Honda, Nissan see brighter days ahead

TOKYO — Two big Japanese carmakers are sounding upbeat as they raise full-year earnings forecasts, citing progress in sorting out the semiconductor shortage and improved profitability.

Honda Motor Co. says the worst of the microchip crisis is over, while Nissan Motor Co. says a rush of new product has underpinned a healthier model mix and lower incentives.

Both companies delivered their assessments last week while announcing fiscal second-quarter earnings. Citing a brisk tail wind from favorable foreign exchange rates, the companies also lifted profit outlooks for the current fiscal year ending March 31, 2023, as revenue surges.

Honda, Japan's No. 2 automaker behind Toyota Motor Corp., said it had cleared the worst of the global semiconductor crunch, though it warned of lingering pain, with a short supply of some chips denting production of hot sellers such as the Civic compact car and CR-V crossover.

"The worst of the period is over," CFO Kohei Takeuchi said of the microchip crisis. "But there are still shortages of specific applications."

Takeuchi also downplayed concerns of a U.S. recession. While the softening economy remains a risk to monitor, he said, Honda thinks demand remains strong for its vehicles, thanks largely to the fact that pinched production has whittled down inventories.

Citing a crimped chip supply, Honda trimmed its North America sales outlook by 135,000 vehicles in the fiscal year ending March 31, 2023. It now expects North American sales to total 1.26 million vehicles for the 12-month period, down 2.2 per cent from the previous fiscal year.

But in the fiscal second quarter ended Sept. 30, Honda posted a 16 per cent increase in operating profit to ¥231.2 billion (US$1.6 billion). The Japanese yen's dramatic weakening against the U.S. dollar added ¥89 billion (US$615.9 million) to the bottom line.

Earnings in the above chart are in USD.

The yen's fall against the dollar boosts the value of earnings repatriated to Japan, stoking huge revenue gains for the country's carmakers. The currency has lost 28 per cent of its value against the dollar since Jan. 1, plunging to a three-decade low against the greenback.

Because of the weakening yen, Honda now anticipates higher operating profit and net income than it had earlier forecast. Full fiscal year operating profit is now expected to essentially equal the previous year's haul at ¥870 billion (US$6.02 billion). Net income is predicted to increase 2.5 per cent to ¥725 billion (US$5.01 billion) over the previous year.

Meanwhile, Nissan saw operating profit soar 45 per cent to ¥91.7 billion (US$634.6 million) in the July-September period. The result delivered a 3.6 per cent profit margin, up from 3.3 per cent a year earlier, bringing Japan's No. 3 carmaker closer to its midterm goal of 5 per cent.

Even amid sliding vehicle sales, Nissan said higher revenue per vehicle and better pricing power have helped bolster profitability as the company continues on its recovery track.

In announcing the results Wednesday, Nov. 9, COO Ashwani Gupta said Nissan has captured a higher tier of customer in North America, partly through renewed product and lower incentives. Spiffs have moved down to around industry average, and Nissan's cars are packed with pricier technology.

"The customer is paying for it," Gupta said. "Our brand power is increasing."

Products such as the Ariya electric crossover, Z sports car and Rogue crossover helped lift the brand's image and command better customers and pricing. "The mix has improved a lot," CFO Stephen Ma said. "Customers have reacted very well to all our new products."

Nissan also upgraded its profit outlook for the fiscal year on the better model mix and a foreign exchange tail wind that added about half a billion dollars to quarterly operating profit.

It now sees operating profit zooming ahead 46 per cent to ¥360 billion (US$2.49 billion), compared with the previous fiscal year. The revised net income outlook is also better than previously outlined, but it still represents a 28 per cent decline from the previous fiscal year.