Japanese Rivals Unite To Keep Pace In Transforming Automotive Industry

Hitachi Automotive Systems and Honda Motor (TKO: 7267, NYSE: HMC) have agreed to create a joint venture specializing in electric vehicles, with the investment of some $45 million. Hitachi Automotive Systems, Hitachi’s (TKO: 6501) auto parts subsidiary created in 2009, will control 51% of the operation, with the remaining 49% to be held by Honda, according to Reuters. Production facilities will be located in the US, China and Japan. Hitachi Automotive Systems already supplies parts not only to Honda but also Toyota, Ford, Volkswagen, Renault and Nissan.

Automotive Industry

The rapid pace of technological change in the automotive industry of late has pressed Japanese automakers to take strides in several capital-intensive directions in order to meet demands, ranging from automated driving features to electric engines that reduce carbon emissions—elements that international rivals like Tesla have already brought to market. Moreover, non-traditional players like Apple and Google have moved into this space. But rather than pushing Japanese automakers apart, these forces have encouraged rivals to work together on R&D as they seek synergies from overlapping supply chains.

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The announcement from Honda and Hitachi comes just a day after Toyota (TKO: 7203, NYSE: TM) and Suzuki (TKO: 7269) took the next step in the development of their own partnership, first announced in October last year.

Through a majority stake in Maruti Suzuki India (NSE: MARUTI), Suzuki currently supplies one of every two passenger cars sold in India, exploiting a supply chain over 35 years in the making, per Reuters. In addition to sharing know-how, Toyota is reportedly hoping to leverage that supply chain to scale up its production in India, with the goal of a 10% share of the passenger vehicle market there by 2025.

Although it’s less clear what Suzuki hopes to gain from the alliance, with some analysts even suggesting it risks losing independence, its partnership with Toyota (one of the world’s top automakers by volume of global sales in 2016) will result in shared technology and greater certainty as the industry continues innovating at an astonishing speed. The company currently projects spending $10.3 billion on R&D this year—7x Suzuki’s total, according to Bloomberg.

Article by Adam Putz, PitchBook