[By Guancha Observer Network, Shao Yun]

In the past two weeks, the United States has successively reached trade agreements with the UK and China, but Japan, which was the first to start tariff negotiations with the U.S., has yet to make a breakthrough, making the export of cars, the backbone of Japan's economy, increasingly difficult. According to a May 19 report on Nikkei Asia's website, as of the previous trading day (May 16), the stock prices of several major Japanese automakers have been in a "discount trading" state, indicating investor confidence is lacking.

The report states that data from QUICK, a data provider under Nikkei Group, shows that as of May 16, Toyota's price-to-book ratio is 0.96, followed by Subaru (0.7), Mitsubishi Motors (0.6), Honda (0.5), Mazda (0.3), and Nissan (0.25). The price-to-book ratio is the ratio of the stock price per share to the net asset value per share. The report explains that generally speaking, the lower the price-to-book ratio (less than 1), the more undervalued the company's stock is considered by the market.

QUICK's data also shows that since Trump returned to the White House, Mazda's stock has fallen by 19%, Nissan by 11%, Mitsubishi by 7%, while Toyota and Honda have fallen by 2% and 1% respectively.

Changes in the performance of the automobile sector (blue), machinery sector (cyan), banking sector (light green), and service sector (red) represented by TOPIX-17 of the Tokyo Stock Exchange since January 2024 《Nikkei Asia》chart

Nikkei Asia directly stated that this indicates the hope brought by the ceasefire in Sino-US trade to Japanese car manufacturers is minimal. Trump has long complained about the poor sales of American cars in the Japanese market, while Japanese cars are very popular in the U.S. The report analyzes that given the high dependence of Japanese carmakers on the U.S. market and Trump's consistent criticism of the Japanese automotive industry, investors remain cautious about the business prospects of Japanese carmakers.

Ryoichi Sakagami, director and head of equity strategy for Citigroup Japan, said: "The 25% auto tariff will likely continue to exist, which is a key issue for Japan." Sakagami expects that the downward revision of earnings expectations driven by the auto industry "will drag down the entire Japanese stock market," and the auto sector will underperform other industries and the overall market over the next few months.

Katsuya Takeuchi, head of Japan equity investment at GAM Global Asset Management, said that based on his observations during the earnings season, the management of companies outside the auto industry is "not pessimistic, just cautious." However, he frankly admitted that he has "almost no hope" for the U.S.-Japan auto tariff negotiations.

Takeuchi pointed out that the situation facing Japanese automakers is "completely different" from that of British automakers. British automakers focus only on the luxury car market in the U.S., whereas according to data from the Japan Automobile Manufacturers Association (JAMA), the U.S. is Japan's largest auto export market. In 2023, Japanese automakers exported a total of 1.5 million passenger vehicles and trucks to the U.S. The second and third largest markets, Asia and Europe, had export volumes of approximately 570,000 and 550,000 units respectively.

According to calculations by Shrikant Kale, senior quantitative strategist at Jefferies Group in Hong Kong, approximately 8.5% of Japanese automakers' sales come from the U.S., with around two-thirds potentially exposed to tariff risks.

It was reported that during the recently concluded earnings season, Japanese automakers issued pessimistic guidance for the current fiscal year ending March 2026 or simply canceled their annual outlooks. Masahiro Moriguchi, chairman, president, and CEO of Mazda, frankly admitted the dire outlook during a conference call on the earnings report on the 12th: "We have informed our business partners that we are entering 'survival mode'."

Moriguchi canceled Mazda's annual earnings guidance, citing the "extreme uncertainty" of the current situation, making it "very difficult" to predict. He revealed that in just April alone, the tariffs cost the company between 9 billion and 10 billion yen (equivalent to 420 million to 470 million RMB), enough to drag down the full-year profit.

The outlook for other companies is equally bleak. According to a Bloomberg report on May 15, major Japanese automakers are expected to lose over $19 billion due to U.S. tariff policies. Toyota, as the world's largest automaker, will be hit hardest. Affected by the tariffs, Toyota stated that its revenue would decrease by 180 billion yen (approximately 8.46 billion RMB) in April and May alone. According to Bloomberg Intelligence estimates, Toyota's loss for the entire fiscal year could reach up to $10.7 billion.

Toyota predicts that its net profit for the current year will drop by 35%. Honda anticipates an even larger decline, at 70%. Subaru did not release its full-year earnings outlook but stated that tariffs would reduce its operating profit by up to 360 billion yen. Nissan, already in financial difficulty, did not provide a profit forecast for the current year but announced plans to close seven of its 17 factories.

Pessimistic guidance for the current fiscal year ending March 2026 was issued by Japanese automakers, or they simply canceled their annual outlooks 《Nikkei Asia》chart

James Ying, Japanese stock client investment manager at Eastspring Investments in Singapore, believes that the impact of tariffs on Japanese car sales and production may not fully manifest in the coming few quarters. He said that some companies' price-to-book ratios have approached multi-year lows, even below 0.5, which may present buying opportunities for investors.

The report points out that compared to the above Japanese automakers, the smaller ones are more susceptible to U.S. tariffs because they are highly dependent on the U.S. market and have limited production capacity domestically.

For example, the U.S. accounts for about 73% of Subaru's global sales, 48% for Mazda, and 25% for Mitsubishi. However, based on in-country assets, Subaru may produce only about 30% of its products in the U.S., Mazda 18%, and Mitsubishi relies almost entirely on imports.

"Given the ongoing uncertainty, we may see a shift from 'nearshoring' to 'onshoring' to get closer to the end-demand market and avoid future tariff risks," said Kale.

Subaru announced last week that it will invest 40 billion yen to expand production in the U.S. Takao Kato, CEO of Mitsubishi Motors, stated on the earnings call on May 15 that the company is considering using one of Nissan's U.S. factories, part of its alliance partner, to produce its vehicles. Honda Motor disclosed in March that it plans to produce the next-generation Civic hybrid in Indiana, U.S., rather than in Mexico previously.

However, the report notes that despite these moves, investor sentiment remains low. Koji Ohsawa, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said: "The large differences in profitability expectations among various automakers indicate that investor uncertainty remains high." He said that the weak profitability of the automotive industry may spread to the materials, electronics, and machinery sectors, and "the cyclical industries led by automakers will continue to face challenges."

This article is an exclusive contribution by the Observer Network and cannot be reprinted without permission.

Original source: https://www.toutiao.com/article/7506155895001219634/

Disclaimer: The views expressed in this article are those of the author and comments are welcome below.