Layoffs, and then what?

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In today's era of electrification and intelligence sweeping the globe, independent automakers are gradually emerging, while joint venture automakers face increasingly daunting challenges. Even Dongfeng Honda, which has been deeply rooted in the Chinese automotive market for over two decades, has recently sparked a wave of "resignations."

Recently, news of Dongfeng Honda's large-scale layoffs and the official shutdown of its second factory in Wuhan has been circulating widely online, with the number of layoffs reaching over 2,000 employees. However, unlike many companies that eagerly await employees' departures, it is rumored that Dongfeng Honda held a grand farewell ceremony to thank employees for their years of dedication and provided generous severance packages, with compensation for ordinary employees amounting to approximately 300,000 yuan and millions for senior executives.

Dongfeng Honda's layoffs reflect the immense pressure it faces in transitioning to new energy sources. Changes in the market environment, diversifying consumer demands, and the rise of independent new energy technologies pose new challenges to Dongfeng Honda's business strategies and product layouts.

Currently, Dongfeng Honda faces the dilemma of declining sales of fuel-powered vehicles and stagnant growth in pure electric vehicles, resulting in a continuous weakening of its market competitiveness. Through these large-scale layoffs, Dongfeng Honda can further optimize its human resources and reduce operating costs. However, the question remains: with the significant changes in China's automotive market environment, can Dongfeng Honda successfully stage a comeback?

Hidden Risks Long Ago Buried

During the era of fuel-powered vehicles, Dongfeng Honda's outstanding performance was evident to all. The CR-V, which entered the Chinese market in 2004, gained widespread consumer recognition for its practical large space and excellent fuel economy, achieving the milestone of 1 million units sold in just eight years. Similarly, the Civic also delivered monthly sales exceeding 20,000 units for consecutive months after its launch.

Due to the overwhelming popularity of the CR-V and Civic, Dongfeng Honda's 4S stores proudly displayed slogans that envied many other automakers: "Don't ask if there are discounts, ask if there are cars first." In Dongfeng Honda's various 4S stores, it was common for customers to experience difficulties in picking up their cars and having to pay extra for them. As a result, many people labeled the CR-V and Civic as "legendary cars" at the time.

Under the glow of the CR-V and Civic, the later-entering XR-V also achieved high sales, frequently ranking among the top sellers of small SUVs. Meanwhile, the Odyssey also had a significant influence in the MPV market. The strong sales of these models contributed to Dongfeng Honda's continuous market growth, with annual sales reaching 727,000 units in 2017. Even in 2020, amid the pandemic, Dongfeng Honda's annual sales exceeded 820,000 units, highlighting the high market recognition of its models.

However, after 2020, Dongfeng Honda's performance began to decline steadily, with annual sales returning to levels seen six or seven years ago. In 2023, sales totaled just over 600,000 units, with the CR-V and Civic accounting for a combined 390,000 units. In 2024, Dongfeng Honda's market performance further declined.

The continuous decline in brand sales may stem from various "gates" related to Dongfeng Honda's models, such as oil consumption issues, stalling problems, and brake failures, which have disappointed Chinese consumers. It may also be attributed to the rise of Chinese brands, which have encroached on Dongfeng Honda's market space. Nevertheless, it is undeniable that there are significant strategic shortcomings within Dongfeng Honda itself.

For many years, Dongfeng Honda has heavily relied on the CR-V and Civic models, Bury deep hidden dangers for the brand's development. Once these two models face intense competition and consumer trust erodes due to various "gates," Dongfeng Honda becomes more vulnerable to losing its core sales support.

Moreover, Dongfeng Honda's reliance on old fuel-powered models can hinder its determination to transition to electric vehicles. Over time, Dongfeng Honda risks falling into an awkward situation where fuel-powered vehicles sell poorly, and pure electric vehicles remain unclear and uncompetitive.

As we all witnessed, facing the encirclement of competitors, Dongfeng Honda had no choice but to resort to drastic measures for survival. After Honda announced its production reduction plan earlier, it clearly stated that Dongfeng Honda would shut down its second production line with an annual capacity of 240,000 units in November 2024. Now, large-scale layoffs have ensued. The series of "performance miracles" created by Dongfeng Honda have become a thing of the past.

Honda's Misplaced Bet

It's not just Dongfeng Honda facing difficulties; Guangzhou Honda is also struggling, with layoffs and production cuts. The underlying reason lies in Honda's overly conservative approach to the electrification transition, which has left it lagging behind the wave of electric vehicle adoption. The electric vehicles it has produced lack appeal, resulting in significant year-on-year sales declines.

Recently, Honda China announced its August sales figures, reporting 56,959 vehicle sales at dealerships, a year-on-year decrease of 44.29%. However, this is not the only challenge. Since February 2024, Honda China's sales have consistently declined by double digits year-on-year, leading to cumulative sales of only 525,432 vehicles from January to August, a year-on-year decrease of 27.19%. The primary reasons behind this are the difficulty in selling fuel-powered vehicles and the lack of traction for electric vehicles.

Honda has long been aware of the need for automotive electrification. As early as 2017, Honda's former CEO Takahiro Hachigo outlined the "Vision 2030," aiming to have hybrids, plug-in hybrids, battery electric vehicles (BEVs), and fuel cell vehicles account for two-thirds of its global sales by 2030.

