Honda and Hybrid Electric Vehicles:

Honda was founded in Hamamatsu, Japan, by Soichiro Honda in 1946 as the Honda Technical Research Institute. The company began as a developer of engines for bicycles, but by 1949 it had produced its first motorcycle. In 1959, Honda entered the U.S. automobile and motorcycle market by opening the American Honda Motor Company. A few years later, in 1963, Honda released its first sports car, the 5500, in Japan. Honda Motor Co. Inc. grew rapidly to become one of the largest automobile companies in the world. Its "glocalization" strategy of building factories around the world that would meet the needs of local customers had resulted in a total worldwide presence of more than 100 factories in 33 countries. While other auto manufacturers engaged in a frenzy of merger and acquisition activities in the late 1990s, Honda maintained its independence. Honda has grown into one of the world's largest automobile manufacturers and has also evolved into one of the most respected global brands.

In 1997, Honda Motor Company introduced to Japan a two-door gas/electric hybrid vehicle called the Insight. The Insight's fuel efficiency was rated at 61 miles per gallon in the city, and 68 miles per gallon on the highway, and its battery did not need to be plugged into an electrical outlet for recharging. By 1999, Honda was selling the Insight in the United States, and winning prizes from environmental groups. In 2000 the Sierra Club gave Honda its Award for Excellence in Environmental Engineering, and in 2002 the Environmental Protection Agency rated the Insight the most fuel-efficient vehicle sold in the United States for the 2003 model year. By August 2005, Honda had sold its 100,000th hybrid to retail customers. Developing environmentally friendly automobiles was not a new strategy for Honda. In fact, Honda's work on developing cleaner transportation alternatives had begun decades earlier. Honda had achieved remarkable technological successes in its development of solar cars and electric cars and was a known leader in the development of hybrid cars. Despite apparent enthusiasm over environmentally friendly technologies, market adoption of environmentally friendly vehicles had been relatively slow, making it difficult for Honda and other manufacturers to make a profit.

While Toyota was the first to market hybrid cars (Prius distributed in Japan in 1997), Honda was the first to market hybrids in the United States. The Insight was released in 1999 and quickly won prizes. Though both vehicles use a combination of electricity and gasoline for power, they do not use identical hybrid designs. Honda's hybrid models are designed for fuel efficiency, which is different from Toyota's hybrid vehicles, which are designed for reduced emissions. These differences in design goals translate into very different hybrid engine architectures. In addition, unlike the Insight, the Prius is a four-door midsize sedan with back seats for extra passengers, something that the original two-door Honda Insight lacked but was later offered on hybrid Civic and Accord models.

Though the hybrid market had exhibited rapid growth, the numbers of hybrid vehicles sold were still very small compared to traditional automobiles. Adoption of hybrid designs by consumers and by U.S. auto manufacturers had been slow because of uncertainty about the direction engine design would go in the next few years. Would one hybrid design rise to dominate the others? Would hybrids be quickly displaced by other alternative fuel technologies such as fuel cells, fully electric vehicles, clean diesel, or hydrogen combustion? Sales of hybrids were further hindered by consumer ignorance regarding hybrid technology: As of 2004, 50% of U.S. consumers still believed that hybrid cars require battery regeneration via electric plug. Hybrid cars were also expensive to produce relative to traditional automobiles.

At Honda, being an environmental leader means never uttering the words "It can't be done." That's why for more than two decades Honda has led the way in balancing what consumers want with what the environment needs. Technologies change over time-but our commitment to the environment never will. Honda Corporate Web Site Honda's strategy had consistently, emphasized innovation, independence, and environmental friendliness. In 1972, Honda introduced the Civic, which became an immediate success, ranking first in U.S. fuel-economy tests for four consecutive years starting in 1974. Through the 1980s and 1990s, Honda made several advances in environmentally friendly transportation. In 1996, Honda introduced a record breaking solar-powered car (a prototype not designed for commercial production), and in 1998 it introduced a completely electric vehicle. Though the electric car was not a commercial success, developing the electric vehicle built a foundation of expertise that Honda would later employ in its development of fuel cell technology.

Honda's decision to not collaborate with anyone in Research and Development was very different to the licensing and joint venture strategies pursued by Toyota. Toyota had aggressively pursued collaboration agreements for its hybrid technology and had developed over 1,000 patents on hybrid-related technology as of 2008. Toyota also promoted its hybrid technology design by licensing the technology to Ford and Nissan. Honda's independence both gave it more control over its technological direction and ensured that the accumulated learning remained in-house. This in-house know-how could lead to sources of competitive advantage that were difficult for competitors to imitate. By the end of 2005, Toyota's hybrids were outselling Honda's hybrids by about three-to-one. In 2006, Honda decided to discontinue the Insight and the hybrid Accord, though its hybrid Civic continued to succeed.

In early 2009 Honda announced that it would introduce a new version of the Insight-one that had four doors and could hold five passengers, making it far more practical than the original two-seater Insight and positioning it more directly against Toyota's Prius. Many people thought the new Insight had great potential to target the thrifty eco-consumer. "Clean diesel" refers to diesel fuel with significantly lowered sulfur content. As a result of tougher emission standards, by 2006 most petroleum-based diesel fuel in the United States and Europe was of this low-sulfur type. The cars also offered more power than many conventional gasoline engines. The cars had long been popular in Europe, thus many automakers such as Volkswagen, Audi, and Mercedes, already had versions available. In 2009, automakers such as Volkswagen, Nissan, and Toyota were promising to deliver diesel electric hybrids that would attain fuel efficiency levels of close to 70 miles per gallon. In 2008 the Environmental Protection Agency (EPA) declared the natural gas-burning Honda Civic GX the cleanest combustion engine vehicle in the world. The Hybrid Civic GX was the only factory produced natural gas passenger car available in the United States.

Question

Assess whether Honda is trying to destroy / preserve / develop its technology through its continuous car innovations. Support your answer with evidence from the case (5 marks)