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Honda (HMC) Recalls 761,000 Vehicles on Faulty Fuel Pumps

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Zacks Equity Research
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Honda Motor Company HMC recently issued a recall for 761,000 vehicles across the globe. The recall has been issued to replace fuel pumps which could malfunction and lead to engine complications. The automaker claims to have received no notifications of crashes or injuries related to this issue.

The recall consists 628,000 vehicles in the United States covering various 2018-2020 model year Acura and Honda vehicles. Additionally, the recall encompasses few Accord, Civic, CR-V, Fit, Pilot, Ridgeline, MDX, RDX and TLX vehicles.

Honda has been recalling vehicles frequently for the last few years. The Japanese automaker is the largest customer of the faulty Takata airbags that can explode and shoot out metal fragments in a crashed vehicle. Apart from this, it often announces safety recalls for other reasons. Frequent product recalls not only reduce consumer confidence in a brand, but also add to expenses.

Additionally, like other automakers, Honda is battling the global semiconductor supply deficit, which is hindering its business operations and forcing the company to idle production lines across the world.

Amid the chip crunch, the Japan-based auto biggie was also forced to slash production targets for the January-March quarter. Honda trimmed its sales target by 100,000 units, resulting in revenue losses. Consequently, for fiscal 2021, Honda forecasts sales of ¥12.95 trillion, down from the prior estimate of ¥13.05 trillion.

Also, the recent fire breakout at a Renesas Electronics chip plant only aggravated the chip famine. Honda, along with other key customers of Renesas, such as Toyota TM and Nissan NSANY, are likely to be affected by this incident.

Furthermore, Honda’s elevated capital spending on advanced technologies and alternative fuels for the development of electric and autonomous vehicles might dent its near-term margins.

Nonetheless, Honda’s 2030 Vision emphasizes the automaker’s path to electrified mobility products in order to achieve a zero-carbon society. The company’s focus on the development of electric vehicles (EV) and self-driving cars bodes well in light of the changing circumstances in the automobile industry. Honda aims to generate 66% of its global automobile sales from EVs by 2030.

Apart from this, Honda has been undertaking frequent collaborations to expand business and boost prospects. For instance, the company’s joint venture with GAC Group aims at building electric battery cars and plug-in hybrid vehicles in China to meet the country’s green car quotas. Further, Honda’s deal with General Motors GM and Hitachi is anticipated to be conducive to the company’s growth prospects. Honda is also aimed at developing collision-free-technologies to ramp up the safety of cars and improve connected mobility services.

Honda currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, shares of the company have appreciated 7.4%, year to date, while its industry has witnessed a fall of 4.8%.

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