Japanese carmakers focus on popular models to soften U.S. tariff impact

Japan Today

19-05-2025

By Junko Horiuchi
Japanese automakers have few immediate options to offset the impact of the additional U.S. tariff on cars. Toyota Motor Corp, Honda Motor Co and other domestic manufacturers will likely rely on strong sales of their popular fuel-efficient models in the key market, potentially coupled with price increases, analysts say.
An additional 25 percent tariff that took effect on April 3 is expected to significantly dent profits at Japanese automakers, with Japan's top two carmakers -- Toyota and Honda -- projecting a 35 percent and 70 percent plunge in net profit, respectively, for the year through March 2026.
Auto manufacturers can increase local production or pass the higher tariff costs on to customers, among other effective measures to mitigate the impact.
Raising prices could help ease the pressure on profitability, but the strategy risks driving away customers.
Toyota Chief Financial Officer Yoichi Miyazaki said at a press conference on the company's latest earnings that it would not make any hasty moves and ruled out an immediate price hike, describing it as a risky strategy.
It may take years to increase local production, as carmakers will need to reorganize their supply chains, and they may be reluctant to do so without knowing how long the tariffs will remain in place, analysts said.
On top of the 25 percent tariff, U.S. President Donald Trump imposed a 25 percent tariff on auto parts and a 10 percent baseline rate for imports from all trading partners.
Toyota President Koji Sato said at the press conference that his company will continue to focus on local development and production "in the medium and long term."
If exports from Japan to the U.S. market prove difficult, Toyota should consider redirecting those vehicles to other markets in the short term, he said.
Toyota, the world's largest carmaker by volume, expects its net profit to fall 34.9 percent in the current fiscal year to 3.1 trillion yen ($21.3 billion), as it estimates the higher import taxes will reduce its operating profit by at least 180 billion yen in the first two months of the fiscal year. The company did not disclose the impact for the full year.
Honda, Japan's No. 2 carmaker, said its net profit is forecast to plunge 70.1 percent to 250 billion yen in fiscal 2025, saying that U.S. tariffs could lower its operating profit by 650 billion yen in the year, affecting its imported cars and motorcycles.
Honda plans to move production of some models to the United States from Japan and Canada to soften the impact of the tariffs.
Honda President Toshihiro Mibe said the company will also consider raising prices, closely monitoring other firms' pricing strategies to determine the timing and which models would be affected.
"We will make efforts to overcome" the impact of the tariffs, Mibe said at a press conference for the latest earnings.
Nissan Motor Co, Japan's third biggest carmaker, expects the tariffs to cut its operating profit by up to 450 billion yen in the current business year.
The additional tariffs are another blow to Nissan, which has been undergoing massive restructuring due to faltering sales in the U.S. and China markets. The struggling automaker posted its third-largest net loss in fiscal 2024.
Nissan said it will focus on boosting sales of models manufactured in the United States to cushion the effect of the auto tariff.
Nissan builds 53 percent of the vehicles it sells in the U.S. market at local plants, more than Toyota's 49 percent but less than Honda's 62 percent, according to Tatsuo Yoshida, senior auto analyst at Bloomberg Intelligence.
For Japanese automakers, scaling back their U.S. operations is not an option. Demand for relatively high-end vehicles, which offer higher profit margins, remains strong in the world's second-largest auto market after China, analysts say.
Auto analyst Takaki Nakanishi of the Nakanishi Research Institute said the challenging circumstances do not diminish the importance of the U.S. market for Japanese automakers, and that Toyota and others should continue offering attractive products to local customers to remain competitive.
No Japanese automakers currently plan to build new plants or significantly expand production capacity in the United States, as they aim to boost sales of small cars and hybrid vehicles to meet strong local demand.
"The tariff was imposed at a time when Japanese automakers' shares and sales in the U.S. market were expected to grow into 2025 with local consumers opting for smaller cars and hybrids that Japanese automakers have an edge on," Bloomberg Intelligence's Yoshida said.
"Since the additional tariff imposed by the Trump administration is not driven by hostility toward Japan-made cars, there is no reason for Japanese automakers to shift their stance. The U.S. market will remain a key source of sales, even if profits take a hit from the levies," he said.
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