Listen to this article:
Honda's financial collapse is staggering in its scale. The company, long regarded as an engineering powerhouse that rarely stumbles, recorded its first annual loss in nearly seven decades after wiping out the value of EV platforms, battery partnerships and dedicated production lines that will now never see the light of day. Mibe, who personally championed the ambitious 2040 deadline for ending combustion-engine sales, admitted that consumer demand for pure battery EVs had failed to materialise at the pace required to justify the spending. The $9 billion writedown is not merely an accounting entry; it represents factories half-built, supply contracts cancelled, and research teams disbanded. In its place, Honda will pivot to what it calls "multi-pathway" electrification, a euphemism for doubling down on hybrid powertrains while quietly shelving the fully electric Prologue and its future siblings.
Mazda and Subaru are travelling the same road, albeit with smaller balance sheets. Mazda has pushed its first in-house battery-electric vehicle back to at least 2029, cut its electrification budget, and will instead rely on China-built EVs badged as Mazdas while it develops three new hybrid models for core markets. Subaru, meanwhile, absorbed a $362 million impairment charge linked to delayed EV programmes and has confirmed that its in-house electric crossover—once slated for a mid-decade debut—will arrive later and in far smaller volumes than planned. The three Japanese firms are not abandoning EVs entirely, but they are demoting them from the central pillar of corporate strategy to a niche offer for wealthy early adopters in California and China. For mass-market buyers in Japan, Europe and North America, the hybrid is once again the star of the show.
The divergence between Japanese strategy and European regulation could not be more striking. While Brussels holds firm to its 2035 deadline for ending new internal-combustion sales, Tokyo has essentially conceded that the economics of mass-market EVs do not yet work for its domestic champions. Japan's market is different—smaller homes make home charging difficult, electricity prices are high, and the domestic consumer has historically preferred hybrids—but the underlying financial logic is universal. Battery costs, despite years of promises, have not fallen fast enough to make affordable long-range EVs profitable at the prices ordinary buyers are willing to pay. When a company with Honda's economies of scale cannot make the numbers add up, European policymakers should take note. The risk is that by mandating a technology whose economics are still shaky, the EU could push domestic brands into similarly painful writedowns while ceding market share to Chinese rivals whose government-subsidised cost bases are structurally lower.
For European consumers, the Japanese pivot has immediate practical consequences. Honda's e:Ny1 and Subaru's Solterra were already marginal players on the continent, but their likely phase-out means fewer non-Chinese alternatives in the affordable EV segments. More significantly, the retreat frees up engineering talent and supplier capacity that European firms may now struggle to secure. Battery cell manufacturers and semiconductor suppliers that had allocated capacity for Japanese EV programmes are already renegotiating contracts, and the resulting squeeze on available components could raise costs for Volkswagen, Stellantis and Renault just as they are launching their second-generation electric platforms. Conversely, European hybrid sales may receive an unexpected boost. If Honda brings its new hybrid SUVs to European showrooms by 2027, they will land precisely when many buyers are concluding that a plug-in hybrid offers the best compromise between range anxiety and emissions compliance.
Looking ahead, the Japanese reversal is best understood not as a rejection of electrification but as a cold-blooded recalculation of timing. Honda, Mazda and Subaru are betting that the next decade belongs to hybrids, hydrogen and small-volume EVs, with mass battery-electric adoption pushed to the 2030s and beyond. Whether that timeline aligns with European climate targets is now the central policy question of the decade. If battery costs do not collapse as predicted, or if charging infrastructure expansion stalls, the EU may face a choice between relaxing its 2035 mandate and watching its own car industry absorb Honda-style losses. Neither option is politically palatable. What is certain is that the era of unchallenged EV optimism is over. Even the most respected engineering cultures on Earth are admitting that the path to zero emissions is longer, more expensive and more uncertain than the headlines suggested. Europe would be wise to listen.
Why did Honda scrap its 2040 combustion-free target?
Honda concluded that consumer demand for pure battery EVs was too weak to justify the massive capital spending required. The company wrote down approximately $9 billion in EV-related assets and will instead focus on 15 new hybrid models that are cheaper to produce and more appealing to mainstream buyers.
Does this Japanese retreat mean the EU should delay its 2035 ICE ban?
The Japanese experience adds weight to industry warnings that the 2035 deadline may be economically painful if battery costs and charging infrastructure do not improve rapidly. However, European policymakers have so far shown no appetite for reopening the regulation, preferring to rely on Chinese and Korean battery imports to bridge the gap.
Will Honda and Subaru stop selling EVs in Europe entirely?
No. Both brands will continue to offer their existing electric models, such as the Honda e:Ny1 and Subaru Solterra, but future investment in dedicated European EV platforms is now highly uncertain. The priority has shifted to hybrids, which offer lower development costs and faster returns in a market where EV demand has softened.