Komatsu CEO Anticipates $140M Benefit from US-China Trade Truce Amid Tariff Issues

Komatsu, the world’s second-largest construction and mining machinery maker, expects to mitigate nearly 20 billion yen (approximately $140 million) of the anticipated negative impact from U.S. tariffs following the recent U.S.-China trade truce. This development suggests that the company’s profit outlook for the current fiscal year may not be as severe as previously feared, though cautiousness remains.

Highlights:

• Expected tariff-related profit hit reduced by about 20%, easing outlook by $140 million.

• Komatsu forecasts operating profit of 478 billion yen for FY2026, conservative vs. analyst consensus.

• 90-day tariff pause on Chinese imports partly shields costs of Chinese steel used in U.S.-made machinery.

• Half of Komatsu’s U.S. sales are imported products from outside China, still subject to tariffs.

Tariff Impact and Profit Outlook

Takuya Imayoshi, Komatsu’s CEO, disclosed in a Reuters interview that the 90-day suspension of additional U.S. tariffs on Chinese goods is helping reduce the tariff burden that Komatsu faces, especially since Chinese steel is a key input for its U.S.-assembled machines. The tariff relief effectively lowers the company’s earlier forecast of a 94.3 billion yen tariff-related hit by nearly one-fifth.

Despite this improvement, Komatsu has not officially revised its profit forecast, which predicts a 27% drop in operating profit to 478 billion yen for the fiscal year ending March 2026. This forecast remains significantly below the analyst consensus of approximately 598 billion yen, which anticipates only a 9% decline. Imayoshi emphasized that if tariffs are reinstated or adjusted after the truce, the financial impact is likely to stay within the previously projected range.

Highlights:

• Tariff impact reduced by around 20%, easing profit outlook by $140 million.

• Operating profit forecast stands at 478 billion yen for FY2026.

• Profit outlook remains conservative relative to analyst expectations.

• Potential tariff reinstatement may keep impact within earlier estimates.

Supply Chain Adjustments and Production Strategy

Komatsu is exploring strategic shifts to manage ongoing tariff challenges, such as bypassing U.S. warehouses for spare parts shipments to Canada and Latin America. The company is also considering relocating production of U.S.-bound items from China to Thailand to avoid renewed high tariffs if the truce lapses.

However, Imayoshi dismissed the possibility of expanding U.S. manufacturing as a response to tariffs, citing that U.S. steel prices remain more than twice those in China, preventing U.S. production from becoming cost-competitive.

Highlights:

• Potential supply chain shifts include bypassing U.S. warehouses for spare parts.

• Production rebasing from China to Thailand under consideration.

• U.S. manufacturing expansion unlikely due to high domestic steel costs.

Competitive Landscape and Technology Investments

Komatsu faces increasing competition from Chinese machinery makers such as Sany, XCMG, and LiuGong, particularly in emerging markets where these rivals leverage lower prices and surplus capacity amid China’s property market slowdown. Despite this, Komatsu maintains a leadership position in durability and reliability and is ahead in electrification technologies.

The company’s CEO highlighted the importance of software-defined and autonomous vehicle technologies, which may require external acquisitions to complement Komatsu’s capabilities. Following its 2023 acquisition of Detroit-based battery startup ABS, Komatsu is open to further purchases to strengthen its technology portfolio.

Highlights:

• Growing competition from Chinese firms in emerging markets.

• Komatsu leads in durability and electrification.

• Investment focus on software, autonomous tech, and potential acquisitions.

Financial Position

Komatsu’s mid-term business plan includes a free cash flow target of 1 trillion yen over the next three years. The company intends to balance investments, shareholder returns, and potential acquisitions within this framework. Imayoshi emphasized that Komatsu’s strong financial structure provides flexibility to pursue growth opportunities as they arise.

Highlights:

• 3-year free cash flow target of 1 trillion yen.

• Balanced approach to investments, returns, and acquisitions.

• Strong financial position offers leeway for strategic moves.

Exchange Rate Reference: $1 = 143.30 yen