How Honda Is Looking to Capitalize on Soaring Sales in China

October 18, 2016, 10:40 AM UTC
Honda Plans to Double Auto Sales Over 5 Years Led by Small Cars
The Honda Motor Co. logo is displayed on the company's N Box minicar at the company's headquarters in Tokyo, Japan, on Friday, Sept. 21, 2012. Honda, Japan's third-biggest carmaker, plans to double sales in five years, driven by demand for small cars such as the Fit compact and new models in emerging markets including China and India. Photographer: Haruyoshi Yamaguchi/Bloomberg via Getty Images
Haruyoshi Yamaguchi/Bloomberg via Getty Images

Honda Motor plans to build a new factory in China that will produce passenger cars from 2019, boosting its output capacity in the country by about a fifth, two people familiar with the matter said on Tuesday.

Honda (HMC) and partner Dongfeng Motor Group (DNFGY) are experiencing explosive growth in China with sales for their joint venture soaring 48% for the year to date thanks to the popularity of the XR-V sport-utility vehicle as well as the recently launched Civic sedan.

At the same time, the venture, Dongfeng Honda, is coming close to its capacity limits at its two factories, targeting sales of 450,000 vehicles for 2016—not far off current annual capacity of 480,000.

The new factory will be located in Wuhan, central China, a major auto hub. It will initially produce 120,000 cars a year, with capacity likely to double eventually, the sources said, declining to be identified as there had not been a formal announcement by the companies.

Honda confirmed that it was discussing the additional plant in Wuhan with Dongfeng, but that it had nothing official to announce now. A Beijing-based spokesman for Honda said the project had yet to be formally approved by the company or the government.

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The plan was initially reported by the Nikkei business daily, which said the venture planned to spend “hundreds of millions of dollars” on the factory.

The new factory would be Honda’s seventh in China. Honda also has a joint venture with GAC Group called Guangqi Honda which has three plants. The Japanese automaker also has a separate plant for exports.

Honda said in April it was looking to boost car sales in China to 1.07 million cars this year. It sold 1.01 million vehicles in 2015, a 33% jump over the previous year.

Auto sales in China strengthened in September for a consecutive fifth month, rising to a three-and-a-half year high.