The Japanese automaker Honda Motor Co Ltd. (TYO:7267) has revealed that they are going to open a new plant in China, making it their third automobile production facility in the country. For this, the company is going to make an investment of $436 million or 3 billion Yuan through their joint venture with the Dongfeng Motor Group (HKG:0489).
This confirms an earlier report carried by Reuters where it was mentioned that Honda might start a new factory by 2019, upping their production capacity by another 120,000 vehicles, as the present factories are working in full capacity.
Honda Motor Doing Well in China
Honda’s decision is a logical one, as the demand for their vehicles has soared in China in the last couple of years, in spite of the recent economic slowdown. Honda has been making new offers in the sport-utility vehicle (SUV) segment, which is growing strongly, and these measures have been working for the business. For instance, in the first 11 months of the year, their sales have gone up by an impressive 28.3 percent.
It was necessary for Honda to start a new factory because production at the existing Dongfeng Honda venture is close to its capacity limits. The annual production capacity here is 480,000. Currently, the factory is selling 450,000 vehicles, which is sure to go up because of the high demand for Honda (TYO:7267) vehicles.
Production to Begin in 2019
The new plant will now allow the business to produce more cars and push the sales even further, which is good news for their investors.
The Dongfeng Honda plant is going to be located 8 kilometers southeast of Honda’s first plant in the country at the Wuhan Economic & Technological Development District. It will be built on a 1.2 million-square-meter plot but is likely to become operational only in the first half of 2019.
Honda also revealed that they would be able to make new energy automobiles in this plant, which is the Chinese term for plug-in hybrid or battery electric cars. Demand for these vehicles is expected to go up substantially in China and East Asia.
Takahiro Hachigo, Honda’s President, CEO, and Representative Director said, “Honda sales in China is going strong and annual unit sales for 2016 is expected to reach 1.2 million units. The Chinese market has potential for further development and growth”. We will introduce attractive products with leading-edge technologies, he added.