Life Gives Honda Lemons

Image source: Adrie dasta shutterstock

What's going on?

Honda posted better-than-expected earnings earlier this week.

What does this mean?

Like other Japanese firms with big international sales, Honda is doing well out of a weaker yen that makes its overseas revenue worth more when it’s converted back. So even though it sold fewer cars last quarter than it did the same time last year, the company’s revenue still climbed by a better-than-expected 7%. And sure, Honda’s profit was 9% lower than it was the same time a year ago: it is, after all, contending with rising material costs, supply chain disruptions, persistent chip shortages, Chinese lockdowns – the list goes on. But analysts were expecting that profit to fall by twice as much, and Honda went on to bump up its full-year revenue and profit forecasts too. It even said it would buy back 100 billion yen ($741 million) worth of its own shares, which investors liked the sound of: they sent Honda’s shares 7% higher after the news.

Why should I care?

For markets: Honda’s got 99 problems.
Still, Honda urged caution about the future, not least because it thinks the long-standing chip shortage will last until at least early 2023. The geopolitical tensions in the Taiwan Strait – a crucial shipping lane used to supply a big portion of the world’s chips – aren’t helping either, which is why Honda revealed that it had started to build up its chip stockpiles. But even if the carmaker solves that problem, new Chinese lockdowns and enforced energy rationing in Europe could be next.

The bigger picture: Speak no EVil.
Japanese carmakers are betting big on hybrid cars, but they’ve mostly been leaving fully electric vehicles by the wayside. Just 18% of Honda’s production, 14% of Toyota’s, and 22% of Nissan’s are expected to be pure battery EVs by 2029, according to IHS Markit. That pales in comparison to, say, Ford and Volkswagen, at 36% and 43% respectively.

Originally posted as part of the Finimize daily email.

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