Honda Isn't Leaving America. So Why Is It Warning About U.S. Manufacturing?

• Honda says its North American factories are approaching full capacity and that it needs an eighth assembly plant in the region.

• The automaker has warned that it may have to change those plans if the U.S.-Mexico-Canada Agreement does not survive.

• The warning comes as the U.S. threatens 50% tariffs on Canadian vehicles and auto parts from January 2027, potentially disrupting a supply chain that Honda has spent decades building across North America.

A clear contradiction is taking place in the North American automotive industry. While past tariffs were meant to induce car manufacturers to create more automobiles in the U.S., Honda is already producing large numbers of cars and parts in North America and is making plans to build for the increased demand for hybrid vehicles. Honda is saying that it is in need of another manufacturing plant. But the Japanese auto maker is warning that the uncertainty in North American trade might lead it to rethink this investment. This, however, does not mean that Honda is planning to leave America altogether. The situation is much more complicated.

What Honda actually said

According to Honda Vice President Noriya Kaihara, speaking to new agencies in Washington, the company’s North American manufacturing plants are nearly reaching full production. That gives rise to a very simple problem: the company needs to expand its production capacity. Now the company is thinking of opening the eighth assembly plant somewhere in North America by 2030, which means that the decision should be made within a year or two.

Nonetheless, Kaihara mentioned an important condition. "If there’s no agreement about USMCA in the future, we might have to reconsider our strategy." This is fundamentally different from Honda saying that the company will cease its manufacturing of cars in the United States. Honda has not even revealed the location of this future factory.

Alert, however, is not about this, it is about whether Honda can make a long-term investment in its manufacturing without being certain about the future trading relations among the US, Canada, and Mexico.

Honda is already manufacturing extensively in America

Honda is not a foreign company dealing with threats and issues related to its manufacturing facilities in the United States. Honda has been producing cars in the U.S. for decades. What is extremely significant now is the fact that the company has been working on the improvement of its production strategy focused on the U.S. market. In the past, it has decided to move production of the Civic Hybrid model from Japan to Indiana. Honda has also been preparing its North American manufacturing plants to significantly expand the production of hybrid cars.

In May, the company announced that surplus manufacturing capacity of its plants in Ohio was going to be assigned to gasoline and hybrid vehicles. In addition, Honda is going to enable all its manufacturing plants in North America to produce hybrid cars. The localization of parts is also planned. Honda informs that it aims at increasing the local share of the produced motor, invertors, modules, and components up to four times more than it is done now. The goal of this effort is to minimize the impact of the U.S tariffs.

onsequently, the notion that Honda is simply disinterested in producing vehicles in America does not mesh seamlessly with the company's factual activities. What really interests us is why a manufacturer expanding its localization process in America would be cautious about the next investment.

The problem is that a Honda isn't built by one country

The reasoning behind tariffs is relatively simple. To avoid tariffs on an imported vehicle, manufacturers need to produce their vehicles in the United States. This is essentially what President Donald Trump stated when he decided to impose tariffs on vehicles and vehicle parts produced in Canada of up to 50% on January 1, 2027. "Build in the U.S. and there are ZERO TARIFFS," Trump stated in writing.

However, contemporary car production does not follow the clear national boundaries imposed by politicians. The North American automobile industry has been developing for decades based on the integrated supply chain of the United States, Canada, and Mexico. Vehicles produced in the U.S. may have parts made in Canada or Mexico.

At the same time, the original parts could be produced within the U.S. As a result, imposing tariffs on Canadian parts does not bother only Canadian companies. This increases the cost of production in the American automotive plants. The Head of the Automotive Parts Manufacturers' Association in Canada said the imposition of tariffs on Canadian parts does not mean only Canadian manufacturers are going to suffer.

The CR-V shows how complicated this gets

Let us look at one of Honda's key vehicles – the CR-V.

Honda produces CR-V in the United States and in Canada. This allows Honda to move production within its North American manufacturing system based on demand and supply. However, a 50% tariff on automobiles manufactured in Canada changes things a lot. Honda and Toyota would be hit the hardest.

According to Global Automakers of Canada, these two firms manufactured around 75% of vehicles manufactured in Canada in 2025, and most of these produced cars were exported to the United States.

It is a small number if one looks only at vehicles produced in Canada. However, the impact of the tariff will multiply if we take components into account. Ford, General Motors, Stellantis, Toyota, and Honda are using manufacturing processes in which components and vehicles are moving across the border from Canada to the United States. That is why the tariff issue is not only about Canadian vehicles competition.

