GUANGZHOU -- Honda Motor will set up a vehicle assembly plant in inland China with an eye toward starting operations in the spring of 2019, betting on the medium- to long-term growth prospects of the world's largest automobile market.
Construction is slated to begin as early as this year on the facility in Wuhan, Hubei Province. Investment is estimated at tens of billions of yen, or hundreds of millions of dollars. The plant will raise the automaker's Chinese output capacity in vehicles for local sale by about 20%.
Honda had canceled factory construction plans in China last fall as many Japanese companies downsized operations after the summer stock market plunge slammed the brakes on an already-slowing economy. Now, in view of the market recovery, Honda is ready to expand capacity again.
The new plant will start out with a capacity of 120,000 units a year. This will gradually increase to 240,000 units in line with demand. Honda's annual capacity in China, excluding facilities dedicated to exports, will accordingly rise from the current 1.08 million units to a little over 1.3 million.
Honda has a Japanese production capacity of about 1 million units. The expansion in China makes clear the automaker's increased focus on that market, along with the U.S.
A tax break introduced in October 2015 effectively lops $1,000 of the purchase price of passenger vehicles with engines of up to 1.6 liters. New-auto sales in China rose 13% on the year for the January-September period to 19.36 million units -- four times the Japanese market's annual tally.
Honda's sales jumped 26% over the period, and its September sales soared 47%, helped by competitively priced new offerings including small sport utility vehicles.
Other Japanese automakers are also riding the tailwind. Nissan Motor is stepping up product releases, and Toyota Motor is working to set up new production facilities soon in Guangzhou, Guangdong Province. The Japanese are chasing such market leaders as General Motors and Volkswagen.
Honda already has three large auto assembly plants in Guangzhou and two in Wuhan, all of them joint ventures, churning out vehicles for the local market. Chinese authorities are in the final stages of screening the new-plant project. A Honda joint venture with local automaker Dongfeng Motor Group will begin construction as soon as they give the go-ahead.
Honda has basically frozen construction of new plants in Japan and Europe, where it already has excess capacity. The U.S. auto market, the second-largest in the world, saw sales decline for a second straight month this September. Sales in Japan, the No. 3 market, dipped 1% for the April-September period. But the Chinese market is seen expanding to 30 million units a year -- six times the size of the Japanese market -- between 2018 and 2019.