Honda tells suppliers to cut costs in $9 billion push to fend off China, documents show

Japan's Honda has announced a plan to slash over $9 billion in costs over the next four years in an effort to combat the growing competition from Chinese automakers, according to internal documents and sources familiar with the matter. This initiative is part of the company's broader strategy to address the challenges posed by the rapid development of electric vehicles (EVs) by Chinese manufacturers such as BYD, which are offering lower prices and cutting-edge technology, thereby capturing significant market share in Southeast Asia, Latin America, and Europe.

The plan, first reported on, has been communicated to suppliers instructing them to reduce their prices drastically. The move comes as Honda, the world's largest motorcycle manufacturer, grapples with the financial losses from its car business, which are expected to total more than $12 billion in total. Honda is shifting its focus towards gasoline-electric hybrids as a result. The company reported its first-ever annual loss as a publicly traded entity in May.

Honda aims to achieve a 30% reduction in costs within three key categories: pressed and forged components, electrical parts, and parts related to software-defined vehicles (SDVs). These reductions are expected to enhance the competitiveness of Japanese suppliers against their Chinese counterparts. Suppliers have been urged to source more components from Chinese manufacturers and to adopt standardized parts from second and third-tier suppliers to maintain cost-efficiency.

The cost-cutting targets are considered extremely ambitious, and their achievability remains uncertain. However, the urgency of these measures is clear, with suppliers informed that delays are no longer an option. Honda's cost-reduction strategy follows a spring meeting in Utsunomiya, a city near the company's R&D facility, where managers briefed suppliers on the new plan and encouraged the use of Chinese-made components where feasible.

The shift in strategy is attributed to a combination of factors, including intense competition from Chinese EV manufacturers, high import tariffs imposed by the US, rising labor expenses, and the increasing need to invest in research and development for advanced vehicle technologies. Honda's CEO, Toshihiro Mibe, faced criticism in 2021 for his leadership amid the company's performance issues, and recent joint initiatives with Nissan on standardized electronic control units for SDVs signal further efforts to revitalize the company's automotive business.