A Honda logo is displayed on a dealership billboard in Tokyo on May 14. [AFP]
A Honda logo is displayed on a dealership billboard in Tokyo on May 14. [AFP]

Honda is stepping back from its aggressive battery electric vehicle strategy and shifting its focus to the North American hybrid market. Weakening performance in China and a shift in US clean-energy policy have pushed the automaker to rebalance its electrification strategy around hybrids. Particularly notable is Honda's plan to strengthen its lineup in the mid- and large-size hybrid segments — an area where it has historically been weak — putting Hyundai Motor and Kia, which have built a growing presence in North America's eco-friendly vehicle market, on course for stiffer competition.

According to a report published Sunday by the Korea Automobile Research Institute titled "The Dilemma of Legacy Automakers: Honda's New Management Direction," Honda announced in May that it was adjusting its previously aggressive BEV-centered strategy and laying out a new direction centered on hybrid expansion and greater use of local resources.

Honda had earlier canceled development of several electric vehicle models it had been preparing for North American launch, including the 0 SUV, 0 Saloon and Acura RSX. Following the cancellation of the Afeela electric vehicle developed by Sony Honda Mobility, the company also booked large-scale BEV-related losses. In fiscal year 2026, Honda recorded EV-related losses of 1.45 trillion yen (about 13.8 trillion won) and posted a consolidated operating loss of 414.3 billion yen (about 4 trillion won) — the company's first annual operating loss since its 1957 Tokyo Stock Exchange listing.

The fallout from this global strategic overhaul has reached South Korea as well. Honda Korea decided in April to suspend its automotive operations and will wind down domestic passenger car sales by the end of December. As Honda simultaneously manages the burden of EV investment, its struggles in China and a North America-focused hybrid realignment, its relatively small Korean passenger car business has become a casualty of the restructuring.

The immediate trigger for Honda's EV strategy revision is identified as the shift in US policy. Uncertainty over the return on EV investment grew as the US government's support for clean-energy vehicles wavered. However, the report pointed to a more fundamental cause: Honda's prolonged underperformance in the Chinese market.

Honda President Toshihiro Mibe speaks at a press conference in Tokyo on May 14 to announce the company's fiscal year 2026 earnings. Honda posted its first annual operating loss since its 1957 Tokyo Stock Exchange listing, a result of sweeping revisions to its US electric vehicle strategy. [Jiji Press/AFP]
Honda President Toshihiro Mibe speaks at a press conference in Tokyo on May 14 to announce the company's fiscal year 2026 earnings. Honda posted its first annual operating loss since its 1957 Tokyo Stock Exchange listing, a result of sweeping revisions to its US electric vehicle strategy. [Jiji Press/AFP]

China's auto market is undergoing a structural shift: internal combustion engine vehicles are contracting, hybrids are growing modestly, and new energy vehicles — including BEVs and plug-in hybrids — are expanding rapidly. Amid this transition, Honda has struggled across nearly every powertrain category, from combustion engines to hybrids and battery electrics alike.

Honda's new passenger car registrations in China plunged from about 1.54 million units in 2021 to about 643,000 last year, with its market share falling from 7.2 percent to 2.7 percent over the same period. Toyota, by contrast, sold about 1.708 million vehicles in China last year, making it the Japanese automaker that most successfully defended its position in the market.

The divergence between the two companies comes down to localization strategy. Toyota maintained its image for quality, reliability and durability while deepening development and supply chain cooperation with Chinese local firms, and used local resources to launch electric vehicles with the advanced features and price competitiveness Chinese consumers demand. Honda, meanwhile, stuck to headquarters-led development and its own quality standards, falling short of Chinese consumer expectations on cost competitiveness and smart features.

Hybrids are at the center of Honda's new strategy. Starting with an SUV equipped with a next-generation hybrid system and platform in 2027, Honda plans to launch 15 hybrid models by March 2030. North America is its priority market, and the company intends to introduce large hybrid models in the D-segment and above to North America by 2029.

This is expected to intensify competition in the North American hybrid market. Last year, Toyota led US hybrid sales with about 1.108 million units, followed by Honda with about 380,727, Hyundai Motor Group with about 308,180 and Ford with about 209,909. If Honda strengthens its mid- and large-size hybrid lineup, the North American eco-friendly vehicle market that Hyundai Motor and Kia have worked to build could face direct pressure.

Honda is also overhauling its development and production approach. The company is pursuing what it calls a "triple half" initiative — cutting development costs, timelines and workload each by half compared with last year — while targeting a 20 percent improvement in production efficiency within five years. In China and India, Honda plans to expand collaboration with local companies, and in China it is even considering using partners' platforms, going beyond sourcing local parts and technology.

Industry observers see Honda's strategic shift as part of a broader trend among legacy automakers. With BEV investment burdens mounting, and challenges including weak China performance, US policy changes and a slowdown in European clean-energy mandates converging, established automakers are reassessing their all-in EV strategies. In the near term, competition in the hybrid market is expected to intensify, while over the medium to long term, capabilities in autonomous driving and software-defined vehicles are seen as the next battleground on which automakers will be judged.

"As legacy automakers converge on hybrids, competition in the North American HEV market will become significantly more intense," said Lee Ho, a senior researcher at the Korea Automobile Research Institute's industry research division. "Honda is already a major player in the North American market, and its push to strengthen the mid- and large-size hybrid lineup — an area where it has been relatively weak — could pose a direct threat to Hyundai Motor and Kia."

Lee added that over the medium to long term, automakers' capabilities in post-hybrid powertrains, software-defined vehicles and autonomous driving would become the new standard by which their competitiveness is measured.


kwater@heraldcorp.com