How Honda Is Trying To Be Cool Again

Toyota may be the biggest automaker in the world, but a smaller rival and sometimes partner has at times generated more buzz. Honda. A company that got its start putting engines on bicycles, became the biggest engine maker in the world.

Today, it makes nearly every kind it is sold over 400 million motorcycles, supplied some of the most successful Formula One racing teams, and made sports cars that have rocked the automotive world for a generation of fans. It was one of the most innovative and interesting companies in the heyday of Japanese sports cars. I remember the 80s and the 90s when Honda was really on top, and it was really an exciting company.

But today it confronts a totally different industry, one where tech is changing and new powers are rising. The engines that Honda built, perhaps better than anyone else, are losing favor. As Honda, walking away from one of their most appealing traits to benefit their brand or not, we're going to find out the answer to that one way or another.

It's doing very badly in China and is not so far making the transition to electric vehicles quickly enough. And it's hard to kind of figure out what Honda offers that a Mazda isn't going to offer you, or Toyota is not going to offer you, or a Hyundai is not going to offer you. So now the company has a plan to carry it forward, but it could be a hard slog for even a legendary name.

Honda sells about 4 million vehicles globally, making it the seventh largest automaker in the world. But what many may not know is that it makes a whole lot of other things for the fiscal year ending March 31st. The company sold 26.

74 million units of cars, motorcycles, planes, boats, generators, yard equipment and so on. The vast majority of these products come equipped with engines, and that, in many ways, is what Honda is really best at, perhaps even the best in the world. Some will say that Honda is a engine company beyond all else, not really even a car company, but an engine company and making just stellar engines.

But really, I think they're a powertrain company. Honda founder Soichiro Honda made the company's first product by attaching an engine to a bicycle. The other characteristic that defines Honda was Soichiro's passion for motorsports racing.

Specifically, about 12 years after it made its first engines, Honda began building Japan's first fully paved full scale racetrack. It also entered the Isle of Man TT, one of the most famous and dangerous motorcycle races in the world. By 1961 it dominated the race, sweeping the top spots in two different classes.

The motorcycle wins kept coming. Honda was racing cars almost as soon as it began making them, just one year after it had debuted its first concept, it was already entering Formula One. The year after that, it won an F1 race in Mexico.

Its engines have powered many winning drivers and teams, including Ayrton Senna. Jenson Button and Max Verstappen. Soichiro Honda's idea was that the tight constraints and extreme competition of racing would forge superior engineers.

Honda engineers produced crazy, wild and influential inventions. They came up with technologies like Vtec that extracted more horsepower out of small engines without the need for turbochargers. When you look at the cars that Honda was producing in the 90s, they were so ahead of their time the precision, the enjoyment.

I mean, if you've driven a stick shift variable valve timing engine, the VTEC that they had, it was like nothing else. No other vehicle could kind of match that in terms of that precision. A few models have been especially iconic.

The 80s and 90s were a kind of golden age for Japanese sports cars, with Honda right at the center. The Honda S2000, a four cylinder, two seat roadster, became a collector's favorite. The 2009 S2000 CR, a top trim level, was originally priced at about $39,000 in 2022.

One was auctioned off with 123 miles for $200,000. Even base S2000s have sold in recent years for far more than their original MSRP. There were competitors that rode better, that were quieter, that were roomier.

It was just this powertrain that was just so incredible that you were okay for giving everything else, because it just made the car so enjoyable to to drive. I mean, they captured the enthusiast market. Absolutely.

I mean, there was, you know, this whole import scene that almost stemmed from, you know, people modifying their Civics and their Acura Integras that just just no one else. You know, I mean, you look at Mazda, who has always been sporty, never took off like that as the Honda's did. Perhaps the most famous of Honda's high performance cars was the Honda NSX, branded as an Acura in some markets.

A supercar, many would say, better built than a lot of the big names for a fraction of the price. It essentially reset the bar for performance in a category that most people would have never even thought Honda could, let alone would compete in. The Acura NSX.

It's what happens when you chase a dream instead of the competition. I always joked, I said you could almost hear frustration in the engineering rooms across Europe. We got to go back to the drawing board and start all over again.

They had not been challenged like that in decades, and then all of a sudden, they had to all go back and reevaluate what it took to produce a capable sports car, because the NSX kind of blew up everything they'd made up until that point. The Acura NSX, which was really kind of the poster child for really what Honda could produce. Absolutely amazing.

No one else really could touch them. It was this engineering and skill, along with reasonable prices and a reputation for reliability, that propelled Honda. Production peaked at 5.

4 million cars in 2018. As of 2023, the Honda CR-V was the fifth best selling car in the US and the third globally. Four of the world's 25 best selling vehicles were Hondas.

In 2024, Honda was polled as the seventh most recognizable brand. If you look at Car and Drver and Motor Trend and all these mainstream auto magazines, they've always ranked their cars very highly, often higher than Toyota or at least equal. So I think engines are the heart of it.

But it's not just that they have good transmissions, they have good handling. They they produce good cars overall. I think in the American market, which is probably their most important market from an auto perspective.

They're a company with excellent brand equity, particularly on the Honda side, known for high quality, reliability and good fuel economy and names like accord, Civic Pilot and of course CR-V have done very well. 2023, as it was for many others, was a year of record profits. Despite this, Honda faces a suite of challenges.

So I would say Honda is really kind of over the last couple of decades, is kind of searching to kind of find themselves. In 2017 Honda's CEO admitted the company lost its mojo. At the time, it was burdened by a spate of large recalls and a drastic drop in key industry rankings, such as J.

D. Power's Initial Quality Study. Management realized the company had been trying too hard to compete with bigger Japanese rival Toyota, rather than focus on the R&D that made Honda great.

In 2024, some of Honda's biggest worries are rather new. China, once a cash cow for global automakers, has become a much tougher market, especially for foreign brands. But about a third of Honda's total volume is threatened so far in 2024, sales in the country have dropped by nearly 30%.

Sales are cratering in China. They've been forced to close factories. Other troubles are similar to those Honda battled nearly a decade ago.

Recalls, for example, including one for 1. 7 million vehicles over steering defects. Perhaps its biggest challenge is still recapturing that engineering mojo executives were talking about in 2017, and finding ways to stand out in a crowded and competitive field.

When it comes to just the most reliable kind of conservative vehicles, that's Toyota. Toyota owns that. Now when it comes to, we want to make reliable vehicles and they're responsible, but also kind of like stylish and whatnot, we've got Hyundai really a serious competitor in there.

So I think it's been really kind of hard for Honda to really figure out who they are. What I think was Honda's really kind of unique characteristic for years, decades was what I call the FTD, the "fun to drive" factor. And now you drive the modern Toyota, and you drive it back to back with the equivalent Honda model and it's like, these things are about the same.

It's pretty much a razor thin advantage now. And so that's hurt Honda's kind of one strong, you know, consistent claim that I think it had for decades on Toyota. Acura.

I think it's a good brand and good product. But I think it's been a bit more stuck in the mud of you're not quite luxury, but you're not really volume or mass market either. I felt like Acura was supposed to be kind of the more driver-oriented brand for Honda and the more kind of personality driven, and I think that worked to some extent.

But I think one of the problems is that there just wasn't enough differentiation. In an era where all eyes are turning toward EVs, it does less good to be one of the world's best makers of something the world wants less and less of. Now, the problem with Honda is that these incredible manual transmissions that were so smooth and enjoyable to drive, well, not many people are buying manual transmissions anymore.

And when you look at these incredibly efficient, high revving engines that were very reliable. Well, look what's going on in terms of powertrain. How much more efficiency can you get out of an ICE vehicle?

These are very marginal improvements. So you have to meet current demand, which means you have to keep investing, but you can't really anticipate major advances in productivity or function. So that's a real burden for everybody, including for Honda.

But if your biggest strength is engines, then that is a bit daunting. It seems kind of tragic for what many consider to be one of the best engine builders on the planet, and one of the best engineering companies on the planet to walk away from what is such a strong identity for Honda and an appealing identity for Honda. And I think maybe the leadership thinks this is like the only choice they've got.

