Honda shares rise over 7% as investors shrug off first operating loss in nearly 70 years

Shares of Honda Motor rose over 7% on Friday, even after the Japanese automaker posted its first annual operating loss in nearly 70 years.

Honda swung to an operating loss of 414.3 billion yen ($2.61 billion) for the fiscal year ending March, compared to an operating profit of 1.2 trillion yen the year prior. Provisions made for its ailing electric vehicle business and related investments, competition from its Chinese rivals, as well as a U.S. tariff impact of 346.9 billion yen weighed on its earnings.

“The business environment surrounding the Company has been changing rapidly, and the outlook remains uncertain,” Honda said in its earnings statement on Thursday.

As part of its efforts to reorganize its EV business, the automaker said it will cancel market launches and development of some EV models initially planned for production in North America. The Japanese automaker said it expects the restructure of its EV business to cost over $9 billion.

Honda also noted that new EV makers have intensified competition in China. “Under such a challenging and competitive environment, the Company has also revised its product launch plans for certain EV models,” Honda added.

“We believe the positive share price reaction is driven by the company’s guidance for operating and net profit, both of which came in 38% above consensus estimates,” said Masahiro Akita, an analyst from Bernstein.

However, Akita said it’s uncertain as to whether the guidance has fully priced in possible losses linked to EV investments.

The automaker, being a late entrant to the EV market, has been facing challenges amid growing competition from Chinese rivals, inflation and U.S. tariffs.

Aya Adachi, an associate fellow at the Center for Geopolitics, Geoeconomics and technology of the German Council on Foreign Relations, noted that global automotive competition is being gradually influenced by China’s rapid growth in electric vehicle production.

“While pioneering hybrid technology, Japan’s slow transition to battery electric vehicles left it with a limited presence in China’s new energy vehicles market and exposed it to rising pressure in export markets,” Adachi said.

Further, engine issues and vehicle recalls have also dented Honda’s reputation. In March, Honda engines used by Aston Martin were found to be causing battery failures and in January the Japanese automaker was slapped with a lawsuit in Canada over a defect in the 1.5L turbocharged engine in three Honda models.

That said, both Citi and Nomura have kept a buy rating on Honda, expecting to see some future growth in the company.

“While we expect earnings to be low in 27/3, we think the time is right to price in a full-fledged recovery through 28/3 now that the company has announced revisions to its strategy,” Nomura analyst Toshihide Kinoshita said in a note, referring to the company’s estimated earnings for the years ending March 2027 and March 2028.

The Japanese automaker is shifting its focus more towards China and India markets from “a traditional global standard model,” Citi analyst Arifumi Yoshida said in a note. Yoshida said that Honda plans to use its advantage in the motorcycle business to capture the demand from India’s low cost segment.

Shares were last trading 7.42% higher at 1,418 yen.