Honda Cuts EV Funding to Boost Hybrid Development, Are Automakers Losing Faith in Electric?

Honda Motor announced on Tuesday that it will reduce its investment in electric vehicles (EVs) due to slowing demand and relaxed environmental regulations in key overseas markets, shifting its focus toward hybrid vehicles instead. The Japanese automaker also revealed plans to launch a new lineup of hybrid models.

Honda has abandoned its previous goal of having EVs account for 30% of total sales by 2030. CEO Toshihiro Mibe stated at a press conference: "It's really hard to read the market, but at the moment we see EVs accounting for about a fifth by then." However, he clarified that EV investments are not being canceled but delayed.

Notably, Honda has cut its electrification and software investment plan from ¥10 trillion to ¥7 trillion (approx. $484 billion) through fiscal 2030.

The decision comes as consumer demand for hybrids grows and multiple governments ease timelines for emissions standards and EV sales targets. Honda now plans to launch 13 next-generation hybrid models globally between 2027 and 2031, responding to rising demand. Currently, the company offers over a dozen hybrid models worldwide.

Additionally, Honda will develop a new hybrid system for larger vehicles, which is expected in the latter half of this decade.

By 2030, Honda aims to sell 2.2 to 2.3 million hybrid vehicles, a massive jump from last year's 868,000 units. Meanwhile, EVs are projected to make up nearly 20% of global sales (700,000–750,000 units). For context, Honda sold 3.8 million vehicles worldwide in 2023.

Earlier this month, Honda paused plans for a CA$ 15 billion (US10.7 billion) EV plant in Ontario, Canada, citing slowing demand. The suspension is expected to last about two years. However, Honda reaffirmed its 2040 goal of making all new vehicles either battery-electric or fuel-cell-powered.

U.S. Tariff Impact

Last week, Honda warned that new U.S. tariffs on imported vehicles and parts- announced by former President Donald Trump- could slash its annual profits by $3 billion. However, Mibe noted that 60% of Honda's U.S. sales come from local production, shielding much of its business from tariff effects.

The U.S. is the top export market for Japanese automakers, which rely heavily on factories in Mexico and Canada to supply vehicles. However, the 25% tariff hike imposed in April has made this strategy significantly more expensive, if not unfeasible.

In addition to Honda, Nissan, Jaguar, and Land Rover have also scaled back their electric vehicle investments. Nissan has abandoned plans to build a $1.1 billion battery factory in Japan's Kyushu Island, while Jaguar Land Rover has shelved its electric vehicle production plans in India.