Honda Hopes Fuel-Efficiency Drive Will Recoup Some Market Share
Honda (NYSE:HMC) has drawn up a new strategy to shore up its market share, which has been dropping for much of this year because of supply chain disruptions after the March 2011 earthquake in Japan and the recent Thailand floods which constrained its production capacity. In the Tokyo Motor Show, Honda indicated that fuel-efficiency will be the centerpiece of its strategy to better compete with fuel efficient line-up of competitors such as Toyota (NYSE:TM), GM (NYSE:GM), Ford (NYSE:F) and Tesla (NASDAQ:TSLA). The company has named its initiative ‘Earth Dreams Technology’. Even though we believe that improved fuel-efficient technology will improve Honda’s competitiveness and support market share growth, but execution remains key and it remain to be seen how quickly Honda is able to catch up with the technology that other major automakers have acquired so far.
Our price estimate of $37 for Honda’s stock is around 20% above the current market price.
See our complete analysis for Honda stock here
What Honda is aiming for?
Honda is aiming to become an industry leader in fuel-efficiency in every category of its vehicle line-up within three years. Also, by 2020 it aims to cut CO2 emissions across all its products by 30 percent, relative to emission figures for 2000. [1] To achieve these goals Honda is targeting six different technologies, which include improvements to its diesel engine lineup, two-motor hybrid system and electric powertrains.
Diesel Engines
Diesel engine has traditionally been one of Honda’s weak points but is very important to gain market share in markets such as Europe and India, which favor oil-burners over gas engines. [2]
Two motor hybrid system
Honda is also targeting the hybrid car market which has been dominated by its rival Toyota so far. Honda has already developed its two-motor hybrid system which will be included in its next-generation hybrid cars from next year. [3] A Japanese news site explains the functioning of the new system – At start-up and low speeds, the electric motors will drive the car. During acceleration the car will kick into “hybrid” mode, using both its gasoline engine and electric motors, while at high speeds the gasoline engine will take over completely.
Electric powertrains
Finally, Honda hopes to give electric vehicle manufacturers like GM, Nissan, Ford and Tesla a run for their money by developing its own electric powertrain. Honda will launch its own electric vehicle – Fit EV, by March 2012 which will compete with the likes of Nissan Leaf, Ford Focus EV, Chevy Volt and Tesla Model S. [4] With a charging time of under 3 hours (240V U.S. electric source) and range of 123 miles, many eco-conscious customers will likely find Honda’s offering interesting. [1]
We expect that improvement in fuel-efficiency across Honda’s vehicle line-up will help the company recoup some of its lost market share going forward. But Honda is a little late to the game and its technology will face increased competition in the market as most other major auto-manufacturers have already been focusing on developing fuel-efficiency technology for some time and have taken lead in various areas.
You can drag the trend lines in the modifiable charts above to see the impact of these trends on Honda’s stock value.
Understand How a Company’s Products Impact its Stock Price at Trefis.
Notes: