SHANGHAI -- Honda Motor Co. and Toyota Motor Corp. have steadily introduced gasoline-electric hybrids in China even though the vehicles do not qualify for government subsidies.
The strategy is finally paying off. Hybrids not only have enabled the two major Japanese carmakers to buck the downturn in China’s new-car market but have helped position both companies for future sales and profit growth.
Under Chinese rules, hybrids are categorized as energy-saving vehicles and therefore are not eligible for government subsidies for electrified vehicles.
Yet, it hasn’t affected shoppers’ interest in the hybrids that Honda and Toyota produce locally.
The two Japanese brands’ hybrids are priced 16,000 yuan ($2,253) to 30,000 yuan higher than corresponding gasoline versions. But the price gap is acceptable to Chinese consumers because the vehicles can reduce fuel consumption by more than 30 percent.
In the first eight months, while overall new-vehicle sales dropped 12 percent from a year earlier, Honda brand’s China deliveries rose 18 percent to approach 990,000.
In addition to strong demand for the Civic, Honda attributes the robust sales to the “outstanding performance” of the four hybrids it sells in China.
In August alone, hybrid variants of the CR-V crossover, Accord and Inspire sedans and Odyssey multipurpose vehicle generated 11 percent, or 13,274 units, of Honda’s sales.
Through August, Toyota’s local deliveries increased 7.7 percent to nearly 893,000 on volumes generated by the Toyota New Global Architecture, or TNGA, according to the China Passenger Car Alliance.
The TNGA-based products include the Avalon -- a hybrid car, as well as the hybrid versions of the Camry, Corolla and Levin sedans.
At Toyota’s luxury Lexus brand, hybrids have become the main driver of its China sales surge.
In the first eight months, demand for Lexus hybrids surged 34 percent to 42,466. The tally represents 34 percent of the brand’s sales during the period, up three percentage points from a year earlier.
As a result, Lexus’ total sales for the period jumped 25 percent to 126,854, according to the brand’s China office.
Behind strong hybrid demand, Lexus likely will outsell Cadillac to become the fourth-largest luxury brand in China in 2019. Through August, Cadillac sales rose only 2.1 percent to 145,697, according to the China Passenger Car Alliance.
Honda and Toyota have demonstrated strength in hybrid technology that few others can match.
While hybrids have been excluded from Chinese subsidies, both companies believe, perhaps stubbornly, that such vehicles deserve a place in the market.
They have good reasons to believe so.
Beijing is set to stop doling out subsidies for electrified vehicles at the end of next year. That will significantly strengthen the price competitiveness of hybrids over full-electric vehicles and plug-in hybrids.
Also, the Chinese government seems to have finally realized that energy-saving vehicles such as hybrids also deserve a pat on the back.
The Ministry of Industry and Information Technology last week proposed a change to its carbon credit program that allows energy-saving vehicle manufacturers a small deduction from quotas required in the program.
The program is intended to push carmakers to expand output of electrified vehicles. But it remains questionable whether consumers will still want EVs or plug-in hybrids once government subsidies vanish.
Program changes would allow Honda and Toyota, which have concentrated on hybrids and other energy-efficient vehicles, to build fewer EVs and plug-in hybrids than competitors.
That in turn would enable them to maintain profitable business growth in the China.