Due to the cancellation of the electric vehicle plan resulting in a $10 billion loss, Honda reported its fiscal year 2025 annual loss last Thursday, recording a net loss of 423.9 billion yen (approximately 18.2 billion RMB). This is the company's first annual loss in nearly 70 years since its listing on the Tokyo Stock Exchange in 1957.
At the same time, Honda expects a V-shaped turnaround in the next fiscal year, with an annual operating profit guidance of 500 billion yen (approximately 23.2 billion RMB). Honda emphasized that excluding the remaining 500 billion yen in electric vehicle-related losses to be accrued, the operating profit target for its core business is 1 trillion yen.
Honda's goal is to restore operating profits to a historical high of over 1.4 trillion yen by the fiscal year ending March 2029. Its core confidence comes from the profitability of fuel vehicles and hybrid businesses, including a reduction in electric vehicle impairment losses. Additionally, Honda's motorcycle business remains a cash cow, and is expected to continue breaking profit records in markets such as India and Brazil.
Honda CEO Toshihiro Mibe clearly stated at the press conference: "The loss in fiscal year 2025 is the result of actively liquidating old strategies. By recognizing asset impairment in one lump sum, we leave uncertainty in the past, ensuring a light start for the next fiscal year."
Honda CEO Toshihiro Mibe
To offset the impact of performance losses on the stock price and demonstrate robust cash flow, Honda announced an aggressive shareholder return policy: declaring the repurchase of up to 1.1 trillion yen (approximately 51 billion RMB) of stock, and expecting the fiscal year 2026 annual dividend to remain at 70 yen per share, flat with the previous fiscal year.
This is the largest buyback plan in Honda's history. The company stated that despite the net loss on the books, operating cash flow after deducting R&D adjustments reached as high as 2.66 trillion yen, and the equity ratio remained at a high level of 55%, with the financial status remaining extremely robust.
Based on optimistic earnings expectations, Honda's stock price actually rebounded significantly the next day. However, whether Honda can truly reverse the trend and achieve high-level profits still faces considerable obstacles.
Huge Losses Began with an All-In Gamble
The core reason for Honda encountering its first huge loss since listing lies in its all-in investment in electrification.
As one of the top five car manufacturers in the US by sales, Honda formulated an ambitious electrification investment plan during the Biden era, because the Biden government planned to significantly increase EV market penetration within the next decade. However, policies and markets change rapidly. After Trump took office, he overturned the previous "EV Mandate", leaving Honda's billions of dollars in R&D with no visible timeline for returns. Toshihiro Mibe stated: "If we continue to advance this project, it will definitely cause losses in the future."
Now, with the contraction of the electrification strategy in the North American market, Honda decided to focus on hybrid models, aiming to launch 15 new hybrid models by 2030.
Currently, Honda is developing three sets of new hybrid powertrains for small, medium, and large vehicles: a small hybrid system targeting the Japanese domestic market, with a volume reduced by 10% compared to the current model; a medium hybrid system targeting the North American market, equipped with a new 2.0-liter direct injection engine, matched with a new transmission, compact high-power battery, and optimized cooling structure, with overall volume reduced by 25%. This system will be equipped on a newly upgraded medium complete vehicle platform, with comprehensive upgrades to platform rigidity, crash prevention performance, and quietness, the complete vehicle weight reduced by 90 kilograms, and manufacturing costs adjusted down by 10%; and a large V6 hybrid system equipped on mid-to-large flagship models, with 30% fuel consumption optimization, 15% acceleration performance improvement, adopting a dual-motor four-wheel drive architecture, suitable for Odyssey MPV, Pilot, UR-V, and other mid-to-large off-road and home vehicle models.
The plan also includes a next-generation hybrid system and brand new hybrid vehicle models to be launched around 2027, which will ultimately adopt Honda's next-generation autonomous driving technology. However, according to "Nikkei News", Honda has delayed the launch date of this AI-driven driving system to 2028.
Honda's luxury brand Acura will go all out for a full hybrid era. The Acura hybrid SUV concept car unveiled in Tokyo recently foreshadows the shape of the new RDX, and the new car will be officially launched within two years. Meanwhile, the Honda main brand will strategically retain pure fuel vehicle models. In the entry-level passenger car market, fuel engines remain the key to maintaining pricing advantages. Honda will launch new generations of fuel-powered models as needed to solidify market share.
