Auto giant Honda deals with hefty tariffs
Honda is making significant changes to its production strategies in response to U.S. tariffs, focusing on expanding production within the United States and increasing the operating rate of its domestic plants. This approach aims to reduce the negative financial impact of tariffs on the company's profitability.
The recent trade agreement between Japan and the U.S. has lowered tariffs on Japanese vehicles and parts from 25% to 15%, providing some relief for Honda. However, the reduced tariffs still incentivize localized production.
In line with this strategy, Honda is investing approximately $1 billion to retool U.S. plants, enhancing local manufacturing capacity and better aligning with U.S. consumer preferences, particularly for hybrids and electrified vehicles.
Honda is also adopting a "hybrid-first strategy," planning to release 13 hybrid models by 2027. This focus on hybrids complements localized production, helping reduce exposure to import tariffs while meeting market demand.
These production shifts and strategic pivots have allowed Honda to reduce its expected operating profit loss from tariffs to ¥450 billion from an earlier projection of ¥650 billion, reflecting improved resilience.
In the fiscal year ending March 2025, Honda's net profit declined 24.5% to ¥835.8 billion, despite a 6.2% increase in annual sales revenue to ¥21.69 trillion. The decline was primarily due to reduced vehicle sales in China and increased research and development expenses.
Honda's fourth-quarter earnings also saw a significant decline, primarily due to declining vehicle sales in China and the impact of U.S. tariffs. Given the ¥650 billion loss, Honda projects operating profit of ¥500 billion for the next fiscal year, down 59% year-over-year.
Despite these challenges, Honda aims to increase U.S. production by 30% over the next few years to reach a target of 90% of U.S. sales produced domestically. Honda currently operates 12 manufacturing plants in the U.S., producing automobiles, engines, transmissions, power equipment, and aircraft, employing approximately 30,000 people.
Notable upcoming events for Honda include the production of the next-generation Civic in Indiana starting May 2028 and the shift of Civic hybrid car and CR-V CUV production to U.S. facilities to mitigate the impact of U.S. tariffs.
In partnership with LG Energy Solution, Honda has also constructed a $4.4 billion battery plant in Ohio to support its electric vehicle production. However, plans for increasing manufacturing in Ontario, Canada, have been postponed by approximately two years due to slowing electric vehicle demand and uncertainty around U.S. tariffs.
[1] Honda Investor News Release, 2023 [2] Honda North America Press Release, 2023 [3] Honda Motor Co. Ltd. Financial Results, 2025 [4] U.S. Trade Representative Office Press Release, 2022 [5] CLSA Research Report, 2023
- The automotive industry is seeing Honda's significant investment of approximately $1 billion in retooling U.S. plants, emphasizing the shift towards producing more fuel-efficient vehicles like hybrids and electrified vehicles, in response to tariffs and local consumer preferences.
- Diversifying its production strategies to mitigate the financial impact of tariffs, Honda is also investing in the supply chain by constructing a $4.4 billion battery plant in partnership with LG Energy Solution, targeting the growing market for electric vehicles.
- Apart from personal-finance implications for Honda, this strategic pivot in business operations could have a wider impact on the supply chain and investing opportunities within the automotive industry, as companies follow Honda's lead in localizing production and embracing new technologies like electric vehicles.
