Honda Slashes Annual Profit Forecast by 21% Amid China Struggles and Chip Shortage
Meta Description: Honda cuts 2026 profit forecast to $3.6 billion, down 21%, citing Nexperia chip shortage, weak China EV sales, and reduced Asia demand. Full analysis of financial impact.
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Major Profit Downgrade Reflects Industry Headwinds
Honda Motor Corporation delivered disappointing news on November 7, announcing a dramatic 21% reduction to its annual operating profit outlook. The Japanese automaker now projects ¥550 billion ($3.6 billion) for fiscal year 2026, substantially lower than the previous ¥700 billion forecast and falling short of analyst expectations of ¥869 billion.
The revised guidance reflects multiple pressures converging simultaneously: a critical semiconductor supply disruption, deteriorating Asian market conditions, and mounting electric vehicle transition costs. Honda also lowered its global vehicle sales target from 3.62 million to 3.34 million units, representing a significant 280,000-unit reduction.
Nexperia Chip Crisis Disrupts Production
The semiconductor shortage stems from geopolitical tensions surrounding Nexperia, a Netherlands-based chipmaker owned by Chinese firm Wingtech Technology. When Dutch authorities seized control of Nexperia in September over security concerns, China retaliated by blocking automotive chip exports, creating widespread supply chain chaos.
Honda estimates the chip shortage will slash operating profit by ¥150 billion ($1 billion) this fiscal year. North American facilities in Marysville, Ohio and Celaya, Mexico faced production suspensions in late October, though a temporary U.S.-China agreement provided partial relief in early November. The company anticipates resuming normal production around November 21.
China and Asia Sales Collapse
Honda’s Asian market struggles proved equally damaging. The automaker slashed its regional vehicle sales forecast by over 10%, from 1.09 million to just 925,000 units. China presents particularly severe challenges, where intensifying price competition and consumer preference shifts toward battery-electric vehicles have undermined Honda’s market position.
Despite 25 years of hybrid vehicle expertise, Honda faces formidable competitors including Tesla and Chinese domestic leader BYD, which sold 3.83 million EVs in 2024 alone. Southeast Asian markets have also become increasingly competitive as Chinese automakers expand regionally, forcing pricing pressures across the industry.
EV Strategy Retreat and Hybrid Pivot
Honda confirmed its global EV sales ratio will reach only 20% by 2030, down from the previous 30% target. This translates to approximately 700,000-750,000 electric vehicles annually, representing a significant strategic pullback. The company slashed EV investment from ¥10 trillion to ¥7 trillion, postponing Canadian EV supply chain development by two years.
The automaker’s first-half automobile business posted operating losses, driven largely by ¥224 billion ($1.5 billion) in one-time EV expenses. Moving forward, Honda will prioritize hybrid technology, planning 13 new hybrid models launching between 2027 and 2031 with a target of 2.2 million hybrid sales by 2030.
Bright Spot: Motorcycle Business Strength
Amid automotive challenges, Honda’s motorcycle division delivered robust performance with record-high sales volume and profitability. The company sold approximately 20.6 million two-wheelers in fiscal 2025, commanding 40% of a global market projected to reach 60 million units by 2030.
Honda revised its U.S. tariff impact estimate downward to ¥385 billion from ¥450 billion, providing modest relief. The company benefits from substantial North American localization, with 60% of U.S.-market vehicles built domestically, offering some insulation from import tariffs implemented in April 2025.
However, the path forward remains uncertain as Honda navigates semiconductor supply stabilization, EV market volatility, and intensifying Asian competition while attempting to maintain profitability during this turbulent transition period.
