Bernstein highlights tariff resilience, opportunities in Japan autos

Bernstein Research now believes Japanese automakers are better positioned to weather U.S. tariff headwinds than expected, citing increased clarity and anticipated cost pass-through for 2026 models. Despite an estimated 22% operating profit drag from tariffs, the firm highlights Suzuki and Toyota as top picks, seeing significant upside for Suzuki due to lower-than-expected risks and believing Toyota's mitigation efforts are overlooked. While some companies like Nissan face ongoing uncertainty and others like Mazda carry downside risk, the overall sector outlook is more resilient due to effective tariff management strategies.

Analysis

According to analysis from Bernstein, Japanese automakers are more resilient to U.S. tariff headwinds than previously anticipated, largely due to improved clarity following Q1 earnings. The firm models a net annual tariff impact of negative JPY 1.37 trillion, which translates to a significant 22% drag on aggregate operating profit, based on an assumed 3.2% price increase and a 2.8% demand decline. However, a key mitigating factor is the expectation that automakers will pass through a greater portion of these costs with the introduction of 2026 models. The outlook varies significantly by company. Toyota (TM) and Suzuki are designated as top picks. Bernstein sees Toyota's recent downward revision of its FY3/26 profit forecast as overly conservative, arguing it overlooks mitigation efforts and that negative factors are already priced in, shifting focus to catalysts like hybrid expansion and share buybacks. Suzuki is viewed as undervalued, trading at a forward PER of 8.7x for FY3/27, with the firm seeing significant upside potential from lower-than-expected risks and a recovery in India. In contrast, Subaru's (FUJHY) strong Q1 results are considered unsustainable with weaker profits expected, while Mazda faces greater downside risk. Nissan (NSANY) remains clouded by uncertainty around its FY3/26 outlook and potential merger discussions with Honda (HMC).

Key Decisions for Investors

• Differentiate exposures within the Japanese auto sector, as the analysis highlights a significant divergence in outlooks despite the common tariff headwind.
• Consider overweighting Toyota (TM) and Suzuki, as the research suggests their valuations do not fully reflect tariff mitigation strategies and specific growth catalysts.
• Exercise caution with Subaru (FUJHY), given its recent strong performance is not expected to last, and with Mazda, which is identified as having greater downside risk.
• For positions in Nissan (NSANY), closely monitor for clarity on its FY3/26 guidance and any material developments regarding a potential merger with Honda, as these are primary sources of uncertainty.