The figure shocked the markets: 2,500 billion yen (approximately $15.7bn). This massive asset impairment is a brutal admission of the industrial failure of the "Japanese BMW." Honda is preparing to record its first annual loss since its creation. The string of cancellations of major projects, such as the 0 Series or the new RSX, just months before their launch, was directly penalized by the market.
Mainly linked to the revaluation of its infrastructure dedicated to "all-electric" vehicles, free cash flows—once one og the group's strengths—have fallen into negative territory, forcing Honda to dip into its cash reserves to maintain a dividend at all costs. With an operating margin reduced to 1.8% (against a target of 7%), the company can no longer finance its transformation alone.
The original sin
To understand this fall, one must go back to the era when Takanobu Ito was CEO. For decades, engineering dictated the commercial pace. Until 2012, when an annual production target was set at 6 million vehicles. This quantitative objective broke the brand's cycle, which was soon penalized. A massive wave of recalls hit the group in the mid-2010s. For a brand whose resale value relies on reliability, the shock was brutal.
At Honda, the culture of the field was law. This is called "Shangen-shugi." It was the main strength of founder Soichiro Honda, a mechanic by trade. With the shift to quantity, technical decisions were no longer made by those on the ground but by risk management committees. In the 90s, an engineer could stop a production line if he judged that a door adjustment was not perfect. In 2020, the priority was to ensure that the plant was running at 95% capacity.
The hybrid paradox
Honda has not lacked merit, however. In an irony of history, the manufacturer was, for example, the first to market a hybrid car in the US, beating the Toyota Prius by 7 months. However, Toyota now offers 29 hybrid models compared to only 4 for Honda.
As global consumers turn away from all-electric returning massively to hybrids, Honda finds itself with a deserted catalog in its most profitable segments. In the US, the brand's most profitable models still do not offer a hybrid powertrain, unlike its competitors.
The race for electric
Current CEO Toshihiro Mibe has accelerated this headlong rush by displaying significant stubbornness regarding electric vehicles, without taking market cycles into account. The failure of the alliance with General Motors to develop affordable electric vehicles was the first sign of a loss of technological independence. Honda invested $4.4bn in a battery mega-factory in Ohio at the exact moment that demand was slowing and competitors were reducing their investments. Following these events, the Prologue EV's sales plummeted 64%, perfectly illustrating the disconnect between Tokyo's ambitions and market reality.
This gap between the vision of leaders and the reality of dealerships is not unique to Honda. Stellantis is currently paying the price for an electric gamble, with a drop in its market share in the US and a loss of €22.3bn linked to the erosion of its inventories, EV-related assets, and the "reset" of the product plan and the vehicle supply chain.
Last February, Honda announced a return to its former organizational structure. An admission of failure that allowed engineers to be put back in charge of R&D. The verdict is due next May, during the presentation of the new revised business plan. Honda now has 2 months to convince that it can still carry out a coherent hybrid/electric transition.
