Our Financial Results
We have released our financial results for the fiscal year that ended in March 2025.
Domestic sales by Japanese automakers for the January-March period increased by 14% year-on-year, indicating a recovery from the testing scandals. Exports to China decreased by 1%, but the decline appears to have stabilized. In the North American market, Japanese car sales increased by 9% compared to the previous year in March. This may have been caused by a last-minute surge in demand before tariffs were implemented by the Trump administration, resulting in a 3% increase in Japanese car sales in the U.S. from January to March. Sales of our products were also robust, and our cost reduction efforts progressed better than expected, enabling us to meet the revised sales and earnings guidance we announced in March. The yen-dollar exchange rate at the end of the quarter was weaker than anticipated, and the Mexican peso-dollar exchange rate remained marginally weaker. As a result, our sales, operating profits, and ordinary profits exceeded forecasts. However, net profit increased less than expected due to the settlement of fire insurance claims being deferred to the next fiscal year.
Our Earnings Guidance for the Fiscal Year Ending March 2026
U.S. President Trump's tariffs on finished vehicles took effect in April and on auto parts in May. However, temporary and partial tariff reductions on parts for vehicles produced in the United States have also been implemented. The U.S. government has indicated that trade negotiations with Japan are a priority, but it is currently impossible to predict how these negotiations will be resolved. Therefore, we have assessed the likely impact based on the following macroeconomic assumptions.
It is estimated that Japanese automakers sold 5.88 million vehicles in the U.S. in fiscal 2024, with 3.26 million (55%) of those produced by the five major Japanese automakers in the U.S. and the other 2.62 million imported from Japan, Mexico, and Canada. Assuming that the cost of sales as a percentage of the final sales price for imported vehicles is 80%, a 25% tariff that is fully passed on to consumers would result in a 20% increase in the sales price. The price elasticity of new vehicles is estimated to be -0.6 to -1.0, and for luxury vehicles, it is -0.3 to -0.7. Typically, Japanese car companies export high-end vehicles. If the impact of tariffs is greatest and the price elasticity is -1.0, the demand reduction is estimated to be -20%. Vehicles produced in the U.S. by Japanese companies use imported parts that are subject to tariffs, so it is expected that the price of these vehicles will increase. Considering the anticipated reduction in tariffs on auto parts, we estimate a 6% increase in the sales price of imported auto parts, which will result in a 6% decrease in the demand for parts.
We thoroughly analyzed how our engine valves are used by our customers and then calculated the impact on our sales and profits. For engine valves that are fitted to completed vehicles or engines and then exported to the U.S., sales will decrease by 20%, and for those that are exported as parts and then assembled in the U.S., sales will decrease by 6%.
Regarding exchange rates, the heightened economic uncertainty caused by the tariffs has caused the yen, which is perceived to be a safe-haven asset, to sharply strengthen since April. However, it has since weakened slightly. While its future path is unclear, we have factored in the assumption that further appreciation, which would be unfavorable for our company, may occur. For the Mexican peso, we have not factored in any impact as we do not expect the peso to weaken further than the dollar in the current environment of dollar weakness.
It cannot be ruled out that the current economic and market turmoil could lead to a large-scale global recession, but we have not included this in our performance guidance because such an event is highly unlikely to occur.
We would have achieved our sales and profit targets for 2026, the final year of our three-year medium-term management plan, one year ahead of schedule if the U.S. had not imposed tariffs. Unfortunately, due to the aforementioned factors, sales for the 2025 fiscal year, the second year of the three-year medium-term management plan, are projected to be below the target. However, we are confident that they will set a new record high for the second consecutive year. In addition, operating profit are expected to surpass the target. As previously explained, these assumptions are highly tentative, and there is a risk that the market environment could deviate significantly, depending on the outcome of future Japan-U.S. negotiations regarding the tariffs. Therefore, we kindly ask for your understanding regarding this matter.
We hereby report the above and kindly ask for your continued understanding and support.