We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Honda (HMC) Might Decouple China Supply Chain Over Output Snarl
Read MoreHide Full Article
According to some media reports, Honda Motor Co. (HMC - Free Report) is considering setting up a separate supply chain outside China to reduce its dependence on the country. It is believed that Honda would maintain its supply chain in China for the domestic market while having another one in parallel.
The Japan-based auto maker’s supply chain is heavily China-dependent. Last year, almost 40% of Honda’s automobile production took place in China. Also, the auto magnate has been making considerable EV-centric investments in the country to bolster its electrification drive. In June, its joint venture in the country with Guangzhou Automobile Group Co. started building an EV factory in Guangdong province with an initial mammoth investment of $522 million. Honda also expects annual automobile production capacity in China to increase nearly 16% to 1.73 million units in two years.
Nevertheless, a closer look will reveal that the recent resurgence of Covid-19-led restrictions in the country has led to supply snarls that lowered output for Honda. This has been the case with a number of reputed Japan-based auto companies that have considerable production hubs in China. In April, eight Japan-based automakers’ global production came down significantly. Stringent lockdowns imposed in Shanghai made procurement of car parts difficult, and this supply snag sent combined output levels spiraling by 21% year over year. Of the eight, Honda registered the biggest fall at a sharp 54%, manufacturing a mere 190,000 cars in April. The supply snarl dealt a major blow to Honda's output at its main Suzuka plant in Japan, which was half that of the plan announced in February. Its domestic production in April also steeply fell 58% to 27,000 vehicles year over year. The company’s production in the China market plummeted 81% to 31,000 vehicles.
The government had previously offered incentives to companies to move back production to Japan. However, there were not many takers for this as it is presumed that a sudden diversion from a market that houses many production and logistics hubs is difficult for companies. But, it now seems that the hard-hit supply in the light of fresh lockdowns and brewing tension between China and the United States might stretch the volatility in the China market and cast a shadow on production. This is likely to make the auto companies reconsider their decision and gradually shift the nucleus of their supply chains to Japan.
In a similar move, another automaker and Honda’s peer, Mazda Motor Corp (MZDAY - Free Report) , has recently announced that it would see to it that its parts suppliers increase inventories in Japan and focus on production diversification outside China. The lockdowns forced the auto company to shut down domestic production for 11 days in April and May. This caused the company to run into a staggering operating loss of 19.5 billion yen or $144.4 million in the first quarter of its financial year. In April, Mazda logged a 50% decrease to 46,000 cars, next in line to Honda.
Shares of Honda have lost 10.5% over the past year compared with its industry’s 29.9% decline.
Harley-Davidson has an expected earnings growth rate of 6.9% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 8.5% upward in the past 30 days.
Harley-Davidson’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed in one. HOG pulled off a trailing four-quarter earnings surprise of 49.52%, on average. The stock has risen 4.3% in the past year.
LCI Industries has an expected earnings growth rate of 68.1% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 1.3% upward in the past 30 days.
LCI Industries’ earnings beat the Zacks Consensus Estimate in all of the trailing four quarters. LCII pulled off a trailing four-quarter earnings surprise of 26.48%, on average. The stock has declined 8.3% over the past year.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Honda (HMC) Might Decouple China Supply Chain Over Output Snarl
According to some media reports, Honda Motor Co. (HMC - Free Report) is considering setting up a separate supply chain outside China to reduce its dependence on the country. It is believed that Honda would maintain its supply chain in China for the domestic market while having another one in parallel.
The Japan-based auto maker’s supply chain is heavily China-dependent. Last year, almost 40% of Honda’s automobile production took place in China. Also, the auto magnate has been making considerable EV-centric investments in the country to bolster its electrification drive. In June, its joint venture in the country with Guangzhou Automobile Group Co. started building an EV factory in Guangdong province with an initial mammoth investment of $522 million. Honda also expects annual automobile production capacity in China to increase nearly 16% to 1.73 million units in two years.
Nevertheless, a closer look will reveal that the recent resurgence of Covid-19-led restrictions in the country has led to supply snarls that lowered output for Honda. This has been the case with a number of reputed Japan-based auto companies that have considerable production hubs in China. In April, eight Japan-based automakers’ global production came down significantly. Stringent lockdowns imposed in Shanghai made procurement of car parts difficult, and this supply snag sent combined output levels spiraling by 21% year over year. Of the eight, Honda registered the biggest fall at a sharp 54%, manufacturing a mere 190,000 cars in April. The supply snarl dealt a major blow to Honda's output at its main Suzuka plant in Japan, which was half that of the plan announced in February. Its domestic production in April also steeply fell 58% to 27,000 vehicles year over year. The company’s production in the China market plummeted 81% to 31,000 vehicles.
The government had previously offered incentives to companies to move back production to Japan. However, there were not many takers for this as it is presumed that a sudden diversion from a market that houses many production and logistics hubs is difficult for companies. But, it now seems that the hard-hit supply in the light of fresh lockdowns and brewing tension between China and the United States might stretch the volatility in the China market and cast a shadow on production. This is likely to make the auto companies reconsider their decision and gradually shift the nucleus of their supply chains to Japan.
In a similar move, another automaker and Honda’s peer, Mazda Motor Corp (MZDAY - Free Report) , has recently announced that it would see to it that its parts suppliers increase inventories in Japan and focus on production diversification outside China. The lockdowns forced the auto company to shut down domestic production for 11 days in April and May. This caused the company to run into a staggering operating loss of 19.5 billion yen or $144.4 million in the first quarter of its financial year. In April, Mazda logged a 50% decrease to 46,000 cars, next in line to Honda.
Shares of Honda have lost 10.5% over the past year compared with its industry’s 29.9% decline.
Image Source: Zacks Investment Research
Zacks Rank & Key Picks
HMC carries a Zacks Rank #4 (Sell), currently.
Better-ranked players in the auto space include Harley-Davidson (HOG - Free Report) and LCI Industries (LCII - Free Report) , each carrying a Zacks Rank #2 (Buy), currently. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Harley-Davidson has an expected earnings growth rate of 6.9% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 8.5% upward in the past 30 days.
Harley-Davidson’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed in one. HOG pulled off a trailing four-quarter earnings surprise of 49.52%, on average. The stock has risen 4.3% in the past year.
LCI Industries has an expected earnings growth rate of 68.1% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 1.3% upward in the past 30 days.
LCI Industries’ earnings beat the Zacks Consensus Estimate in all of the trailing four quarters. LCII pulled off a trailing four-quarter earnings surprise of 26.48%, on average. The stock has declined 8.3% over the past year.