Honda Hybrid Electric Vehicles 3

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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, called the Dream. 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 S500, in Japan. Honda Motor

Co. Inc. grew rapidly to become one of the largest automobile companies in the world. Its

globalization 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. Furthermore, while other auto manufacturers engaged in a frenzy of merger andacquisition activities in the late 1990s, Honda steadfastly maintained its independence.

Honda has grown into one of the worlds 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 Insights 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 accolades 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 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 an acknowledged leader in the development of hybrid cars. Gaining

mass-market acceptance of such alternatives, however, had proved more challenging. Despite

apparent enthusiasm over environment friendly vehicles market adoption of environmentally

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friendly vehicles had been relatively slow, making it difficult for automakers to achieve the

economies of scale and learning curve effects that would enable efficient mass production.

Some industry participants felt that the market was not ready for a mass-market hybrid;

Honda and Toyota were betting otherwise, and hoping that their gamble would pay off in the

form of leadership in the next generation of automobiles.

Hybrid Electric Vehicles

Hybrid electric vehicles (HEVs) have several advantages over gasoline vehicles, such as

regenerative braking capability, reduced engine weight, lower overall vehicle weight, and

increased fuel efficiency and decreased emissions. First, the regenerative braking capability

of HEVs helps to minimize energy loss and recover the energy used to slow down or stop a

vehicle. Given this fact, engines can also be sized to accommodate average loads instead of

peak loads, significantly reducing the engine weight for HEVs. Additionally the special

lightweight materials that are used for the manufacture of HEVs further reduce the overall

vehicle weight of the vehicle. Finally, both the lower vehicle weight and the dual power

system greatly increase the HEVs fuel efficiency and reduce its emissions. As of 2004, gas-

electric hybrid engines were delivering, on average, fuel economy gains of about 25 percent

over regular combustion engines.

Hondas Hybrid Engine

While Toyota was the first to market hybrid cars (Prius debuted in Japan in 1997), Honda

was the first to market hybrids in the U.S. The Insight was released in 1999 and quickly won

accolades. Though both vehicles use a combination of electricity and gasoline for powers

they do not use identical hybrid designs. Hondas hybrid models are designed for fuel

efficiency, in contrast to Toyotas hybrid vehicles, which are designed for reduced emissions.

These differences in design goals translate into very different hybrid engine architectures.

The Honda Insight was designed as a parallel hybrid system, where the electrical power



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system and the gasoline power system run in parallel to simultaneously turn the transmission,

and the transmission then turns the wheels. The electric motor in the Insight aids the gas

engine by providing extra power while accelerating or climbing, and supplements braking

power. The electric motor can also start the engine, obviating the need for a traditional starter

component. The Insights electric engine is not powerful enough alone to propel the car;

therefore, the gas engine must be running simultaneously. The Insight mileage ratings were

61 mp in cities and 70 mpg on highways, with 060 miles per hour acceleration in

approximately 11 seconds. At lower speeds the electrical components provide the extra

horsepower to propel the car, reducing the gas engines effort and thus saving fuel. The

batteries are regenerated by capturing energy during braking or slowing and through standard

electricity generation provided by the traditional generator component in a standard car

engine. Therefore, one does not have to plug in the Insight, or any of Hondas hybrids, to

recharge the batteries.

In contrast to the parallel system configuration, a series hybrid system is designed to have a

gas-powered engine turn a generator, which in turn powers

an electric motor that rotates the transmission or recharges the batteries; the gas-powered

engine does not directly power the vehicle. The Toyota Prius was designed to reduce

emissions during urban driving, and itsdesign incorporates both parallel and series system

elements, To reduce emissions, the Prius utilizes a power-train design in which the car runs at

its most efficient speed by virtue of a power split device that links the gas engine and

electric motor through the generator with a parallel system design, but allows the car to run

exclusively on electrical power at lower speeds, like to a pure series system design.

Consequently no gas is burned and emissions are negligible under these conditions. Thus, for

low-speed urban traffic, the Prius meets its engine design goal of reduced emissions, with

better mileage ratings than the heavier Honda lnsight. 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.

Obstacles to the Adoption of Hybrids



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Though the hybrid market had exhibited rapid growth (see table 3.1), 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 or hydrogen combustion? Many people believed that hybrids

would be a short-lived phenomenon, quickly replaced by fuel-cell-powered vehicles. Daimler

Chrysler, for example, commented in one of its recent SC filings that its managers regard

hybrid vehicles as an intermediate step, as a bridge between the combustion engine and the

fuel cell. Sales of hybrids were further hindered by consumer ignorance regarding hybrid

technology: as of 2004, 50 percent 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. While Honda

charged a sales price for the Insight that was comparable to its non- hybrid counterparts-

around $20,000, depending on optionsit was estimated that Honda lost as much as $8,000

per car when the hybrids were originally launched, as a result of insufficient volume to

achieve economies of scale.

Total Hybrid Electric Passenger Vehicle Sales in United Sates, 2000-2004

Year Unit sales

2000 9,367

2001 20,287

2002 35,691

2003 47,525

2004 83,153

Strategy at Honda



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At Honda, being an environmental leader means never uttering the words It cant be done.

Thats why for more than two decades Honda has led the way in balancing what consumers

want with what the environment needs. Technologies change over timebut our

commitment to the environment never will.

