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Honda Makes a Major Move to Take On Tesla, Ford

Honda plans to start an electric vehicle division to compete with U.S. and Chinese EV makers.
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Japanese automaker Honda Motors  (HNDAF)  said it plans to launch an electric vehicle (EV) division in an effort to compete with other EV giants such as China's BYD and U.S.-based Tesla  (TSLA) - Get Free Report.

Honda needs to catch up quickly as traditional auto manufacturers began prioritizing EVs several years ago to meet demand from consumers who no longer want to buy gas-guzzling cars and trucks.

The automaker said its new division will be launched on April 1. It will combine its electrification strategy and its development of automobiles, motorcycles and power products such as generators, according to a statement.

Honda also said it would consolidate its current six regional operations to three - they would consist of North America, China and nearby regions including Japan and an operation that includes the remainder of Asia and Europe.

The merger of the three regions will allow Honda to "rapidly develop the implementation of resource shifts in accordance with the future lineup strategy in line with the electrification acceleration," a spokesperson said in a briefing according to Reuters.

Honda plans to manufacture mid- to large-sized vehicles in China and North America and plans to sell small to mid-sized cars for the other two regions, the spokesperson said.

Honda Is Pivoting Strategies

In 2022, Honda's strategy included manufacturing 30 EV models globally so it can reach a goal of selling two millions EVs annually by 2030.

Afeela, an EV developed by Honda and Sony (HNDAF) , made its debut at the Consumer Electronics Show in Las Vegas on Jan. 4.

Sony Honda Mobility, a joint venture announced last year, said that Afeela represents “feel,” which, the company said "is at the center of the mobility experience."

The company said it wants to provide intuitive navigation through augmented reality using its sensing technology.

Afeela will be produced at one of Honda’s 12 plants in the U.S. and pre-orders will be taken during the first half of 2025, while sales will start by the end of 2025. Delivery in North America will begin during spring 2026.

Sony Honda Mobility said it intends to develop Level 3 automated drive under limited conditions and to enable Level 2+ driver assistance in even more situations such as urban driving.

In 2022, Honda launched the Legend, a luxury sedan equipped with the world's first certified level 3 autonomous driving technology.

Honda is not a newcomer new to the EV market and manufactured its version of an EV back in 1997 with the Fit EV-Plus, or the Honda EV Plus, as it's more commonly known. 

The company also made an electric version of the Honda Fit hatchback in 2012, the space-age-inspired MC-β in 2014, and the Clarity Electric in 2016.

Why Honda Needs to Catch Up

While Honda and Toyota have long maintained large portions of the market share of gasoline-powered cars, the country has lagged behind both their U.S. and European counterparts who have ramped up their offerings and longer range, which has long been an obstacle to attract some drivers from making the switch.

In recent years, Honda has fallen behind in its market share as buyers have sought either EVs or hybrid.

Sales in the U.S. totaled 222,049 during the September quarter for Honda, a decline of 36% from a year ago, as supply chains woes from a lack of semiconductor chips contributed to lower production. The number of vehicles sold was 100,000 below the 345,000 mark reached during the first quarter of 2021. Honda’s total market share declined to 6.5% in 2022, compared to over than 10% of the market in 2021, according to data from Cox Automotive.

Sales for Honda's July-September quarter fell as the automaker reached its fifth consecutive quarter of losses.

Honda's EV Battery Plant Efforts

Last October Honda revealed the location of its new electric vehicle plant: Ohio. The Japanese auto maker and LG Energy Solution will invest $4.4 billion to manufacture batteries for its new models.

The company is the latest entrant to the rising competition and said on Oct. 11 that its lithium-ion battery factory would be located in Fayette County, Ohio, about 40 miles southwest of Columbus.

The two companies plan to invest $3.5 billion initially and hire 2,200 employees in the joint venture, but plans to spend a total of $4.4 billion overall.

The automaker also plans to spend more capital to retool three plants in Ohio at a cost of $700 million, plus hire 300 new employees to ramp up more production of EVs.

Construction at the new factory will start in early 2024 and is anticipated to be completed by the end of 2024. The goal of the plant is to start mass production of pouch-type lithium-ion batteries by the end of 2025.

Production of EVs is expected to start in the U.S. by 2026, the company said.

Battery cases will be produced at Honda's Anna, Ohio engine plant. Those cases will be combined with battery modules from the joint venture, which will be placed into EVs built at two other plants in Ohio.