Honda scales back China ICE production as it accelerates EV plans in response to intensifying domestic competition and shifting market demand

Honda is making significant adjustments to its operations in China as it confronts a sharp decline in sales of internal combustion engine (ICE) vehicles and intensifies its focus on electric vehicles (EVs). The company’s sales in China fell by 30.9% in 2024, dropping to 852,269 units - the first time in nearly a decade that Honda’s sales in the country have fallen below one million.

In response, Honda is cutting back its ICE production capacity while ramping up its EV strategy to remain competitive in a rapidly shifting market.

Dogfeng engines and GAC: Scaling back ICE production as EVs heat up

The most immediate changes will take place at the Dongfeng Honda Engine factory, where Honda plans to shut down one of its production lines by the end of March 2025. The decision will reduce the plant’s annual manufacturing output from 520,000 units to approximately 260,000 units - a 50% automotive production pruning.

”As a result of these cutbacks, Honda’s total production capacity in China will shrink from 1.49 million units to around 960,000”

In addition, Honda has already ceased operations at one of its joint venture plants with Guangzhou Automobile Group (GAC) as of January 2025, eliminating a facility with a production capacity of 240,000 vehicles per year. As a result of these cutbacks, Honda’s total production capacity in China will shrink from 1.49 million units to around 960,000.

These ICE reductions point, amongst other things, to the strength of China’s automotive production ecosystems, where domestic manufacturers are gaining ground in the EV sector at the expense of traditional carmakers.

Honda, like many other legacy automakers, is facing intensifying competition from Chinese firms such as BYD, which sold 3.83 million passenger cars in 2024, all of which were either battery electric vehicles (BEVs) or plug-in hybrids (PHEVs). With EV sales expected to reach 12 million units in China by 2025 - surpassing ICE vehicle sales for the first time - Honda is repositioning itself to try to capture a share of this quickly growing market.

Production of the Honda S7 and the Japanese OEMs attempt to penetrate the Chinese EV space

At the centre of Honda’s new EV push in China is the S7, a compact electric SUV aimed squarely at competing with Tesla’s Model Y. Available in two versions, both featuring 89.8 kWh battery packs and a range of up to 404 miles, the S7 is priced from ¥259,900 (approximately $36,000). Beyond this, Honda is developing additional EV models, including the larger P7 crossover and a sleek new sedan, previewed by the GT Concept in 2024.

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Honda’s pivot reflects a wider recalibration within the global automotive sector as companies adapt to changing consumer preferences, regulatory shifts, and increasing competition from new players. The Chinese market, once a stronghold for foreign brands like Honda, has rapidly evolved into a battleground dominated by domestic manufacturers that have aggressively pursued EV technology.

The EV shift is mounting while ICE production dwindles - at least in some areas

For Honda, scaling back ICE production is not simply a reaction to declining sales but a necessity in securing its future in the world’s largest car market. While the company still maintains a significant presence in China, the shift towards electrification comes with risks. Honda’s EV portfolio remains relatively limited compared to its Chinese rivals, and the transition will require sustained investment and strategic agility.

However, with market forecasts showing continued growth for EVs and a steady decline in demand for gasoline-powered cars, Honda has little choice but to accelerate its transition. Clearly, through realigning its production strategy and introducing new electric models, the Japanese carmaker is attempting to stake its claim in a landscape that is increasingly defined by electrification.