Honda Corporate Web Site, August2003

Hondas strategy had consistently emphasized innovation, independence and environmental

friendliness. In 1972, Honda introduced the Civic, which became n immediate success,

ranking first in U.S. fuel-economy tests for four consecutive years starting in 1974. Through

the 1980s and 1990s, Honda made a number of advances in environmentally friendly

transportation. In 1986, it developed the first mass-produced four-cylinder car that could

break the 50 miles per gallon barrier, the Civic CRX-HF. In 1989, it became the first auto

manufacturer in the US to use solvent-free paint in its mass production facilities. In 1996,

Honda introduced a record-breaking soIar-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. Fuel

cells were considered to offer great potential for the eventual replacement of combustion

engines (DOE, January 2002).

In Hondas research and development of its hybrid engine systems management decided to

keep collaboration to a minimum, essentially going solo with a risky but potentially

profitable strategy to change basic automotive power design for the first time in a century.

Hondas decision to not collaborate stood in stark contrast to the licensing and joint venture

strategies pursued by Toyota. Toyota had aggressively pursued collaboration agreements for

its hybrid technology and had accrued over 1000 patents on hybrid-related technology as of

2006. Toyota also promoted its hybrid technology design by licensing the technology to Ford

and Nissan. While some industry observers were perplexed by Hondas decision to avoid

collaboration, others pointed out that Hondas independence both gave it more control over

its technological direction and ensured that the accumulated learning remained in-house.

Consistent with this, Hondas management insisted that keeping development exclusively in-



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house compelled Honda to understand all aspects of a technology, from its strengths to its

weaknesses, This in-house know-how could lead to sources of competitive advantage that

were difficult for competitors to imitate.

2005 Honda and Toyota U.S. Hybrld Sales

By the end of 2005, Toyotas hybrids were outselling Hondas hybrids by about three-to-one,

causing many analysts to question Hondas staunch position on pursuing a different hybrid

technology from Toyota and its decision to not collaborate or license with other auto

producers.

The Future of Hybrids

By the end of 2005, hybrid electric vehicles were widely believed to have the potential to

allow continued growth in the automotive sector, while also reducing critical resource

consumption, dependence on foreign oil, air pollution, and traffic congestion The success of

hybrids, however was far from assured, While the technologys capabilities held great

promise, the widespread penetration of hybrids hinged on the economics of producing a

complex hybrid power system. The hybrids complexity, and the fact that some of the

necessary complementary technologies (such as storage and conversion systems) still had

room for improvement, caused opinions to be mixed on the hybrids ultimate impact in the

marketplace. Some industry analysts believed that the success of hybrids would require

convergence on a single hybrid standard that could gain economies of scale through

production by multiple producers. Others felt that automakers should not bother with hybrid

Honda & Hybrid Vehicles

Honda Hybrid Models Toyota Hybrid Models

Honda Accord 16,826 Toyota Prius 107,897

Honda Civic 25,864 Toyota Highlander 17,989

Honda Insight 666 Lexus RX 400h 20,674

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technology at allit was a diversion of R&D funds away from better long-term alternatives

such as fuel cells or hydrogen combustion engines.

Hydrogen FuelCell and Hydrogen Combustion

Hydrogen is the most abundant resource on earth and its combustion produces only water

vapor as an emission. Many environmentalists and industry participants thus believed that the

auto industry should focus its investment on technologies that utilized hydrogen as the fuel

source. The two primary technologies under consideration were fuel cells and hydrogen

combustion. Fuel cells convert fuel to electricity that is stored in a large battery. By

converting chemical energy directly into electrical energy, fuel cells had been known to

achieve a conversion efficiency of better than 50 percenttwice the efficiency of internal

combustion engines. Hydrogen combustion works much like traditional engines except that

hydrogen is used instead of gasoline in an internal combustion engine. Either method results

in only water vapor being produced as an emission. However, the development and

commercialization of fuel-cell powered vehicles have been significantly hindered by the state

of battery technology. Furthermore, widespread adoption of either alternative would first

require building an almost entirely new fuel infrastructure. There was also speculation that

fuel cell or hydrogen combustion vehicles would be dangerous since the hydrogen fuel (a

highly combustible substance) would have to be stored under great pressure.

Honda had developed fuel cell vehicles in parallel with its hybrid development. In July 2002,

Honda succeeded in manufacturing the first fuel cell vehicle to receive certification by the

U.S. Environmental Protection Agency (EPA) and the California Air Resources Board

(CARB) by meeting all applicable standards. This new fuel cell vehicle called the FCX was

certified as a Zero Emission Vehicle and by the EPA as a tier-2 Bin 1 National Low Emission

Vehicle (NLEV) the lowest national emission rating. In 2OQ5, Hondas FCX became the

very first fuel cell vehicle in the world to be sold to an individual consumer (a family in

southern California).

While Honda claimed that its work in hybrids helped it create internal know[edge of

component design arid manufacture that improved its options with respect to fuel cell



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technologies, some questioned whether it made sense to invest simultaneously in both

technologies. Did it make sense for Honda to abandon fuel cell development in favor of

spending more on promoting hybrids? Alternatively should Honda abandon its hybrids to

focus solely on fuel cells? Or is it important for Honda to pursue synergies (and preserve its

options) by developing and promoting both?


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Honda Hybrid Electric Vehicles 3