How Much Could Selling More SUVs Add To Honda’s Valuation
Honda Motor Co. (NYSE: HMC) is planning to increase the production of light trucks, which includes SUVs, Crossovers and pick-up trucks, in the U.S. auto market. This segment has grown by 7% ear to date compared to 8.4% decline in passenger car sales. What’s more is that these sales are more profitable as vehicles in this segment command higher unit prices and higher margins on average compared to passenger cars.
The table below shows how much Honda’s valuation could increase if the contribution of light trucks in the company’s sales mix continues to increase going forward. Since, these models command higher transaction prices and higher gross margins, we assume that transaction prices will increase by 3% per year and gross margins expand by 20 basis points per year. As you can see from the table, doing so can lead to our valuation for the company to increase by close to 12%.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Honda Motor
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