Japanese automotive giant Honda is facing its most challenging period. The company recently issued a warning that it expects to report a net loss of up to 690 billion yen (approximately 29.8 billion yuan) for fiscal year 2025, marking its first annual loss since going public in 1957. Honda attributed the projected loss to the impact of U.S. tariff policies and declining product competitiveness in Asian markets, including China.
In the Chinese market, Honda has clearly fallen behind in the competition on electrification and smart technology. Its two all-electric brands, e:N and Ye, have failed to gain traction. Both joint ventures, GAC Honda and Dongfeng Honda, are experiencing prolonged sales weakness, with the decline in China now entering its fifth consecutive year.
The series of setbacks has prompted Honda's management to take responsibility. CEO Toshihiro Mibe and Executive Vice President Noriya Kaihara will voluntarily forfeit 30% of their compensation for three months, while other senior executives will take a 20% pay cut.
This forecast represents a significant reversal for Honda. The company maintained its sales forecast for fiscal 2025 but revised its operating profit outlook from an expected profit of 550 billion yen to a projected loss ranging from 270 billion to 570 billion yen. Net profit attributable to owners is now expected to be a net loss between 420 billion and 690 billion yen, compared to a previous forecast of a 300 billion yen profit.
Honda explained that the anticipated loss is primarily due to decreased profitability in its automotive business, influenced by U.S. tariffs and reduced competitiveness of its products in Asia. Concurrently, Honda announced the cancellation of plans to develop and launch three electric vehicle models in North America, citing concerns that producing and selling these models would likely lead to further long-term losses.
In the U.S. market, the expiration of the $7,500 federal electric vehicle tax credit on September 30, 2025, is expected to remove a key policy support, leading to stagnating or declining EV sales and increased inventory pressure. This has forced several major automakers, including Ford, to recalibrate their electrification strategies.
In China and other Asian countries, customer preferences are shifting from traditional metrics like fuel efficiency and interior space to software-based features that can be upgraded according to user preferences. The rapid rise of new EV manufacturers, leveraging shorter development cycles and software-defined vehicle technology, has intensified competition. In this environment, Honda has struggled to offer products with a better value proposition than these emerging rivals, leading to its diminished competitiveness.
In response, Honda plans to reassess its resource allocation and strengthen its hybrid vehicle lineup. Additionally, the company aims to reduce costs and improve efficiency through executive pay cuts. CEO Toshihiro Mibe and Executive VP Noriya Kaihara will voluntarily reduce their pay by 30% for three months, with other senior executives taking a 20% cut.
While challenges in the U.S. market are partly external, Honda's difficulties in China stem from an inability to keep pace with the electrification and smart technology trends. In February, Honda's sales in China totaled only 28,780 vehicles, a 15% year-on-year decrease. Cumulative sales for the first two months of the year reached 86,269 units, down 16% compared to the same period last year.
The sales slump in China has significantly impacted Honda's global performance. In 2025, Honda sold 3.522 million vehicles worldwide, a 7.5% decline. However, sales in China fell sharply to 645,000 units, a 24% drop, marking the fifth consecutive year of decline. After peaking at 1.627 million units in 2020, Honda's sales in China have decreased annually, with figures for 2021 to 2024 being 1.5615 million, 1.3731 million, 1.2342 million, and 852,300 units, respectively, followed by a further contraction in 2025.
Honda's operations in China rely heavily on its two joint ventures, both of which are facing operational difficulties. GAC Honda sold 9,220 vehicles in February, down 68.93% year-on-year. Its cumulative sales for January-February were 13,778 units, a decline of 69.24%, making it the worst-performing brand under the GAC Group umbrella. Dongfeng Honda sold 18,025 vehicles in February, with cumulative sales for the first two months reaching 30,592 units, an 18.6% decrease.
The collapse in sales for both joint ventures underscores Honda's slow progress in electrification and smart technology, leaving it unable to compete effectively with domestic Chinese new energy vehicle brands. The company's dedicated electric brands, e:N and Ye, have failed to resonate with consumers; the former was criticized for having an unmemorable name, while the latter was mocked online for its unfortunate connotations. With its strategic shift, Honda is now deprioritizing pure electric vehicles in favor of hybrid models. However, unless it can catch up with Chinese consumers' demands for smart features, a recovery relying solely on hybrids will remain challenging.
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