Honda Motor Co Ltd (NYSE:HMC) plans to invest $11 billion in Ontario, Canada, to establish a comprehensive electric vehicle (EV) value chain, including new assembly and battery plants.
The initiative follows Honda's previous $4.4 billion investment in a U.S. battery plant and underscores its commitment to expanding EV production capabilities in North America.
How quickly the Tokyo-based car company can turn a profit from these two projects remains to be seen. Its rivals are burning billions on the EV front:
- Ford Motor Co reportedly loses anywhere from $36,000 to $65,000 per EV sold.
- GM lost $1.7 billion on its EV business in 2023
- Tesla generates an average gross profit of $8,431 per car.
- Rivian sells its EVs for over $80,000 on average, but loses more than $33,000 on every EV it sells.
Money-Losing Endeavor?
Close observers of the auto sector would be wise to revisit Ford's EV segment for frame of reference.
Dearborn, Michigan-based Ford has yet to hit profitability in its EV segment. CFO John Lawler, who spoke on the company's first-quarter earnings call on Wednesday, promised to cut business costs.
"We're going to continue to work on driving every dollar of cost out of the business in the near term," Lawler said.
Cheap Options
Revenue over the past several months plummeted faster than Ford has been able to reduce costs.
"If the pricing stabilizes and we don't see these significant reductions continuing across the industry, then I think that you could probably start to see some of those cost reductions flow to the bottom line," Lawler said.
At the onset of EV adoption, customers were willing to pay a premium for an EV. Not anymore.
Prospective customers are now looking for cheaper options, Lawler noted. Tesla, for example, announced a round of price cuts in its U.S. market as well as its China market.
Despite Ford's hardships, Honda cites future demand growth as a catalyst for its own investments. EV sales are expected to spike in 2024, according to the latest International Energy Agency (IEA) forecast.
What's Next For Honda
Production is set to begin in 2028, targeting an annual capacity of 240,000 units.
Honda aims to exclusively offer EVs and fuel cell-powered vehicles by 2040.
The project is expected to create 1,000 new jobs and receive significant government assistance.
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