Trade of Asia

Honda warns of rising costs and expects its annual profit to be lower.

Tokyo, Japan’s Honda Motor predicted on Friday that its annual earnings would go down by 7% instead of going up as expected. It also said that the long chip shortage and rising raw material costs were hurting profits, which was similar to what rivals Toyota and Nissan had said (OTC: NSANY).

Due to a severe shortage of semiconductors, global automakers like Honda have cut production. Toyota Motor (NYSE: TM) is facing what it calls an “unprecedented” rise in costs because China’s COVID-19 curbs have closed factories and the war in Ukraine is putting more stress on supply chains.

Using parts that are already in stock, Senior Managing Executive Officer Yasuhide Mizuno said that they hope to get the business back on track by June. He said this during a call after the earnings report.

Mizuno said that the company had heard that the lockdown situation in Shanghai was getting better and that the country’s supply chain and logistics were improving by about 80%.

Honda, Japan’s second-largest automaker by sales, expects its operating profit for the current fiscal year, which started in April, to drop to 810 billion yen ($6.29 billion). Refinitiv says that analysts were expecting a 6.3% rise to 926.3 billion.

It expects to sell 4.2 million cars around the world this year, which is 3.1% more than last year.

On Wednesday, Toyota said that its profits would drop by 20% this year, while Nissan Motor said that their profits would stay the same.

In a statement, the company said, “Adding to the uncertainty about supply and production, we expect costs to go up even more” in the fiscal year that ends in March 2023. It said that the effects of the lack of chips and the return of COVID-19 were expected to last.

The company said it expects to spend about 300 billion yen more on materials, labor, and logistics this year than it did last year. This represents an increase of approximately 11% over last year.

Honda, which makes the best-selling Accord, said on Thursday that it would cut production at two of its domestic factories by about a fifth for the rest of May. This comes about a month after it cut production by about half at one of those factories.

Refinitiv Eikon data showed that the company’s operating profit for the quarter ending March 31 fell by 6 percent, but this was less than expected. It fell to 199.5 billion yen, which is more than the average estimate of 152.2 billion yen.

Honda’s shares went up 2.2% on Friday when the market as a whole went up 2.6%. So far this year, Honda’s shares have gone up 1%.

(1 dollar = 128.8300 yen)

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