Honda says chip shortage bottoming out but will drag on until latter half of 2023

TOKYO — Honda Motor Co. said the global semiconductor shortage is bottoming out, but the company still cut its global sales forecast as it warned that tight supplies will likely drag into the latter half of 2023.

Japan’s No. 2 automaker trimmed 250,000 units off its sales outlook for the current fiscal year ending March 31, citing lingering chip woes and uncertainty about the pandemic in China.

Honda now expects worldwide volume to dip under the 4-million-unit level to 3.85 million vehicles.

This new target would register as a 5.4 percent sales decline from the previous fiscal year — as opposed to Honda’s previous forecast for a slight overall sales increase.

The volume languishes far below Honda’s global production capacity of 5.14 million vehicles.

At Honda’s quarterly earnings announcement on Friday, Operating Executive Eiji Fujimura said the supply of semiconductors is expected to pick up, but only in the second half of the upcoming fiscal year. That corresponds to a time frame of October 2023 to March 2024.

“I think we will see better procurement of semiconductors around that time,” Fujimura said, in announcing a 22 percent increase in quarterly operating profit.

“We are starting to see the situation bottom out.”

Honda cut 25,000 vehicles from its North American outlook. It now expects to sell 1.23 million vehicles in the critical market through March 31, down from the originally planned 1.25 million vehicles.

The forecast for Asia took the biggest hit, dropping by 220,000 vehicles to 1.86 million.

Honda kept its guidance for Europe, its smallest market, unchanged at 85,000 units.

Global automakers are expected to eliminate about 2.8 million vehicles from their production schedules this year because of the microchip shortage, according to AutoForecast Solutions.

Honda’s business in the U.S. market is especially susceptible to semiconductor shortages because the company sells bigger, higher-end models there that require more chips, Fujimura said.

“Therefore, North America is more impacted by the shortage,” he said.

Fujimura’s assessment comes as the parent company reported financial results for the fiscal third quarter ended Dec. 31. Boosted by big foreign exchange rate gains, Honda said operating profit rose 22 percent to ¥280.4 billion ($2.13 billion) in the period.

The semiconductor shortage and pandemic-related lockdowns in China undercut production, while higher costs for raw materials eroded earnings.

But the beneficial foreign exchange rates offered a big tailwind.

The Japanese yen’s dramatic weakening against the U.S. dollar and other currencies added ¥100.5 billion ($762.1 million) to the bottom line in the October to December quarter. The foreign exchange gains offset sliding sales and rising expenses to drive Honda to a quarterly profit increase.

Worldwide sales retreated 12 percent to 955,000 vehicles in the three-month period. Results were pulled down by a 24 percent plunge in Asia, where sales dropped to 443,000 units.

Despite the weakening sales outlook, Honda still managed to keep its profit outlooks unchanged for the fiscal year to March 31, because of the offsetting effect of a weaker yen.

Full fiscal-year operating profit is expected to essentially equal the previous year’s haul, at ¥870.0 billion ($6.60 billion). Net income is seen as increasing 2.5 percent to ¥725.0 billion ($5.50 billion). The improved outlooks come even as Honda slightly trimmed its sales forecast.

Honda cut 100,000 vehicles from its full fiscal-year global outlook to 4.1 million, due to parts shortages. But the revision still marks a 0.6 percent increase over the previous year’s result.

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