Honda, fresh off a U-turn on electric vehicles due to a tougher North American market, is wrestling with slumping sales in India -- a "focus country" for the company amid the nation's robust growth in overall auto sales -- due to its limited product lineup.
The Japanese company launched in India three decades ago, but sporadic product launches have reduced it to a fringe player. Honda, which sells two sedans and a sports utility vehicle in India, saw sales fall 9.2% last year to 62,576 units, while market share shrunk to 1.4%.
But with competition from Chinese carmakers intensifying, global brands including Honda are looking to ramp up their fledgling businesses in India, the world's third largest automobile market, which has kept Chinese companies at bay with stringent investment policies.
Honda said last week that it will "enhance the model lineup and cost competitiveness in India, where market expansion is expected," despite potentially incurring $15.7 billion in losses and other expenses for scrapping three electric cars earmarked for North America. On Monday, Honda began road testing its electric SUV the 0 Alpha in India, where the car is set to be produced.
"India becomes attractive because it is one of the few large markets where Chinese dominance is not entrenched, so it offers a neutral ground to rebuild scale and competitiveness and allows carmakers to develop cost-efficient platforms that can be exported to other emerging markets," said Vinay Piparsania, founder of consultancy MillenStrat and former executive director at Ford India.
The rapid expansion of Chinese companies, backed with budget friendly electric and hybrid vehicles, has strained global brands in not just China but also Southeast Asia and Europe.
But Indian Prime minister Narendra Modi's government has mostly blocked fresh Chinese investments in India since a border clash in 2020, though it recently relaxed some of the foreign direct investment rules that could open the door for Chinese businesses. Those restrictions had earlier forced Great Wall Motors to scrap a $1 billion investment in India, while SAIC Motor-owned MG Motors sold a 35% stake in its India operations to local conglomerate JSW Group. BYD is also going slow in India, selling only 5,402 cars in 2025.
Industry watchers said automakers in the Indian market are benefiting from a surge in demand for high-value SUVs amid a shift from hatchbacks since the COVID-19 pandemic. That shift is encouraging automakers that had deprioritized India to revisit their local strategies.
"No other country comes close to India in terms of market size, and thereby growth potential ... so 'why India?' is no longer a question," said V.G. Ramakrishnan, managing partner at automotive consultancy Avanteum Advisors.
MillenStrat's Piparsania cautioned that the carmakers need a fresh product lineup, among other things, to survive in India's crowded market, where Japan's Suzuki and South Korea's Hyundai, along with homegrown players Tata Motors and the Mahindra Group, account for nearly three-quarters of the total sales. Those brands offer between 10 and 20 models each.
Honda said last year that it aims to have seven SUVs on sale by 2030, but analysts cautioned those numbers may not help Honda's cause unless the cars come with multiple engine options and state of the art features such as panoramic sunroofs, digital screens, flush door handles and ventilated seats. The market leaders have already taken that route and some of the smaller players have begun taking note. Skoda, for instance, rolled out a rear seat massage function at the time of its facelift of the Kushaq SUV, launched in January.
Honda, on the contrary, offers only a naturally aspirated engine with its Elevate SUV, while the City sedan has a hybrid version.
"Honda cars are amazing when it comes to reliability and performance, and they have a separate fanbase, but consumers now demand plenty of features, though most of them don't add any value to safety and driving experience," said Ramakrishnan. "Honda lags on that front, and in a competitive market, you cannot afford to not listen to your customers. ... It feels like they are not targeting the youth."
The EV market is also tough to crack, with too many players vying for too small a pie. Sales have nearly quadrupled between the fiscal year ending March 2023 and Feb. 21 to 166,074 units, estimates the Council on Energy, Environment and Water think tank. But that's a fraction of the 4.25 million cars sold in the country in the 11 months to February.
While the small volumes are a challenge, it could become Honda's opportunity to "enter early and shape the market," Piparsania said.
"Once EVs reach near upfront price parity, helped by localization of batteries, adoption will accelerate sharply," he said. "We need a stronger product portfolio in the 1 million to 2 million rupees price segment -- this is the heart of the market, and once compelling EV options scale here, volumes will move."
Honda, which is nonetheless the No. 2 two-wheeler manufacturer in India, is not the only foreign automaker to ramp up India operations despite sliding car sales. Renault, for example, saw market share of 0.8% last year as sales fell 10.4% to 36,420 units, and it has also lost ground in the midsize SUV category it pioneered with the Duster model.
The French company, which currently offers three SUVs and a hatchback in India, has said that it will design and launch four new cars in the South Asian nation as it seeks to generate half of its targeted 2 million sales in 2030 from outside Europe. India is "one of the main pillars" of its global expansion and among the three hubs alongside Latin America and South Korea that "represent a potential equivalent to that of Europe."
"For Honda, Renault or Volkswagen to succeed, they need to treat India as a core market and not a satellite, invest in India-specific platforms at scale and commit to long-term portfolio depth, not just two or three models," Piparsania said. "If they do this, they can regain relevance. If not, they will remain niche players."