Honda warns of rising costs, forecasts weaker annual profit

Japan's Honda Motor on Friday forecast a 7 per cent fall in annual earnings, instead of an expected rise, and warned that the long chip crunch and rising raw material costs were hurting profit, echoing comments from rivals Toyota and Nissan.

Global automakers such as Honda have slashed production due a severe shortage of semiconductors, and now face what top automaker Toyota Motor called an "unprecedented" increase in costs as China's Covid-19 curbs have shuttered factories and the war in Ukraine further strains supply chains.

"We are currently hoping to get the business on a recovery track in June," by using parts that are in stock, senior managing executive officer Yasuhide Mizuno told a post-earnings call.

Recovering

Mr Mizuno said the company was hearing the lockdown situation in Shanghai was getting better and supply chain and logistics in the country were recovering up to about 80 per cent.

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Honda, Japan’s second biggest automaker by sales, forecast operating profit will fall to 810 billion yen (€6 billion) for the current fiscal year that began in April. Analysts expected a 6.3 per cent rise to Y926.3 billion, according to Refinitiv.

It expects to sell 4.2 million vehicles globally this year, a 3.1 per cent increase from last year.

Toyota on Wednesday forecast a 20 per cent slump in profit this year, while Nissan Motor said it expected profit to be flat.

“Adding to uncertainty on supply and production, further increase in cost is expected,” in the fiscal year ending March 2023, the company said in a statement. It said the impacts from the chip shortage and resurgence of Covid-19 were expected to remain.

The company said it expects about Y300 billion in costs to cover rising material, labour, and logistics expenses this year, a roughly 11 per cent jump from last year.

Slash production

Maker of the best-selling Accord, Honda said on Thursday it would slash production by about a fifth at two of its domestic factories for the rest of May, a month after it cut back production by about a half at one of them.

The company on Friday reported a smaller-than-expected 6 per cent fall in operating profit to Y199.5 billion for the quarter ended March 31st, beating an average estimate of Y152.2 billion, Refinitiv Eikon data showed.

Despite the headwinds, Honda is pushing ahead with an ambitious shift to electric cars, with chief executive Toshihiro Mibe in April unveiling a plan to spend $40 billion on its push into electric vehicles over the next decade. Still, electrification comes with "high hurdles" that Honda can't overcome on its own, Mr Mibe said in an interview last month.

Honda is teaming up with Sony to develop electric vehicles and will expand an existing tie-up with General Motors. Demand for auto electronic parts will be unstable over the next three to six months, Bloomberg Intelligence analysts Mawashiro Wakasugi and Tatsuo Yoshida wrote in a note earlier this week.

Earlier this week, Mitsubishi Motors, Mazda Motor and Subaru posted an outlook that beat analysts' estimates. – Reuters/Bloomberg