Investing.com -- Honda is undertaking what Macquarie describes as a full-scale “strategic reset” of its electric-vehicle ambitions, triggering a significant earnings downgrade.

Analyst James Hong said Honda’s revised guidance reflects an acknowledgment that its “prior EV-led investment plan is no longer supported by market realities.”

According to Macquarie, Honda now expects an operating loss of JPY270–570 billion for FY3/26, a reversal from the JPY550 billion profit previously forecast.

That implies a deterioration of JPY820 billion to JPY1.12 trillion. Net income guidance was also cut to a JPY420–690 billion loss from an expected JPY300 billion profit, driven largely by the cancellation of its U.S. EV programs, including the Honda 0 Series and Acura RSX.

Hong noted that these moves are generating “JPY820bn–1.12tn of additional operating expenses,” plus “JPY110–150bn of equity-method losses” tied to write-downs, impairments and program cancellations.

Macquarie estimates that roughly JPY1.3 trillion of the total JPY2.5 trillion hit will be booked this fiscal year, with the remaining JPY1.2 trillion absorbed in FY3/27. Despite the upheaval, Honda will maintain its dividend, which Macquarie says should help support valuation.

Hong noted the reset reflects slowing U.S. EV demand, policy shifts affecting internal-combustion and hybrid economics, and intensifying competition in China from local EV makers with stronger software and ADAS capabilities.

Honda’s recovery now hinges on hybrid execution. Macquarie wrote that mid-term performance will depend on whether the automaker can “rebuild 4W profitability through HEV expansion and lower fixed costs,” while prioritizing Japan, the U.S. and India.

Macquarie maintained a Neutral rating, calling Honda its “least-preferred name in Japan autos.”