Honda's "Survival by Cutting Off One's Arm"

Author | Chai Xuchen

Editor | Zhou Zhiyu

Japanese automotive giant Honda, facing pressure in the Chinese car market, is no longer making minor adjustments, but rather resorting to drastic measures to survive.

On July 25th local time, Honda announced the closure and cessation of production of two fuel car factories in China, freeing up more resources to focus on electric vehicles. Among them, the factory under GAC Honda with an annual production capacity of 50,000 units will be shut down in October; by November, another factory under Dongfeng Honda with a capacity of 240,000 units will also cease production.

Honda's total fuel car production capacity in China will decrease from 1.49 million to 1.2 million units. This is the first production cut by Honda since it entered the Chinese market in 1990, and the largest scale reduction by a Japanese car manufacturer to date.

A spokesperson for Honda stated that these adjustments are part of Honda's response to changes in the Chinese market.

Behind this move is the continuous decline in Honda's market share in China. Currently, Honda has a total fuel car production capacity of 1.49 million units in China, with GAC Honda and Dongfeng Honda accounting for 720,000 and 770,000 units respectively. However, since reaching a sales peak of 1.627 million units in 2020, Honda's sales in China have experienced three consecutive declines, shrinking to 1.2342 million units last year.

In the first half of this year, Honda's sales in China further declined by 21.5% to 416,000 units. With no signs of recovery in sight, Honda has also reduced its sales target in China by 13% to 1.06 million units, meaning that over 400,000 units of production capacity will remain idle.

In fact, Honda, which had already made judgments on the market situation beforehand, had quietly initiated a "downsizing" plan.

In December last year, Honda announced the decision to cut around 900 contract workers at GAC Honda, accounting for 7% of the total workforce, in order to quickly shift to the electric vehicle market. In May this year, GAC Honda implemented a high-standard compensation plan of "N+2+1.8", leading to the voluntary departure of thousands of employees.

As the first Japanese automaker to enter China and establish seven localized factories, Honda's current situation is undoubtedly regrettable. Industry insiders believe that the main reason for its "retreat" is the difficulty in selling fuel cars and the lack of popularity of electric vehicles.

Under the impact of domestic new energy brands, the product competitiveness of Honda's two joint venture companies has significantly declined, with star models that were once known for fuel efficiency, durability, and stability falling one after another. Models such as Accord, CR-V, Fit, and Civic have seen rapid declines in sales, and even price reductions have failed to bring them back to their former glory.

In June this year, the best-selling model for Honda in China was the Honda CR-V, with monthly sales of 16,600 units; followed closely by the Accord with 12,000 units. Both models, which used to achieve monthly sales of 30,000 units, have seen a decline, with other models also falling below the "10,000 units" mark.

With the huge pressure on the traditional fuel car base, Honda's new energy models have also failed to lift the flag of sales. Within this year, the monthly average sales of Honda's CR-V, Accord, and Inspire plug-in hybrid models have not exceeded a thousand units; e:NS1/e:NP1/e:NP2 and other new pure electric series are hovering in the range of hundreds of units.

In fact, Honda's performance is a microcosm of the survival status of many Japanese joint venture car companies in China.

At its peak, Japanese car companies once "crushed" domestic brands, holding a domestic market share of 22.6% in 2021. However, in the first half of this year, this number has shrunk to 14.9%.

The era when Japanese cars "sold well" is gone, and in recent years, "closing, stopping, merging, and transforming" have been constantly happening. Mitsubishi Motors had previously announced its withdrawal from China, and Nissan also announced the closure of its factory in Changzhou, Jiangsu Province in June.

To cope with the challenges in the Chinese market, Japanese car companies must accelerate their transformation.

For Honda, the closure of two factories is a specific measure to actively adjust its industrial structure, focusing more on electric vehicles and striving to maintain its market share in China. Honda also emphasized this time that "as the world's largest automobile market, China is still an important battlefield for Honda".

To this end, Honda plans to make up for the current production capacity reduction by the two new electric vehicle factories under Dongfeng Honda and Guangqi Honda, aiming to start production by the end of this year and restore Honda's total production in China to 1.44 million units.

While laying out the new factory, Honda is also promoting its electrification strategy. In April this year, Honda officially launched its new electric brand "Yè" in China, with the most significant change being that the Chinese side takes the lead.

Official information shows that the first concept car of the new brand, the "Yè GT Concept Car", is designed by a Chinese team and will be equipped with power batteries from CATL, Huawei's intelligent cockpit, and iFLYTEK's voice control system. This is also the focus of Honda's promotion this time.

The Chinese team has more say and has become the main theme of many current joint venture car companies; the participation of more domestic suppliers has also enabled traditional car companies to catch up in terms of intelligence.

According to the plan, the "Yè" brand will invest in all solid-state battery vehicles by 2025, launch six models by 2027, and ultimately achieve 100% electrification in the Chinese market by 2035.

Next, Honda needs to fight a decisive battle in the Chinese market.

For Honda and other joint venture car companies, "streamlining" is only a temporary expedient. To truly achieve a revival in the Chinese market, relying on the advantages of the Chinese market and supply chain to quickly complete the transformation may be the best solution