25% U.S. tariff on imported vehicles has upended pricing strategies for Japanese automakers. Honda, along with its peers, has been forced to slash export prices to stay competitive, cutting deep into earnings. 

Although a revised Japan-U.S. trade agreement was announced in July with the promise of a reduced 15% tariff on Japanese cars, the lack of clarity on when the lower rate will come into force continues to rattle the industry.

June trade data underscores the disruption. The value of Tokyo’s car exports to the U.S. tumbled 25.3% year over year, despite a 4.6% rise in export volumes. 

What Does This Mean for Me?

This disconnect between rising output and falling value highlights the margin compression automakers now face. With auto exports accounting for 28.3% of Japan’s total shipments in 2024, the impact is macroeconomic in scale.

In response, Prime Minister Shigeru Ishiba has pledged to expedite talks with the U.S. administration, urging the White House to formalize the tariff reduction with an executive order.