January 31, 2017 1:30 pm JST

Honda-GM fuel-cell venture aims to soothe trade row

Plans for $85m plant comes amid Trump calls for more US manufacturing

TOYOKI NAKANISHI, Nikkei staff writer

DETROIT, U.S. -- Amid calls by the Trump administration for greater investment and job creation in U.S., Honda Motor and General Motors announced Monday they will team up to produce key components for fuel cell cars. 

In addition to ramping up up production of zero-emission fuel cells, Honda is apparently trying to highlight its U.S. ties and head off tensions over imports.

The automakers will set up a joint venture, evenly splitting the initial $85 million capitalization. Specialized equipment will be installed at a GM plant in the Detroit suburbs to mass-produce electricity-generating fuel cell stacks -- the first such move by automakers in the U.S. The venture will hire about 100 new workers.

The move is a concrete step forward on a fuel cell development partnership formed in 2013. This will be Honda's first automotive joint venture with an American company.

Honda began leasing the Clarity Fuel Cell, a fuel cell car developed in-house, last year. The Clarity and all its key components are manufactured in Japan's Tochigi Prefecture. The automaker plans to transfer stack production to the U.S. joint venture, leveraging the partnership with GM to cut costs.

GM, for its part, will be able to use technology from the Clarity to bring its own vehicles to market faster. Splitting investment and production costs with Honda will also disperse the risks involved.

U.S. President Donald Trump has pushed American automakers to create more domestic jobs, including by building new plants in the U.S. He criticized Toyota Motor over plans to set up a factory in Mexico, and other Japanese auto manufacturers are sure to face similar pressure.

Past U.S.-based tie-ups between Japanese and American automakers include New United Motor Manufacturing Inc., or Nummi, a joint Toyota-GM plant that opened in 1984. Toyota's involvement with the factory, the company's first in the U.S., came in response to trade friction between Tokyo and Washington. The end of the venture was announced in 2009 after GM went into bankruptcy protection.

A Honda source stressed that the new venture with GM has nothing to do with Trump, instead citing America's status as the world's largest market for fuel cell vehicles.

Political business

Still, the new partnership suggests political factors were a consideration. At a joint news conference held Monday in Detroit, Michigan, Brian Calley, Michigan's lieutenant governor, announced plans to provide $2 million in subsidies for the joint venture. Dan Nicholson, GM's vice president for global propulsion, pledged the partnership would create local jobs and help make Michigan the future leader in the auto industry.

While dovetailing with Trump's "America First" policy, the partnership also aims to enable mass production of a new generation of zero-emission cars. Fuel-cell vehicles are a new market, making it hard for manufacturers to forecast demand.

It would be a risky bet to spend a fortune on factories to build cars using an unproven technology. Through the partnership, GM and Honda will be able to share the risks and financial burdens, and to cut production costs through joint procurement of key materials and parts, including rare earths.

Toyota, meanwhile, is keeping production of fuel-cell cars in Japan. It manufactures entire vehicles -- from key components to bodies -- at its factories in Japan's central Aichi Prefecture, where the automaker is headquartered.

But Toyota's fuel-cell business will likely lose money until the cars start appearing on the road in large numbers. Drivers have several environmentally friendly options, including electric cars. Honda and GM appear to be hedging their bets with fuel-cell technology.

But for Honda there is another risk. Making key components outside Japan could hamper its future competitiveness, both in terms of development and production. It has apparently decided it can live with this risk in light of the benefits of winning the favor of the Trump administration.

Executives at the two carmakers repeatedly pledged to work as "one team" during their news conference. Given America's new political environment, those words are significant.

Honda Motor Co., Ltd.

Japan

Market(Ticker): TKS(7267)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 49,440.23M
Shares: 1,811.42M

Toyota Motor Corp.

Japan

Market(Ticker): TKS(7203)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 171,887.56M
Shares: 3,262.99M

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