Honda has decided to extend its joint venture agreement with Guangzhou Automobile Group for another 10 years, despite a 60% drop in new car sales in China over the past five years. The company aims to continue its operations in China while adapting to rapid market changes, which is why the new contract period is shorter than the previous 30 years.
According to the Nihon Keizai Shimbun (Nikkei), Honda will extend its joint venture contract for Guangqi Honda until 2038. The previous agreement was set to expire in 2028. Honda announced the extension on July 20, stating, "We will continue to showcase products that leverage the strengths of both companies in the world's largest automotive market, China." However, a Honda representative noted that due to the fast pace of change in the Chinese automotive market, it is difficult to predict conditions 30 years ahead, but a 10-year period allows for a reasonable assessment of the business environment.
Guangqi Honda has played a crucial role in Honda's operations in China. The joint venture was established in 1998 with a 30-year agreement, making Honda one of the first major Japanese automakers to begin passenger car production in China the following year. The first model produced, the Accord sedan, remains a key offering today.
In 2003, Honda also established a joint venture with Dongfeng Motor Group, known as Dongfeng Honda, further expanding its operations in China. The company saw significant growth, with local new car sales reaching 1.62 million units in 2020, making China a vital market for Honda's global sales.
However, the landscape has changed as the Chinese automotive market rapidly shifts towards electric vehicles (EVs). While domestic companies like BYD and Xiaopeng have surged, Honda has struggled to adapt to these changes. Honda's new car sales in China fell to 640,000 units in 2025, a 60% decrease from 2020. Guangqi Honda sold 340,000 units, while Dongfeng Honda sold 300,000. Due to poor sales, Guangqi Honda halted operations at its Guangzhou Huangpu plant, which has an annual production capacity of 240,000 units, starting in July this year. As sales continued to decline, discussions arose among parts suppliers about the potential end of the Guangqi Honda joint venture. A representative from a parts supplier stated, "We were preparing for the possibility that the Guangqi Honda contract might end due to the significant drop in sales."
Despite this, Guangzhou Automobile strongly desired to extend the joint venture agreement. According to Nikkei, the company's own brand division reported a loss of 8,300 yuan (approximately $1,181) for every vehicle sold last year. Overall sales, including those from the joint venture, fell by 14% to 1.72 million units, marking the first annual net loss since the company went public in 2010. Although the financial situation has worsened, Guangqi Honda accounted for about 20% of Guangzhou Automobile's total sales. The company also projected that Guangqi Honda's financial situation would begin to improve significantly starting in 2027.
Prior to the contract extension, Honda and its Chinese counterpart engaged in negotiations for over two and a half years regarding the restructuring of their engine business. As sales of EVs and plug-in hybrids increased in China, demand for engines decreased. Honda proposed that Guangqi Honda acquire a 50% stake in the engine joint venture held by Dongfeng Motor. Honda communicated to Guangzhou Automobile that it would not discuss the future of the joint venture beyond 2028 until the engine business issue was resolved. After the stake acquisition was finalized at the end of last year, Honda President Toshihiro Mibe visited Guangzhou in April to discuss the joint venture agreement with the management of Guangzhou Automobile. In mid-May, a Honda executive stated, "It is important for us to maintain our connection with China and use it as a foothold for our operations."
Competition in the Chinese market is becoming increasingly fierce. Due to domestic economic stagnation, overall new car sales in China fell by 21% in the first half of the year compared to the same period last year. The competition among Chinese automakers has intensified, with over 500 new models launched from January to May. Honda has fallen behind in introducing new models. After launching new vehicles through its joint ventures in March and April of last year, it has not released any follow-up models and has no plans for new EV launches this year.
Honda plans to leverage the development capabilities of its Chinese joint venture partners to regain market share. Mibe announced in May that the company would launch models utilizing vehicle platforms developed by its joint venture partners in the Chinese market, aiming to capitalize on the advanced technology of Chinese companies in the EV sector. A parts supplier representative remarked, "If we fail in the competition in the Chinese market, we cannot succeed globally," adding that the contract extension sends a clear message that Honda is not giving up on China.
Following the announcement of the contract extension, Honda's stock price fell by 1.66% during trading on July 21. Nikkei attributed the decline to concerns over the intense competition in the Chinese market. Hiroki Ihara, an analyst at Tachibana Securities, noted, "While the business environment in China is challenging, it seems that the decision reflects the understanding that Honda cannot afford to lose the world's largest market. The short-term impact on performance is likely to be limited, resulting in a muted stock reaction."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.