I understand that; it’s not an easy time for an old automaker to sell electric vehicles, what with incentives being gutted and Chinese automakers knocking on the door. But Honda takes it to another level.
This week, Honda killed off its paltry — and frankly, unpromising — EV programs. What little motivation Honda had to compete in the EV arena is seemingly gone, and with it any chance of surviving the current wave of disruption sweeping the industry.
The company blames US tariffs and Chinese competition, two easy targets. But it never really had a viable EV strategy to begin with.
Honda kicked things off Thursday by halting development of the electric Acura RDX and Honda 0 sedan and SUV, three models that were the company’s first ground-up electric cars — but little was shared with outsiders. That continued Friday, when Automotive News reported that Honda would end production of the Prologue, a vehicle that was essentially designed and built entirely by GM.
The decision could backfire in a number of different ways, but there are two that I would argue are most important. By shelving electric cars, Honda will fall further behind in two of the biggest shifts sweeping the auto industry: electric powertrains and software-defined vehicles.
Missed opportunities for electric cars
For Honda – and for many legacy automakers still early in the transition – an EV is just a car with a different powertrain. I can imagine Honda executives thinking they can wait out the awkward transition period and when the motors and batteries are all sorted, just switch out the fossil fuels. How hard can it be?
This is of course a mistake. Many car manufacturers have found that dropping batteries in a car originally designed for an internal combustion engine does not work so well. It may shorten the development cycle, but the resulting product ends up being heavy, inefficient and more expensive to produce.
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Once developed as an original product, electric cars give automakers a chance to rethink the car and, in the process, make it cheaper.
Take Ford for example. The Mustang Mach E has been a sales success, but not financially for Ford. The Mach E is based on a heavily modified version of the platform that also underpins the Escape, a fossil-fuel crossover. Part of the problem, Ford CEO Chris Farley said in a recent interview, was that old engineering decisions were holding the product back: The Mach E’s wiring harness is 70 pounds heavier than Tesla’s, for example. Small mistakes like that amplify themselves in a product as complex as a car.
Honda will also miss out on several learning opportunities. There is learning by doing, both in development and production. You also learn to cultivate new suppliers and supply chains. It will also miss out on receiving critical customer feedback – what do people really value in their EVs?
Sayonara, software-defined vehicles
Here, Honda is setting itself up for failure on the second disruption to hit the automotive industry: the software-defined vehicle (SDV), which has core capabilities that can be upgraded and improved over time.
Consumers, mostly those who buy electric cars from Tesla, Rivian and BYD, have become accustomed to the frequent updates, smart infotainment software and advanced driver assistance systems from Tesla, Rivian, Nio or Xiaomi. Honda has yet to make significant progress in any of these domains.
SDVs don’t have to be EVs, but they tend to go hand in hand. The large battery in an EV makes it easier to feed powerful computers, and it allows things like over-the-air updates to happen when the car is parked and “off”. Could Honda make a fossil fuel SDV? Sure, but it’s unlikely to pull back from EVs for the same reason: the old way of doing things is easier and more profitable for now.
What does Honda stand for?
Honda is facing an identity crisis. At its core, it is an internal combustion engine company. It makes really good engines, and it’s starting to matter less and less.
Other features of its cars are also under assault. For years, the company has prided itself on making driver’s cars. They are light, efficient and handle well. But when the car drives itself, what does a “driver’s car” even mean?
Autonomy aside, I’d argue that the market for a driver’s car is limited anyway. People are attracted to Honda because they are reliable and reasonably priced. The fact that they handle them well is icing on the cake, perhaps helping consumers break a tie if they’re torn between two brands.
But electric cars promise to be significantly more reliable than fossil fuel vehicles, and as Chinese automakers show, when battery prices drop, so do total vehicle costs. If Honda can’t compete on reliability or price, consumers will balk.
It already seems to be happening in China. Honda said as much in its latest earnings report. “Honda was unable to deliver products that offer value for money better than newer EV manufacturers, resulting in a decline in competitiveness,” the company said. Headwinds in China contributed to the company’s nearly $16 billion loss last year. Without an EV plan, it’s only a matter of time before Honda suffers the same fate elsewhere.