VALUATION HIGHLIGHTS
- Automobiles constitute 26% of the Trefis price estimate for Honda's stock.
- Vehicle Leases & Loans constitute 13% of the Trefis price estimate for Honda's stock.
- Motorcycles constitute 11% of the Trefis price estimate for Honda's stock.
WHAT HAS CHANGED?
- Latest Earnings
Honda posted a better-than-expected set of results for FY'24. The company saw sales rise 21% to 20.429 trillion yen (~$130 billion) while operating profits were up by 77%. Honda sold about 3 million vehicles over the last year, up from 2.3 million a year ago, driven by stronger demand for hybrid vehicles.
Note: Honda's FY'24 ended on March 31, 2024.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
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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
- 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.
