Here’s How Honda Motors Can Benefit From Its Scooter Partnership With Yamaha

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As the market for motorcycles in Japan shrinks and emission regulations become more stringent, Honda Motors (NYSE:HMC) announced a partnership with Yamaha Motors to address these challenges. The two companies are discussing a possible business alliance for the Japanese market in the Class I category of vehicles, which includes scooters with a 50 cc engine or electric motor.  Under this partnership the companies are exploring possibilities of the joint development of next-generation 50 cc business scooter models. They are also discussign collaboration on the popularization of electric motors in the class I category. Honda is also likely to become the OEM (original equipment manufacturer) for Yamaha’s 50 cc scooter models before the end of 2018 under this partnership. Pooling resources will enable both companies to reduce production costs in a shrinking market and keep up with the higher emission standards and newer technologies. We believe this partnership can help Honda Motors to reduce production costs in a challenging environment. It will also promote innovation towards popularizing electric motorcycles in the region.

Consolidation Of Production Can Mitigate Cost Increases

Class I motor driven vehicles have seen a decline a demand in Japan over the past few years owing to a difficult riding environment for these vehicles and lack of new model launches. For fiscal year 2016, demand for these vehicles is forecast at 173,000 units, which is 7.5% down from FY 2015.  (Fiscal years end with March.)  This declining trend is likely to continue over the medium to long term. As the demand for these vehicles decreases, production costs are increasing for manufacturers. Through its partnership with Yamaha, Honda is looking to become the OEM for Yamaha’s vehicles in this category, which can help mitigate cost increases due to higher emission standards. We believe this strategy will reduce overall costs for Honda in the production of these vehicles and impact margins positively.

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Developing Electric Motorcycles

According to the news release issued by Honda, Yamaha and Honda will look into possible collaboration in the area of establishing the foundation necessary to address various issues relating to electric motorcycles such as range, charging time, performance and cost. This indicates that both companies will work to develop electric motorcycles in Japan and this could change the landscape of the industry in future.  The global electric motorcycles and scooters market is expected to reach $55 million by 2023 and infrastructure issues such as charging facilities are likely to impact the growth of this segment. Consumers in this segment are not very keen on electric variants due to lack of speed and limited range. However, through its partnership with Yamaha, Honda is looking to address these challenges, which can lead to product innovation and attract consumers to this segment. Stricter emission standards can lead to better adoption of these vehicles.

Even as the Japanese market faces a slowdown in demand for smaller scooters, Honda’s collaboration with Yamaha should enable the company to meet the challenges in this segment. This partnership can lead to long term benefits as both companies explore possibilities in newer segments such as electric motorcycles.

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