Honda to close Japan plant amid refocus on EVs

UPDATED: 10/4/17 9:43 am ET — adds details, background

TOKYO — Honda is taking the rare step of shuttering a Japanese assembly plant as it rearranges its domestic factory footprint to shift manufacturing know-how toward electrified cars.

In closing its aging Sayama assembly plant, Honda will consolidate operations around the nearby Yorii plant, one of the automaker’s newest. Work at Sayama will wind down by March 31, 2022, and its workers will be transferred to Yorii and other plants, the Japanese company said Wednesday.

Yorii, which opened in 2013, will be positioned as a worldwide center for developing cutting-edge manufacturing technologies as well as techniques for producing electrified vehicles.

Both plants operate in the Saitama prefecture just north of Tokyo.

The move tackles two issues for Honda: overcapacity at Japanese factories and a need to crank out more electrified vehicles amid more stringent emissions standards. Honda will dramatically improve factory utilization rates in Japan by closing Sayama. And it will move closer to its goal of getting two-thirds of global sales from electrified vehicles by 2030.

“Honda will largely evolve its production operations and product development,” CEO Takahiro Hachigo said at a news conference outlining the plans. “The automobile industry is undergoing an unprecedented and significant turning point in history. That’s why Honda is undertaking new technologies such as electrification and intelligence technologies.”

Bloated capacity

Closing an assembly plant is a rare occurrence in Japan, where the government pressures companies to preserve jobs and maintain a deep manufacturing foothold. Bigger rivals Toyota Motor Corp. and Nissan Motor Co. are among the most vocal in trying to buoy Japanese output.

Hachigo said consolidating to Yorii and shuttering Sayama, which opened in 1964, would require new investments and outlays, but he said it was too early to estimate a cost.

“We need to increase manufacturing power here in Japan to increase global production efficiency,” Hachigo said. “Due to changes in the market situation, we weren’t able to grow domestic sales as much as anticipated, and we are in a situation where we cannot grow exports.”

Together, the Sayama and Yorii plants account for 500,000 vehicles of annual capacity, or about half of Japan’s total production capacity of 1.06 million vehicles.

Yet Honda’s operations here are churning out well below that level.

Honda aims to slash Japan’s domestic production capacity to around 810,000 vehicles by closing the Sayama plant while keeping overall output levels roughly the same.

By 2022, about 700,000 vehicles will be sold locally, with about 100,000 being exported. That will boost Japan’s utilization rate closer to 100 percent from around 76 percent today.

Globally, Honda fares much better, with average plant utilization around 94 percent.

Honda’s domestic output has shrunk as overseas output gallops ahead.

Honda made 992,502 vehicles in Japan in 2010, but that declined to 820,0226 last year. Overseas production skyrocketed from 2.7 million in 2010 to 4.2 million in 2016. Over that period, exports from Japan tumbled from 305,412 vehicles to just 147,185.

EV push

In the meantime, Honda has shifted its focus to electric vehicles.

“Japan needs to take a leading position in manufacturing, including in vehicle electrification,” said Hachigo. “We will consider how to apply these processes to other plants globally.”

Yorii will be positioned as a global center for electrified vehicle production. It will serve as a template for overseas manufacturing as Honda launches more hybrids and EVs overseas.

A longtime EV skeptic, Honda announced in June that it had established an Electric Vehicle Development Division to create EVs based on dedicated all-electric platforms. That is a departure from Honda’s current stance.

To date, Japan’s third-largest carmaker mostly has dabbled with small-volume cars for regulatory compliance while rivals such as Nissan rolled out mass-market nameplates, and others, such as Ford and Volkswagen, announced big plans for electrification across their lineups.

Toyota Motor Corp., another EV latecomer, joined the bandwagon last year with its own EV development division. And last week, it announced plans for a joint venture with Mazda Motor Corp. and supplier Denso Corp. to create an electric architecture.

Recent concept vehicles show what Honda has planned.

At the Frankfurt auto show last month, the company debuted its hatchback-style Urban EV Concept that previews a compact city runabout planned for sale in Europe in 2019.

At the Tokyo show later this month, Honda will unveil the Sports EV Concept, a small, rear-slung performance EV based off the same platform.

Honda also is developing an electric car for release in China next year.

Tale of two plants

Honda opened its cutting-edge Yorii factory in 2013 with capacity for 250,000 vehicles.

It makes the Vezel, known overseas as the HR-V subcompact crossover, as well as the Fit subcompact hatchback and derivatives including the Grace sedan and Shuttle wagon.

Yorii also makes the Civic for the domestic market.

Honda unveiled plans to build Yorii in 2006, and the plant was supposed to be churning out cars by 2010. But the global financial crisis upended that plan.

Construction started in 2007. Then the project was delayed twice as the economy fell apart and the rising yen challenged the wisdom of building a factory in high-cost Japan.

Former Honda President Takanobu Ito resurrected the project in 2010.

Yorii’s lines boast some of the latest production methods, with the company positioning it as a kind of petri dish for pioneering new manufacturing technologies.

At the opening of the Yorii plant, Honda said its more efficient manufacturing technologies slashed 30 percent off assembly costs, compared with the older Sayama plant.

Sayama, which has capacity for 250,000 vehicles a year, focuses on larger vehicles such as the Odyssey minivan, Accord Hybrid sedan, Jade wagon, Freed minivan and the Acura RLX.

Sayama’s vehicles will be shifted to Yorii or Honda’s Suzuka assembly plant in central Japan.

As part of the production shuffle, Honda will take full ownership of its minicar subsidiary Yachiyo Industry Co. It makes the sporty S660 minicar alongside commercial minivehicles.

Naoto Okamura contributed to this report.