Honda North America Product Planning Director Gary Robinson stated that hybrid models will be the core pillar of the product offensive in the North American market. It is expected that before 2030, hybrid sales will surpass pure fuel vehicle models.
In addition, to focus resources on developing new-generation hybrid powertrains, Honda decided to extend the product life cycle of multiple best-selling core models, with the service cycle of some models exceeding even ten years. At least in the North American market, models such as Odyssey, Accord, HR-V, and Acura MDX will all have extended production cycles, with the earliest full replacement not expected until before 2030.
Common Dilemma of Traditional Multinational Car Companies:
How to Face the Fracture of the Two Core Global Markets
A rapid switch in power strategy can curb losses, but the situation Honda faces in the global market remains severe.
First, a sudden brake caused the previous $10 billion electrification supply chain investment to go down the drain. Honda had to urgently adjust the battery capacity from its joint venture with LG New Energy from supplying pure electric vehicles to supplying hybrids or energy storage batteries.
Secondly, Honda has to face the increasingly misaligned competitive pressure in the hybrid market with Toyota.
The US is Honda's profit base for fuel and hybrid models. In 1999, Honda successfully claimed the historical title of the first mass-produced hybrid car in the US by launching the first-generation Insight hybrid sedan months earlier than Toyota's Prius. Today, however, relying on the Prius for over twenty years of iterations, Toyota has successfully equated hybrid cars with Toyota in the hearts of North American consumers.
Especially during these few years when Honda actively bet on electrification, Toyota has already built an extremely terrifying product width in the hybrid field. From compact sedans like Corolla, Prius, mid-size sedan Camry, to SUVs and MPVs represented by RAV4, Highlander, Grand Highlander, almost the entire product line has been hybridized. The latest North American main models like the 9th generation Camry and some hardcore SUVs have directly cancelled the pure fuel version, with hybrid becoming standard across the entire series.
In the last fiscal year, Toyota's hybrid model sales in the same period reached 4.8 million, accounting for 43% of its total global sales, and occupied over 50% share in the US hybrid car market. Honda's total sales of global conventional hybrids and plug-in hybrids were 928,000 units, of which 791,000 units were in the North American market, accounting for a high of 85%, with hybrid model sales accounting for 23% of Honda's global total sales, a huge gap.
Although Honda's i-MMD hybrid system has excellent technical levels and is even more sporty in driving feel, it cannot compare to Toyota's volume in supply chain scale, which limits Honda's flexibility in pricing and overall profit margins.
Worse still, with the uncertainty of the election and tariff policies, Honda's supply chain in North America faces a pincer attack of high tariffs and subsidy cancellations. Honda must maintain high-cost localized production in North America to avoid tariffs, while also dealing with slowing demand, which tests profit margins extremely.
As for the Chinese market, it has now evolved into a bloody battlefield of advanced intelligent connectivity and new energy, with Honda's sales nearly halved within five years.
Many views hold that with the rise of intelligence, the dominance of the automotive manufacturing industry, which used to be topped by vehicle manufacturers with component companies connected layer by layer, is gradually shifting to tech companies with more advantages in chips, AI models, and electronic control systems. Future competition is not only in powertrains, but more so in software and ecosystem competition.
Honda also strongly promoted software-defined cars, being a "radical school" in the autonomous driving field, and is the first car manufacturer globally to equip L3-level autonomous driving technology on mass-produced cars (Japanese version Honda Legend). At this financial report meeting, Toshihiro Mibe clearly stated that Honda will increase software investment and apply electric vehicle and battery technologies to new hybrid models, which will enable Honda to produce pure electric vehicles at any time when consumer tastes change.
However, Honda has always lacked strength in software. Honda's early independently developed software system iterations were extremely slow, completely unable to form a counter-attack in front of Silicon Valley or Chinese tech giants. To make up for the software shortage, Honda established a new company with Sony as a joint venture, attempting to use Sony's software and entertainment ecosystem to build the Afeela smart sedan. However, as Honda comprehensively contracts the electrification front line, the development of the first Afeela model and its North American launch plan have also become victims of this strategic retreat, forced to be indefinitely suspended.
