By Wan Xulong

On July 20, Honda and GAC Group announced they will extend the joint venture agreement until 2038.

The original joint venture agreement was set to expire in 2028. Honda chose to complete the renewal two years early in 2026. Mainstream analysis in overseas financial circles believes this move aims to forcibly eliminate external uncertainty regarding the future of the joint venture.

Over the past year, rumors about GAC Honda closing backward production lines and reducing capacity have continued to ferment in the market. Overseas capital markets even once interpreted these moves as a precursor to the Japanese giant preparing for strategic withdrawal. This early-signed new agreement indeed allayed so-called concerns about "withdrawal".

This new agreement is full of realistic strategic considerations in terms of duration and equity ratio.

Honda abandoned the grand narrative of a 30-year timeline when the factory was built in 1998, setting the duration conservatively at 10 years. In today's world where smart EV technology iterates rapidly, predicting the industry end-game 30 years later is meaningless. 10 years just covers the reshuffling period for the complete transition from traditional fuel vehicles to new energy.

The Chinese market has long passed the simple profit center stage, evolving into the world's most efficient smart driving testing ground and the source of 3-electric technology. Honda is actually bearing the pain of eliminating backward capacity over 10 years, relying on China's massive supply chain to complete the reconstruction of underlying technology. This is the winning hand for its survival in the new energy era.

On the other hand, the new agreement maintains the 50-50 equal equity ratio. Against the background of the comprehensive opening of joint venture equity ratios, cross-border car companies generally seek absolute control to gain more profits. Honda chose to stand still on equity, obviously having completely different ideas.

The internal combustion engine technology barrier and old system of the fuel vehicle era have become like rotting wood. Facing the brand-new electrification underlying architecture, Honda urgently needs to rely on China's extremely competitive smart driving algorithms and 3-electric supply chain system. Maintaining an equal equity ratio represents a new balancing contract exchanged for technology empowerment after the Chinese local automotive industry explodes comprehensively in core technology fields. This renewal that seems to stabilize the army's morale actually also represents the end of the era of one-way technology input. In the future, the "Joint Venture 2.0" model, where the Chinese side leads the new energy architecture while the foreign side handles brand quality control, will truly determine the future of joint venture car companies.

The Flip of the Underlying Model

In the window period created by this new 10-year contract, GAC Honda needs to undergo a painful and thorough transformation. It is transforming from a pure manufacturing execution unit in Honda's global strategy into a co-creation R&D center highly dependent on Chinese local technology empowerment.

In 1999, GAC Honda introduced the sixth-generation Accord into the Chinese market simultaneously, breaking the price monopoly of imported luxury sedans all at once. For the following 20-plus years, GAC Honda surged ahead. Many heavy-hitting products like Fit, Odyssey, Crider, and Vezel were launched consecutively, finally creating a historical peak of 808,900 annual sales units in 2020.

Supporting this premium and sales volume was Honda's advantage in internal combustion engine and vehicle engineering dimensions, which had a very high match with the domestic market at that time. These technologies not only won sales volume but also established industry standards in the Chinese market for 20 years.

In the powertrain field, Honda was jokingly referred to by the folk as "buying engines and getting a car for free". From VTEC to later i-VTEC technology, then to the Earth Dreams Technology series engines of the turbocharging and hybrid era, relying on efficient combustion technology, it achieved extremely low fuel consumption while outputting surging power. The i-MMD dual-motor hybrid system even directly raised the technology threshold of the entire Chinese hybrid market with over 40% thermal efficiency. In that stage, Honda's engine parameters were the industry benchmark that Chinese local car companies had to catch up in power R&D.

In terms of mechanical space utilization, Honda's concept of maximizing space for human seating and minimizing space occupied by machinery also profoundly reshaped China's family car market. Chinese consumers have an extreme craving for interior space. Relying on extremely exquisite chassis suspension layout and space excavation, small cars like Fit have the most outstanding seating experience among products in the same class, while Odyssey directly created the golden space standard for Chinese family MPVs. This class-skipping space performance forced all car brands attempting to enter the Chinese market to make space optimization the first priority of car building.

