I understand it is not an easy time for a legacy automaker to sell electric vehicles, with incentives being reduced and Chinese automakers increasing competition. However, Honda is taking this to another level.
This week, Honda ended its modest and unpromising electric vehicle programs. The little motivation Honda had to compete in the EV arena is apparently gone, and along with it, any chance of surviving the current wave of industry disruption.
The company blames U.S. tariffs and Chinese competition, two easy targets. But the truth is it never really had a viable EV strategy to begin with.
Honda began by halting development of the electric Acura RDX and the Honda 0 sedan and SUV. These three models were to be the company’s first ground-up EVs, yet very little was ever shared about them. Then, reports indicated Honda would stop production of the Prologue, a vehicle essentially designed and built by General Motors.
This decision could backfire in several ways, but two are most important. By shelving its EV plans, Honda will fall farther behind in two of the biggest shifts in the automotive industry: electric drivetrains and software-defined vehicles.
To Honda, and to many legacy automakers still early in the transition, an EV is just a car with a different drivetrain. I imagine executives believe they can wait out this transition period and simply swap in motors and batteries when the technology is settled. How hard could it be?
That is a mistake. Many automakers have found that dropping batteries into a car designed for an internal combustion engine does not work well. It might shorten development, but the resulting product is often heavy, inefficient, and more costly to produce.
When developed as an original product, EVs offer automakers a chance to rethink the automobile and make it cheaper. Take Ford as an example. The Mustang Mach E has seen sales success but not financial success for Ford. It is based on a modified platform that also underpins the fossil fuel Escape crossover. Ford’s CEO noted that legacy engineering decisions held the product back, such as a wiring harness seventy pounds heavier than a Tesla’s. Small errors like that compound in a product as complex as a car.
Honda will also miss out on critical learning opportunities. There is learning by doing, both in development and manufacturing. There is learning to cultivate new suppliers and supply chains. And it will miss out on receiving vital customer feedback about what people truly value in their EVs.
Here, Honda is setting itself up for failure on the second industry disruption: the software-defined vehicle. These vehicles have core capabilities that can be upgraded over time. Consumers who buy from companies like Tesla, Rivian, and BYD have grown accustomed to frequent updates, slick software, and advanced driver assistance systems. Honda has yet to make significant progress in any of those areas.
Software-defined vehicles do not have to be electric, but they tend to go hand-in-hand. A large EV battery easily powers powerful computers and enables over-the-air updates while the car is parked. Could Honda make a fossil fuel software-defined vehicle? Possibly, but it is unlikely for the same reason it is backing away from EVs: the old way is easier and more profitable for now.
Honda is facing an identity crisis. At its core, it is an internal combustion engine company. It makes excellent engines, and that is starting to matter less. Other traits are also under assault. For years, the company prided itself on making driver’s cars that are lightweight, efficient, and handle well. But when the car drives itself, what does a driver’s car even mean?
Putting autonomy aside, the market for a driver’s car is limited anyway. People are drawn to Honda because the cars are reliable and reasonably priced. The fact that they handle well is just icing on the cake.
Yet EVs promise to be significantly more reliable than fossil fuel vehicles, and as Chinese automakers show, once battery prices fall, so do overall vehicle costs. If Honda cannot compete on reliability or price, consumers will hesitate.
This already appears to be happening in China. Honda stated in a recent earnings report that it was unable to deliver products offering better value for money than newer EV manufacturers, resulting in a decline in competitiveness. Headwinds in China contributed to nearly sixteen billion dollars in losses last year. Without a plan for EVs, it is only a matter of time before Honda suffers the same fate elsewhere.