Honda Strikes Deal With Toyota to Avoid Tariff Risks

Navigating roadblocks

Honda is making an unexpected move to navigate the shifting landscape of U.S. tariffs — buying hybrid batteries from longtime rival Toyota. The deal, reported by the Japanese newspaper Nikkei, allows Honda to sidestep hefty import tariffs on components sourced from China and Japan while giving Toyota’s new $14 billion North Carolina battery plant an early win.

A rivalry set aside for survival

Toyota and Honda have been fierce competitors for decades, battling for dominance in the hybrid market. But with the Trump administration’s new tariffs — including a 10% levy on Chinese imports that took effect this month and an expected jump from 2.5% to 25% on Japanese-built vehicles — Honda is under pressure to rethink its supply chain. Rather than absorb the costs or pass them to consumers, the company is securing 400,000 Toyota-built hybrid battery packs per year starting in April 2025.

The move makes sense for both automakers. Honda, which sold over 308,000 hybrids in the U.S. last year, is planning to expand its hybrid lineup and needs a stable, tariff-free battery supply. Toyota, meanwhile, gets a major customer to help justify its massive battery investment in North Carolina. The deal also signals a broader trend of Japanese automakers reducing dependence on Chinese suppliers in favor of domestic or U.S.-based production.

Will Honda’s hybrids get a Toyota boost?

While details on which Honda models will use Toyota-supplied batteries remain unclear, the popular CR-V Hybrid is a strong contender. With Honda aiming to grow hybrid sales, securing a U.S.-based battery source helps ensure production remains uninterrupted, even if tariffs on foreign-built components continue to rise.

However, this isn’t an alliance in the traditional sense. Honda is simply purchasing batteries from Toyota without a reciprocal deal in place. Toyota’s North Carolina plant, covering over seven million square feet, will be a key supplier not just for its own hybrid and EV models but also for a competitor.

Tariffs force carmakers to adapt

Signage is pictured outside the headquarters of Japanese automaker Toyota in Tokyo on May 10, 2023.

YUICHI YAMAZAKI/Getty Images

Honda and Toyota aren’t the only manufacturers reconfiguring supply chains to avoid tariffs. Volkswagen and Porsche are weighing U.S. production to bypass import duties, while Volvo delayed the launch of the EX30 to dodge a 100% tariff on Chinese-made EVs. Meanwhile, domestic automakers like GM and Stellantis have already cut production at plants in Canada and Mexico, where tariffs could soon hit hard.

Final thoughts

For Toyota, the deal with Honda helps justify its $14 billion U.S. battery investment. For Honda, it’s a way to avoid price hikes and maintain competitiveness in a rapidly changing market. As trade policies continue to shift, more automakers may find themselves making similar unexpected partnerships to keep their businesses running smoothly.

Whether this deal evolves into something more remains to be seen. If tariffs continue to escalate, we could see further collaboration between automakers that once saw each other strictly as rivals. For now, it’s a pragmatic business decision — one that underscores just how much the global automotive landscape is shifting.