Honda is set to leverage the competencies of suppliers in India and China as part of its efforts to establish a leaner and more cost-efficient structure in the coming years.

"In China and India, there are some standard parts that are suitable for their markets and there is some track record of using them over there. So, we can build vehicles based on their standard parts," said Toshihiro Mibe, Director, President and Representative Executive Officer, in response to a question at a press conference in Japan.

The press meet was held shortly after a detailed business briefing in mid-May, during which Honda outlined its priorities for the remainder of the decade.

"If that is not a problem, we can expand the use of those standard parts/components from there to build more vehicles, so we can change the idea of Honda a little bit now. And then we can try to look at the cost and the local requirements in a good balance so that we can reduce the cost overall," Mibe further added.

"As long as they meet the standards - whoever the supplier, whichever the country - we can work together so that we can improve our commercial value of the products," Toshihiro Mibe stated.

Tilting the supplier balance

However, it was first necessary to assess the effectiveness of this model in India and China. If successful, the approach would be expanded globally. Questions were raised regarding the implications for established Japanese suppliers.

"We are not necessarily deciding to work with Chinese or Indian suppliers. There is no definite way because 40 per cent of the market is supported by emerging competitors," said Mibe. As they were "sort of" setting up competitive standards, "we need to change a bit too against that".

Therefore, as long as suppliers meet required standards - irrespective of origin - collaboration would be possible to enhance the commercial value of products. However, the Honda CEO emphasised that this should not be overinterpreted at this stage.

"I do not want to mislead, it does not mean that we are going to use Chinese and Indian suppliers more and more going forward. It does not really mean only that way," he added.

Focus on outsourced parts

Beyond this, Honda plans to strengthen a lean and agile manufacturing structure, beginning with fundamental cost reductions, particularly in outsourced parts. This is expected to improve the company's cost structure on a global basis.

The approach involves reassessing Honda-specific standards, adopting standardised components, and incorporating the competitiveness of local businesses in China and India.

Another significant step involves improving development efficiency in terms of cost, duration, and manpower. "We will reassess the so-called engineering chain management and increase our production efficiency by reducing each of the three items by half vis-a-vis 2025," Mibe stated.

In addition, Honda will enhance efficiency in design, testing, and production preparation through digital environments and artificial intelligence, while also transforming its development process by revisiting product planning to reduce costs and manpower requirements.

The company plans to halve the development time for minor model changes starting from the current fiscal year. Full model change development timelines will also be reduced by half, beginning with development projects scheduled to commence in 2028. "This will enable us to reduce up-to-date products more quickly and continuously," Mibe said.

"We will aim for a 20 per cent improvement in production efficiency over the next five years by efficiently injecting allocated resource investment in new models and equipment," Toshihiro Mibe stated.

Resilient manufacturing structure

A key objective is the development of a manufacturing structure resilient to changes in the business environment, particularly one that ensures profitability even when production volumes decline.

"The company will aim for a 20 per cent improvement in production efficiency over the next five years by efficiently injecting allocated resource investment in new models and equipment and also by increased efficiency and speed through the use of digital technologies," he elaborated.

To strengthen future in-house competitiveness, sourcing technological resources is also identified as an effective approach. However, this requires substantial investment and resource allocation, and in an increasingly challenging market environment, it may risk eroding competitive advantage.

This context explains Honda's intention to strategically leverage the cost competitiveness and speed of local businesses in China and India, alongside the use of industry-standard components, to enhance overall competitiveness.

Fierce competition in China

China represents a market where Honda must significantly strengthen its competitiveness. "Competition in the Chinese market is intensifying and Honda is facing a very challenging business environment including a decline in production and unit sales," said Mibe.

As part of remedial measures in China, the company plans to pursue cost reductions through the use of locally sourced standard components and the integration of local technologies for next-generation systems such as advanced driver assistance systems (ADAS). This is expected to help the company keep pace with the rapid advancement of intelligent technologies in China.

"Furthermore, by introducing NEVs built on platforms provided by local partners, we will better serve the needs of customers in China," he further added.

The company will also implement initiatives to improve development efficiency in China, including the use of standard components for markets outside China. This is expected to strengthen its products against competitors in ASEAN and other regions.

Making up lost ground in India

Earlier, Mibe noted in his opening remarks that India is among the few global markets expected to witness growth in the automotive sector. However, Honda has remained present in a limited number of product segments and has not been able to fully expand sales due to an insufficient range of competitive models. The company acknowledged that it has not adequately addressed customer preferences in the Indian market.

While Honda's standard practice has been to develop and sell products in line with global performance standards regardless of market, this approach has had limitations. Climate conditions, vehicle usage patterns, and customer preferences vary significantly across countries and regions, as do regulatory frameworks.

Mibe acknowledged that Honda's global-standard approach may have been "somewhat excessive", and that it is now necessary to redefine specifications to better align with market conditions and customer requirements in India.

Freeze on EV investments

At an earlier meeting in March, the leadership team informed investors and analysts that the decision to place electric vehicle development on hold reflected "our recognition that we need to fundamentally transform the structure of our automobile business".

Some EV investments had already been incurred, making the decision particularly difficult. "At the same time, we see this as an opportunity to redefine how our automobile business should evolve toward the next phase of growth," the management stated.

This is particularly significant as Honda will need to compete more directly with Chinese manufacturers on a global scale. Maintaining the existing approach is not considered viable, necessitating structural reform of the business model.

"We will evaluate performance and cost competitiveness by continuously benchmarking against Chinese competitors and determine whether in-house development is justified. Our view is that we should not pursue in-house development unless it clearly delivers sufficient capability," the management added.

Reference was also made to India, where Honda now faces the need to rebuild its business on a fundamentally different footing from previous efforts. "In addition, across ICE, HEV, and future next-generation EVs, we believe that overall development costs need to be reduced to nearly half of prior levels," the Honda leadership team stated.