Honda Beginning To Get Things Right In China

-12.84%
Downside
37.23
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Trefis
HMC: Honda Motor logo
HMC
Honda Motor

Finally, things seem to be going right for Honda Motors (NYSE:HMC) in China. Its sales in October more than tripled (year-on-year) to 75,150 units. Similarly, the automaker’s sales jumped 118.1% in September. [1] The growth rates can be a bit misleading though; Honda’s sales in the corresponding period last year were abysmally low, following the tensions that sparked off between China and Japan on claims over the disputed islands. The islands are known as Senkaku in Japan and Diaoyu in China. Overall, Honda’s sales are up 15.8% to 572,405 units through October in China.

We have a $43 price estimate for Honda Motors, which is slightly more than the current market price.

Losing Market Share

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Japanese automakers have lost a quite a bit off market share in China over the last five years. In 2008, Toyota, Honda and Nissan boasted a combined market share of 25% but the figure dropped to 15% by 2012. Following the global market crash in 2008, Japanese autos held off their expansion plans in the country and focused on cost cutting instead. [2]


The global recession however, never really affected the Chinese automotive market. In the last few years, Chinese automotive market has more than doubled to 20 million units. Western auto companies, which continued to pour in investments into China, gained market share at the expense of Japanese automakers. The situation was exacerbated by the unfortunate natural disasters in 2011, which constrained the production of Japanese companies. Things were only normalizing before tensions flared up between China and Japan and negatively impacted the sales of Japanese companies.

With the situation now stabilizing and Japanese automakers once again generating solid profits, Honda is looking to start afresh in the world’s most populous nation. The automaker feels that if it is able to offer cars tailored to the needs of the Chinese customers, it can grow its sales significantly. China is one of the biggest markets for Honda, accounting for about a sixth of its total sales.

China-Specific Models To Invigorate Product Portfolio

Honda recently opened a new R&D center in Guangzhou in order to increase the localization of its product portfolio. Honda plans to introduce a total of 12 models in China within the three years beginning from 2013. [3] Out of these, five will be developed exclusively for China. It has already introduced two Chinese specific models, namely the Crider and the Jade, this year.

In addition to Chinese specific models, Honda will also introduce the refreshed Fit in China next year. So, far the remodeled Fit has only been launched in Japan, where there has been an encouraging initial response. Honda introduced the third generation Fit during the previous quarter and received a staggering 62,000 orders within four weeks of its launch, almost four times the company’s expectations. Honda is pretty bullish about the success of its upcoming models in China and estimates the sales to double to 1.3 million units annually by 2015. [4]

See our complete analysis for Honda stock here

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Notes:
  1. Honda says Oct China auto sales up over 200 pct, November 4, 2013, reuters.com []
  2. Japanese carmakers rue lost lead in China, November 21, 2013, ft.com []
  3. Honda launches R&D centre in China to tailor cars for local drivers, November 5, 2013, reuters.com []
  4. Honda plans more R&D in China, June 16, 2013, china.cn.org []