Honda’s Forthright Reset

The level of candor as Honda announces a big loss shows a company with executives who are willing to admit when they were wrong

By Gary S. Vasilash

Many automotive executives of late have announced their companies are taking it on the chin when it comes to their EV plans.

None has been as forthright as Toshihiro Mibe, president and CEO of Honda Motor Co.

Mibe announced that despite the company’s best efforts to achieve carbon neutrality by 2050, particularly through the sale of electric vehicles, things aren’t working out as planned.

And consequently, Honda anticipates losing between $5.1 billion and $7 billion for this financial year.

“Honda made a decision to shift our strategic direction toward the popularization of EVs based on our belief that EVs will be the optimal solution from a long-term perspective,” Mibe said.

But when billions are being lost, there needs to be a change in that direction, at least for the time being.

And in the case of Honda, that shift includes the cancelation of three vehicles that have yet to go into production, the Honda 0 SUV, Honda 0 sedan, and Acura RSX—all EVs.

Mibe explained the reasoning behind this move with a thoroughness that is often lacking when announcements of this type are made by OEM execs. They telegraph their messages.

Mibe clearly understands that there are lots of people who are affected by this decision and they deserve an explanation (and as you are reading this, you deserve a large part of this explanation):

“[The] demand for EVs has declined significantly, mostly in North America. Despite all measures we have taken, it will be extremely difficult to ensure profitability of our EV models. Moving forward into the production and sales phase under the current conditions would likely result in further losses over the long term. We are fully aware that many Honda associates, business partners, and those who are on the front lines of sales have devoted great passion to these EV models, and many customers have high expectations for them. Therefore, this decision was by no means an easy one. Nevertheless, we made this decision with a heavy heart, believing that introducing these three models to market without an outlook for business viability may lead to an early discontinuation of production, which could cause a concern and inconvenience to our customers as a result of potential damage to the value of the Honda brand and other issues. We also believe introducing these models will not be the best for the future of Honda.

“We take this decision very seriously, and we will address each affected suppler and partner individually and with due care.”

While some might dismiss this is faux sincerity (“we made this decision with a heavy heart”), the extent to which he articulates the consequences shows the heavy heart was associated with a thinking brain.

Notice the focus on the people. The people who work at Honda. The suppliers to Honda. The Honda sales people.

And importantly: the Honda customer.

Mibe understands that if the vehicles went into production and then, due to the lack of uptake, there was cancellation of the programs, the people who bought those models would have assets in their driveways that lose significant value due to the reputational loss that would smear the Honda name.

It is better to get in front of things like this. But it is often the case that too many companies hope people don’t notice. They do.

Part of this, of course, is what has happened in the U.S. market.

This includes: (1) the elimination of EV tax credits, (2) the elimination of regulatory penalties regarding fuel economy, and (3) tariffs.

The first two have resulted in a significant decline in EV demand. The latter has consequences on all models.

Don’t forget that the Supreme Court decision notwithstanding, there are still 50% tariffs on steel and aluminum. As those are Section 232 tariffs—predicated on “national security”—those cannot be judicially overturned.

But Mibe also acknowledged that things aren’t going so well for Honda in China and in ASEAN (Southeast Asian) markets.

Although the EV market in China isn’t contracting like in the U.S., Honda recognizes the Chinese consumer is more interested in software features in their vehicles—EV, EREV, hybrid, or ICE--than hardware.

Mibe:

“[P]roduct launches, electrification, and application of more intelligent technology have progressed at a speed beyond our expectations. As a result, we are facing strong competition from emerging OEMs, and the competitive environment has become increasingly challenging.”

Here’s something you’re not going to hear from 99.9% of automotive execs:

“In this competitive environment, Honda was unable to deliver products that offer value for money better than that of newer OEMs, resulting in a decline in competitiveness.”

This isn’t Mibe saying “we’re humbled,” but actually admitting others are doing a better job—and those others include companies that don’t have laurels predicated on nothing other than longevity to rest on, and so they don’t rest, they compete.

Credit to Mibe and his colleagues at Honda for recognizing (although given the $5.1 billion to $7 billion loss it is hard for them not to) the changing environment, not only the markets themselves but those who are competing in them.

Whether their future plans (Mibe: “what is expected of the Honda management team now is not to justify the past, but to face this reality squarely and transition our automobile business to a structure that enables mid- to long-term growth”) will be effective remains to be seen.

But their honesty and clarity certainly work in their favor.

Incidentally: the top executives at Honda will be taking a voluntary 20% to 30% cut in compensation for three months.

While that certainly won’t have much of an effect on the losses, it certainly shows the people at Honda that there is understanding at the top of the company regarding who is responsible for making decisions.