At the 2023 Shanghai Auto Show, Honda’s top brass candidly acknowledged that Chinese EV manufacturers have pulled ahead of Honda, at a pace that was much faster than expected.
“We were overwhelmed by the Chinese,” said COO Shinji Aoyama, in an interview with Automotive News Europe.
Honda CEO Toshihiro Mibe also said that Chinese EV manufacturers have made very good progress during the Covid-19 pandemic when the world was largely cut off from the country by travel restrictions and quarantine measures.
“They are ahead of us, even more than expected,” Mibe said.
“We are thinking of ways to fight back. If not, we will lose this competition,” he said. “We recognized we are slightly lagging behind, and we are determined to turn the tables.”
Of course, you won’t expect Honda to sit idle. The company’s battery EV product counter-offensive will start in 2025. From the 2026 model year, Honda’s upcoming EVs will be equipped with new automotive operating system that Honda is developing internally.
To power all that software, Honda has also entered into a partnership with Taiwan Semiconductor Manufacturing Co., or TSMC, the world’s largest microchip maker.
Critical to the push is a slew of next-generation batteries under development. The automaker is also developing next-generation batteries, including a next-gen liquid lithium-ion battery, a semi-solid-state battery, and an all-solid-state battery.
At the 2023 Shanghai Auto Show, Honda presented two prototype electric SUV models, due to be launched in 2024 – the e:NP2 and e:NS2.
The goal is to shift into high gear from 2025 and ditch internal combustion by 2040, selling only full-electric and hydrogen fuel cell vehicles. Honda is planning to introduce 10 Honda EV models in China by 2027.
Transitioning into EVs is never easy, especially when you still have to a lot of money tied up in combustion engines business.
In the near-term, Honda will milk its combustion and hybrid engines assets dry, wringing the last drop of profit so it can fund EV development.
“We will strive to generate a business structure that generates earnings even in the EV era,” Mibe said. The goal is a 7 percent return on sales in the near term and higher than that from 2030.
“We believe it is important to aggressively reinvest free cash flow from our internal combustion business, including hybrids, into areas linked to our competitiveness in future electrification.”
With EVs, the goal will shift to offering new software services and applications that can open new revenue streams.
“The business model itself is totally different from what we have right now,” Mibe said.
Volume alone will not guarantee success; additional services must be provided over the long run.
“We have to think about long-time value and developing that into our business,” Aoyama said.
Sales of Honda vehicles in China have been dropping in the last two years, as are many other foreign brands including VW and Hyundai. The reason? Cheap but highly competitive Chinese EVs that speak to a new generation of Chinese consumers are pulling buyers away from established brands.
BYD has since overtaken Toyota and VW to become the top selling brand in China.
But there is also a question of how long will this last. While news headlines say Chinese EV upstarts are gaining market share at the expense of established brands, a deeper look into the market shows that it is not so simple.
A big part of this shift towards Chinese EVs is because of an on-going price war between EV players, triggered by price cuts by Tesla, itself suffering from worsening stock situation of unsold cars and an ageing model line-up that is now less competitive against newer Chinese EV models.
The collateral damage in this price war are established big-name German, Japanese, and Korean brands and their traditional combustion engine models.
Sales of Honda cars in China is down 38 percent in Q1 2023, Nissan is down 39 percent. Hyundai and Volkswagen is seeing similar contractions but Toyota is still holding up, at least for now.
However total industry volume (TIV) for passenger cars is also down 7 percent, to 5,138,000 units, proving that this race to the bottom cannot go on for very much longer.
Driving a BEV in China is still more inconvenient than a combustion engine car, albeit a lot better than in Malaysia. But Chinese consumers, just like consumers everywhere, has a price and they won’t say no to a good deal.
If you buy a Toyota Corolla Hybrid (RMB 117.8k – 159.8k, after discount) in a major Chinese city, you will have to wait for months to register your car, due to monthly quota limits for registration of new combustion engine cars.
Alternatively, you can buy a bigger electric SUV like a BYD Atto 3 for nearly the same money (RMB 139.8k – 167.8k, after discount) and drive your new car away on the same day. For most Chinese buyers, it’s just common sense to buy a discounted, better value Chinese EV.
Source: Honda admits Chinese EV makers have leaped ahead, counter-attack to start in 2025 with 10 EV models