Here’s How Honda Motors Is Looking To Drive Revenues From The Electric Vehicles Segment

As an increasing number of regulators push for stronger emission standards and incentivize “green” vehicles, automakers are looking to stay ahead of the competition in the race for electric vehicles. In an attempt to capture the growing demand for electric vehicle motors, recently Honda Motors (NYSE:HMC) tied up with Hitachi’s auto parts subsidiary to form a joint venture with the goal of producing and selling motors for electric vehicles. According to Honda’s management, since producing motors is a capital intensive process, the company is looking to manufacture these at a large volume so that they can be supplied to other players, in addition to using them for its own purposes. The company is looking to tap into Hitachi’s expertise in volume production for this venture. As Honda looks to enter into the “green” vehicles segment and drive revenues from this new, high potential but uncertain market, we believe a joint venture ensures that the risk is shared by both players. An efficient production process via the joint venture should help the company to scale up production and drive revenues when the segment picks up in the long term.

Electric Vehicles Might Represent 35% of Total Light Duty Vehicles In The Long Term

Experts believe that electric vehicles will grow rapidly in the next decade, though the rate of growth is uncertain. Several other green vehicle technologies such as fuel cell vehicles are being explored by some nations such as Japan, leading to alternative low or zero emission vehicles. However, China is promoting electric vehicles as the “eco car” and it is likely to become the largest market for electric vehicles. A report by Bloomberg New Energy suggests that by 2040 sales of electric vehicles will hit 41 million representing 35% of new light duty vehicle sales. This will be driven by continuous reduction in battery prices which bring down the prices of electric vehicles below that of conventional fuel vehicles by 2025.

Newer technologies and changing consumer preferences are transforming the automotive landscape. Automakers are looking to develop a strong foothold in this new landscape with a focus on vehicles with clean fuel and self-driving cars. Honda Motors is looking to generate revenues by building an efficient and scalable manufacturing process which can produce electric motors at lower costs, benefiting its own venture into this segment and driving revenues through selling these motors to other players. We believe as electric vehicles become more mainstream in the long term, this venture should drive revenues for Honda Motors.

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