The announcement of the joint venture raises a number of questions and we detail some of our thoughts on the implications.
GM and Honda have jointly announced that they will expand their existing EV partnership. The prior announcement involved the partners jointly developing and building models for the North American market – in the case of Honda, this meant the forthcoming Honda Prologue SUV and the as-yet-unnamed Acura SUV codenamed S223. Both will be manufactured by GM and utilize GM’s BEV3 platform and the GM/LG Ultium battery and powertrain technology.
The pair confirmed in a statement that they would build “a series of affordable electric vehicles”, with production numbering in the “millions”. A key detail in the announcement is the commitment that the new models, due in 2027, will be ‘affordable’.
GM’s Mary Barra stated that “GM and Honda will share our best technology, design and manufacturing strategies to deliver affordable and desirable EVs on a global scale, including our key markets in North America, South America and China”.
Honda’s executive vice president of North America, Rick Schostek noted to media: “Ultimately what we’re shooting for is parity with the [internal combustion engine] offerings…but we have a lot of work ahead of us to get there”.
However, the announcement of the joint venture raises more questions than it answers. Below we detail some of our thoughts on the implications.
Which markets are these new affordable EVs targeted at?
Most likely North America initially, especially if the cells will be sourced from LG plants on the continent. China is less likely because Honda has EV-producing partnerships already in place with GAC and Dongfeng, which build EVs using cells sourced from Chinese suppliers. Honda’s European EV strategy is about to expand to include e:Ny1 but this might be imported from China in lieu of a European production base – thus Europe is not seen as likely an option as North America.
What does affordable mean?
Initial reports suggest that a sub-$30,000 price is a target for the new models. A quick glance at Honda’s US website shows that this market is limited to the sub-compact HR-V crossover, Civic and Accord. Given that the base Accord hybrid starts at $27,320 we can probably rule the segment out too. Unsurprisingly, given how closely OEMs benchmark each other, it’s a similar story on the Chevy website with the sub-compact Spark hatch and the Trax and Trailblazer crossovers fitting the bill.
In the case of GM, each of the three sub-$30k models are imported from Korea born of the necessity to achieve margin and price targets. With BEVs adding more costs to the sourcing of future models, it raises the question whether Mexico would be a favored production location if USMCA rules of origin need to be satisfied. Key to this, undoubtedly, will be the battery pack’s origin – more on this later.
No rival in North America has really offered a desirable, affordable EV yet. For all Tesla’s bluster about the Model 3 being the mass-market EV leader, it’s still too expensive for most buyers looking for new, affordable vehicles.
The Chevy Bolt (before battery fire issues began plaguing it) was a contender in this space, with its price hovering around $30k, but its B-segment hatchback format meant it was unlikely to find many buyers in North America. That the Bolt’s price hovered around $30k indicates the size of the task GM and Honda have set. The ‘sweet spot’ lies in the subcompact-SUV segment, but achieving a sub-$30k price with a BEV is still a big ask.
Battery raw material cost are rising. How will the target be met?
Lithium prices have surged in the past year due to rocketing demand and constrained supply, while the Russia/Ukraine conflict has pressured nickel prices. Presently, the targets look very difficult to achieve but both GM and Honda are viewing this more strategically and seeing the current commodity supercycle as something that will pass as dislocated supply chains are repaired and supply constraints are eased.
What kind of battery pack will they use?
If these vehicles are to meet our hypothetical $30k price target profitably, they will likely use a small pack (maybe around 50kWh). A 50kWh pack in a C-segment SUV may equate to a 150-200-mile range (looking at comparable models such as the Peugeot e-2008). Ultium battery packs are designed to be modular – GM/Honda can add or remove cell groups as necessary to make smaller/cheaper packs, or larger/costlier packs with longer ranges. Considering the Hummer EV uses a 200kWh pack with 24 modules, the affordable model’s pack is likely to come in the form of 6 modules with around 50kWh of capacity.
