Honda's EV Strategy: The Honda e in Japan and EU, Self-driving EV development with GM

FY2020 forecast revenue JPY 13 trillion (-12.6%), operating profit JPY 420 billion (-33.7%)

2020/11/30

Summary
Announced plans to "achieve carbon neutrality by 2050", withdrawing from F1 and investing resources in EVs
Honda's electrification strategy
N. American market: Jointly developing two EVs with GM, as well as the development of a self-driving EV
EV and PHEV strategy in China
Launching the Honda e in the Japan and European markets in 2020
Performance: Forecasting operating income of JPY 420 billion yen (down 33.7% from FY2019) for the full year of FY2020
LMC Automotive Sales Forecast: Honda Group’s sales in 2023 will be 5.25 million units

Summary

Honda e launched in the European and Japanese markets
(European specifications, Source: Honda UK)

This report covers Honda's EV strategy, its financial results for the second quarter (Q2) of 2020, and its full-year earnings forecast for fiscal 2020.

As the automotive industry faces a once-in-a-century turning point, Honda announced in October 2020 that it will aim to "achieve carbon neutrality by 2050" in addition to its existing goal of "electrifying two-thirds of global sales by 2030" as its most important environmental initiative. The company will focus its management resources on the research and development of core carbon-free technologies such as those associated with fuel cell vehicles (FCVs) and battery electric vehicles (BEVs). Therefore, the company has decided to end its participation in the FIA Formula One World Championship (F1) as a power unit supplier after the 2021 season.

Specifically, the company will: 1) develop two EV models for the North American market in partnership with GM, and develop a self-driving EV for MaaS in partnership with GM and Cruise; 2) jointly develop EVs with its two local joint ventures in China, as well as develop its first Honda-branded EV, the "Honda SUV e: concept” which was announced at the Beijing Motor Show, and 3) by the end of 2020 launch to the Japanese and European markets the “Honda e” equipped with a variety of advanced technologies.

Honda's financial results for the first quarter (April-June) of fiscal year 2020, due to the impact of the COVID-19 pandemic, reported sales revenue of JPY 2.1237 trillion (down 46.9%) and an operating loss of JPY 113.6 billion (compared to a profit of JPY 252.4 billion in the same period of the previous year).

In Q2 (July-September), Honda group sales volumes increased by 1.0% and sales revenue decreased by 2.1%, but operating profit recovered to JPY 282.9 billion, up 28.5%, due to the recovery of markets especially China and the U.S., and a reduction in selling, general and administrative (SG&A) expenses. As a result, in the first half (April-September) of the fiscal year, the Honda group's sales volume was 2.045 million units (down 20.2%), sales revenue was JPY 5.7751 trillion (down 25.2%), and operating profit was JPY 169.2 billion (down 64.2%), reducing the decline in the group’s financial performance.

Although the market outlook remains uncertain, the full-year forecast for fiscal 2020 reflects the business structure that Honda built in the first half of the year, with Honda anticipating to exceed all profit related items as of the August forecast, with a global sales volume of 4.6 million units (down 4.0% from fiscal 2019), revenue of JPY 13.05 trillion (down 12.6%), and operating profit of JPY 4.2 trillion (down 33.7%). The average exchange rate for the period is expected to be JPY 106/USD.

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