Automakers Toyota and Honda braced for potential profit declines due to escalating US tariffs and a strengthening Japanese yen.
In the face of challenging circumstances, Toyota Motor and Honda Motor are preparing to report weaker first-quarter earnings this week, as they grapple with U.S. import tariffs and a stronger yen.
Toyota's Q1 revenue is expected to rise by 11.7% year-on-year ($84.82B), largely due to strong vehicle sales, including hybrids. However, the company's operating profit is set to fall 11% YoY to ¥1.17 trillion ($9.5 billion) amid a ¥450 billion ($3.06 billion) tariff impact. To mitigate these pressures, Toyota has slashed its full-year operating income forecast by ¥600 billion ($4.07 billion), now anticipating a total tariff impact of ¥1.4 trillion ($9.5 billion).
Despite these challenges, Toyota's hybrid demand remains strong, pushing global sales to a record 5.5 million units for the first half of 2025. This strong performance supports revenue and helps partially offset tariff effects.
On the other hand, Honda is expected to report a 36% decline in operating profit for Q1 to 311.7 billion yen, its second consecutive quarterly drop. Tariffs and currency strength are weighing on Honda's earnings, despite solid demand. The company has predicted an even steeper full-year profit fall of 59%. Like Toyota, Honda is expected to use pricing strategies such as transfer pricing and is closely monitored on revisions to forecasts and pricing approaches to mitigate tariff and currency impacts.
Both automakers face new U.S. tariff rates of 15% on Japanese auto imports, up from previous 27.5%, with ongoing tariffs on parts from Canada and Mexico at 25%. This elevated tariff regime increases vehicle prices in the U.S. market, testing demand resilience. Toyota and Honda are making operational and pricing adjustments to help alleviate these burdens, but still expect noticeably weaker profits this fiscal year.
In recent months, Toyota has performed better in China, posting a 7% year-on-year increase in vehicle sales over the first half of the year. Honda's reliance on the U.S. market has deepened in recent years, with both companies producing key models for the U.S. market in Canada and Mexico, outside of the U.S.
Honda's global sales decreased by 5% over the period, with double-digit declines in China, Asia, and Europe. Toyota's global sales increased by 6% over the period, driven by strong demand for petrol-electric hybrids.
As for the stock market, shares of Toyota have decreased by 16% so far this year, while those of Honda have remained flat. Analysts predict a rough first quarter for Toyota but expect things to improve going forward.
In summary, Toyota and Honda are in a challenging environment with U.S. import tariffs and a stronger yen squeezing earnings. They are partially offsetting these headwinds with robust hybrid vehicle sales, pricing adjustments, and operational efficiencies, but still foresee significant profit declines in Q1 and full-year 2025 results.
The challenging circumstances in the industry, notably U.S. import tariffs, are affecting the finance report of automakers like Toyota Motor and Honda Motor. The tariffs have caused Toyota to alter its pricing strategies in the transportation sector, particularly for automotive products.
Despite this, both companies are still dependent on the finance sector to mitigate tariff impacts, as evidenced by their use of transfer pricing and revisions to forecasts.
