Honda Motor Co Ltd (7267.T) on Friday said it expected China would overtake the United States as its biggest market for cars in the coming years after higher sales in Asia prompted the automaker to raise its full-year profit outlook by 4 percent.

The Honda booth displays the company logo at the North American International Auto Show in Detroit, Michigan, U.S., January 16, 2018. Photo: REUTERS/Jonathan Ernst

Honda, Toyota Motor Corp (7203.T), Nissan Motor Co (7201.T) and other Japanese automakers currently count the United States as their biggest market. But Honda has experienced explosive growth in China during the past three years, luring consumers with new offerings in the sport-utility vehicle (SUV) segment including its CR-V and Vezel models.

Last year, its China sales jumped 15.5 percent to 1.44 million units, even as overall vehicle market growth slowed to just 3 percent year-on-year, the weakest in at least two decades.

In contrast, sales in the United States, for decades Honda’s largest country market, were largely stagnant at 1.64 million vehicles last year, and significant growth is unlikely given that overall vehicle sales in the country are widely expected to retreat after peaking in 2016.

In the third quarter, Asia including China was the only region where Honda saw year-on-year growth in vehicle sales, while sales at home, North America, Europe and other regions fell. Honda expects Asia to overtake North America as its biggest source of annual vehicle sales for the first time this year.

Honda has been ramping up production in China, and Executive Vice President Seiji Kuraishi said that a further, significant rise in capacity would be difficult until it completes a new plant in 2019 through a joint venture with China’s Dongfeng Motor Group.

“We’re struggling to increase production in China, so it would difficult to match our sales in the U.S. market at the moment,” Kuraishi told reporters at a briefing.

“But given the current state of the market, it’s likely that China will overtake the United States soon.”

Honda plans to launch a compact all-battery electric car in China later this year, and Kuraishi said that the company would also focus on developing car-sharing and other new mobility services for the country.

FORECAST UPGRADE
Expectations for stronger sales growth in Asia prompted Japan’s third-biggest automaker to raise its full-year forecast for operating profit to 775 billion yen ($7.06 billion), while it sees the yen averaging 110 yen versus the U.S. dollar JPY= in the year through March, from 109 yen previously.

While the latest forecast is an upgrade from a previous forecast for 745 billion yen, it still represents a 7.8 percent slide from a year prior, as costs for quality-related issues including recalls, along with investment for research and development offset higher sales and cost reductions.

Profit was 284.5 billion yen in October-December, up 37 percent from a year earlier, and exceeding a mean 281.6 billion yen estimate from 11 analysts polled by Thomson Reuters I/B/E/S.