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I need help with the following case study on Honda.
I have also included the questions which supposed to be answer.

Honda and Hybrid Electric Vehicles
Honda was founded in Hamamatsu, Japan, by Soichiro Honda in 1946 as the
Honda Technical Research Institute. The company began as a developer of
engines for bicycles, but by 1949 it had produced its first motorcycle,
called the Dream. In 1959, Honda entered the U.S. automobile and
motorcycle market by opening the American Honda Motor Company. A few
years later, in 1963, Honda released its first sports car, the S500, in
Japan. Honda Motor Co. Inc. grew rapidly to become one of the largest
automobile companies in the world. Its “globalization” strategy of
building factories around the world that would meet the needs of local
customers had resulted in a total worldwide presence of more than 100
factories in 33 countries. Furthermore, while other auto manufacturers
engaged in a frenzy of merger and acquisition activities in the late
1990s, Honda steadfastly maintained its independence. Honda has grown
into one of the world’s largest automobile manufacturers and has also
evolved into one of the most respected global brands.
In 1997, Honda Motor Company introduced to Japan a two-door gas/electric
hybrid vehicle called the Insight. The Insight’s fuel efficiency was
rated at 61 miles per gallon in the city, and 68 miles per gallon on the
highway, and its battery did not need to be plugged into an electrical
outlet for recharging. By 1999, Honda was selling the Insight in the
United States, and winning accolades from environmental groups. In 2000
the Sierra Club gave Honda its Award for Excellence in Environmental
Engineering, and in 2002 the Environmental Protection Agency rated the
Insight the most fuel-efficient vehicle sold in the United States for
the 2003 model year. By August 2005, Honda had sold its 100,000th hybrid
to retail customers.
Developing environmentally friendly automobiles was not a new strategy
for Honda. In fact, Honda work on developing cleaner transportation
alternatives had begun decades earlier. Honda had achieved remarkable
technological successes in its development of solar cars and electric
cars and was an acknowledged leader in the development of hybrid cars.
Gaining mass-market acceptance of such alternatives, however, had proved
more challenging. Despite apparent enthusiasm over environment friendly
vehicles market adoption of environmentally friendly vehicles had been
relatively slow, making it difficult for automakers to achieve the
economies of scale and learning curve effects that would enable
efficient mass production. Some industry participants felt that the
market was not ready for a mass-market hybrid; Honda and Toyota were
betting otherwise, and hoping that their gamble would pay off in the
form of leadership in the next generation of automobiles.
Hybrid Electric Vehicles
Hybrid electric vehicles (HEVs) have several advantages over gasoline
vehicles, such as regenerative braking capability, reduced engine
weight, lower overall vehicle weight, and increased fuel efficiency and
decreased emissions. First, the regenerative braking capability of HEVs
helps to minimize energy loss and recover the energy used to slow down
or stop a vehicle. Given this fact, engines can also be sized to
accommodate average loads instead of peak loads, significantly reducing
the engine weight for HEVs. Additionally the special lightweight
materials that are used for the manufacture of HEVs further reduce the
overall vehicle weight of the vehicle. Finally, both the lower vehicle
weight and the dual power system greatly increase the HEV’s fuel
efficiency and reduce its emissions. As of 2004, gas-electric hybrid
engines were delivering, on average, fuel economy gains of about 25
percent over regular combustion engines.
Honda’s Hybrid Engine
While Toyota was the first to market hybrid cars (Prius debuted in Japan
in 1997), Honda was the first to market hybrids in the U.S. The Insight
was released in 1999 and quickly won accolades. Though both vehicles use
a combination of electricity and gasoline for powers they do not use
identical hybrid designs. Honda’s hybrid models are designed for fuel
efficiency, in contrast to Toyota’s hybrid vehicles, which are
designed for reduced emissions. These differences in design goals
translate into very different hybrid engine architectures.
The Honda Insight was designed as a ‘parallel” hybrid system, where
the electrical power system and the gasoline power system run in
parallel to simultaneously turn the transmission, and the transmission
then turns the wheels. The electric motor in the Insight aids the gas
engine by providing extra power while accelerating or climbing, and
supplements braking power. The electric motor can also start the engine,
obviating the need for a traditional starter component. The Insight’s
electric engine is not powerful enough alone to propel the car;
therefore, the gas engine must be running simultaneously. The Insight
mileage ratings were 61 mp in cities and 70 mpg on highways, with 0—60
miles per hour acceleration in approximately 11 seconds. At lower speeds
the electrical components provide the extra horsepower to propel the
car, reducing the gas engines effort and thus saving fuel. The batteries
are regenerated by capturing energy during braking or slowing and
through standard electricity generation provided by the traditional
generator component in a standard car engine. Therefore, one does not
have to plug in the Insight, or any of Honda’s hybrids, to recharge
the batteries.