In EVs, it's trailing rivals. It was an early innovator, releasing an EV in 1988. In 2017, it came out with an electric version of its Clarity sedan.

But that model could only get 89 miles on a charge and was only available in California and Oregon. For comparison, the Tesla model three had a range of 220 to 310 miles, depending on the trim. As of 2024, Honda sold six EV models around the world.

The first was rolled out in China in 2022. Toyota takes and arguably deserves the credit for mainstreaming the hybrid vehicle, starting with its Prius. But Honda was technically the first company to introduce hybrids to North America, and it remains the second biggest seller of them today.

Hybrid sales have been booming as of late. The Toyota-Honda camp believed that it would rely on hybrid vehicles now and hydrogen vehicles in the future, whereas the Nissan and Mitsubishi camp believed that we were going to be able to make a transition to battery electric vehicles that, as you know, has turned out to be a rather ambiguous outcome. Honda wasn't really poised to go and jump into that area of electrification and technology, because they were really this back to the basics.

Amazing high revving powertrain engines and great transmissions, and it just hasn't really translated because of how the market has moved. But even if the world is somewhat going to be at some rate of speed, sometimes when everyone zigs, do you want to be the one who zags? Maybe what you do is you keep producing really fuel efficient engines and or hybrid drivetrains and offer that as an alternative to this EV direction, because I still think there are plenty of consumers who are not ready to jump on the bandwagon, not ready today, and may not be ready for another 10 or 15 years.

The company has relied on partnerships to catch up its first high volume EV for the North American market. The Prologue wasn't released until 2024. That product, along with a higher end similar SUV called the Acura RDX, were built by General Motors on GM's Ultium platform.

Then the two companies broke up about a year and a half after partnering, scrapping a plan to make a cheaper EV altogether. Since then, Honda has thrown itself into more partnerships to develop EVs, software and whatever else. There is a broad deal with Nissan and Mitsubishi.

An alliance with Sony has produced a prototype of a very tech heavy EV called the Aphylla. Sony is not the Sony of 25 years ago. Its brand is tarnished compared to Samsung and even to Chinese brands now, so they're not as glittering and partner as they would have been 15 years ago.

And again, they're moving too slowly. Nissan is not a strong partner and Mitsubishi is even weaker. So is this going to be a help or a hindrance?

To be clear, Honda does have an in-house EV strategy. Its first of a new crop of models will be in Acura, which it will produce in Marysville, Ohio, in late 2025. It also plans a line of EVs under the Honda name the Zero series.

Production on the flagship model. The saloon is scheduled for its Ohio factories in 2026. The saloon does promise some true innovation an ultra thin battery pack and compact powertrain components, along with other features, give the car a low slung design and a low center of gravity, which improve handling and performance.

And while still giving a lot of interior room tech borrowed from Honda's F1 and hybrid programs, reduce weight by about 100kg. On the manufacturing side, Honda is investing $65 billion in electrification and software, up from an earlier $40 billion commitment in North America. The company and its joint venture partners are spending $11 billion to build up EV facilities in Ontario, Canada.

In Ohio. Honda is spending $3. 5 billion on a battery plant with partner LG Energy Solutions, with more to come.

It's also forking over $700 million to retool three Ohio Honda plants for battery pack production and EV assembly, and another 124 million is going to a testing facility with a wind tunnel for aerodynamics and noise reduction. There's a lot going on with Honda on EVs now. I mean, if you were to look back a few years ago, you say, well, they started too late.

And for a while that looked bad. But then EV demand right now is has slowed considerably compared to a few years ago. I don't think people quite acknowledge how rapidly prices are coming down.

Charging speeds are improving and range is extending. That's going to be a huge transformation. The EV revolution is coming.

It's not coming quite as fast as people had hoped, but it is coming. So it's not clear to me that they can keep up with that. Honda did not grant an interview to CNBC in time for this piece, but said that though it's committed to EVs, the balanced approach to offering ice, hybrid, electric and battery electric vehicles is the strategy we have pursued from the start and reflects our view that this race is a marathon, not a sprint.