First loss since listing! Honda forecasts a net loss of 420 billion to 690 billion yen for fiscal year 2026, significantly scaling back its electrification strategy | Earnings report insights

``` On March 12, Honda released a revised earnings forecast announcement, announcing a significant contraction of its electrification strategy, the cancellation of three electric vehicle models originally planned for mass production in North America, and a comprehensive downgrade of its consolidated earnings forecast for the current fiscal year from profit to loss. If Honda’s predictions are accurate, this would mark its first annual loss since going public. Key data as follows: Sales revenue: maintained at 21.1 trillion yen. Operating profit: revised down from +550 billion yen to a loss of 270 billion to 570 billion yen. Pre-tax profit: revised down from +620 billion yen to a loss of 310 billion to 650 billion yen. Net profit attributable to shareholders: revised down from +360 billion yen to a loss of 420 billion to 690 billion yen. The company decided to cancel the development and launch plans for three electric models: Honda 0 SUV, Honda 0 Saloon, and Acura RSX. The reasons cited were a significant slowdown in U.S. electric vehicle demand, changes in U.S. tariff policies, and declining competitiveness in the Chinese market—an overlap of multiple pressures. Honda stated that the total losses related to this strategic reassessment of electrification may reach as high as 2.5 trillion yen in the coming years. The company plans to hold a press conference in May this year to disclose details of its mid- to long-term strategic rebuilding plan for the automobile business. Significant Downward Revision of Earnings Forecast, Expecting First Annual Loss Since Listing Honda revised its consolidated operating profit forecast for the fiscal year ending March 2026 from the previous 550 billion yen to a loss of 270 billion to 570 billion yen, a change of 820 billion to 1.12 trillion yen. The pre-tax profit forecast was cut from 620 billion yen to a loss of 310 billion to 650 billion yen. Net profit attributable to shareholders plummeted from 360 billion yen to a loss of 420 billion to 690 billion yen, with adjusted earnings per share at a loss of 105.07 to 172.62 yen, in stark contrast to the previous year’s actual earnings per share of 178.93 yen. In terms of specific loss components, Honda expects to record operating expenses of 820 billion to 1.12 trillion yen as well as equity-method investment losses of 110 billion to 150 billion yen in the consolidated financial report; and special losses of 340 billion to 570 billion yen in the non-consolidated (standalone) financial report. Despite the sharp downward revision in earnings, Honda maintains its previous per-share dividend forecast, citing the use of Return on Equity (DOE) as the shareholder return metric to ensure dividend stability and continuity. Demand Slowdown and Tariff Shocks Deal a Double Blow to the Electrification Strategy Honda’s strategic reversal stems from a simultaneous deterioration of multiple internal and external pressures. Externally, relaxed fossil fuel regulations in the U.S. and adjustments to the electric vehicle subsidy policy have markedly slowed local EV market growth. Meanwhile, the new U.S. tariff policy directly affects the profitability of Honda’s traditional gasoline and hybrid businesses. Honda openly admits that allocating more resources to electric vehicle development has simultaneously weakened the competitiveness of its traditional product lines in the Asian market, creating a dilemma of “robbing Peter to pay Paul.” The company admits that, in the current business environment, forcibly proceeding with mass production of the above three electric vehicle models "may lead to further long-term losses." Strategic Focus Shifts to Hybrids, India Market Gets Priority Facing the above pressures, Honda clearly stated it will shift its resource allocation focus to hybrid vehicles, while also restructuring its regional strategies. Beyond its main markets in Japan and the U.S., Honda will significantly increase investment in the Indian market, expanding its model lineup and enhancing cost competitiveness, given its forecast of strong expansion potential there. In other Asian markets, Honda plans to introduce next-generation hybrid models and re-evaluate resource distribution to rebuild product competitiveness. On the cost management front, Honda stated it will establish a fixed cost structure aligned with its business scale. The company has not completely abandoned electrification, but its wording has become notably cautious, stating that future EV plans will be "advanced flexibly from a long-term perspective, while focusing on balancing profitability and market trends." Executive Pay to be Cut by About 25%-30% to Demonstrate Accountability At the corporate governance level, Honda announced that some executives will voluntarily return part of their compensation in response to the sharp decline in earnings. Specifically, the President and Representative Executive Officer, as well as the Executive Vice President and Representative Executive Officer, will return 30% of their monthly compensation for three consecutive months in fiscal year 2027. Other participating executive officers and managing executive officers involved in the automobile business will return 20% of their monthly compensation, but executives who have announced their retirement as of March 31 are not included. Additionally, the two aforementioned representative executive officers will forego short-term performance compensation (STI) for the fiscal year 2026. Taking all these measures together, the annual compensation of representative executive officers will be reduced by about 25%-30% compared to the standard level. Risk Warning and Disclaimer The market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice and has not taken into account individual users’ special investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investments based on this information are at your own risk. ```