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Subaru knew that the combination of new tariffs, the delayed U.S.-Japan trade deal and an about-face in U.S. environmental regulations would all conspire to reduce the company’s profitability, it’s clear now that nobody realized just how bad things would get. In its Q3 earnings report released earlier this week, Subaru detailed the company’s financial performance from April through December of 2025. And boy, does it paint a picture.
With three quarters in the books, Subaru is now projecting that its full-year operating profit will drop by nearly 70% compared to a year ago.The decline itself wasn’t unanticipated, but its magnitude was. Subaru was previously projecting a 51 percent drop in operating profit for its current fiscal year; that number has obviously ballooned. It’s matched by a projected fall in revenue of 63% (10% worse than previous guidance), and all this despite a commitment to its previous pledge to sell more than 900,000 cars globally before the end of Q4 (March, in this case).
Unfortunately for Subaru, it needs to sell most of those cars here in America, where only about half of them are built. With a 15% tariff in place on vehicles imported from Japan (where the other half are built), Subaru expects to eat $1.5 billion in additional import-related costs this fiscal year, which is about $280 million more than it previously anticipated.
Subaru was left scrambling to reallocate global production to suit the new normal. By shifting production of the redesigned Outback to Japan and eliminating the base model, Subaru managed to keep the rest of the wagon’s pricing structure fairly close to the 2025 model’s.
This move also freed up capacity in Indiana for the lower-margin Forester, which would have been hit harder by tariffs if Subaru had to import it. Now that Forester has relocated, Subaru can also open the taps on WRX production, which was severely limited last year. Good news: The base is back!
Subaru also wrote off nearly $200 million in emissions credits it had previously purchased in anticipation of needing them to offset some of its less-efficient offerings, Automotive News reported. Since credit trading was eliminated in the recent changes to U.S. emissions policies, those credits effectively ceased to hold any value.
Adding insult to injury, Subaru’s sales have yet to recover from the widespread torpor that gripped the market after U.S. EV subsidies expired in September. Subaru blamed the weather for the 9% drubbing it took in January, but if Subaru can’t attract shoppers in winter, who can?
If you’re a Subaru fan, it’s pretty clear that things will probably get worse before they get better, but remember: Subaru isn’t losing money in America. It’s just making less than it used to. No need to panic just yet.
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Byron is an editor at The Drive with a keen eye for infrastructure, sales and regulatory stories.
