Strategic Blunders

Honda, the Japanese automotive behemoth, has recently encountered a slew of challenges, including its first annual net profit loss since going public nearly seven decades ago, the closure of several production facilities, and a continuous decline in monthly sales in China, with figures halving consecutively. Notably, in the 2025 fiscal year (spanning April 2025 to March 2026), Honda reported its inaugural annual net loss since its listing in 1957, precipitating a dramatic internal power struggle within the company.

A group of Honda veterans, led by Nobuhiko Kawamoto, publicly criticized the current CEO, Toshihiro Mibe, accusing him of a decision-making style that has long been disconnected from frontline operations. This, they claimed, has led to significant strategic miscalculations in China and a catastrophic collapse of the company's market share there.

However, the attempted coup temporarily subsided with Mibe's retention of power. His 'punishment' for managerial negligence was a three-month, 30% pay cut. To external observers, this executive pay reduction appeared more like a well-orchestrated public relations maneuver, as Honda's structural issues remain deeply ingrained.

Amid the swift evolution of the new energy vehicle (NEV) trend, spearheaded by Chinese brands, Honda's once-formidable technological edge and brand prestige have steadily diminished. After inspecting the Chinese market in March of this year, Mibe came to a profound realization of the gap between Honda and Chinese competitors, admitting to his accompanying staff during the trip, "Against such rivals, we stand no chance."

Caught in the maelstrom, Honda has once again returned to the negotiating table with Nissan to explore the establishment of a new strategic alliance. The crux of this collaboration is to standardize electronic control units (ECUs) for next-generation models, a move perceived as a pivotal initiative for Japanese automakers to streamline production processes, bolster cost competitiveness, and counter the challenges posed by Chinese EV brands and U.S.-based Tesla.

Retreat in the Face of Adversity

Why has Honda, once a dominant force in the Chinese market with multiple 'blockbuster models,' suddenly found itself struggling to maintain its foothold?

The turning point came in 2021 when Toshihiro Mibe, who joined Honda in 1987, succeeded Takahiro Hachigo as president. Unlike Hachigo, who consistently reinforced Honda's presence in China, Mibe has rarely visited the Chinese market since assuming office, skipping both the Beijing and Shanghai Auto Shows. Even as Honda's sales in China plummeted year after year, Mibe seemed largely unperturbed.

These years coincide with a period of profound transformation and rapid change in the Chinese market. Chinese brands have continuously expanded their market share, while joint-venture brands have witnessed a decline. Automotive giants like Volkswagen and Toyota have intensified their efforts to deepen their roots in China, focusing on electrification transformation. In contrast, Honda has adhered to its 'slow and steady' approach.

Honda's recent internal executive power struggle was not entirely unexpected.

During Hachigo's six-year tenure, Honda's sales in China surged from 788,300 units in 2014 to 1.627 million units in 2020, marking a 106% increase. Meanwhile, Honda's production capacity in China nearly doubled. Since Mibe took the helm, however, Honda's sales in China have declined for five consecutive years, from 1.5615 million units in 2021 to 645,300 units in 2025—a nearly 60% drop.

The situation deteriorated further in 2025. Data reveals that Honda's sales in China in June were 32,500 units, down 45% year-on-year; first-half sales totaled 205,800 units, down about 35% year-on-year. This marked the third consecutive month of Honda's sales in China nearing a halving.

The rapid sales contraction prompted Honda to further reduce its production capacity. In April 2026, Honda announced cuts in fuel vehicle production capacity at its Guangzhou and Wuhan bases. Specifically, Guangqi Honda's Huangpu plant in Guangzhou will cease production in June 2026, while Dongfeng Honda's Wuhan plant is slated to close in 2027. The combined annual capacity of the two closed plants is approximately 480,000 units.

If implemented, Honda's total annual fuel vehicle production capacity in China will shrink from about 1.2 million units currently to 720,000 units, equivalent to a one-time reduction of about 40%. As early as July 2024, Honda had already announced the closure of two vehicle assembly plants in China: a Guangqi Honda plant with an annual capacity of 50,000 units and a Dongfeng Honda plant with an annual capacity of 240,000 units.

The precipitous sales decline in China, compounded by strategic missteps in electrification and other external factors, led Honda to report its 'worst-ever annual results' in 2025: its first net profit loss since going public 69 years ago.

On June 26, Mibe apologized at a shareholders' meeting, stating, "The earlier financial results showed losses, causing concern and trouble for our shareholders. I deeply apologize." However, he remained steadfast in the face of public criticism from several retired Honda executives, who accused him of mismanagement and neglect of core markets, demanding his resignation. The board ultimately chose to support Mibe's continued tenure, imposing a '30% pay cut for three months' as accountability for the losses.

In March 2026, after visiting China, Mibe truly grasped the competitiveness of Chinese automakers and announced adjustments to Honda's strategy in China, planning to align with market demands through local procurement and the introduction of intelligent driving technologies.

Strategic Adjustment

Under the dire circumstances, Honda announced its abandonment of the original goal of full electrification by 2040, terminating the development of multiple EV models, including two 0 Series concept cars already on the verge of production and an Acura RSX pure electric model nearing mass production. It also decided against spinning off its EV business.

Simultaneously, Honda ended its years-long joint research and development project with Sony for the high-end Afeela electric vehicle and indefinitely froze its CAD 11 billion ($11 billion) full EV industry chain project in Canada.

After calculations, Honda's operating profit, excluding EV-related losses, was JPY 1.0393 trillion. However, the losses from halting new vehicle development in North America and other areas reached JPY 1.5778 trillion. Honda acknowledged that continuing the projects might trigger long-term losses, so it opted to cut losses promptly.

Honda has pinned its hopes on hybrid models. At a Honda press conference on May 14, Mibe emphasized the restructuring of its four-wheeled business and future strategic planning: Based on changes in the current market environment, Honda will enhance market competitiveness by optimizing cost structures, improving R&D efficiency, concentrating operational resources in key regions, and continuously enriching an attractive product lineup.

Specifically, Honda will reallocate development and production resources to hybrid models, which currently enjoy relatively robust market demand. From 2027 onward, Honda will introduce next-generation hybrid models featuring a new hybrid system and platform. Simultaneously, it will expand its product lineup in key markets such as North America, Japan, India, and China.

With North America as the focal point, Honda plans to launch 15 models globally by 2029. In China, Honda will adopt standardized local components, actively leverage local resources in new technology fields, and introduce new energy products based on local partner platforms, harnessing the 'China speed' to enhance product strength and cost competitiveness.

In essence, Honda has officially embarked on in-depth localization reforms, delegating product definition and R&D rights to Chinese teams, transforming Guangqi Honda and Dongfeng Honda from mere 'production bases' into autonomously controllable 'local R&D entities.'

According to the plan, Guangqi Honda will introduce three new models starting in 2027. These vehicles will feature Huawei's HarmonyOS cockpit, Momenta's intelligent driving system, and local supply chains including CATL batteries, deeply aligning with domestic users' demands for intelligence and practicality. Dongfeng Honda's product planning follows a similar trajectory.

In fact, this represents the primary adjustment path currently pursued by international automotive giants in China, but so far, it has yet to yield significant results.

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