In contrast to the parallel system configuration, a “series” hybrid
system is designed to have a gas-powered engine turn a generator, which
in turn powers
an electric motor that rotates the transmission or recharges the
batteries, the gas-powered engine does not directly power the vehicle.
The Toyota Prius was designed to reduce emissions during urban driving,
and its design incorporates both parallel and series system elements, To
reduce emissions, the Prius utilizes a power-train design in which the
car runs at its most efficient speed by virtue of a “power split
device” that links the gas engine and electric motor through the
generator with a parallel system design, but allows the car to run
exclusively on electrical power at lower speeds, like to a “pure”
series system design. Consequently no gas is burned and emissions are
negligible under these conditions. Thus, for low-speed urban traffic,
the Prius meets its engine design goal of reduced emissions, with better
mileage ratings than the heavier Honda lnsight. In addition, unlike the
Insight, the Prius is a four-door midsize sedan with back seats for
extra passengers, something that the original two-door Honda Insight
lacked, but was later offered on hybrid Civic and Accord models.
Obstacles to the Adoption of Hybrids
Though the hybrid market had exhibited rapid growth (see table 3.1), the
numbers of hybrid vehicles sold were still very small compared to
traditional automobiles, Adoption of hybrid designs by consumers and by
U.S. auto manufacturers had been slow because of uncertainty about the
direction engine design would go in the next few years. Would one hybrid
design rise to dominate the others? Would hybrids be quickly displaced
by other alternative fuel technologies such as fuel cells or hydrogen
combustion? Many people believed that hybrids would be a short-lived
phenomenon, quickly replaced by fuel-cell-powered vehicles. Daimler
Chrysler, for example, commented in one of its recent SC filings that
its managers “regard hybrid vehicles as an intermediate step, as a
bridge between the combustion engine and the fuel cell. Sales of hybrids
were further hindered by consumer ignorance regarding hybrid technology:
as of 2004, 50 percent of U.S. consumers still believed that hybrid cars
require battery regeneration via electric plug.
Hybrid cars were also expensive to produce relative to traditional
automobiles. While Honda charged a sales price for the Insight that was
comparable to its non- hybrid counterparts-—around $20,000, depending
on options—it was estimated that Honda lost as much as $8,000 per car
when the hybrids were originally launched, as a result of insufficient
volume to achieve economies of scale.
Total Hybrid Electric Passenger Vehicle Sales in United Sates, 2000-2004
Year Unit sales
2000 9,367
2001 20,287
2002 35,691
2003 47,525
2004 83,153
Strategy at Honda
At Honda, being an environmental leader means never uttering the words
“It can’t be done.” That’s why for more than two decades Honda
has led the way in balancing what consumers want with what the
environment needs. Technologies change over time—but our commitment to
the environment never will.
Honda Corporate Web Site, August 2003
Honda’s strategy had consistently emphasized innovation, independence
and environmental friendliness. In 1972, Honda introduced the Civic,
which became n immediate success, ranking first in U.S. fuel-economy
tests for four consecutive years starting in 1974. Through the 1980s and
1990s, Honda made a number of advances in environmentally friendly
transportation. In 1986, it developed the first mass-produced
four-cylinder car that could break the 50 miles per gallon barrier, the
Civic CRX-HF. In 1989, it became the first auto manufacturer in the US
to use solvent-free paint in its mass production facilities. In 1996,
Honda introduced a record-breaking soIar-powered car (a prototype not
designed for commercial production) and in 1998 it introduced a
completely electric vehicle. Though the electric car was not a
commercial success, developing the electric vehicle built a foundation
of expertise that Honda would later employ in its development of fuel
cell technology. Fuel cells were considered to offer great potential for
the eventual replacement of combustion engines (DOE, January 2002).
In Honda’s research and development of its hybrid engine systems
management decided to keep collaboration to a minimum, essentially
“going solo” with a risky but potentially profitable strategy to
change basic automotive power design for the first time in a century.
Honda’s decision to not collaborate stood in stark contrast to the
licensing and joint venture strategies pursued by Toyota. Toyota had
aggressively pursued collaboration agreements for its hybrid technology
and had accrued over 1000 patents on hybrid-related technology as of
2006. Toyota also promoted its hybrid technology design by licensing the
technology to Ford and Nissan. While some industry observers were
perplexed by Honda’s decision to avoid collaboration, others pointed
out that Honda’s independence both gave it more control over its
technological direction and ensured that the accumulated learning
remained in-house. Consistent with this, Honda’s management insisted
that keeping development exclusively in-house compelled Honda to
understand all aspects of a technology, from its strengths to its
weaknesses, This in-house know-how could lead to sources of competitive
advantage that were difficult for competitors to imitate.
