Accelerating Electrification and Software Development
TOKYO — Honda Motor Company has announced an ambitious plan to invest 10 trillion yen ($65 billion) in electrification and software development over the next decade, up to the fiscal year ending March 2031. This significant investment, which doubles the amount initially planned in 2022, underscores Honda’s commitment to joining the rapid shift towards electric vehicles (EVs) in highly competitive markets such as China.
Doubling Down on EV Development
Honda President Toshihiro Mibe explained the decision at a recent news conference, noting that the previously allocated funds were insufficient given the fast-paced evolution of the EV market. “The amount we had decided on two years ago turned out to be not enough,” Mibe said. “We are quite confident that we have the capability to secure enough funds,” he added, attributing this confidence to strong profits from hybrid vehicle sales.
Of the 10 trillion yen investment, 6 trillion yen will be directed towards manufacturing, which includes building new EV factories and developing innovative models. An additional 2 trillion yen each will be invested in software development and battery procurement, reflecting Honda’s holistic approach to advancing its EV capabilities.
Honda’s Strategic EV Production Targets
Honda’s strategic plan includes setting up a production system capable of manufacturing 2 million units annually by 2030. This system will be distributed as follows: 750,000 units each for North America and China, and 500,000 units for the rest of the world, including Japan, Asia, and Europe. Mibe also highlighted Honda’s commitment to strengthening its EV supply system in Canada, with an investment of approximately 15 billion Canadian dollars ($11 billion) aimed at establishing a robust supply chain for battery materials.
By the second half of the 2020s, Honda aims to cut battery costs by 20% and reduce production costs by 35% by building a dedicated EV plant. These cost reductions are crucial for making Honda’s EVs competitively priced and more accessible to a broader market.
Challenges in the Chinese Market
Despite these advancements, Honda faces significant challenges in the Chinese market, where its presence has been waning amidst the EV shift. Honda’s car sales in China dropped by 1.5% in the fiscal year ending March 2024, down to 1.2 million units. In response to declining sales, Honda has been scaling down its full-time production workforce in China, with around 1,700 workers agreeing to leave.
Honda is committed to overcoming these challenges by aiming for a 100% share of EVs and fuel cell vehicles in its global sales by 2040, with an accelerated target for China set for 2035. The company plans to introduce 10 EV models in China by 2027, outpacing its global strategy of launching 7 models of the new EV “o[zero] series” by 2030.
Broader Industry Impacts and Competitor Strategies
The broader context of the Japanese automotive industry highlights similar challenges. Mazda Motor and Nissan are also grappling with reduced market shares in China due to a lack of competitive EV lineups. Mazda, for instance, plans to introduce the new electrified “Mazda EZ-6” towards the end of 2024 and has established a dedicated division, e-MAZDA, to accelerate its electrification efforts. Mazda forecasts a modest rise in sales in China and aims to launch its first battery EV on a dedicated platform by 2027.
Nissan, similarly, is focusing on developing new energy vehicles tailored to Chinese market demands and aims to increase its sales by 0.8% in the current financial year after a significant decline last year.
The Competitive Landscape in China
Chinese brands continue to dominate the local market, with a share of 56% in 2023 compared to Japanese brands’ 15%. In 2023 alone, China sold 9.5 million new energy vehicles, including EVs, plug-in hybrids, and fuel cell vehicles. Companies like BYD have established strong footholds in the market, highlighting the urgent need for Japanese automakers to enhance their EV offerings.
Honda’s Vision for the Future
Honda’s substantial investment in EV and software development signals a transformative period for the company. As it accelerates its efforts to produce cost-effective and competitive EVs, Honda aims to regain market share and meet the growing global demand for sustainable automotive solutions. With strategic investments and a clear vision for the future, Honda is positioning itself as a formidable player in the evolving landscape of electric vehicles.
This comprehensive approach, blending innovation in manufacturing, software, and battery technology, aims to secure Honda’s place in the forefront of the global EV market. Through these efforts, Honda is not only addressing current challenges but also paving the way for a sustainable and technologically advanced future in the automotive industry.
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