We get it; with incentives being cut and Chinese automakers knocking on the door, it’s not an easy time for traditional automakers to sell electric cars. But Honda takes it to another level.
This week, Honda discontinued its meager and frankly hopeless EV program. What little motivation Honda had to compete in the EV space is clearly gone, and with it, its chances of surviving the current wave of disruption sweeping the industry.
The company is responsible for two easy targets: U.S. tariffs and Chinese competition. However, there was no viable EV strategy in the first place.
Honda started things off Thursday by canceling development of the electric Acura RDX, the company’s first electric vehicle developed from scratch, and three Honda 0 sedan and SUV models, but little was disclosed to the outside world. Things continued on Friday, with Automotive News reporting that Honda plans to discontinue production of the Prologue, which is essentially a car designed and entirely manufactured by GM.
This decision could backfire in many ways, but there are two that I would argue are the most important. By shelving EVs, Honda will fall further behind two major changes sweeping the auto industry: electric drivetrains and software-defined vehicles.
Missed the EV opportunity
For Honda, and for many traditional automakers still in the early stages of the transition, EVs are just cars with different drivetrains. I can imagine Honda executives thinking they can just wait out the awkward transition period and replace the fossil fuel bits once the motor and battery are fully sorted. How difficult would it be?
Of course that’s wrong. Many car manufacturers have realized that putting batteries in cars originally designed for internal combustion engines doesn’t work very well. Development cycles may be shortened, but the resulting products are heavy, inefficient, and expensive to manufacture.
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Developed as a proprietary product, EVs offer automakers an opportunity to rethink cars and make them cheaper in the process.
Take Ford, for example. Although the Mustang Mach-E was a sales success, it was not a financial success for Ford. The Mach-E is based on a heavily modified version of the platform that also underpins the Escape fossil-fuel crossover. Ford CEO Chris Farley said in a recent interview that part of the problem was that traditional engineering decisions hindered product development. For example, a Mach-E wiring harness is 70 pounds heavier than a Tesla wiring harness. In complex products such as automobiles, such small errors become even more significant.
Honda will also lose some learning opportunities. Learn by doing, both in development and manufacturing. We are also learning how to explore new suppliers and supply chains. It also prevents you from receiving important feedback from your customers. In other words, what do people really value about EVs?
Goodbye, software-defined vehicles
Here, Honda is setting itself up for failure against the second disruption sweeping the auto industry: software-defined vehicles (SDVs) with core functionality that can be upgraded and improved over time.
Consumers, primarily those who purchase EVs from Tesla, Rivian, BYD, etc., have become accustomed to frequent updates, sophisticated infotainment software, and advanced driver assistance systems from Tesla, Rivian, Nio, and Xiaomi. Honda hasn’t made much progress in any of these areas.
SDVs do not have to be EVs, but they tend to work with EVs. The high-capacity battery in the EV makes it easy to power a powerful computer, allowing things like over-the-air updates to happen when the car is parked and “off.” Could Honda make a fossil fuel SDV? That’s true, but it’s unlikely that they will withdraw from EVs for the same reason. For now, the old way is easier and more profitable.
What does Honda stand for?
Honda is facing an identity crisis. The core of the company is an internal combustion engine company. It makes a really good engine, but it’s becoming less and less important.
Other features of the car are also under attack. For many years, the company has prided itself on manufacturing driver’s cars. Light, efficient and easy to handle. But what exactly does it mean to be a “driver’s car” if the car is self-driving?
Self-driving aside, I would argue that the market for driver’s cars is limited anyway. People are attracted to Honda because they are reliable and affordable. The fact that it’s handled well is even better, and may help consumers break the ice if they’re torn between two brands.
But EVs promise to be significantly more reliable than fossil fuel vehicles, and as Chinese automakers have shown, lower battery prices mean lower overall vehicle costs. If Honda can’t compete on reliability or price, consumers will think twice.
It seems that this is already happening in China. Honda said as much in its recent earnings report. The company stated, “Honda has been unable to provide products with better cost performance than emerging EV manufacturers, and its competitiveness has declined.” China headwinds cost the company nearly $16 billion in losses last year. Without plans for an EV, it’s only a matter of time before Honda suffers the same fate elsewhere.
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