Honda Motor is restructuring its engine operations in China, seeking to overhaul ownership structures in long‑running joint ventures with state-owned partners as it confronts weakening demand for petrol engines and prepares for a key contract deadline in 2028, according to a Nikkei Asia report.
The Japanese automaker currently works with two major Chinese groups: Dongfeng Motor Group and Guangzhou Automobile Group (GAC). Its China strategy has for decades been built around separate, equally owned joint ventures with each company.
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Honda set up Dongfeng Honda Engine with Dongfeng in 1998 to manufacture engines, and in the same year formed GAC Honda Automobile with GAC to produce finished vehicles.
A further 50-50 venture, Dongfeng Honda Automobile, followed in 2003 for complete vehicle production.
After negotiations stretching over roughly two and a half years, Dongfeng now plans to sell its entire stake in Dongfeng Honda Engine, the report said.
GAC Honda intends to acquire the Dongfeng holding and subsequently lift its own share to turn Dongfeng Honda Engine into a wholly owned subsidiary by the end of this year.
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By GlobalDataThe launch of Dongfeng Honda Engine and GAC Honda marked the start of Honda’s four-wheel vehicle production in China. In 1999, GAC Honda began assembling the Accord sedan domestically, using powertrains supplied by Dongfeng Honda Engine.
Market conditions have since changed sharply. Petrol engine demand in China has been eroded as battery-electric vehicles and plug-in hybrids take a dominant share of new car sales.
Dongfeng Honda Engine recorded a net loss of 227m yuan ($32m) in the financial year to December 2024.
Tensions have reportedly emerged between Dongfeng Honda Engine and GAC Honda over issues such as engine pricing and the division of profits.
In response, Honda reassessed its position and approached Dongfeng in spring 2023, urging it to divest its stake in the engine business. Dongfeng initially pushed back, but shifts in the market and weakening profitability later prompted it to move towards a sale.
Honda expects the transaction to simplify its cost structure and procurement.
The deal will let Honda “disclose costs and undertake joint purchasing, which will lead to greater business efficiency,” said Masayuki Igarashi, Honda’s head of regional operations in China.
He added that the reorganisation would also help frame Honda’s future talks with other Chinese partners.
Honda’s vehicle production joint venture contracts in China are on different timelines. The agreement with GAC Honda runs to 2028, while the Dongfeng Honda finished-vehicle venture is in place until 2043.
Honda still has room to revise or prolong the GAC Honda arrangement, but Igarashi told GAC executives that Honda would “not discuss anything beyond 2028 until the issues at Dongfeng Honda Engine have been resolved.”
The company expects to move into more detailed talks with GAC once that process is complete.
“We are still truly undecided as to what we will do,” Igarashi said when asked about Honda’s plans for the GAC Honda partnership after 2028.
Honda’s sales performance in China has been under pressure. New vehicle deliveries in the market fell 20% year on year in the January–October period to 520,000 units, a steep decline from the 2019–2021 period, when Honda sold more than 1.5 million vehicles annually in the country.
