Honda Admits Struggling to Compete with China's Supply Chain Edge, Restructures R&D

Honda has recently canceled plans for two of its own electric vehicle models—the 0 SUV and 0 Sedan—as well as the revival of the Acura RSX, resulting in an impairment charge of up to $15.8 billion. Additionally, the joint project with Sony to develop two electric vehicles under the Afeela brand has also been terminated. Meanwhile, Honda’s sales in China have plummeted from 1.62 million units in 2020 to just 640,000 units in 2025, with capacity utilization hovering around 50%—far below the industry’s profitability threshold of 70% to 80%. Annual production volume in China is expected to fall below 600,000 units by 2026. Toshihiro Mibe, President and CEO of Honda, recently visited China and, after touring a Shanghai-based automotive supplier’s factory, remarked, “We don’t stand a chance.” His visit aimed to understand how Chinese companies can launch a large number of products in an extremely short timeframe. In contrast, traditional automakers typically require more than twice as long to develop a new vehicle. Chinese suppliers not only move faster in development but also enjoy significant cost advantages. To address these challenges, Honda is restructuring its R&D system by transferring thousands of engineers to a newly established engineering subsidiary, restoring independent R&D capabilities and granting the unit greater autonomy than it has had over the past six years—during which R&D was centrally managed by headquarters. Nevertheless, major decisions are still expected to be led by headquarters. Other global automakers’ executives have issued similar warnings. Ford CEO Jim Farley bluntly described the industry as facing severe challenges in an interview in October 2025. Likewise, former Toyota CEO Koji Sato warned during a meeting with representatives from 484 suppliers that the company’s survival would be at risk without transformation. As the world’s top-selling automaker for six consecutive years, Toyota’s stark warning underscores the urgency of the situation. Chinese automakers continue to expand their global influence. Data shows that in the first two months of 2025, BYD held a 1.8% market share in Europe, SAIC Group reached 1.9%—on par with Nissan—while Honda’s share stood at only 0.5%.