by WANG Zhen

In Zhongshan, a city in southern China's Guangdong province, a parts factory that has supplied Honda for nearly three decades is struggling to maintain the production pace it once had.

The factory was designed to support around 2 million vehicles a year, but its production lines now frequently run for only a few days before shutting down again as orders decline.

When work becomes scarce, some employees take temporary jobs elsewhere to supplement their income. Luo Tianyang, who oversees sales at the supplier, is spending much of his time looking for new customers — with limited success.

In 2019, when Honda's China sales were close to a historic peak, Luo's company generated 2.4 billion yuan (US$354 million) in revenue and employed nearly 2,000 people. Six years later, as Honda's China business contracted, revenue has fallen below 900 million yuan and its workforce has shrunk to just over 800.

Luo's struggle is that of a single supplier. Dozens of kilometres away, Honda president Toshihiro Mibe is confronting the same crisis from another side.

In April, Mibe travelled to Guangzhou to discuss the future of GAC Honda, Honda's joint venture with Guangzhou Automobile Group.

The talks came at a critical moment for the Japanese automaker. A view circulating inside GAC Honda was that GAC held greater leverage in negotiations, seeking more access to Honda's global sales channels for vehicles developed and manufactured in China.

In return, GAC could offer resources Honda urgently needs: new-energy vehicle platforms, nearly 5,000 engineers and an automotive development system capable of shortening product cycles to around two years.

The agreement was eventually renewed in July, with both sides maintaining their existing ownership structure and extending cooperation until 2038.

The deal bought Honda time. But it did not remove the pressure facing Mibe.

In 2025, Honda's China sales fell to about 645,000 units, almost 1 million fewer than five years earlier. China accounted for around 60 per cent of the decline in Honda's global vehicle sales last year. In the fiscal year ended March 2026, Honda reported its first annual loss since becoming a listed company nearly 70 years ago.

Honda's current predicament is more complicated than previous crises.

In the early 1990s, after Japan's asset bubble burst, Honda struggled as consumer demand shifted towards minivans and SUVs while the company remained heavily focused on sedans and sports cars. But at that time, Honda still controlled its core vehicle platforms, engineering capabilities and manufacturing resources.

Today, the company is facing three challenges simultaneously: a shrinking China business, setbacks in its global electric vehicle strategy and declining profitability in its automotive operations.

To survive, Honda is now beginning to reshape the very system that made it successful in China.

For decades, Honda's China model followed a clear division of responsibilities.

The Japanese headquarters controlled vehicle platforms, powertrain technology, manufacturing standards and product planning. Chinese joint ventures focused on procurement, production and sales.

That approach helped Honda build a strong position in China through models such as the Accord, Civic and Fit.

But as China's auto industry shifted rapidly towards electrification, software and intelligent driving, the same structure became a constraint.

Chinese teams could adjust pricing and features, but rarely participated in early product definition.

Honda is now changing that.

At the Beijing auto show in April, GAC Honda announced plans to launch three vehicles in 2027 covering petrol, hybrid and electric powertrains. The company is also working with Huawei on smart cockpit technology and autonomous-driving developer Momenta on driver-assistance systems.

People familiar with the plans said GAC Honda is discussing several jointly developed vehicles with GAC, including a large MPV based on GAC technology. The vehicle would carry Honda’s badge and be sold through Honda's dealership network.

Honda's other joint venture in China, Dongfeng Honda, is pursuing a similar approach. Dongfeng's research institute is providing technology resources for electric and extended-range vehicles. One planned MPV is expected to use a platform from Dongfeng's premium electric vehicle brand Voyah and could launch in 2027, while another SUV is being considered for 2028.

The shift gives Chinese teams greater authority over locally developed new-energy vehicles, reducing the need for approval from Japan on every technical decision.

For Honda, the objective is speed.

Traditional global automakers often need 40 to 50 months to develop a new vehicle. Chinese electric vehicle companies have compressed that process to roughly two years.

By using Chinese platforms, suppliers and engineering resources, Honda hopes to narrow that gap.

The urgency became clear after the disappointing launch of the GAC Honda P7.

The electric SUV, introduced in 2025, was built on Honda's own EV platform and offered competitive hardware. But its positioning reflected Honda's traditional strengths — safety, handling and driving performance — while Chinese consumers increasingly prioritized intelligent cockpits, driver assistance and software upgrades.

The P7 struggled to gain traction, with monthly sales remaining in the hundreds and occasionally falling below 100 units.

The failure exposed a deeper organizational issue. A former GAC Honda engineer said market feedback from China had often been used to refine vehicles already defined in Japan, rather than shape products from the beginning.

That approach contrasted with Honda founder Soichiro Honda's "three realities" philosophy: going to the actual place, seeing the actual product and understanding the actual situation.

Honda's engineering culture once helped it succeed. In the 1970s, its CVCC engine allowed the company to meet strict US emissions rules and expand during the oil crisis.

But the industry's current transformation is different. Competitive advantage is increasingly built around software ecosystems, artificial intelligence and supply-chain integration, rather than only mechanical engineering.

Satoru Aoyama, senior director of Asia-Pacific corporate ratings at Fitch Ratings, said Honda is moving in the right direction but remains two to three years behind Toyota and Nissan in localizing its China operations.

Toyota introduced a China chief engineer system in 2024, giving local teams greater control over vehicle development. Its China-developed bZ3X electric SUV combines Toyota's global standards with technology from Chinese suppliers including Momenta, Hesai Technology and iFlytek.

The example suggests foreign brands can still compete by integrating Chinese innovation capabilities.

Honda's financial pressure has accelerated the shift.

After Mibe became president in 2021, Honda launched an ambitious EV transformation, targeting 100 per cent electric and fuel-cell vehicle sales in major markets by 2040.

But as EV demand in North America slowed, Honda scaled back parts of its strategy. For the fiscal year ended March 2026, it reported a net loss of 423.9 billion yen, with EV-related losses reaching 1.58 trillion yen.

China is now more than a sales market for Honda. It is becoming a technology laboratory where the company must learn faster product development, software integration and closer links between consumer feedback and vehicle design.

Those capabilities could eventually support Honda's businesses in Southeast Asia, the Middle East and other markets.

But staying in China does not guarantee recovery.

Chinese automakers continue to move quickly, with competition shifting from electrification to autonomous driving, software and artificial intelligence. Honda must also answer a fundamental question: if Chinese partners provide more of the platform, technology and development capabilities, what will make a Honda different?

Honda's China sales fell another 34.7 per cent year on year to 205,800 units in the first half of 2026. If the decline continues, annual sales could fall below 500,000 units.

For global automakers, scale matters. Sales above 750,000 units generally keep a foreign brand among China's leading players, while around 500,000 units may raise questions about long-term commitment.

The renewed agreements with GAC and Dongfeng have extended Honda's runway.

But its next generation of China-developed vehicles will determine whether the company can remain competitive in the world's largest EV market.