KYODO — Honda Motor Co expects to return to profitability this fiscal year, but the turnaround does not guarantee the embattled carmaker will get back on a growth path anytime soon.
Honda has shifted from a strategy centred on electric vehicles (EVs) to prioritise the Japanese, Indian and North American markets and will introduce 15 new hybrid models over the coming years.
Still, analysts say Japan's No. 2 carmaker by volume should embark on more fundamental reforms to regain its competitive edge for future growth, including diversifying its supplier base, forming a capital alliance and strengthening product features.
The automaker said in 2024 that it would invest about ¥10 trillion (US$63 billion) through fiscal 2030 in its electrification push, though it cut the plan to ¥7 trillion the following year.
Honda on Thursday reported a net loss of ¥423.94 billion for the year ended March 2026, its first full-year loss since its listing in 1957, as it booked massive costs to substantially scale back the EV business in response to slowing demand for zero-emission vehicles.
The company had never fallen into the red even during past crises such as the 2008 global financial crisis and the massive earthquake and tsunami that struck Japan in 2011, helped by its solid motorcycle and finance operations.
"The scale of investment (in the EV business) was enormously larger than before," said Koji Endo, chief executive analyst at SBI Securities.
Toyota Motor Corp offers a variety of powertrain options ranging from battery EV and hybrid to plug-in hybrid and fuel cell vehicles.
But Honda bet on zero-emission vehicles, aiming to raise the share of EVs and FCVs, which run on hydrogen and emit only water vapor, to 100% of total sales by 2040.
In March, Honda President and CEO Toshihiro Mibe said his company decided to rework the business strategy in "a heartbreaking decision."
The discontinued tax credits for purchasing EVs in the United States last fall and stiff price competition in the Chinese EV market in recent years dimmed the outlook for its EV sales.
"The decision clearly came too late," SBI's Endo said, adding that the slow response added to costs, resulting in a loss of up to ¥2.5 trillion.
Honda decided to halt development of three EV models for production in North America and froze plans to build an EV plant and battery factory in Canada. Sony Honda Mobility Inc, a joint venture established by Honda and Sony Group Corp, will also downsize operations. Mibe said Thursday at a press conference that the company had abandoned its target of switching entirely to EVs or FCVs by 2040.
The top executive stated that the company has no plans to exit the EV business. Analysts echo the view as demand is expected to shift toward EVs in the long term.
Still, analysts say Honda will need diverse and competitive suppliers to help the company roll out new EV models in a timely and cost-competitive way.
Honda "lacks competitiveness in supply chains, making it difficult to outperform Chinese rivals in terms of both speed from development to mass production and costs," Jin Tang, senior principal researcher at Mizuho Bank, said.
Honda Automobile (Thailand) is showcase a comprehensive lineup of cars, motorcycles and power products at the 47th Bangkok International Motor Show in March 2026. (File photo)
Until now, Honda has developed new models based on quality standards set for global markets. But Mibe said Thursday that the company will change its development approach.
The company will take a flexible approach to development using locally sourced parts, particularly in China and India, so it can launch vehicles that better match local needs in terms of cost and quality, the CEO said.
Tatsuo Yoshida, senior auto analyst at Bloomberg Intelligence, said changing the mindset of engineers would be difficult. They have used a certain level of components since joining the company and may not easily accept using different parts depending on market needs.
Some analysts say Honda, with annual sales of 3.4 million vehicles, may need to pursue a capital tie-up to secure economies of scale in EV development and production.
SBI's Endo said sales of at least 4 million or 5 million vehicles are necessary to maintain healthy profit margins in the auto business.
"Honda has little chance of winning if it tries to do everything on its own," he said, adding that a capital alliance should help it pursue volume.
Honda had tried to merge with Nissan Motor Co, a move that would have created the world's third-largest auto group by volume, but the talks fell through last year.
Analysts say Honda used to lure customers with innovative technologies such as its compound vortex controlled combustion engine, known as CVCC, and variable valve timing and lift technology, or VTEC, both of which improved fuel efficiency and engine performance. But Honda has been losing such appealing products.
The company has "long sought to define what makes it unique, but the answer has become less clear over time," said Seiji Sugiura, senior analyst at Tokai Tokyo Intelligence Laboratory. The company is becoming increasingly bureaucratic as it grows in size, he said.
"I came to feel the company could end up paying such a tremendous cost when (the efficiency of) the organisation deteriorates amid intensifying automobile competition," Sugiura said.
