Honda could lose out to local rivals in India market

China, a market that was once core to their global growth plans, has become a wasteland for their petrol-powered lineups as electric vehicles grew from 6.2% of sales in 2020 to 45% last year.

By David Fickling

For the world’s carmakers, the inexorable rise of Chinese electric vehicle-maker BYD Co. and its local rivals in recent years has been a brutal lesson in disruptive innovation.

China, a market that was once core to their global growth plans, has become a wasteland for their petrol-powered lineups as electric vehicles grew from 6.2 per cent of sales in 2020 to 45 per cent last year.

The foreign brands that dominated in the 2010s have been devastated. Sales by Ford Motor Co. and Nissan Motor Corp. — both top-10 brands in 2017 — have since fallen by 81 per cent and 45 per cent respectively. Ford dropped behind barely-known local electric marques such as Zeekr and Deepal. General Motors Co. is facing extinction, with Buick down 66 per cent over the period and Chevrolet slumping 92 per cent, while Honda Motor Corp.’s sales have dropped 40 per cent. BYD, the 21st-biggest carmaker in 2017, last year sold more cars in China than the 10 major Japanese brands put together.

Get ready to see the same pattern play out on two wheels.

Right now, scooters and motorbikes are a market where Japan is in the ascendant. With rising incomes across India and Southeast Asia, the sector is booming: McKinsey & Co. reckons sales will grow at 8.7 per cent a year through 2029, compared to about 1 per cent this decade for passenger cars. Honda already has 40 per cent of this global market, and reckons it can grow it to 50 per cent as sales rise to 60 million bikes by 2030. Its two-wheeler business is seen as the jewel of the on-again, off-again merger between Honda and Nissan.

That makes the eccentric and timid nature of its electrification plans confounding.

The most important plank of this shift was announced in India late last year with the rollout of the Activa e:, a battery-powered version of its top-selling local bike. Weirdly, it doesn’t allow owners to charge it up at home, forcing them to instead sign up to a battery-swapping service that will only be available in Bengaluru, Delhi and Mumbai.

It’s hard to comprehend the logic of this. One thing we know about the EV-curious is that they’re stricken with range anxiety, the worry that they’re going to run out of charge halfway to their destination. Imagine adding to that concern by making your buyers dependent on a network of distributors that may be too far away, or closed, or out of stock when you roll into their carpark. Want an e-bike for buzzing around the city that you could still take out to the country once in a while to visit family? Good luck if Honda hasn’t set up a battery station in your home village.

The Activa e: is a “bizarre bet,” the Morning Context, a local financial news site, wrote in January. “If it fails, it will hurt a brand that took the company over two decades to build.” Ownership costs (a key consideration given how many Indian two-wheeler owners are delivery drivers and taxi riders who have to make every rupee and paise count) also look uncompetitive once you sign up to Honda’s battery-as-a-service subscription, the site estimated.

It’s not that Honda lacks the technology to provide the benefits of quick battery-swapping alongside those of home-charging, either. The CUV e:, its parallel model for Southeast Asia and other markets, has precisely that ability. Instead, the company is looking to gamble its leading position in the world’s biggest two-wheeler market over a half-baked idea.

Local rivals aren’t standing still. Ola Electric Mobility Ltd., which is laying off employees and bleeding losses after an initial public offering last year that valued it at $4 billion, still has a quarter of the market. Its impressive array of models ranges from hulking motorbikes to ones aimed at delivery drivers, and cost about a third the price of an Activa e:.

Established local rivals, rather than Honda, provide the most aggressive competition to Ola.

At TVS Motor Co., electric two-wheeler sales increased by 57 per cent from a year earlier in the December quarter. “We want to look at global markets with our EV products,” Chief Executive Officer K.N. Radhakrishnan told investors Jan. 28. Southeast Asian competitors are looking equally aggressive. Vietnam’s VinFast Auto Ltd. wants to tie up with an Indian manufacturer to gain entry into the market, its Asian CEO Pham Sanh Chau told the Economic Times.

There is a golden opportunity that’s about to be squandered. BloombergNEF estimates EVs will comprise as many as half of two-wheelers sold in 2030, but Honda is aiming to produce just four million of them — a far cry from its dominant share of internal combustion engines. The carmakers that have been wrong-footed by the rise of Chinese electric cars can at least plead that nothing of the sort had ever happened before. For Honda, its grim future is already staring it in the face.