However, in 2017, Dongfeng Honda's fuel-powered vehicles and HEV models were still in high demand, while the market for pure electric vehicles was far smaller. Facing the new automotive trend, Takahiro Hachigo prioritized plug-in hybrid models, arguing that electric vehicles would not become mainstream in the short term, and hybrids would remain a crucial direction for Honda. This strategy caused Dongfeng Honda to miss the early opportunity in the electric vehicle era.

Realizing its misplaced bet, Honda's new CEO Toshihiro Mibe took office in 2021 with the primary task of accelerating the company's electrification transition. Honda formulated a clear plan for electric vehicle development, including the launch of ten electric models within five years, 30 global electric models by 2030, and a sales ratio of 100% electric and hydrogen fuel cell vehicles by 2040, with the goal of achieving carbon neutrality by 2050.

In the same year, Honda introduced its pure electric brand e:N to the Chinese market, assigning the e:NS1 model to Dongfeng Honda. As Dongfeng Honda's first pure electric vehicle, the e:NS1 entered the market in 2022. However, essentially a modified version of the XR-V, the e:NS1 has failed to make a significant impact on the market amidst competition from independent new energy vehicles. To date, it has not reversed Dongfeng Honda's declining sales trend.

Subsequently, Dongfeng Honda introduced its second pure electric model, the Lieguang e:NS2. Although its marketing approach differed from previous Dongfeng Honda strategies, tying its promotion to the Ultraman franchise in an attempt to evoke nostalgia, consumers did not respond positively. Since its June launch, the Lieguang e:NS2 has sold fewer than 1,000 units, with only 209 units sold in July. Other new energy vehicles also performed poorly, with the NS1, M-NV, and CR-V PHEV models collectively selling just over 17,000 units last year.

Dongfeng Honda now finds itself in a dilemma, with declining fuel-powered vehicle sales and no competitive pure electric models. Finding a way forward through change is crucial for the company.

Aggressive Electrification Strategy

Faced with declining sales, Dongfeng Honda is determined to make changes, proclaiming a comprehensive electrification strategy, aiming for an electrification ratio of over 50% by 2025 and no new fuel-powered vehicle launches after 2027. To this end, Dongfeng Honda has launched its new pure electric "Lingxi" brand, employing a young team and building the Lingxi L model on a new platform, attempting to shed the image of the e:NS1 as a modified fuel-powered vehicle.

The Lingxi brand represents Dongfeng Honda's rebirth and transformation, carrying its vision for a new energy transition and symbolizing its determination to become a mainstream player in the pure electric vehicle sector. High hopes are pinned on this brand.

However, in the view of Electrek, while the new platform may endow the Lingxi L with innovative design and superior quality, leading Dongfeng Honda to achieve a pure electric vehicle sales ratio exceeding 50% is unrealistic.

As mentioned above, Dongfeng Honda's current electric vehicle offerings have not received an ideal market response, with fuel-powered vehicles still driving sales. Moreover, independent new energy vehicles are aggressively expanding, offering superior product capabilities and competitive pricing that undermine joint venture new energy vehicles. Under these circumstances, it will be extremely challenging for Dongfeng Honda to increase its electric vehicle sales to half of its total sales by 2025. Dongfeng Honda's comprehensive electrification strategy appears overly aggressive.

Apart from the Lingxi L, Dongfeng Honda will also introduce a heavyweight pure electric vehicle, the Ye S7, under Honda China's new electric brand "Ye." Setting aside questions about potential conflicts or competition between the "Ye" and "Lingxi" brands, Electrek emphasizes that it will not be easy for the Ye S7 to enhance Dongfeng Honda's competitiveness in the pure electric vehicle sector.

Since Honda announced the "Ye" brand, market feedback has been underwhelming. Some consumers have jokingly referred to the name "Ye" as an unlucky word, phonetically similar to "huahua" (cremation), evoking associations with self-ignition.

Once a brand or vehicle elicits unlucky associations, it becomes difficult to gain consumer acceptance. The Ideal MEGA is a prime example of this phenomenon.

Of course, whether "Ye" is lucky or not is a subjective opinion. Nevertheless, from an objective market perspective, both the Lingxi L and Ye S7 face significant challenges in gaining consumer recognition. Consumers' preferences have evolved significantly.

In the past, consumers often prioritized the prestige of joint venture brands when purchasing vehicles. However, younger buyers now prioritize features like refrigerators, televisions, and spacious interiors. They seek advanced and abundant functionalities that enhance the driving experience. Therefore, if Dongfeng Honda's pure electric vehicles cannot match or surpass independent new energy vehicles in terms of product configurations and pricing, it will be impractical for them to successfully capture market share from these competitors.

Earlier, Pan Jianxin, Executive Vice President of Dongfeng Honda, stated that under the current market environment, Dongfeng Honda's primary concern is not what competitors are doing but rather delving into its own brand and understanding where its potential customer base is shifting. Dongfeng Honda hopes its new products can resonate with and captivate consumers.

However, judging from Dongfeng Honda's current market performance, it appears that the company still lacks the necessary insight into its customers. The first half of the new energy vehicle competition, focusing on electrification, has concluded. The second half will revolve around intelligence, lidar, end-to-end large models, and nationwide autonomous driving without high-definition maps. Nevertheless, Dongfeng Honda remains mired in the electrification transition phase, raising questions about how it can compete on the same playing field as independent brands.

Another point worth noting is that Dongfeng Honda has long been renowned for its engine technology. As the company moves away from fuel-powered vehicles and fully embraces electrification, it must consider whether its vehicle models will retain value and appeal to consumers.