And the tariffs have already worked — to a point

There's a different perspective of the situation that must be taken into account. While tariffs may often lead to localization, it can also often be seen in the way Honda acts. Let's take Honda moving Civic hybrid's production to Indiana as an example. Localization of production allows Honda to depend less on imports. Similar thing happens when more components are manufactured in North America.

In the end, Honda itself tells that the increase of localization will solve the problem of tariffs. In a way, the need to make imports expensive makes producing locally a more beneficial decision. However, the problem arises when localization requires production of elements that are too complicated and costly to be launched in any part of the world. The fact is that the factory cannot be viewed as a particular building in which raw materials arrive and where finished products exit.

The factory is part of a larger network of supplier systems, transportation companies, injection sites, batteries manufacturing and stamping works. Establishing this complex network just to make everything be physically situated on one continent can be extremely expensive. This will lead us back to the point where Honda will have to deal

Honda needs another plant, but needs to know the rules first

Honda's situation is unusual since the company is not just thinking of adding production capacity as a distant prospect but claiming that it needs it now. All its North American plants are close to being saturated, while demand for hybrids keeps going up. According to Reuters, the company achieved its best July in seven years in 2026, with sales growing by 36%. Honda has also made a dramatic change in its product policy. The company has ditched the previous plan of having EVs account for 20% of all-new registrations by 2030 and has cancelled three planned models for the U.S. market EV.

Instead, hybrids will be the main focus of the company. Honda intends to introduce 15 next-generation hybrid models worldwide by the end of the fiscal year ending in March 2030, with the North American market being one of the key players in the process. These cars need to be manufactured at some place. Thus, the company has a legitimate reason for expanding its production facilities.

On the other hand, the automotive factory is a capital expense made for the long term. Honda cannot only choose a spot for its production sites in 2030, it has to map out where its vehicles, engines, batteries, and components will come from for about a decade. If the laws regulating business relations between three closest manufacturing countries change, the issue becomes much more complicated.

Canada has already shown how quickly Honda's plans can change

A recent example can be identified. Honda had revealed plans to create a huge EV manufacturing ecosystem in Ontario, Canada, which included the production of the cars as well as their batteries. When announced, this investment was worth around C$15 billion. After announcing the plans, Honda decided to stop the development of the EV production ecosystem in Canada and re-evaluate its global approach to EVs.

Additionally, the company also stopped the production of three EV models that had been planned for North America. Economic reasons have contributed to this decision.

The slow pace of the EV development and Honda's decision to focus on hybrid car development are two of the main reasons for the cancellation. Nevertheless, Honda has acknowledged the fact that changes in the tariff policy of the U.S. have had a negative impact on the profitability of their gasoline and hybrid production.

Then the Canada tariff threat doubled

The warning released by Honda couldn't have come at a better time, it is highly telling. The US and Canadian negotiators had been in talks over an agreement that was supposed to cut down the existing American tariff on Canadian-made vehicles from 25% to 15%. However, these negotiations were unsuccessful. After losing an opportunity to cut tariffs, US President Donald Trump threatened to increase the already high duties on Canadian vehicles to 50%, starting January 1, 2027.

As it can be seen, the impact of this difference is significant. It also brings about a very awkward situation. While vehicles manufactured in Europe and Asia are subject to about 15% duty when entering the US due to different agreements, Canadian-made vehicles might suffer from 50% tariffs. In this sense, what has always been believed as one market by car manufacturers is now dangerously divided.

However, there is a possibility that another agreement can be reached. According to industry's insiders speaking to Reuters, there is still hope to find a solution before January. Honda's factory is believed to start operating in around 2030. So far, nothing has been done yet.

Honda isn't leaving America

In the end, that's really the only important difference. Honda has not yet announced any plans to close its US factories. It has not yet announced that it will stop investing in the US. And it has not yet said that its next factory was certain to be sited in the US. On the contrary. Honda is getting its North American factories ready to produce more hybrids, using more of its capacity in Ohio to build gasoline and hybrid vehicles, and increasing parts production in the region. North America is still one of Honda's three main markets alongside Japan and India. What Honda is concerned about is uncertainty.

The company requires more manufacturing capacity, but before spending billions of dollars on a factory that will have to function for many years, it wants to know all the relevant rules of its operation. Tariffs can make importing vehicles expensive enough to encourage manufacturers to move production into the United States. Honda's own production choices show that this can occur.

However, if the obstacles between countries with intertwined automobile industries are raised high enough, companies also must rethink the supply chains that support American factories. Honda is not planning to move its manufacturing operations out of the United States. Instead, it is posing a much more significant question: "If the U.S., Canada, and Mexico can no longer be regarded as one integrated automotive manufacturing region, where does it make the most sense to open the next Honda plant?"

Sources :

HONDA

REUTERS