Honda finds itself at a crossroads. With U.S. tariffs eating into profits and electric vehicle demand cooling faster than expected, the Japanese automaker is making some bold moves that will shape its lineup for years to come. The company is doubling down on hybrids, shifting production away from Mexico, and scaling back its ambitious EV timeline.

• Honda plans to launch 13 next-generation hybrid models globally over a four-year span starting in 2027, targeting 2.2 million hybrid vehicle sales by 2030.
• The automaker anticipates a $4.4 billion reduction in operating profit for the fiscal year ending March 2026, primarily due to 25% U.S. tariffs on vehicles imported from Canada and Mexico.
• Honda is adjusting production strategies, planning to produce the next-generation Civic in Indiana and intending to increase U.S. production by 30% over the next few years.

The Tariff Problem Hits Hard

Honda Motor Co. is expecting a Â¥450 billion ($3 billion) hit to its full-year profit as it braces for the fallout of U.S. President Donald Trump’s auto tariffs, joining rivals reeling from the trade war. The Japanese automaker expects its annual operating profit to plummet 59% to Â¥500 billion in the fiscal year ending March 2026, down from Â¥1.2 trillion in the previous year.

Honda itself builds roughly 200,000 vehicles in Mexico annually, 80% of which are sold in the U.S. About two-fifths of the 1.4 million Honda vehicles sold in the U.S. last year were imported from Mexico and Canada. That’s a lot of exposure to tariffs.

CEO Toshihiro Mibe said that Honda’s strength lies in its U.S. production, which accounts for 60% of all cars it sells in the U.S. market. But that still leaves a large chunk vulnerable to import duties. The manufacturer intends to increase U.S. production by 30% over the next few years to reach a target of 90% of U.S. sales produced domestically.

Moving the Civic Back to Indiana

Honda will not be building its next-generation Civic hybrid in Mexico as originally planned. Sources say the Japanese automaker was influenced by the threat of tariffs and has decided to manufacture the Civic in the U.S. state of Indiana.

“The Honda Civic has been made in our Indiana auto plant since the facility opened in 2008 based on our long-standing approach to build products close to the customer. We have the flexibility to produce products in each region based on customer needs and market conditions.”

The Civic was the 10th bestselling vehicle in the U.S. in 2024, with shoppers buying more than 242,000 vehicles, a 21% increase over the prior year. The Civic is the bestselling compact car in the country. Moving production stateside for such a popular model makes good business sense when facing 25% import tariffs.

The Hybrid Pivot Takes Center Stage

While EVs grab headlines, hybrids are becoming Honda’s bread and butter. With changes in environmental regulations and the prospect that the electrified vehicle market will slow down, Honda reassessed its current strategy and will shift to strengthening its hybrid lineup. Based on its next-generation e:HEV platform, Honda has set a target of selling 2.2 million hybrids by 2030.

Honda will develop a hybrid system for large-size vehicles featuring powerful driving performance, high towing capability, and high environmental performance, with plans to apply this hybrid system on products launching in the latter half of the 2020s. Think trucks and larger SUVs with hybrid power.

Honda adjusted its EV sales targets based on a current downturn in demand and a bump in the popularity of gas-electric hybrids. The company now sees hybrids accounting for 2.2 million of 3.6 million in global sales by 2030.

EV Plans Take a Back Seat

Due to the recent market slowdown, Honda’s EV sales ratio in 2030 is now expected to fall below the previously announced target of 30%. Honda is reassessing its EV strategy and roadmap, including plans for the EV product lineup and the timing of investments to build an EV value chain in Canada.

As for its previously announced plan to invest 10 trillion yen in electrification, Honda decided to reduce the investment amount by 3 trillion yen, to a total of 7 trillion yen, through fiscal year 2031. This reflects the postponement of the Canadian EV project and changes to dedicated EV production plant timelines.

The Honda 0 Series EVs aren’t cancelled, though. In 2026, Honda will introduce a production model of the Saloon concept in North America, followed by model introductions in Japan, Asia, Europe, Africa, the Middle East, and South America.

Building Flexibility Into the System

During the early adoption period, where fluctuations in the speed of EV popularity are expected, Honda will establish a flexible production system capable of optimizing production according to demand. This will be achieved mainly with mixed-model production lines capable of producing both EVs and hybrids.

The Honda EV Hub being established in Ohio will focus on human-friendly and environmentally responsible manufacturing. By retooling existing auto plants and constructing a new joint venture EV battery production facility, the Honda EV Hub will create flexibility to produce petrol, hybrid-electric, and battery electric vehicles on the same manufacturing line.

Is This Strategy Right for the Times?

Honda’s pivot makes sense given current market conditions. Hybrids offer immediate fuel savings without the range anxiety or charging infrastructure concerns that still slow EV adoption. The company can still offer electrified options while the EV market matures and tariff situations potentially evolve.

Honda could be more resilient to tariffs than other automakers, since roughly 60% of the parts used in vehicle production in the U.S. use local content. Honda vehicles have the second highest amount of local parts content behind Ford. That built-in advantage gives the automaker some breathing room as it works through an unpredictable trade environment.