But now, the mechanical moat proud of the fuel vehicle era has quickly lost its protective efficiency before the 3-electric system and high-level smart driving. Facing the extremely strict iteration rhythm of the Chinese market, the foreign party finally realized that a global platform made behind closed doors cannot survive at all.

The direction of technology empowerment has undergone a historical reversal. For example, in GAC Honda's current new energy technology spectrum, the underlying Architecture W architecture has completely opened up to Chinese local supply chains. Battery packs directly adopted CATL's ternary lithium batteries, intelligent cockpits integrated iFlytek and Huawei's technical ecosystems, and high-level smart driving systems started to extend olive branches to local algorithm companies like Momenta.

Perhaps you might wonder, this migration of technological focus is already old news for many joint venture brands a few years ago, why did GAC Honda, which had deep insights into the Chinese market for more than 20 years before and produced many best-selling models fitting domestic consumer needs, seem to turn slowly? The core reason is that a set of old supply chain systems, the constraints are far beyond our understanding.

Shattering the Keiretsu System

The flip of the underlying model is accompanied by a sense of violent tearing. GAC Honda's terminal sales volume in the first half of this year encountered a severe decline of over 50 percent. Reuters and Nikkei pointed out in recent reports that this is by no means a simple macroeconomic cycle fluctuation; an irreversible structural collapse is truly happening on Japanese joint venture brands. The appearance of this collapse is the excess of backward capacity, its core originates from the complete failure of the old supply chain system.

In the past few decades, Honda, or rather the Japanese automotive industry, has been invincible worldwide. At the supply chain level, the core winning hand is a closed system known as Keiretsu.

This system is centrally scheduled by the OEM, and component enterprises at various levels form a community of interest through cross-shareholding. Inside Honda, Keihin focuses on engine control, Showa focuses on chassis suspension, and Nissin Industrial focuses on braking systems. These three core suppliers constitute Honda's unique component "Three Families".

The most significant feature of the Keiretsu model is the Design-in joint development mechanism where guest engineers enter the OEM R&D center years in advance. This highly bonded software and hardware development mode compressed component manufacturing costs to the extreme and ensured one-million-level physical quality control consistency with strict internal collaboration. Honda's ability to conquer the global market with extremely high reliability relied entirely on this solid wall built by the "Three Families".

In the Chinese market, this model was perfectly replicated by GAC Honda. In the initial stage of factory building, Honda introduced all Japanese component giants within the system to Guangzhou Huangpu, forming a closed procurement ecology that water cannot penetrate. Chinese suppliers found it extremely difficult to penetrate this solidified component list. This highly closed collaborative development mechanism once helped GAC Honda quickly align with global manufacturing standards and established a ruling market position in the following 20 years.

Entering the era of smart electric vehicles, this method showed systemic rigidity and sluggishness.

The Keiretsu model is built on the incremental improvement of internal combustion engines and mechanical hardware, its core is the highly integrated mechanical calibration of software and hardware. Smart electric vehicles require software and hardware decoupling and centralized computing architecture. Facing the leap of battery chemical materials and the explosion of smart driving algorithms, Japanese component giants cannot incubate 3-electric technology with global competitiveness at all.

The more fatal contradiction lies in the mismatch of development rhythm. Japanese traditional supply chains are used to completing a durability closed-loop verification process lasting 36 to 48 months to ensure absolute component reliability. The technical half-life of the Chinese new energy market has shortened to less than one year. Chinese local car companies use open supply chains to compress vehicle development cycles to 18 to 24 months. Facing the Chinese market where code upgrades are promoted every month, the long verification process has become shackles binding Japanese car companies.

Even if Honda tried to save itself at the cross-border level, merging Keihin, Showa, Nissin Industrial and Hitachi Automotive Systems into Hitachi Astemo, and planning to increase its shareholding to 61% this year to unify command resources and aggressively attack AI and software development. This slow speed of internal integration still cannot keep up with the iteration rhythm of China's local.

