Honda Boosts R&D Investment by 23% to Accelerate Hybrid and Electric Vehicle Production

Japan's second-largest car manufacturer by volume, Honda recently announced a share buyback program valued up to 300 billion yen ($1.93 billion).

Honda Motor Co (7267.T) announced a substantial increase in its research and development (R&D) budget for this financial year, escalating it by nearly a quarter to strengthen its foothold in hybrid and electrified vehicles.

This decision comes as the automaker predicts a 2.8% rise in operating profit for the fiscal year 2024/25.

Amidst an evolving automotive landscape, Honda is positioning itself to compete more aggressively, particularly in segments where it has lagged, such as fully electric vehicles.

Japan’s second-largest car manufacturer by volume, Honda recently announced a share buyback program valued up to 300 billion yen ($1.93 billion).

This strategic move followed a robust performance in the fourth quarter, surpassing analysts’ expectations, largely due to a surge in U.S. sales which compensated for the sales dip in China.

Factors such as a weaker Japanese yen and strong sales of hybrid models further contributed to the company’s profit increase.

The company disclosed a projected operating profit of 1.42 trillion yen for the full year, slightly above the consensus estimate of 1.39 trillion yen by analysts surveyed by LSEG.

Honda is accelerating its transition into the electric vehicle (EV) market, earmarking 1.19 trillion yen for R&D, representing a 23% increase from the previous year.

CEO Toshihiro Mibe highlighted the company’s aim to produce 2 million hybrid models annually by 2030 and emphasized the strategic investments planned to achieve this goal.

For the quarter ending March 31, Honda’s operating profit soared more than six-fold to 305.6 billion yen, well over the 248.3 billion yen analysts had anticipated.

This uptick in profit underscores the shifting focus among carmakers towards hybrid vehicles amid less-than-expected sales of fully electric models.

Echoing this industry trend, South Korea’s Hyundai Motor Co also declared its intention to focus on hybrid vehicles in the U.S.

Moreover, Honda is exploring potential collaborations with Nissan Motor in developing EV components, as confirmed by Mibe during ongoing discussions aimed at a possible partnership.

Despite these positive trends in the U.S. and elsewhere, Honda faces challenges in China, the world’s largest auto market.

The company reported a more than 6% decline in sales there, reflecting the competitive pressure from local manufacturers who have successfully captured market share with economically priced, technologically advanced electric vehicles.

In response to market dynamics, Honda has plans underway to establish an EV production base in Ontario, Canada, and intends to launch six new EV models under the brand Ye in China by 2027, signaling a significant pivot towards electrification in key global markets.