RPT-BREAKINGVIEWS-Stalling Honda is ready for a breakup

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Katrina Hamlin

HONG KONG, March 19 (Reuters Breakingviews) - It’s barely a year since Honda Motor's 7267.T deal talks with struggling rival Nissan Motor 7201.T collapsed. Now the $33 billion company run by Toshihiro Mibe has troubles of its own.

The group said last week that it expects a $1.7 billion full-year operating loss and write-downs of as much as $16 billion, mostly due to nixing pending electric cars to prioritise hybrids. That masks the contribution of its globally dominant and highly performing motorcycle division. Splitting Honda up could both free that trapped value and spur an automotive turnaround.

Honda's motorbike sales grew 10% year-on-year to more than 20 million in the 12 months to March 2025. That’s more than three times as many as its closest competitor and equates to a 32% market share. Its operating margin in the nine months to the end of December was a speedy 18.6%.

Suppose the unit brings in just over $4 billion in operating profit in the financial year to March 2027, per analyst estimates gathered by Visible Alpha. As a standalone business, it would be worth $47 billion, using the average price-to-operating profit multiple for rivals Yamaha Motor 7272.T, Harley-Davidson HOG.N and BRP.

Meanwhile, its financial-services unit is probably worth its book value of $19 billion, using Visible Alpha data. And its power products arm could fetch $6 billion, applying similar ventures’ average earnings ratio.

All in, that’s $72 billion, which implies shareholders are ascribing a negative value of about $40 billion to Honda’s cars business. That’s tremendously unfair, especially if it returns to profitability. Assume a 3% operating margin, generous in the circumstances but low compared to historical levels, on revenue of $92 billion, per the consensus from analysts; pop the income on the 6 times multiple of a basket of peers and it’s worth $17 billion.

That implies Honda is currently trading at roughly one-third of the $89 billion sum of its parts. That should have all the dashboard needles pointing to a breakup. The smartest way to do it would be to carve out the cars business, presumably with most or all of the finance unit. It could, perhaps, survive alone, though it would have to follow Nissan’s lead in cutting lots of expenses.

Better would be to revive their aborted merger and use their combined annual sales of roughly 6 million cars to slash more costs. This time, a tie-up of Japan’s second- and fourth-largest automakers would be on a more even footing, because Honda’s earlier plan to relegate Nissan to a subsidiary, which scuppered talks, as Reuters reported, would be no longer relevant.

That may not solve all Honda’s problems. But it would give its two main businesses more room to shine.

Follow Katrina Hamlin on Bluesky and Linkedin.

CONTEXT NEWS

Honda Motor revised down its outlook for the year ending March 2026 due to a reassessment of its electrification strategy, the company said on March 12. It now forecasts an operating loss of between 270 billion yen ($1.7 billion) and 570 ⁠billion yen ​in the year to March 2026, compared with its previous forecast for a 550 billion ​yen profit, according to the announcement after market close.

The company said it anticipated further expenses, which would take the total losses up to as much as 2.5 trillion yen.

(Editing by Antony Currie; Production by Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on HAMLIN/katrina.hamlin@thomsonreuters.com; Reuters Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))