Honda Motor Co., Ltd. (HMC) Earnings

Management highlights

### Post-Kumamoto Earthquake Operational Status - The July 28, 2026 Kumamoto earthquake damaged Honda's Kumamoto motorcycle factory, which suspended production from July 28 to August 7; partial operations resumed August 8, with full recovery ongoing - Part shortages from damaged suppliers have forced production suspensions at two Japanese automobile factories: Saitama will suspend 6 total days through August 19 (including scheduled summer break), Suzuka will suspend 5 total days from August 6 to 19 (including scheduled summer break) - The most heavily affected component to date is dampers, produced by Honda group company Astemo at a facility near the epicenter; the situation remains dynamic as recovery efforts continue First Quarter Financial Performance - Q1 2026 operating profit hit an all-time record high of 530.7 billion yen; no EV-related losses were recorded in the quarter, as supplier compensation negotiations are still ongoing - Motorcycle business achieved record quarterly operating profit and margin, driven by strong global sales in India and Brazil; foreign exchange and tariff impacts contributed significantly to year-on-year profit growth - Automobile business saw steady unit sales growth in North America, where high gasoline prices increased demand for Honda's fuel-efficient hybrid vehicles, pushing Honda's market share above 10% for the first time in 5 years; performance remained weak in China due to rapid contraction of the ICE/hybrid market and model cycle transitions - Honda maintained a strong financial position, with net cash of 3.3318 trillion yen for non-financial services businesses as of quarter end - The annual dividend forecast for FY2027 (ending March 31, 2027) remains unchanged at 70 yen per share, consistent with Honda's target of 3% dividend on equity China Market Strategic Update - Honda extended its joint venture contract with GAC, addressing dealer and customer uncertainty that contributed to weak Q1 sales (Q1 retail sales of just over 80,000 units, down ~50% year-on-year) - Honda has reduced annual ICE/hybrid production capacity in China from 1.5 million units to just over 700,000 units via capacity adjustments with joint venture partners, and has streamlined fixed costs and sales operations - Honda is accelerating adoption of local Chinese suppliers and platforms, including evaluating use of partner platforms for EVs, to develop more competitive products aligned with local market preferences Collaboration Updates - Honda continues to pursue strategic collaboration with Nissan on electrification, software-defined vehicles, batteries, and vehicle platform sharing; no specific joint programs are ready for announcement yet, with the primary goal of leveraging combined volume to improve product competitiveness

Guidance

- Full-year FY2027 unit sales guidance remains unchanged from prior forecasts: 22.8 million motorcycles, 3.39 million automobiles, and 3.65 million power products - Operating profit guidance has been revised upward by 150 billion yen to 650 billion yen, driven by an updated exchange rate assumption of 155 yen per U.S. dollar - Profit attributable to owners of the parent is revised upward by 140 billion yen to 400 billion yen - Adjusted operating profit (excluding EV-related losses) is revised upward by 170 billion yen to 1.17 trillion yen - EV-related loss guidance for FY2027 is revised to 520 billion yen from the prior 500 billion yen, entirely due to foreign exchange impact (most affected suppliers are based in North America, with compensation denominated in U.S. dollars) - The annual dividend guidance of 70 yen per share is maintained - Capital expenditure guidance includes additional investment for the acquisition of factory buildings for Honda's joint battery manufacturing venture with LG Energy Solutions in the U.S.

Segment performance

1. Motorcycle Business: Operating profit of 233.9 billion yen (all-time quarterly high), representing 44.1% of total Q1 operating profit, with a 44.9 billion yen year-on-year increase. Unit sales reached 5,663,000 units, up year-on-year driven by strong demand in India and Brazil. 2. Automobile Business: Operating profit of 192.1 billion yen, representing 36.2% of total Q1 operating profit, with a 99.7 billion yen year-on-year increase. Unit sales totaled 786,000 units, down year-on-year due to weak performance in China, though unit sales grew steadily in North America. Operating margin was 5.0%. 3. Financial Services Business: Operating profit of 105.8 billion yen, representing 19.9% of total Q1 operating profit. 4. Power Products and Other Businesses: Operating loss of 1.1 billion yen. Unit sales decreased to 752,000 units year-on-year, driven by lower sales in North America. Total consolidated Q1 operating profit was 530.7 billion yen, up 286.5 billion yen year-on-year. Profit attributable to owners of the parent was 450.9 billion yen, up 254.2 billion yen year-on-year.

