Honda’s lane

Whether Honda Atlas Cars (PSX: HCAR) becomes an exporter of Honda vehicles assembled in Pakistan still remains to be seen, a future that hinges on the cost competitiveness and demand feasibility in attractive markets. At the same time though, one cannot deny that HCAR is financially trudging out of misery. Profits in the first quarter of MY26 are up 4 times compared to the low base in 1Q last year.

While this is not the best quarterly profits the company has made in recent history, the average earnings for the past three quarters is almost double the average earnings for the same quarters the year before.

The average volumetric increase during this time is 40 percent. There is certainly a favorable demand environment, especially with the reduction of interest rates and the resurgence of bank credit for consumer automobiles. In 1QMY26 (ending June-25), volumes surged 68 percent driven by City and civic sales (BR-V was only 7% of total volumetric sales) which led to a revenue growth of 66 percent.

Honda's cost per unit sold is down 4 percent, contributing to a slight improvement in margins. However, revenue per unit sold declined by 1 percent, suggesting a possible shift in the sales mix toward lower-priced models.This is also evident from the reduced share of BR-V compared to last year.

Certainly, the increased demand is expected to taper off in the coming quarter, particularly due to new budgetary measures such as carbon levies that have triggered upward price adjustments for most models.

With strong control over overheads (4% of revenue) and financial costs (1% of revenue), partially offset by other income (2% of revenue), what Honda needs now is sustained demand. The company’s launch of a hybrid vehicle in the C-segment SUV category aligns with its domestic assembly strategy. While the model will compete with the already popular Corolla Cross, for Honda loyalists, the launch appears well-timed.

The exports meanwhile are mostly symbolic at this time. Unlike the domestic market where competition is hard to fathom, automotive exports are highly competitive with more ready and advanced exporters already in the market unwilling to give out their market share. In this case, several East Asian exports are already at a significant advantage.

While Honda claims a high degree of localization, 74 percent for the Honda City; 64 percent for the Civic, and 61percent for the hybrid HR-V, the cost of many localized parts remains sensitive to exchange rate fluctuations, as most raw materials are still imported. Other factors such as high taxation environment are also not conducive to producing an export competitive product. Honda must weigh its export aspirations against the harsh realities of highly competitive international markets. But this is as good a start as any.