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

Japan's Honda aims to cut more than $9 billion in costs over the next ​four years and has instructed suppliers to drastically reduce their prices, according to internal documents and one person familiar with the matter.

The plan, reported here for the first time, is one of the most striking examples yet of how Japanese automakers are scrambling to deal with intensifying competition from China. BYD and other Chinese electric vehicle (EV) makers are capturing sizeable market share ‌in Southeast Asia, ⁠Latin America and ⁠Europe, powered by advanced software and battery technology - and prices that are by far the industry's lowest.

Honda, the world's largest motorcycle manufacturer, is trying to fix its struggling car business. It ​expects EV-related losses to ultimately total more than $12 billion, one of the biggest hits among global automakers, and is now shifting its focus to gasoline-electric hybrids. In May ​it reported its first-ever annual loss as a publicly traded company.


The maker of the CR-V sport-utility vehicle now aims to save 1.5 trillion yen ($9.4 billion) by 2030, according to the documents and the person.

This story is based on a Reuters review of internal company documents and interviews with two people familiar ​with the matter, both of whom declined to be identified because the information is not public.

In a ⁠written response ‌to questions, a Honda spokesperson declined to comment on specific cost-reduction targets or details of discussions with suppliers.

The automaker was working ​with suppliers globally to ​improve competitiveness and reduce costs, including through the use of standardised parts, the spokesperson said.

SPRING MEETING

In spring of this ⁠year, Honda managers met with major suppliers at a convention centre in Utsunomiya, a city ​north of Tokyo near the automaker's R&D facility, according to the documents and the people. It was not ​clear how many suppliers attended.

Honda managers briefed suppliers on the plan and said it would also look to source more components from Chinese suppliers, one of the people said. Each supplier was later presented with company-specific targets to cut costs, the people said.

Honda is aiming to reduce costs by 30% in three key parts categories: pressed and forged components, electrical parts and parts related to software-defined vehicles (SDVs), according to the documents. Such a reduction would allow Japanese suppliers to better compete with Chinese rivals, the documents said.

Honda's direct suppliers, or "tier-one" suppliers, were also asked to review how they procured materials and were urged to make use ‌of standardised parts sourced from second- and third-tier suppliers, to help keep costs down, the documents showed.

Honda managers also asked suppliers to expand their own use of Chinese-made components where possible, according to the documents.

The cost-reduction targets were "extremely large" and it ​was not immediately clear whether ​they would be achievable, one of the sources ⁠said.

The other person said that up until the spring meeting, Honda had not given the impression that it needed aggressive cost cuts. Now, the situation appeared to leave "no room for delay," the person added.

On Monday, Honda and Nissan said they would jointly develop standardised electronic control units for SDVs and ​aim to roll out an architecture built around them from the 2029 financial year.

Honda CEO Toshihiro Mibe won support for his reappointment to the company's board in June. He has faced pressure from former executives to step down over the company's performance.

Last year, Honda and Nissan ended merger talks that would have created one of the world's largest automakers.

In addition to Chinese competition, Honda and other automakers are being squeezed by U.S. President Donald Trump's import tariffs and higher labour expenses. They also face the growing need to invest in research and development of technology as cars become more advanced, raising costs across the industry.