Honda, one of Japan’s largest auto manufacturers, is considering a change that would significantly reduce its reliance on China, where Honda, and many Japanese companies, has several large-scale production centers. Honda manufactures the popular Honda Accord, annually one of the most successful vehicles on the market.
A Significant Move
Supply chain problems have contributed to Honda’s decision to reconsider its manufacturing relationship with China. A possible reduction of its Chinese operations is symptomatic of the impact that Covid-19, and a charged international political climate, have had on the automotive industry. According to the Japanese daily newspaper Sankei, Honda would relocate only its Chinese production center for markets outside Japan. Vehicles manufactured for the Japanese domestic market would continue to be produced in China. If approved, such a move would be significant given that 40 percent of Honda’s automotive production takes place in China.
Government Incentives
The pandemic along with widespread political dissatisfaction with China do not appear to be the only motivation for such a move. According to Sankei, Honda is carefully weighing the benefits of incentives offered to Honda (and other Japanese manufacturers) against the logistical and production challenges of leaving a country where it has operated for years. Honda has asserted that no such decision has been finalized by the company.
China has been criticized for the severity of its Covid-19 policies, which have hampered production levels within Honda as well as other Japanese companies. The unpredictability of China’s fraught relationship with the United States has impacted confidence in China as a location for maintaining production operations.
Mazda Motor Corporation has reported that an increase in domestic inventories and production diversification would take place outside its Chinese operations. Meanwhile, Mazda has requested that its suppliers respond by boosting their Japanese inventories.
The Bigger Picture
The Sankei story comes at a time when Honda has announced it will build an all-electric vehicle plant in China’s Wuhan province. The facility, which is expected to produce more than 100,000 electric vehicles annually, will begin operations in 2024. At present, Honda has nine production facilities in the People’s Republic of China. In 2007, Honda began manufacturing powertrain components at Foshan City, China, a factory with an annual capacity of 240,000 transmissions. To date, the Honda Accord, the car maker’s sedan model, is the third-highest selling car in the United States for 2022. The Honda Civic, a compact sedan model, ranks as the fifth-highest selling vehicle in the U.S. Both vehicles annually rate among the company’s most popular offerings.
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