VALUATION HIGHLIGHTS

1. Automobiles constitute 18% of the Trefis price estimate for Honda's stock.
2. Vehicle Leases & Loans constitute 15% of the Trefis price estimate for Honda's stock.
3. Motorcycles constitute 8% of the Trefis price estimate for Honda's stock.

WHAT HAS CHANGED?

1. Latest Earnings

Honda reported a mixed set of Q2 FY'25 results. Earnings stood at $0.43 per share, down from $1.07 per share in the year-ago period. Quarterly revenues came in at about $36.2 billion, up from about $34.5 billion in the same period last year driven in part by stronger motorcycle sales.

Note: Honda's FY'24 ended on March 31, 2024. Q2 FY'25 ended on Sept 30, 2024

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

• Honda's Automobile Units Sold: Honda's auto sales have declined from almost 5 million units in FY'19 to just about 3.8 million in FY'23 although it recovered to 4.1 million in FY'24. Trefis expects the metric to gradually rise to around 4.5 million units by FY'31. However, if volumes remain roughly flat, our price estimate could see a 5% downside.

BUSINESS SUMMARY

Honda is one of the world's ten largest automakers and the largest motorcycle producer. In addition to producing Honda-branded vehicles (cars, vans, SUVs, trucks) and motorcycles, the company is also a leading producer of power sport vehicles (ATVs, watercraft) as well as other motor-based products (generators, pumps). Honda also provides financing through leases and loans for its products. Honda's financing business is a significant contributor to the company's profits. Honda is headquartered in Tokyo, Japan.

SOURCES OF VALUE

High gross margins for automobile business

According to our estimates, Honda's gross margin for its vehicle business is almost 19%. We expect this number to remain steady over our forecast period.

KEY TRENDS

1. Focus On Electric Vehicles

Honda Motors is taking concrete steps to build strong electric vehicle capabilities. While the company has been investing in EV development for the last few years, in 2022, it signed a collaboration agreement with General Motors to develop affordable electric vehicles based on a new global platform. The first vehicles will likely roll out in 2027, with prices likely to start below $30,000. In early 2024, Honda announced plans to invest as much as $11 billion in an EV hub in Canada.