By Satoshi Sugiyama

TOKYO, Reuters – Japan’s Honda Motor forecast Friday a 7% drop in its annual earnings instead of the expected increase. It warned that rising raw materials costs and the long chip crunch would have a negative impact on profit. This is similar to comments made by rivals Toyota Nissan (OTC).

Due to a shortage of semiconductors in the market, global automakers like Honda have cut production and are now facing what Toyota Motor (NYSE) calls an “unprecedented increase in costs”. The COVID-19 China curbs and war in Ukraine have caused factories to close and further stress supply chains.

Yasuhide MIZUNO, Senior Managing Director and Executive Officer of the Business said that they are working to put the company on a track for recovery in June. He used parts from stock.

Mizuno indicated that they were hearing about the Shanghai lockdown improving, and that supply chain logistics and logistics had recovered to around 80%.

Honda Japan, Japan’s 2nd largest automaker in terms of sales, expects operating profit to fall to 810 trillion yen ($6.29billion) for its current fiscal year, which began April. According to Refinitiv, analysts expected 6.3% growth to 926.3 million.

This year it expects to sell around 4.2 million vehicles worldwide, an increase of 3.1% over last year.

Toyota forecasted Wednesday a 20% decline in profits, and Nissan Motor predicted a flat profit.

According to a company statement, “Adding uncertainty on production and supply, further rise in costs is expected” for the fiscal year that ended March 2023. The company stated that the effects of the shortage in chips and the resurgence COVID-19 would continue to affect the business.

It said that it expected to spend about 300 billion Japanese yen on rising labor, material and logistic costs this year. That’s roughly 11% more than last year.

Honda, the maker of the best selling Accord, announced on Thursday that it would reduce its production by approximately a fifth at two of their domestic factories during May. It did this one month after cutting back by half at another.

The company on Friday reported a smaller-than-expected 6% fall in operating profit to 199.5 billion yen for the quarter ended March 31, beating an average estimate of 152.2 billion yen, Refinitiv Eikon data showed.

Honda shares closed at 2.2% Friday, amid a 2.6% increase in the wider market. Honda shares have increased 1% this year.

($1 = 128.8300 yen)