$15.7 billion impairment reveals Honda's (HMC.US) dilemma: U.S. strategic mistakes can be corrected, but falling behind in the Chinese market is hard to catch up.

Honda Motor ( HMC.US ) has written down $15.7 billion on its electric vehicle business. This move not only marks a painfully reversed turn in its U.S. strategy, but also underscores that the company’s development in China is facing even more thorny challenges—its technological gap with China’s emerging automakers continues to widen.

On Thursday, Honda, Japan’s second-largest automaker, announced that it will restructure its electric vehicle business core focus on the U.S. market ( and take impairment actions on some operations in China. It is estimated that this move involves an amount of up to 2.5 trillion yen ), or approximately $15.7 billion (. This financial blow directly led Honda to cut its profit outlook for the current fiscal year from its prior profit of 300 billion yen to a maximum loss of 6900 billion yen, marking what could be the company’s first annual net loss since it went public in the 1950s. In response, CEO Toshihiro Mibe and several senior executives from the automotive business have announced pay cuts as a show of accountability.

The core reason for Honda’s major strategic pullback this time is the sharp collapse in demand in the North American market. Since local EV demand is only half of the company’s earlier expectations, and in addition to the Trump administration’s easing of fossil-fuel regulation and adjustments to EV tax credit policies, this change has directly caused a free-fall in U.S. EV market demand.

Honda Cuts Three EV Models Due to Trump’s Rise to Power

Last year, of Honda’s global sales of 3.4 million vehicles, EVs accounted for only 2.5%, about 84,000 units. Christopher Richter, an automotive analyst at ) CLSA (, said that the scale of this large write-down reflects the automaker’s massive spending on research and development and capacity building to boost EV sales.

He noted that after Trump returned to power, the automaker should have promptly hit the investment “brakes.” “They took too long to think it through,” he said. “It was almost at the moment when the relevant models were about to be pushed to market that they decided to cancel these projects.”

In January 2024, at CES, the Consumer Electronics Show, held in Las Vegas, Honda first unveiled two concept models of the “Honda 0 Series” to the outside world, including the Saloon concept car, and had originally planned to launch the first batch of mass-produced models of this series in North America this year.

However, all these plans have now turned to dust. Honda canceled three models originally planned to be produced in the U.S.—Saloon, the Honda 0 SUV, and the Acura RSX.

As part of this financial shock, Honda expects cash outflows of up to 1.7 trillion yen. This funding will mainly be used to pay suppliers’ compensation costs.

In a report sent to clients, Seiji Sugiura, a senior analyst at the Tokai Tokyo Research Institute, pointed out: “The scale of this write-down is truly shocking to us.”

“This decision was made at an extremely sensitive stage before large-scale production, and a large amount of budget had already been put into it. This is enough to show that it was extraordinarily difficult for Honda to make this decision.”

China Performance Foreshadows Deeper EV Troubles

While Honda’s setbacks in the North American market are happening at the same time, the structural challenges Honda faces in China are seen as an even deeper crisis. Although this massive write-down is mainly driven by North American projects, Honda in China—the world’s largest EV market—is facing unprecedented pressure to localize.

Last year, Honda’s sales of pure electric vehicles in China accounted for only 2.5% of its total sales. In terms of the iteration pace of software-defined vehicles ) SDV ( and advanced driver-assistance systems ) ADAS (, it has already fallen significantly behind leading Chinese homegrown companies such as BYD (002594). Due to a disconnect between product competitiveness and development cycles, Honda had previously recognized impairment losses on its investments in China, showing the grim situation in which it is “trapped between a rock and a hard place” in the company’s global electrification transition.

The automaker issued a warning that it will be difficult for it to keep up with the pace of China’s emerging companies. Especially because these emerging companies have shorter research and development cycles, they hold clear advantages in the field of software-driven vehicles ), including models equipped with advanced driver-assistance systems (.

“In today’s such fiercely competitive environment, Honda cannot offer products with better value for money than emerging EV manufacturers. This directly leads to a decline in its competitiveness,” the company said in a statement.

Morningstar’s senior analyst, Wen-seng Sun, noted that there remains uncertainty about Honda’s ability to respond to technological challenges over the long term. “These circumstances from Honda make me deeply concerned about its long-term technological competitiveness,” he said.

In China, the world’s largest auto market, Honda has rolled out multiple pure electric vehicle models, but market performance has not been satisfactory. Last year, its pure electric vehicle models sold only 17,000 units. This figure accounts for just 2.5% of its roughly 677,000 units total sales in China for the full year. Even when looking at the global EV market, this volume is only one-fifth of Honda’s global EV sales.

Where Will Honda’s Electrification Path Go?

Honda claims that it is now shifting the strategic focus to the U.S. hybrid vehicle market, while also actively seeking to strengthen its product lineup in India and improve cost competitiveness, hoping to achieve expansion in the Indian market by this means. However, amid the backdrop of an intense and abnormal global technological race, this move of returning to its own traditional advantage areas is also viewed by the outside world as a painful and helpless compromise.

The analysts also pointed out that Honda’s electric vehicle joint venture with Sony Group ) SONY.US ( could bring additional risks. Currently, Sony Honda Mobility is fully developing the Afeela sedan.

On Thursday, Honda said that it is holding in-depth discussions regarding the future direction of this joint venture, but as of now, it has not made any substantive decisions.

Honda’s situation is not unique; it is a snapshot of the current “winter of EV electrification” across the global auto industry. Recently, traditional giants such as ) Stellantis ( STLA.US ), ( Ford ) F.US (, and ) General Motors GM.US have also recorded massive write-downs ranging from billions to hundreds of billions of dollars due to setbacks in their EV strategies, reflecting the widespread anxiety among traditional automakers facing policy swings, high costs, and competition from China’s emerging brands.

For Honda, how to balance the “Afeela” project with Sony, and how to rebuild its pure EV competitiveness while maintaining hybrid profits, will be key to whether it can emerge from the shadow of its finances and avoid being marginalized in the future automotive industry landscape.