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Mazda stakes revival of fortunes on expansion of its lineup

Hopes are high for new 'large products' and EVs with iconic rotary engine

Mazda's plant in the Yamaguchi Prefecture city of Hofu will be an important base for its new strategy. (Photo courtesy of the company)

HIROSHIMA, Japan -- Mazda, struggling with intensifying competition, will turn to new models to revive its fortunes. In addition to introducing "large products" in its new lineup, including SUVs to draw in car enthusiasts, the company will bring back the rotary engine, its global symbol. However, it remains an open question whether the company can reverse its worsening situation, which has been compounded by the new coronavirus.

Mazda had already introduced new models and engines, but they failed to generate good results. With the pandemic weighing on the global economy, the company's global sales for the fiscal year ending March 2021 are expected to fall to 1.3 million units, a drop of 8% from the previous year. It is expected to record a final loss of 90 billion yen ($870 million). The company's first step to reverse its position will be to introduce new high-performance large products in 2022.

Mazda is trying to roll out two product groups, "large" and "small," categories based mainly on the size of the chassis. The large products include new SUVs in a popular series, equipped with six-cylinder engines and rear-wheel drive for sports driving, features aimed at auto enthusiasts. This unique flair is a secret weapon for Mazda, a small company by global standards.

According to Mazda-affiliated parts makers in Hiroshima Prefecture, production will start in early 2022 in at the company's plant in the city of Hofu, Yamaguchi Prefecture. The vehicles will be powered by standard gasoline engines, the new Skyactiv-X engine and diesel engines. They will mostly be "mild hybrids" with displacements of 3 or 3.3 liters.

The vehicles will be the successors to the existing CX-5 and CX-8 SUVs, but because those models are still competitive, all will likely be available at the same time. Multiple suppliers are reportedly planning to produce about 300,000 units, or just less than 20% of Mazda's global sales, in the fiscal year ending March 2025.

"We're trying to hold down costs by transferring orders to foreign parts makers," said a Mazda official. The large products focusing on high specifications is likely to be priced significantly higher than existing models, but the company is trying to cut costs as much as possible so as not to impact sales. "The price is getting higher than Mazda's initial assumption, and we're continuing to make adjustments like lowering the specifications of parts," said an executive at one of Mazda's parts suppliers.

"Pricing will change depending on whether the focus is on sales volume or improving branding," said Masatoshi Nishimoto, a manager at IHS Markit. "If they're aiming for volume, they should offer more grades of a single model to broaden the price range."

Another key will be the revival of the rotary engine. A new electric model that uses the rotary engine as a generator will be launched in 2022. This is expected to lead to some differentiation among the EVs being introduced by various manufacturers.

Mazda's iconic rotary engine. (Photo courtesy of the company)

In a rotary engine, a triangular rotor rotates inside a cylinder to perform air intake, compression and combustion. In 1967 Mazda become the first company to successfully mass-produce a rotary engine, which was seen as a symbol of the company's technological prowess. Mazda ended production of the engine in 2012, but it will now be brought back for EVs. The MX-30, released in 2020 as Mazda's first mass-produced EV, will be the first EV to be equipped with this system, starting in the first half of 2022. Rotary engines are compact and have high output and low vibration, making them a good match for EVs.

The main issue is extending the vehicle's 200-km range on one full battery charge. According to parts makers involved in the vehicle's development, Mazda wants to double the range to 400 km. A 200-km range would be a problem even for short trips, but a 400-km range would give drivers more peace of mind.

The MX-30, which debuted in Japan in October as a gasoline model, is currently not selling well. The monthly sales target was set at 1,000 vehicles. Vendors in western Japan told Nikkei that in the first two months they sold only about half that amount. Its "freestyle door," a split door that opens from the center, is a significant issue, they said.

"It's hard to use where parking spaces are narrow, like shopping centers," said an executive at one vendor. "The back doors are heavier than in previous models, which is unappealing to many women, especially those with children."

However, "the inclusion of the rotary engine will be a big selling point that will attract Mazda fans," said Koichi Sugimoto, senior analyst at Mitsubishi UFJ Morgan Stanley Securities. "If they can strike a balance between cruising range and pricing, we can expect sustained sales growth."

Mazda's global sales bottomed out in April but have remained in negative territory. September sales were down 10% from the previous year, and October sales were 3% lower than in 2019. Although Toyota Motor and Honda Motor revised their full-year forecasts upward in their interim financial results released in November, Mazda maintained its previous forecast.

The company's sales had been weak before the pandemic. Sales of the CX-30 SUV, launched in fall 2019, have been strong, but sales of the Mazda3 compact car, which also debuted in 2019, and models with the new Skyactiv-X engine have been weak.

Environmental regulations in Europe that impose fines for excess emissions of carbon dioxide have also had an impact. Mazda had to adjust its sales mix by raising the prices of the CX-5, which has high emissions, by about 4% to reduce the fines it paid.

Mazda will place EVs, simple mild hybrids and rotary-equipped EVs in its "small products group." "We are also strengthening our electrification technology for large products, so we want to address global warming with those two groups," said company President Akira Marumoto.

Plug-in hybrid models will be available for large vehicles, which will help push down average emissions and significantly contribute to meeting regulation standards. The success or failure of Mazda's two new models will augur the future of the company itself.

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