To survive, GAC Honda must personally smash this closed high wall built by Japanese suppliers.

Facing the crazy drop in sales and the dissolution of the fuel vehicle base, GAC Honda is undergoing a cruel capacity clearing and supply chain breakthrough. While gradually shutting down some old fuel vehicle production lines in Guangzhou, the brand new new energy exclusive factory located in Guangzhou Huangpu with an initial annual capacity of 120,000 vehicles is in the key period of capacity ramp-up. Using high new heavy assets to replace old assets that could originally sustain blood creation, this alternation of breaking and establishing consumes enterprise cash flow extremely.

Conducted synchronously with capacity clearing is the complete liberation of procurement power.

On the next brand new EV models, GAC Honda decisively bypassed the traditional Japanese supply chain and deeply integrated Chinese local top technology enterprises into its own R&D system. The vehicle's core power battery pack directly switched to CATL's mature solution. The intelligent cockpit underlying level fully integrated iFlytek and Huawei's technology ecosystem. High-level smart driving algorithms directly adopted the end-to-end large model provided by Chinese startup company Chudu.

Completely smashing the interest fortress of the Keiretsu system and integrating China's top local 3-electric and smart driving enterprises into its own underlying architecture is the only path for GAC Honda to adapt to the cruel evolutionary rhythm of the Chinese market. Joint venture car companies are exactly in this pain of breaking old and establishing new, searching for the possibility of regaining vitality.

Staying in the Cruellest Gym

Honda chose to complete the renewal at this node in time, essentially forcing itself to stay in the world's cruelest business gym. In this market, the response speed of smart cockpits, the generalization ability of high-level smart driving, and the thermal efficiency of power batteries are repeatedly subjected to extreme pressure by hundreds of local car companies and tens of millions of consumers every day. This high-intensity competitive environment is an industrial ecosystem that any cross-border car company cannot replicate in its local market or European and American bases.

If choosing to strategically withdraw or contract the battle lines at this time, Honda can indeed protect the short-term financial report, but it will completely lose the antenna to perceive the world's most advanced smart electrification trends. Once leaving this super technology incubator China, Honda's R&D system will quickly degenerate in the following three to five years, becoming an island completely cut off from the global top 3-electric and software supply chains.

Staying at the table, it is not only about market share in China but also about Honda's defense capability at the global level.

The strong overseas expansion of China's local new energy vehicles has been fully opened. In Southeast Asia, Middle East, and South America, etc., which are advantage markets traditionally firmly controlled by Japanese car companies, Chinese car brands are launching fierce attacks carrying high-dimensional product power polished by extreme internal competition. Honda's profit highlands in Thailand, Indonesia and other places are facing unprecedented pressure.

In order to resist this dimensionality reduction strike on the global battlefield, Honda must cultivate product R&D capabilities on the Chinese local that can confront Chinese brands head-on. This is exactly the core strategic value of the reverse joint venture model.

GAC Honda and other joint venture enterprises are undertaking an extremely critical technology feedback role. Honda deeply integrates CATL batteries, Huawei ecosystems, and local startup smart driving algorithms within the Chinese joint venture system, not just to build a few cars suited to Chinese consumer tastes. Its true intention is to use the Chinese underlying technology architecture to quickly iterate a set of new energy solutions with global competitiveness.

Recent rare alliances between Honda and Nissan in electrification and intelligence dimensions also confirm the spread of this global defense anxiety. Facing the technology sprint of Chinese car companies, Japanese giants have given up the illusion of fighting alone. GAC Honda plays a key hub role in connecting China's top supply chains and Japanese global manufacturing systems within this huge defense network.

The Chinese market is reshaping Honda's technology base. GAC Honda's 10-year renewal agreement completely ends the one-way narrative of exchanging foreign technology for the Chinese market. Joint venture car companies are transforming into core pipelines for cross-border giants to draw nutrients from China's advanced industrial chains. This life-or-death self-revolution will ultimately decide whether Honda can hold a place in the future global smart car landscape.