Tariffs, EV And China Risks: Is Honda Stock Still Worth It?
This photo shows signage at a car dealership for Japanese automaker Honda Motor along a street in ... More central Tokyo on May 13, 2025, ahead of the company's annual results announcement later in the day. (Photo by Richard A. Brooks / AFP) (Photo by RICHARD A. BROOKS/AFP via Getty Images)
Japan's second-largest automaker, Honda Motor stock (NYSE: HMC), has predominantly fluctuated sideways this year, yielding approximately 2% since the beginning of January. Honda's recent outcomes have been somewhat underwhelming in the latest quarters. For Q4 FY'25 (which concluded on March 31), the organization's revenues fell short of projections, totaling around $35.1 billion, a decline from the previous year's figure of $36.5 billion, while profits also did not meet expectations. While Honda's motorcycle division has experienced robust expansion driven by demand from Asian markets, its automotive segment witnessed a revenue decrease amidst challenges in China. In North America, the firm sold 1.65 million vehicles in FY'25, a slight increase from the earlier year, bolstered by a stronger adoption of hybrid vehicles.
Nonetheless, the 25% tariff on foreign automotive imports imposed by the Trump Administration is expected to affect Honda's U.S. operations. Honda is attempting to navigate around these tariffs, with reports suggesting that it might produce its next-generation Civic hybrid, one of its most favored models, in the U.S., instead of Mexico. Honda has signaled that the effects of the tariffs imposed by the U.S. would significantly influence its business, with the situation also remaining uncertain due to frequent policy changes. Honda has projected net profit forecasts for 2026 that are anticipated to be 70.1% lower than FY'25, while revenues are expected to decline by 6.4% year-over-year.
Investors may also have concerns regarding Honda's long-term outlook. Honda has reaffirmed its commitment to its EV strategy, increasing investments in EVs during a period of declining demand, which is likely to affect profitability in the short run. It also remains to be determined whether Honda can stay competitive in markets like China, where domestic manufacturers are witnessing a surge in interest for their affordably priced yet highly equipped electrified vehicles. Furthermore, vehicles manufactured in China are gaining acceptance globally, with China set to become the world's largest car exporter, surpassing Japan. Honda's sales volumes in Asia decreased by nearly 28% year-over-year in FY'25. In addition, a potential strengthening of the yen could also negatively impact Honda in the medium term. The yen has appreciated almost 8% against the dollar in the past 12 months.
A stronger yen diminishes the competitiveness of Honda's exports from Japan and reduces its international earnings when converted back to yen. That said, Honda's stock valuation appears reasonable, trading at approximately 8x FY'25 earnings. The company's low valuation, ongoing share repurchase programs, and potential growth in the hybrid sector could help support the stock during the current volatility. We value Honda stock at around $32 per share, slightly above the present market price. See our analysis of Honda Valuation for further details on what's influencing our valuation for Honda. Also, check our analysis of Honda Revenue for additional information on Honda's primary revenue sources.
While Honda stock is encountering challenges due to trade disputes and a changing Asian market, investors might consider diversified strategies, such as the Trefis High Quality (HQ) Portfolio, which mitigates risk across various companies and sectors, instead of solely concentrating on individual investments. Featuring a variety of 30 stocks, this portfolio has demonstrated a history of comfortably outperforming the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided superior returns with reduced risk compared to the benchmark index; there has been less volatility, as evidenced in HQ Portfolio performance metrics.
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Look at the spec sheet, and you'll see the EV4 has only a smidge less headroom than a K4 sedan (a smidge, in this case, being just less than half an inch), but headroom is measured from the seat's hip point, not the car's floor. The EV4's seats sit closer to the floor than in most cars (though perhaps it would be more precise to say the floor is closer to the seat), which compromises the seating position. Allow me to switch from the royal we to first-person singular for just a moment: I'm 5-foot-6, midway between the heights of the average man and the average woman. The downside is I'm easy pickings in a bar fight; the upside is that I can find a satisfactory seating position in most cars. In the EV4, when I adjusted the seat to my preferred comfy leg-angle position, I found myself looking through the top of the windshield. When I dropped the seat to better center my view, I felt like I was sitting on the floor—but without enough room to stretch my legs out and still feel as if I was in the same zip code as the dashboard. Obviously, this is what driving is like for my 6-foot-plus colleagues, but I am not a tall man, and no car should make me feel like I am. I don't have these problems in a Tesla Model 3, which has a roofline 2.5 inches lower than the EV4's. Rest Your Elbow on the Diving Board There are other questionable design decisions, like how the EV4 utilizes the space between the front seats. This new Kia has a nice half-length padded armrest, which hinges upward to reveal … another armrest. At least, that's the best description I can come up with for the hard-surfaced panel underneath, other than an architect's model of a diving board. Why did Kia bother to hinge the padded part? Perhaps the designers thought someone might try out the armrest and think, 'Gosh, that's just a bit too comfortable.' ( Nota bene , Gen Z; not only does Kia think you have no aesthetic sense; the company also thinks you're masochists.) The diving board itself does not hinge upward, but instead slides forward and back, allowing EV4 owners to choose between blocking most or all the open storage cubby beneath it. It only blocks access, mind you; thieves can still see the contents from outside the car regardless of the diving board's position. The cubby itself is barely big enough to contain a box of tissues or a couple of phones, never mind a purse (even a small one) or the mind-boggling collection of hair clips, hair bands, pens, phone-charging cables, loose change, business cards, napkins (new and used), and half-eaten granola bars someone who will remain nameless but might be my wife stores in the center console of her Mazda. (Oops, first person again. Sorry.) 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But for those considering an EV for the first time, a $30,000 price point might seem a bit steep considering how many good cars and SUVs start for less th $25,000. We often hedge our first drives by saying we must wait until we can test a car on our home turf, but in the case of the 2026 Kia EV4, our hedge must wait until we see pricing. That might not occur until close to the EV4's fourth-quarter 2025 on-sale date. We'll keep our fingers crossed, because the new EV4, for all its shortcomings, has great prospects as an entry-level EV. If Kia gets the price low enough, we expect to see a lot of these cars on the road.
