Nikkei on Tuesday reported that Honda Motor Co. may consider moving a large portion of vehicle production to the United States from Mexico or Canada, as trade tensions escalate due to a 25% new tariff on automobile imports, announced by US president Donald Trump.
According to a report, the Japanese automaker wants to build 90% of the cars it sells in the US locally.
According to reports, the company plans to boost its US production by up to 30% in two or three years.
Honda would be able to avoid the heavy import tax, which otherwise could cost the company $4.57 billion per year.
Honda refused to comment, stating that the company had not released the specifics of the story.
Civic Hybrid Production in Indiana to be Included in New Strategy
Honda took steps even before tariffs were officially implemented to reduce the risks of increased import costs.
Reuters reported earlier that the next generation Civic hybrid would be produced in Indiana rather than Mexico where it was originally planned.
Honda’s biggest market is the United States, which accounts for almost 40% of global sales.
Honda has sold over 1.4 million vehicles in the US last year. About 1 million of these cars were already produced domestically.
Even though the USMCA allows tariff-free trading under certain conditions (such as the USMCA origin requirement), the 25% tax applies to all vehicles, regardless of whether they meet the USMCA requirements.
Nikkei reported that while increasing the US-made contents can reduce the tariff impact to some extent, it will not be completely eliminated.
Honda has been reported to be considering operational changes, including the addition of a third shift, expanding production on weekends, and hiring more workers, in order to ramp up production.
The reconfiguration will take two years at the very least due to the complexity of the realignment of supply chains and manufacturing capacities.
Shares of automakers rise after Trump announces possible exemptions
The shares of automobile manufacturers around the world rose after President Trump suggested that the Trump administration may consider temporary exemptions to the tariffs.
Trump told reporters in Washington that he was “looking at something” to assist some car manufacturers, and added that the firms needed “a little time” to reformulate their manufacturing processes.
Stocks in the entire sector rose on hopes of relief.
Tata Motors and Hyundai both grew by 4.7%, while Toyota and Honda each gained 3.7%.
Volkswagen, Mercedes-Benz and BMW are among the European automakers that have also seen gains in excess of 2%.
Tariffs force industries to rethink their strategies
In response to the new trade policies, automakers are re-evaluating their production strategy.
Stellantis announced that its Windsor and Toluca factories would be temporarily shut down. Ford has launched a “From America For America” initiative, which offers customers a price that is based on the domestic inventory.
General Motors has increased production at its Fort Wayne plant in Indiana to meet the expected demand for lighter-duty trucks.
As Washington continues to evolve its trade agenda, the industry is now facing a period where it must recalibrate itself in order to adapt to a new economic environment.
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