Honda throws caution to wind for piece of China EV market

Honda Motor has announced that it will provide its core hybrid car technologies to a number of Chinese automakers, eyeing to boost sales in the world's largest car market, a report said Sunday.

The move is sure to raise anxiety and criticism in Japan as many companies are very uneasy about investing in China or even promoting Chinese to senior management positions in their Chinese subsidiaries due to fears of theft and copying of the key proprietary technologies.

However, with sluggish worldwide sales, Honda sees the potentially lucrative China market as a good opportunity to aggressively push its hybrid vehicle technologies and turn the corner, the Japanese business daily Nikkei reported.

"We hope that other automakers will use our IMA technologies," one Honda executive told the Nikkei, referring to Honda's hybrid system. "We want to set industry standards for hybrid technologies in the world's biggest car market."

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

Not to be left out, Nissan Motor Co CEO Carlos Ghosn said last year that his company would produce batteries and electric motors for emission-free vehicles in China. The Japanese automaker, the largest Asian car manufacturer in China, also plans to almost double its annual sales in China to 2.3 million vehicles by the end of 2015.

Having three of the world’s leading makers of ecocars making major, strategic commitments to the China market involving leading-edge technology transfer which would have been unheard of not so very long ago. Their assessment is that China, rather than the US, Japan, or Europe is likely to become the largest and most dynamic ecocar market in the world, and will achieve this distinction faster than anywhere else.

A report released last week by global management consulting firm McKinsey & Co says China has an opportunity to lead the world in electric vehicles (EV) if the industry shifts more focus from solely battery-EV to concentrate on plug-in hybrid EVs as a mid-term solution to prop up lackluster sales of EVs last year.

China has fallen well short of its previously announced EV aspirations, with only 6,000 units produced in 2011, only 0.03 percent of the year's total output and well under the 500,000 industry capacity it had slated to come on stream by 2015, according to the report. The 16,000 charging piles built in 2011 are well shy of the industry's target of 400,000 units by 2015.

The US company's report, Recharging China's Electric Vehicle Aspirations, was based on interviews with more than 30 policymakers, industry leaders and experts.

"Despite challenges and initial setbacks, electric vehicles are here to stay in China, as a better solution to solve China's energy and pollution challenges," Axel Krieger, partner in McKinsey's Beijing office and leader of McKinsey's China Auto Hub was quoted by China Daily.

"Moreover, as there is no shortcut to battery electric vehicles, plug-in hybrids can be the right bridge to the long-term goal of pure electric vehicles' take-off," he said. He believes that by producing plug-in hybrids, China's automakers will have a better chance at kick-starting EV sales.

McKinsey estimated that plug-in electric vehicles with 15 kWh batteries will become cost competitive with internal-combustion engine vehicles in China by 2017. Plug-ins with smaller 10 kwh batteries could reach cost parity with combustion engine vehicles as soon as 2014.

McKinsey's research also suggested that public transport fleets such as bus fleets are likely to be in the first wave of EV adopters in China, rather than consumers. McKinsey estimated that the total electric bus fleet could grow to 100,000 units by 2016.

"China still has a very good chance of realizing its aspirations to become a global leader in electric vehicles. Achieving this goal will require stakeholders across the electric vehicle industry value chain to calibrate both their expectations and their actions," said Krieger.

The State Council last week adopted the long-awaited industry development plan on energy saving and new energy vehicles, saying that pure electric vehicles and plug-in hybrid vehicles will be the strategic orientation for China to ease its energy and environment challenges.

This news will certainly be music to the ears of Honda’s board members, but how markets react may be a different tune altogether, especially if key proprietary technologies are suddenly seen to be popping up from some very unlikely sources, as other ultra-high tech industries have experienced in China.