Risks & headwinds

- Geopolitical uncertainty in the Middle East creates unquantified risk for global unit sales, raw material costs, and broader economic conditions, which have been left unchanged from prior forecasts - Ongoing weakness and rapid contraction of the ICE/hybrid market in China, Honda's core current segment in the country, creates downside risk to full-year sales; product competitiveness initiatives are not expected to deliver meaningful results for approximately one year - The Kumamoto earthquake has disrupted production across motorcycle and automobile operations; the full impact on full-year unit sales cannot currently be estimated, though management does not expect a large material impact - Growing AI-driven demand for semiconductors (particularly memory chips) is pushing up prices; Honda has already factored a 20-30 billion yen cost increase into its full-year guidance, but further price increases or supply shortages remain a risk - Foreign exchange volatility creates offsetting impacts: weaker yen boosts translation of U.S.-denominated profits but increases the yen cost of U.S.-denominated EV-related supplier compensation - Intensifying automotive competition in North America could require higher-than-planned sales incentives, pressuring margins

Analyst Q&A

• Q: Why were no EV-related losses recorded in Q1, and what drove the 20 billion yen increase in full-year EV loss guidance outside of foreign exchange? What is Honda's current outlook for China sales after a weaker-than-expected Q1, and what is the background for extending the GAC joint venture contract?

  A: After revising its North America EV strategy earlier this year, Honda booked 1.3 trillion yen in EV-related losses last fiscal year and guided for 500 billion yen this fiscal year, most of which covers supplier compensation. Negotiations with suppliers are still ongoing, so Honda could not reliably book a loss amount in Q1, and the full-year 500 billion yen base forecast remains unchanged. The 20 billion yen increase is entirely from foreign exchange impact, as most affected suppliers are North American-based with U.S. dollar-denominated compensation. Q1 China sales were 50% lower year-on-year, due to a 40% contraction in the country's ICE/hybrid market (Honda's core segment), model transitions, and dealer uncertainty over the expiring GAC joint venture contract. Extending the contract resolved this uncertainty, and Honda will continue adjusting capacity and product strategy to recover sales.

• Q: What is the current status of capacity adjustment and EV strategy progress in China, and what is the update on collaboration with Nissan?

  A: Honda has already reduced China ICE/hybrid production capacity from 1.5 million units to just over 700,000 units, and has made good progress streamlining fixed costs and sales operations. Management will continue monitoring market conditions and discussing further adjustments with joint venture partners. Honda is accelerating the use of competitive local Chinese suppliers and platforms for new models, and is in active discussions with partners to use local platforms for EVs; these initiatives are on track but will take approximately a year to deliver results. Honda continues to collaborate with Nissan on electrification, software-defined vehicles, batteries, and platform sharing, with the goal of leveraging combined volume to improve competitiveness for both companies. No specific programs are ready for announcement yet, but discussions are ongoing.

• Q: What contributed to Honda's record Q1 profit, and what is the potential impact of extended production disruptions from the Kumamoto earthquake?

  A: The record Q1 profit exceeded management's original expectations, driven by three main factors: a weaker yen than assumed that boosted foreign exchange translation, raw material costs that came in lower than the conservative assumptions built into guidance, and stronger-than-expected sales for motorcycles (India, Brazil) and automobiles (North America, Japan). No one-time factors distorted the result. The Kumamoto motorcycle factory has not seen major equipment damage, and management is working toward full resumption as quickly as possible. Automobile production is suspended through August 19 due to supplier parts shortages, particularly for dampers from Astemo's damaged facility near the epicenter. The situation remains dynamic, and management cannot yet estimate the full impact on full-year unit sales, but does not expect a large material impact.

• Q: When will EV-related losses be booked in financial results, and why is full-year motorcycle unit sales guidance unchanged despite a stronger-than-expected Q1?

  A: EV-related losses will be booked incrementally as supplier negotiations conclude and Honda gains sufficient confidence in the cost estimates, with losses recognized step-by-step starting as early as the second quarter. While Q1 motorcycle sales have outperformed original plans, management has left full-year unit sales guidance unchanged. Near-term risks include potential regulatory restrictions in Vietnam (which are being implemented stepwise and have not caused material impact to date) and uncertainty from the Middle East conflict that could affect the global economy. Management will monitor market conditions and update guidance if needed.