Honda (HMC) JV To Construct Third Auto Plant In China

Honda Motor Co., Ltd.’s (NYSE:HMC) joint venture in China, Dongfeng Honda Automobile Co. Ltd. announced that it plans to construct a third automobile production plant in the nation to meet rising demand. The automaker will be investing 3 billion RMB ($436 million) in this plant.

Honda will construct the plant in a 1.2 million-square-meter plot. The company expects that the plant, with annual capacity of 120,000 units, will start operating from the first half of 2019.

There is growing demand for electric vehicles in China. Honda will build this plant in such a way that electric vehicles can also be manufactured there.

Dongfeng Honda focuses on improving its product lineup. It has launched the Civic in 2006 and the XR-V compact SUV in 2015. After the launch of the all-new Civic and GIENIA compact hatchback, total sales of Dongfeng is expected to cross 560,000 vehicles in 2016.

The third plant will improve the annual production capacity of Dongfeng Honda to 600,000 units. Annual capacity of the Honda’s other Chinese joint venture Guangqi Honda Automobile Co., Ltd is 600,000 units, while Honda Automobile (China) Co., Ltd has a capacity of 50,000 units. With this, Honda’s total production capacity in China will increase to 1.25 million units.

Price Performance

Honda has performed marginally better than the Zacks categorized Auto Manufacturers-Foreign industry so far this year. The company’s shares have lost 5.98% compared to a 6.18% fall recorded by the industry. The decline in share price is due to frequent recalls, weak fiscal 2017 revenue guidance, falling sales in Japan, and high research and development expenses.

Zacks Rank & Key Picks

Currently, Honda carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the auto space include Allison Transmission Holdings, Inc. (NYSE:ALSN) , America's Car-Mart Inc. (NASDAQ:CRMT) and Rush Enterprises, Inc. (NASDAQ:RUSHA) .

Both Allison Transmission and America's Car-Mart sport a Zacks Rank #1 (Strong Buy). You can see the the complete list of today’s Zacks #1 Rank stocks here.

Allison Transmission has a long-term growth rate of 11%.

America's Car-Mart has a long-term growth rate of 45.50%.

Rush Enterprises, carrying a Zacks Rank #2 (Buy), has a long-term expected growth rate of 15%.

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