Honda takes hybrids in new direction

FUKUCHIYAMA, Kyoto Pref. (Kyodo) Back in the early 1970s, Honda Motor Co. both impressed and shocked the global auto industry by becoming the first automaker in the world to develop an engine that complied with stringent U.S. emissions controls at the time.

Battery buddies: Honda Motor Co. President Takeo Fukui (right) and GS Yuasa Corp. President Makoto Yoda participate in a groundbreaking ceremony for a lithium-ion battery plant in Fukuchiyama, Kyoto Prefecture, on Tuesday. KYODO PHOTO

Nearly 40 years later, Japan's second-largest automaker remains ahead in the green race for fuel-efficient cars, bringing a megahit, low-priced Insight hybrid hatchback into a market pounded by an unprecedented dive in worldwide car sales.

And now, it is ditching its go-alone policy by forming a joint venture with GS Yuasa Corp. to manufacture lithium-ion batteries for gasoline-electric hybrids that are more compact, lightweight and powerful than existing batteries.

The move marks a departure from Honda's earlier focus on clean diesel engines for medium-size and larger cars to distinguish itself from Toyota Motor Corp., which became a pioneer of the hybrid technology with the launch of the first-generation Prius in 1997.

"It's true that engines have formed the core of Honda's history in the past 50 to 60 years, but in the new age, electric motor technology will become a crucial pillar," Honda President Takeo Fukui told reporters in Kyoto on Tuesday.

Following a groundbreaking ceremony for the joint venture plant, Fukui indicated Honda may install the lithium-ion batteries that will be produced with GS Yuasa in its second-generation Civic hybrid or a hybrid model of the Fit compact expected to be released after 2010.

According to a recent report by JPMorgan Securities Japan Co. in Tokyo, the global hybrid market is expected to expand from 500,000 units in 2007 to 9.62 million units by 2018 with 10 percent of global auto sales expected to be made up of hybrid cars in 2020.

JPMorgan analysts also expect lithium batteries to become mainstream by mid-2010, replacing nickel-metal hydride batteries that currently power most hybrids, including Toyota's Prius and Honda's Insight.

"Regardless of what may come out in the future, lithium batteries for now are the most advanced among existing technologies," said Yasuaki Iwamoto, an auto analyst at Okasan Securities Co.

"In a sense, it now represents a predetermined course for any automaker" to pursue the advanced battery technology, he said.

While its Insight batteries were supplied by Sanyo Electric Co., Honda has often stood out for its reluctance to go along with other domestic rivals in committing to a single partner in the manufacture of next-generation batteries.

Toyota formed a separate battery venture with Matsushita Electric Industrial Co., now Panasonic Corp., back in 1996, while Nissan Motor Co. partnered with NEC Corp. in 2007.

Toyota plans to introduce a lithium-ion battery-powered plug-in hybrid by the end of this year, while Nissan has said it will launch an electric vehicle and a lithium-ion battery-powered hybrid in 2010.

GS Yuasa also has a separate joint venture with Mitsubishi Motors Corp. and Mitsubishi Corp. to develop lithium-ion batteries that will be used to power MMC's plug-in electric vehicle to be launched in the summer.

But despite its late partnership with the Kyoto-based battery maker, many analysts say Honda still remains the only formidable threat to industry leader Toyota in terms of the hybrid market.

"The auto industry is scrambling to promote development of fuel-efficient technology," said Shigeru Matsumura, an auto analyst at SMBC Friend Research Center. "But the only ones now who can make profitable hybrids are Toyota and Honda."

Just as Honda shattered the myth that costly hybrids are for the affluent through the release of the Insight with a sticker price just shy of ¥2 million, both Honda and GS Yuasa are determined to develop affordable lithium-ion batteries partially through aggressive cost cuts in production lines.

Yet, even as Honda follows the general hype over lithium-ion batteries, Fukui made it clear the company is still pouring resources into the development of a fuel-cell-powered vehicle while showing apathy in electric vehicles, a hot product most automakers are eager to roll out in the next few years.

"Toyota has an unparalleled advantage in terms of funds, but in Honda's case, there have been some twists and turns when it comes to the question of where it will allocate its limited resources for the future," Okasan's Iwamoto said.

Even then, Honda has been relatively flexible and swift in redistributing its resources as it sees fit, making a timely shift to next-generation batteries from clean diesel engines as they lost their competitive edge amid higher and volatile oil prices.

And so far, it has narrowly managed to stay in the black for most of the just-ended business year, a feat both Toyota and Nissan have failed to achieve as they anticipate deep losses caused by a stronger yen and the recession.

But that agility will become handier with even experts clueless on who will take the dominant position in the race for next-generation batteries and eco-friendly cars, which may well determine the survival of the automakers.

"Lithium-ion batteries are becoming the current trend, but this isn't the answer to everything and things will continue to evolve, said Junichi Yamaki, a Tokyo-based analyst at Moody's Japan K.K. "Nobody knows who the real winner will be."