In a strategic overhaul, Honda Motor Company has unveiled plans to restructure its operations in China, a market that has witnessed a decline in sales for the automaker. The move is part of Honda's broader efforts to strengthen its presence in China and accelerate its transition to electric vehicles.
Restructuring Details
Honda will establish three separate joint ventures in China:
- First JV: Responsible for research and development, production, and sales of gasoline-powered vehicles. Dongfeng Motor Group, Honda's existing joint venture partner, will hold a 60% stake in this entity.
- Second JV: Specifically focused on the design, development, and production of electric vehicles. Honda will hold a majority stake in this venture.
- Third JV: Dedicated to sales and marketing of both gasoline and electric vehicles in China. GAC Group, Honda's former joint venture partner, will hold a 50% stake in this entity.
Honda will also establish a new research and development center in China to enhance its capabilities in the areas of electrification, intelligent connectivity, and advanced driver-assistance systems.
Rationale for Restructuring
Declining Sales: Honda's sales in China have been dwindling in recent years, facing stiff competition from local Chinese automakers and international rivals. In 2022, Honda's sales in China fell by 12% to 1.39 million units.
Shift to Electric Vehicles: The Chinese government's aggressive push toward electrification is driving the transition of the automotive industry in the country. Honda aims to introduce 10 electric vehicle models in China by 2027, accounting for approximately 40% of its total sales in the market.
Strengthening Local Presence: Honda seeks to deepen its understanding of the unique needs of Chinese consumers by establishing a dedicated research and development center and joint ventures tailored to specific areas of operation. This will allow Honda to develop and market products that cater to the preferences of Chinese customers.
Impact on Existing Joint Ventures
Dongfeng Honda: This joint venture will continue to play a key role in Honda's China operations, primarily focusing on the production and sales of gasoline-powered vehicles. However, Honda's stake in this venture will be reduced to 40%.
GAC Honda: Honda's former joint venture partner, GAC Group, will become a minority partner in the new sales and marketing joint venture. GAC Honda will continue to operate independently and will no longer serve as Honda's authorized sales channel in China.
Outlook for Honda in China
Honda believes that the restructuring will enable the company to adapt to the evolving Chinese automotive market and achieve sustainable growth in the long term. The automaker aims to increase its sales in China to 1.6 million units by 2027, with a significant portion of those sales coming from electric vehicles.
Honda's commitment to China is evident in its plans to invest approximately 3 trillion yen ($23 billion) in the country over the next decade. This investment will be used to establish new facilities, develop electric vehicles, and enhance its research and development capabilities.
In summary, Honda's restructuring in China aims to address declining sales, capitalize on the shift towards electric vehicles, and strengthen its presence in the country's automotive industry. The establishment of three separate joint ventures, a dedicated research and development center, and revised stakes in existing partnerships will enable Honda to adapt to the evolving market and achieve its long-term growth objectives.