2005 Honda and Toyota U.S. Hybrld Sales
Honda Hybrid Models
Toyota Hybrid Models
Honda Accord 16,826 Toyota Prius 107,897
Honda Civic 25,864 Toyota Highlander 17,989
Honda Insight 666 Lexus RX 400h 20,674
By the end of 2005, Toyota’s hybrids were outselling Honda’s hybrids
by about three-to-one, causing many analysts to question Honda’s
staunch position on pursuing a different hybrid technology from Toyota
and its decision to not collaborate or license with other auto
The Future of Hybrids
By the end of 2005, hybrid electric vehicles were widely believed to
have the potential to allow continued growth in the automotive sector,
while also reducing critical resource consumption, dependence on foreign
oil, air pollution, and traffic congestion The success of hybrids,
however was far from assured, While the technology’s capabilities held
great promise, the widespread penetration of hybrids hinged on the
economics of producing a complex hybrid power system. The hybrid’s
complexity, and the fact that some of the necessary complementary
technologies (such as storage and conversion systems) still had room for
improvement, caused opinions to be mixed on the hybrids’ ultimate
impact in the marketplace. Some industry analysts believed that the
success of hybrids would require convergence on a single hybrid standard
that could gain economies of scale through production by multiple
producers. Others felt that automakers should not bother with hybrid
technology at all—it was a diversion of R&D funds away from better
long-term alternatives such as fuel cells or hydrogen combustion
Hydrogen Fuel Cell and Hydrogen Combustion
Hydrogen is the most abundant resource on earth and its combustion
produces only water vapor as an emission. Many environmentalists and
industry participants thus believed that the auto industry should focus
its investment on technologies that utilized hydrogen as the fuel
source. The two primary technologies under consideration were fuel cells
and hydrogen combustion. Fuel cells convert fuel to electricity that is
stored in a large battery. By converting chemical energy directly into
electrical energy, fuel cells had been known to achieve a conversion
efficiency of better than 50 percent—twice the efficiency of internal
combustion engines. Hydrogen combustion works much like traditional
engines except that hydrogen is used instead of gasoline in an internal
combustion engine. Either method results in only water vapor being
produced as an emission. However, the development and commercialization
of fuel-cell powered vehicles have been significantly hindered by the
state of battery technology. Furthermore, widespread adoption of either
alternative would first require building an almost entirely new fuel
infrastructure. There was also speculation that fuel cell or hydrogen
combustion vehicles would be dangerous since the hydrogen fuel (a highly
combustible substance) would have to be stored under great pressure.
Honda had developed fuel cell vehicles in parallel with its hybrid
development. In July 2002, Honda succeeded in manufacturing the first
fuel cell vehicle to receive certification by the U.S. Environmental
Protection Agency (EPA) and the California Air Resources Board (CARB) by
meeting all applicable standards. This new fuel cell vehicle called the
FCX was certified as a Zero Emission Vehicle and by the EPA as a tier-2
Bin 1 National Low Emission Vehicle (NLEV) the lowest national emission
rating. In 2OQ5, Honda’s FCX became the very first fuel cell vehicle
in the world to be sold to an individual consumer (a family in southern
While Honda claimed that its work in hybrids helped it create internal
know[edge of component design arid manufacture that improved its options
with respect to fuel cell technologies, some questioned whether it made
sense to invest simultaneously in both technologies. Did it make sense
for Honda to abandon fuel cell development in favor of spending more on
promoting hybrids? Alternatively should Honda abandon its hybrids to
focus solely on fuel cells? Or is it important for Honda to pursue
synergies (and preserve its options) by developing and promoting both?
Discussion Questions
Are hybrid electrical vehicles a radical innovation or an incremental
innovation? Are they competence enhancing or competence destroying, and
from whose perspective? How would you answer these questions for fuel
cell vehicles?
What factors do you think will influence the rate at which hybrid
electric vehicles are adopted by consumers?
What would be the advantages or disadvantages of Honda and Toyota using
the same engine standard?
Is Honda’s strategy of producing a different engine standard than
Toyota and not collaborating or licensing to other automakers a good
one? What would you recommend?
Why do you think Honda is simultaneously developing both hybrid vehicles
and fuel cell vehicles?
Source: Schilling, 2006
MT Mini-case Honda & Hybrid Vehicles

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