Lacking a strong smart software moat means that even if Honda retreats to the hybrid camp, its products still face "generation gap" threats when facing increasingly intelligent Chinese hybrid models or North American tech giants. In fact, in the Chinese market, Honda is also adopting strategic contraction and retreating to hybrids, basically meaning an active withdrawal from the core premium center of the Chinese market, and it will be very difficult to return to the peak in the future.
Facing the extremely competitive Chinese market and the policy-variable North American market, car companies must maintain flexibility. The question is, this is a common challenge faced by global multinational car companies. Overall, although Honda cleared historical burdens using one-off impairment at this year's financial report meeting and gave optimistic guidance of 500 billion yen profit for fiscal year 2027, its core business and global market structure show that the dilemma Honda faces is absolutely not something simple financial repair can cross; supply chain challenges and double-front battlefields are both difficulties.
Lost Two-Wheeler Market
Against this backdrop, Honda's motorcycle business, from which it made its fortune, is not smooth sailing either.
As the world's largest motorcycle manufacturer, Honda has long used the high profits from two-wheelers to subsidize the downturn of its automotive business. The impairment loss of the Honda automotive business in fiscal year 2025 reached as high as 423.9 billion yen, sustained by the profitable trillion-yen motorcycle business. However, according to recent reports from Nikkei Chinese, Chinese motorcycle brands such as Yadea, Aima, and Vietnamese pure EV company VinFast are launching a fierce pincer attack on Honda in the field of electric two-wheelers.
The Vietnamese government issued strict gasoline motorcycle regulation policies in 2025. The capital Hanoi plans to gradually restrict and ban gasoline motorcycle passage in the city center starting from July this year. This led to an instant explosion in Vietnam's electric two-wheeler market, with penetration rate skyrocketing from 10% in 2024 to 22% in 2025. In response, VinFast adopted a "radical strategy of disregarding profit and loss, low-price market seizure." In 2025, VinFast's electric motorcycle sales reached 400,000 units, surging 5.7 times year-on-year, grabbing 56% share of Vietnam's electric two-wheeler market, with sales soaring to second place in the Vietnamese market.
In response, a Honda executive frankly admitted: "We never expected the electrification process to be so rapid." Although Honda possesses absolute dominance in the traditional fuel motorcycle market in Vietnam, with 2.16 million units sold in 2025 and a comprehensive share of about 65%. However, on this key new track of electric motorcycles, Honda's share is a pitiful 1.4%, with a seriously slow response.
At the same time, Chinese electric two-wheeler giants represented by Yadea and Aima are reshaping the electric two-wheeler industry chain in Vietnam and Southeast Asia with mature industrial chains, further eating into Japanese shares.
Macquarie Transportation Research Director pointed out that Honda's two-wheeler electrification transformation actions in key markets such as Southeast Asia are "quite slow". The "god-like engines" and traditional after-sales networks Honda was once proud of are losing barriers in front of batteries and motors. The Nikkei report also mentioned that Honda was previously overly confident in its motorcycle engine advantages, leading to extreme fragility in defense when facing new environmental regulations.
To cope with the crisis, Honda has to start adopting not-so-fresh cost-reduction strategies — for example, starting to purchase a large amount of motorcycle parts from China, and planning to launch low-price electric motorcycles in Vietnam in June. This signals that the era of extremely high autonomous profits in Honda's two-wheeler business is coming to an end. Honda also plans to invest 500 billion yen to implement an electrification counterattack before 2030, with the goal of increasing annual electric motorcycle sales to 4 million units.
It should be known that the Vietnamese market alone accounts for about 10% of Honda's global motorcycle sales. If Vietnam, this "profit highland", is lost due to electrification, Honda will lose a steady financial backstop. More importantly, the Vietnamese market is not isolated. The Vietnamese government's success in pushing electrification through policy is becoming a model for neighboring countries. Indonesia and Thailand are also heavily subsidizing electric two-wheelers. If Honda cannot quickly plug the gap in Vietnam, the large-scale supply chain established by VinFast and Chinese brands like Yadea, Tailg in Vietnam will naturally radiate throughout ASEAN. At that time, Honda's market foundation throughout Southeast Asia will be shaken.
If the profit margin of this cash cow, the two-wheeler, declines, Honda's four-wheeled automotive transformation will also lose capital infusion.
