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21st Century Business Herald reporter Song Doudou reports

Japanese brands, whose market share in China continues to decline, hope to survive this critical moment of "dilemma" by closing factories and "slimming down".

On July 25, it was reported that Honda Motor plans to reduce its fuel vehicle production capacity in China by one-third, from 1.49 million to 1 million, equivalent to about 10% of Honda's global production. The specific method is to close or stop production of one factory each of its joint ventures in China, GAC Honda and Dongfeng Honda. The factories in Guangzhou and Wuhan will be closed or stopped in October and November respectively. Another factory in Guangzhou is also on the "closure list".

That evening, GAC Honda officially responded: "The company currently has four vehicle production lines (annual production capacity of 770,000 units) and one production line under construction (designed capacity of 120,000 units). The fourth production line with an annual production capacity of 50,000 units is scheduled to be closed in October 2024, and the new energy production line under construction will be put into production in November this year.

A reporter from 21st Century Business Herald learned that GAC Honda's fourth production line mainly produces the mid-size Accord car. After the production line is closed, the production of this model will be transferred to the second production line. The production facilities of the original production line may be dismantled, and subsequent plans call for use as a warehouse.

On July 26, Honda China responded to this, saying that this move was to optimize production capacity and accelerate the transformation to electrification. In addition to GAC Honda's plan to close the fourth production line with an annual production capacity of 50,000 vehicles, Dongfeng Honda plans to shut down the second production line with an annual production capacity of 240,000 vehicles in November 2024. After the adjustment, Honda's total automobile production capacity in China has increased from 1.49 million vehicles to 1.2 million vehicles.

According to the official website, GAC Honda has three factories and four vehicle production lines in Huangpu District and Zengcheng District of Guangzhou, with a basic production capacity of 770,000 vehicles; Dongfeng Honda has three factories with a designed annual production capacity of 768,000 vehicles. This capacity reduction is also the largest production reduction by a Japanese automaker in China.

A Honda spokesman said the adjustments were part of Honda's response to changes in the Chinese market. With the rapid development of the Chinese auto market, especially the new energy vehicle market, Honda is facing strong competitive pressure from Chinese independent brands.

Data shows that in June this year, Honda's terminal car sales in the Chinese market were less than 70,000 units, a year-on-year decrease of nearly 40%, and has been declining for five consecutive months; from January to June this year, Honda's cumulative sales in China were 415,900 units, a year-on-year decrease of 21.5%.

According to the production and sales reports of GAC Group and Dongfeng Motor Group, in the first half of this year, GAC Honda's cumulative sales were 207,900 vehicles, a year-on-year decrease of 28.28%; during the same period, Dongfeng Honda's sales were 237,900 vehicles, a year-on-year increase of 4.79%; the production of both companies decreased year-on-year, down 42.02% and 6.6% respectively, and the capacity utilization rate further declined.

"In view of the current situation in which the market share of fuel vehicles in China is shrinking and the market share of new energy vehicles is expanding, Honda will take urgent measures to cope with the changes in the environment." In an interview with a reporter from 21st Century Business Herald in April this year, Masayuki Igarashi, executive director and head of China headquarters of Honda Motor Co., Ltd., general manager of Honda R&D (China) Investment Co., Ltd., and general manager of Honda R&D Technology (China) Co., Ltd., said that Honda is currently facing two difficult problems that need to be solved urgently: one is that it must quickly respond to the current situation of expanding market share of new energy vehicles; the other is that in response to the widening decline in fuel vehicle sales, Honda must consider whether to make adjustments in productivity.

While adjusting the production capacity of fuel vehicles, Honda is also accelerating the transformation to new energy. Honda plans to make up for this reduction in production capacity by building two new electric vehicle plants, respectively, and producing electric models in joint ventures with GAC and Dongfeng. Its goal is to start production in these two new plants later this year, and it is expected to restore production capacity to 1.44 million vehicles. A Honda spokesman stressed that China, as the world's largest market, remains an important market for Honda and other Japanese automakers.

According to the plan, GAC Honda will launch six new pure electric models by 2027; Dongfeng Honda will achieve a 50% share of electrified models by 2025, will no longer launch fuel models in 2027, and will launch more than 10 pure electric models by 2030.

As competition in the new energy vehicle market becomes increasingly fierce, the rapid rise of domestic brands has brought greater challenges to traditional joint venture brands that have dominated the Chinese market for the past few decades and heavily relied on fuel vehicles, especially Japanese automakers that have been slow in turning to electrification and intelligence and have been obsessed with traditional hybrid vehicles and hydrogen energy vehicles in terms of technology.

In addition to Honda, Nissan Motor announced last month that it would officially close its passenger car factory in Changzhou, Jiangsu, which is a joint venture with Dongfeng Motor. The factory mainly produces Qashqai models, with an annual production capacity of about 130,000 vehicles, accounting for about 10% of Nissan's total production in China. The production work of the factory will be transferred to other factories of Dongfeng Nissan. This is the first time that Nissan has closed a passenger car factory in China.

At that time, an insider of Dongfeng Nissan responded to the reporter of 21st Century Business Herald that based on the changes in the overall strategy and business environment, Dongfeng Nissan optimized and adjusted its internal production capacity and resources to better adapt to the transformation and development of the enterprise. On the premise of ensuring the production capacity of existing fuel vehicles, Dongfeng Nissan increased the production line layout and investment of new energy vehicles.

According to the China Passenger Car Association, in June this year, the retail share of Japanese brands fell below 15% (14.3%), down 3.5 percentage points year-on-year, while the share of domestic brands increased by 9.3 percentage points to nearly 60% (58.5%). From the insurance volume data, among the top five models from January to June this year, only the Sylphy was a fuel vehicle, and the top four were Qin PLUS, Model Y, Song PLUS and Seagull, all of which were pure electric or plug-in hybrid models.

An industry insider told the 21st Century Business Herald reporter that the large-scale rise of pure electric vehicles in China has had an all-round impact on traditional vehicles, involving production models, market competition, supply chains, employment, and energy structure. "Although Japanese cars have certain technical advantages in the field of new energy vehicles, their new energy vehicle strategy in the Chinese market does not seem to have been fully implemented, which has affected their market position to a certain extent. Faced with increasingly fierce competition from local manufacturers such as BYD, how Japanese car companies can consolidate and expand their market position is a test of wisdom and strength."