TOKYO, Japan: Honda is making a strategic shift in its production plans, moving the next-generation Civic hybrid manufacturing from Mexico to Indiana in response to potential U.S. tariffs, according to three sources familiar with the decision.

The move highlights growing uncertainty for automakers as U.S. President Donald Trump considers imposing 25 percent tariffs on imports from Mexico and Canada. While several manufacturers have raised concerns, Honda is the first major Japanese car company to take concrete action.

Honda had initially planned to manufacture the next-generation Civic in Guanajuato, Mexico, with production set to begin in November 2027. However, sources say rising costs and the looming tariff threat led the company to reconsider its strategy.

Now, Honda intends to produce the Civic in Indiana starting in May 2028, with an expected annual output of around 210,000 vehicles. If demand exceeds that capacity, Honda will explore importing from countries not impacted by tariffs, one source said.

A Honda spokesperson declined to comment on the production changes but emphasized that the company would continue to evaluate "optimal production and allocation globally."

Honda's decision reflects the broader industry challenges posed by potential tariffs. Mexico has long been a cost-effective manufacturing hub for global automakers, with Honda exporting around 80 percent of its Mexican-made vehicles to the U.S.

In November, Honda's Chief Operating Officer Shinji Aoyama warned that the company might shift production if the U.S. were to make tariffs permanent.

Honda's case illustrates the disruptive impact of potential tariffs on manufacturers. Due to massive investment costs and specialized production lines, they cannot quickly alter long-term production plans.

The Honda Civic is a top-selling vehicle in the U.S., with over 240,000 units sold last year, making it the company's second-best seller after the CR-V.

Sales of the Civic surged 21 percent year-over-year in 2024, mainly due to its affordability and fuel efficiency.

About 40 percent of Honda's U.S. sales come from vehicles imported from Mexico and Canada. Additionally, the company exports around 60,000 U.S.-made vehicles to those two countries.

If Mexico or Canada retaliate with their tariffs, Honda could face higher costs, further complicating its production and pricing strategy in the North American market.