Ultium modules contain long pouch cells that can be stacked vertically or horizontally – which is claimed to be unique in industry. The system also monitors cells through a wireless battery management system – an industry first. Ultium cells are not substantially better or worse on a like-for-like basis compared to rivals, but bring benefits from mass standardization of using one cell and module format across a whole vehicle lineup. This means part prices can be driven down, enabling GM and Honda to source competitive cells for as low a cost as possible. Currently, Ultium is based around NCMA 90 chemistry (90% nickel in cathode and cobalt below 5%) – while this type offers the best energy density of any current commercially available cathodes, it has seen more dramatic price rises as a result of the Russia-Ukraine conflict, and wider raw material shortages from mismatched supply and demand. In future, many EVs towards the affordable end of the market will move to iron-based LFP cathode chemistry, which is more affordable and less exposed to current raw material price fluctuations.
Where will the batteries come from?
As with most EV projects, battery cells should be sourced locally.
This is because, between their weight and propensity to occasionally set on fire, batteries do not travel long distances well. Additionally, there are the rules of origin implications from the USMCA agreement to consider, which might require the battery pack be sourced from within North America.
Ultium Cells, the GM-LG battery joint venture, has three North American cell plants announced so far:
- Lordstown, Ohio (due to open in Aug 2022, appx 30GWh).
- Spring Hill, Tennessee (due to open late 2023, appx 30GWh).
- Lansing, Michigan (due to open late 2024, appx 50GWh).
Might actions from rival OEMs have inspired the GM/Honda announcement?
The move reflects the highly competitive stakes in the auto industry currently. All OEMs are having to navigate the transition to EVs, which brings with it vast capital expenditure and potentially a long route to healthy profitability for new EV models as players absorb the costs of refitting or building factories for EVs, and sourcing cells.
Tesla is keeping its cards close to its chest at the moment but has repeatedly indicated that it wants to offer affordable EVs to help accelerate the transition to clean energy. Evidently, the Model 3 wasn’t the affordable EV savior it was billed as with most models selling for $50k+.
Rumors persist that the company will build a Model Q (or Model 2) that will sit below the Model 3 in the range, possibly powered by BYD blade batteries – if true, this would be exported from China to Europe and beyond. If the Model Q ever breaks cover, GM and Honda’s supposed $30k EVs would be among its most compelling competitors in the field. Toyota turned to local partner BYD to launch a sub-$30K EV in China last year. The EV will use BYD’s blade battery cell with LFP chemistry. VW Group also has ambition for affordable EVs, its ID.LIFE EV concept was showcased with a 62kWh battery capacity.
How will the Russia/Ukraine conflict impact the announcement?
The most direct impact the Russia/Ukraine conflict will have on this announcement is the continued upwards pressure it puts on the price of nickel (with Russia’s Nornickel being a leading supplier).
This is pushing the price of battery raw materials up dramatically at a time when it was hoped that increased supply and manufacturing experience would bring cell prices below the $100/kWh level needed to achieve cost parity with ICE vehicles. GM/Honda will be aware that increased input costs will make it harder to offer an affordable EV at a specified price point – they may be banking on the conflict being resolved relatively soon, and a subsequent softening of raw material prices.
What does Honda contribute to the new models?
When the North American GM-Honda partnership was announced, Honda noted that it would bring its ADAS expertise to the partnership.
Honda is still in market creation stage from a BEV standpoint in the US. Honda can minimize its risks by partnering with GM and vice versa, along with reducing costs by pooling their purchasing power. Rumors suggest Honda is looking to establish its own 40GWh US battery plant with LG beyond the existing Ultium partnership. However, there’s no concrete news on this so far. Honda’s recent mobility partnership with Sony may also come into play. This is expected to see Sony contribute imaging, sensing, infotainment and connected tech to a Sony-branded EV built on a Honda platform. It is conceivable that this partnership could, over time, see Sony’s digital influence spread to more models in Honda’s lineup.
This article was first published on GlobalData’s dedicated research platform, the Automotive Intelligence Center
Verdict deals analysis methodology
This analysis considers only announced and completed deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.
GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.
More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.