Honda Breaks Ranks to Secure China’s Huge Potential Ecocar Market–Will Transfer Proprietary HV Technology

A key theme—and contention–of “Whither Japan” is that Japan’s future is inevitably and also beneficially one of increasing economic, political, and even social integration within an Asian region dominated by China.  Nothing illustrates this theme more tellingly than Japanese corporations’ growing investments in manufacturing plants in neighboring Asian countries, particularly China, and, above all, transfers of strategically vital, leading-edge proprietary technologies to these operations.

For news of one such transfer we need only open today’s Nihon Keizai Shimbun and read an article about Honda Motor Corporation (NYSE: HMC).   The article, datelined Beijing, reports that Honda has decided to transfer its basic hybrid vehicle (HV) technology, not just to its joint-venture partner Dong Feng Motors, but also to other China auto manufacturers.

Honda is seeking to stake out a dominant position—ahead of U.S. and European competitors–in what it forecasts to be a huge future market, perhaps the world’s largest market, for environmentally-friendly “ecocars.”

This is a bold, probably unprecedented, move, certain to excite high anxiety and criticism within Japan.   Hesitation and restraint by Japanese corporations toward investing in China, of promoting Chinese to senior management positions in Chinese subsidiaries—and even of hiring or training Chinese staff in Japan– has been due to fears of theft and copying of the corporation’s key proprietary technologies.  What Honda’s move demonstrates is that what has become accepted as inevitable in other industries is no longer avoidable in the automobile industry, i.e., that a strictly defensive strategy in technology transfers is unlikely to succeed, and even if successful offers limited upside return potential.

In this judgment, and in its “must-win” assessment of the China market, Honda is not alone among Japanese auto majors.  Toyota Motor (NYSE: TM) has plans to assemble hybrid vehicles and to make batteries and other critical HV components in China that will indigenize production.

Here we see two of the world’s leading makers of ecocars making major, strategic commitments to the China market involving unprecedented leading edge technology transfer.    Not to be missed is the assessment that China, rather than the U.S., Japan, or Europe is likely to become the largest and most dynamic ecocar market in the world, and to achieve this distinction faster than anywhere else.

All three Japanese auto makers are already major players in China as the cart to the left (from the April 22 Nikkei article) shows.  In the top panel we see Nissan having pulled ahead of Toyota, selling almost one million units last year, while Honda’s sales were flat YOY at about 600,000 units.  The bottom panel show total world unit auto sales and the growing share of China.  Domestic sales in China last year:  18,510,000 units, up 2.5 percent YOY.

Honda’s proprietary HV technology, called IMA, packages an electric motor and battery that  boost start up and acceleration of a gasoline engine.   The motor and battery are easily retrofitted onto a gasoline engine car, and are being so installed in Civic and Accord sedans, as well as the Fit minicar.  These HV models have sold an aggregate 800,000 units in the U.S. and Europe.

They were all manufactured in Japan.  This year there will be a new Honda HV model emerging from China.  And not just a new model of cars, but a new model of integrating business between Japan and China, this year and for the future.


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