Middle East Tensions Slash Japanese Automakers' Annual Profit Forecast by Half

Japan’s seven major automakers—Toyota, Honda, Nissan, Suzuki, Subaru, Mitsubishi, and Mazda—are forecasting combined net profit of ¥3.9 trillion (approximately $24.6 billion) for the fiscal year ending March 2025, a 48% decline from the record high of ¥7.54 trillion posted in fiscal 2023, due to escalating tensions in Iran and the broader Middle East region. Executives from multiple automakers acknowledged the industry is facing severe challenges. Rising raw material costs represent the primary source of pressure. Higher international crude oil prices have driven up the costs of steel, aluminum, naphtha-based plastics, and precious metals—directly impacting the pricing of approximately 30,000 vehicle components. Toyota estimates this will reduce its operating profit by ¥400 billion, while Nissan anticipates that higher prices for petroleum-derived materials will cut its profit by ¥15 billion. Disrupted logistics have also inflicted significant losses. Heightened risks to shipping through the Strait of Hormuz have forced some automakers to reroute shipments, substantially increasing transportation costs. Mitsubishi forecasts that the Middle East situation alone will reduce its profit by ¥30 billion. Additionally, supply shortages of key components—including automotive paint ingredients—have already triggered production cuts. Although some automakers have mitigated losses through internal adjustments—for example, Honda expects its electric vehicle (EV) business loss to narrow from ¥1.4 trillion to ¥500 billion, and Nissan has reduced expenses by ¥500 billion through restructuring—the sector’s overall profitability remains under pressure. Toyota estimates that combined losses from tariffs and Middle East-related disruptions alone will exceed ¥2 trillion. Concerns over supply chain disruptions and constrained production capacity have also weighed on share prices. Analysts note that until tensions in the Middle East ease significantly, Japanese automakers’ stocks are unlikely to see a broad-based recovery. Meanwhile, General Motors and Volkswagen reported first-quarter net profit declines of 6% and 30%, respectively, underscoring that global automakers are grappling with similar headwinds.