Honda is targeting $9.4 billion in supplier savings by 2030 as the automaker responds to growing pressure from Chinese competitors and setbacks in its electric vehicle strategy. The plan includes standardized parts, greater use of lower-tier suppliers and increased use of Chinese-made components where possible.
Honda Plans Major Supplier Cost Cuts
According to internal documents reviewed by Reuters and people familiar with the plan, Honda is seeking to reduce supplier costs by more than $9 billion by 2030, with reductions on some parts reaching as much as 30 percent.
The strategy would involve greater standardization of parts and increased reliance on second- and third-tier suppliers. Honda managers are also encouraging greater use of Chinese-made components where possible.
The plan amounts to roughly $2.4 billion in annual savings over the next four years. However, suppliers reportedly view Honda’s targets as extremely aggressive, raising questions about how much of the $9.4 billion goal can be achieved without affecting quality or supplier margins.
Honda Faces Pressure From Chinese Automakers
Honda’s cost-cutting effort comes as Chinese automakers close the gap with better technology, sharper pricing and faster development cycles.
The strategy effectively seeks to adopt some of the cost advantages that have helped Chinese automakers become more competitive. At the same time, Honda is trying to preserve the durability that has helped define its identity and maintain the loyalty of its buyers.
EV Losses Add Urgency to Honda’s Strategy
The push to lower costs follows difficulties with Honda’s expensive EV strategy. The company expects its EV-related losses to eventually exceed $12 billion and has shifted its focus toward gasoline-electric hybrids.
Honda also reported its first annual loss as a publicly traded company earlier this year.
Those developments have increased the importance of Honda’s $9.4 billion savings target as the company seeks cheaper cars and healthier margins while retaining enough resources to develop technology for the next generation of vehicles.
Honda Seeks Room to Compete
Chinese rivals such as BYD continue expanding into markets including Europe, adding to the competitive pressure facing Honda.
Against that backdrop, Honda’s supplier savings plan is aimed at reducing costs and improving margins as the automaker works to respond to changing competition and the setbacks surrounding its EV strategy.
