Dive Brief:
- Following a significant jump in profits, Honda Motor Corp. announced it will increase R&D spending by almost 25% over the next year to gain a competitive advantage in hybrid vehicles, the profits of which it will use to help fund its transition to building fully electric models.
- The company reported an operating profit jump of 77%, from 780.7 billion yen ($5 billion) to 1.38 trillion yen ($8.8 billion) in the fiscal year ending March 31, the automaker announced in an earnings report last week. Margins also improved from 4.6% to 6.8% year over year, resulting in a record-high revenue increase of 21%.
- Honda says an increase in vehicle sales in North America helped boost its YoY revenue and offset a slight sales decline in China.
Dive Insight:
As EV demand wanes across the industry, Honda plans to ramp up production of hybrid vehicles to meet demand and help boost its margins, a similar strategy to that of Ford Motor Co. Honda says it achieved a 25% cost reduction in the Honda Accord Hybrid from 2018 to 2023, which has helped to boost profits on the popular vehicle.
“We aim to produce 2 million hybrids by 2030 and use that cash for electrification,” said Honda CEO Toshihiro Mibe during a news conference, as reported by Bloomberg. “Hybrids are our original weapon and we will keep using that in our business.”
Honda’s focus on launching new hybrid vehicles makes sense, as sales of all Honda electrified models more than tripled last year. Combined sales of the hybrid versions of the Accord and CR-V crossover reached 293,640 units, which was over one-quarter of Honda’s total U.S. sales last year.
The hybrid CR-V was the best-selling hybrid vehicle in the U.S. last year with sales of 197,317 units. While the hybrid Accord sedan was the most popular hybrid-electric car in the U.S. last year, with sales of 96,323 units.
Overall, Honda sold 2.85 million vehicles globally in FY 2024, up from 2.3 million the year prior. In North America, the automaker sold 1.63 million vehicles last year, up from 1.2 million units the year prior.
Last month, Honda announced an investment of up to CAD $15 billion ($11 billion) with its partners to build an electric vehicle supply chain in Canada.
The investments include a new EV factory and battery plant in Alliston, Ontario. The EV factory is expected to begin production in 2028 and have a production capacity of 240,000 EVs per year. The battery plant will have a capacity of 36 gigawatt hours per year.
The massive investment in Canada follows a $700 million commitment to establish an EV production hub in Ohio, where Honda will mass produce battery-electric vehicles for the first time in North America.
Looking ahead, Honda aims for an operating profit of 1.42 trillion yen ($9 billion) with a margin of 7% for the fiscal year ending March 31, 2025.
