Honda: No Rush to Build Hybrids in China

As government subsidies and consumer interest for hybrids in China remain limited, Honda has announced it will not begin building combination gas and electric vehicles in the country for several years. Owing to price concerns and the activity of competitors in the Chinese market, Honda will hold off until cheaper local parts become availableReuters reports. It might take as long as three years.

Honda, one of Japan’s leading automakers, must navigate the green car market in China carefully. Government subsidies target the electric car market, as well as the more electric-leaning hybrids, but are not generous toward gas-heavy hybrids, nor imports of any kind.  Therefore, Honda will try to cut costs by finding more parts in China that would make production more cost-effective and allow its vehicles to qualify for subsidies.

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“Affordability is critical,” a Honda spokesperson told Reuters. That statement qualifies for both sides of the equation, as Chinese consumers are not warming to electric cars mainly because of price concerns. Government subsidies make them more affordable, yet they are still expensive when compared to fuel-efficient gas-powered cars and hybrids. Honda’s move may be a response to Toyota’s (NYSE:TM) announcement it would begin sourcing hybrid parts in China to keep prices low.

Because China’s national car makers haven’t taken off like Toyota or GM (NYSE:GM), the government has allowed the world’s biggest automakers to produce vehicles in the country through deals made with Chinese companies. Though the foreign brands still take home the lion’s share of profits, the local companies earn significant revenue from production partnerships in the world’s largest auto market.

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Government subsidies are expected to target hybrids as well as the mainly electric cars on the road when Beijing announces its new policy soon (the last one expired at the end of 2012). In the meantime, foreign brands like Honda recognize they will have to produce affordable hybrids or risk getting damaged in the segment. Honda is acknowledging it is not ready to deliver a product at an affordable price, but it should have a solution by the time the green car market in China starts growing for real.

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