Mitusbishi, Nissan, & Honda Will Join Forces For Software Development

July 30, 20245 months ago Steve Hanley 0 Comments

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It’s all Elon Musk’s fault. He was an early advocate for the “car as computer on wheels” concept more than a decade ago. Since then, every automaker in the world has been trying to jump on that bandwagon, with limited success. It turns out that the legacy car companies are a lot better at making hardware than than they are making the software that controls most of the cars manufactured today. In the near future, almost every new vehicle will depend on software to function properly. Whether that is a good thing or not is a matter of opinion.

Volkswagen is one of the primary examples of a traditional car company that struggled mightily to get a handle on software for its ID.-branded cars, but plenty of other companies have had similar issues. Recently, GM had to stop production of its new Blazer EV until it could fix a myriad of software glitches that rendered the cars undriveable.

Based on a report by Japan’s Nikkei, Reuters claims that Mitsubishi, Nissan, and Honda have entered into a new working arrangement to solve the dilemma of making software that works for the vehicles they manufacture. Combined, the three companies produce more then 8 million vehicles a year. Nissan owns a 34% stake in Mitsubishi, which is now working with Nissan and Honda to finalize the details of the new strategic partnership. Mitsubishi declined to comment on the report, while a Nissan spokesperson would only say the report was not based on something either of the companies had announced. Honda did not respond to a request for comment.

The idea to cooperate on software development comes as Nissan, Japan’s third biggest automaker, has been steadily losing market share in its two largest markets, the United States and China, which together accounted for half of its global sales in the year to date. On Thursday, the company slashed its annual outlook after heavy discounting in the US almost completely wiped out its first quarter profit.

Nissan and Honda said in March they were considering a strategic partnership to collaborate on producing electric vehicle components and artificial intelligence in automotive software platforms. Mitsubishi is already part of a long-standing alliance with Nissan and France’s Renault. The three automakers last year agreed to restructure their arrangement to make it a more pragmatic and agile partnership. Many industry observers think that is a lot of eyewash. After all, Nissan conspired with Japanese authorities to imprison Carlos Ghosn when he was the head of the Nissan/Renault alliance. Arresting your partners is a sure sign of tension in the boardroom.

Software & The China Challenge

Collaboration between Nissan, Honda, and Mitsubishi could help those Japanese automakers cut costs and be better positioned to battle tough competition in the electric car market that is currently dominated by BYD and Tesla. In China, the world’s largest auto market, Japanese brands previously were strong, but are now up against domestic automakers that have rapidly increased production and won over consumers with low priced vehicles loaded with software that actually works.

The biggest issue many drivers have with their cars is getting their smartphone and the car’s software to talk to each other. Some of this is about control issues manufacturers have with other tech companies. They want to control the digital space inside the vehicles they build, not Apple or Google. The result of those corporate games is that drivers are often frustrated when they get in their car and have to learn a new software system. Most of us don’t fully understand all the functions of our smartphones and are not all that interested in learning another system that does all the same things but differently. It’s annoying.

Plus, vehicle manufacturers are salivating over the notion that they will be able to sell their customers a variety of functional software upgrades, which will create new revenue streams for them. Today, once a vehicle is sold, that is pretty much the end of the relationship between the the company and the owner. Just imagine if the manufacturer could continue to derive income from a car by selling subscriptions that activate heated seats and steering wheels, enable faster charging or longer range for electric cars, or offer slick new interior lighting programs that are the coolest thing since ice cream. Some of this emphasis on software development may just be motivated more by self interest on the part of the car companies than concerns about whether a car turns on when someone presses the Power button.

The subtext beneath all this hoopla about software is a realization that some traditional automakers are getting slammed by the new realities of inexpensive electric cars from Chinese companies. The US and the EU are busy erecting tariff barriers because they recognize that a significant decline in the sale of domestically produced cars will play havoc with their economies. The auto industry provides employment for a lot of people, not only in manufacturing but also in dealerships, finance, insurance, and repairs. If Volkswagen, Nissan, or Peugeot went belly up, that could destabilize more than one national economy.

Good News From Hyundai

One company that seems to be navigating the tricky crosscurrents of a changing auto market is Hyundai. It reported record quarterly profits and revenue this week on strong sales of high margin cars. The company said it would expand its hybrid offerings to brace for possible changes in US electric vehicle (EV) policies following the election in November. Its Q2 performance helped ease mounting investor concerns over slowing consumer demand for cars that have battered some of its rivals.

But Hyundai also warned of an uncertain outlook due to intensifying price competition as inflation and high interest rates squeeze consumers. “As consumer demand for autos is weakening, we expect there will be more competition and the amount of incentives is also likely to increase … creating a tougher business outlook,” the company said. Sales in its home market were off 10% in the second quarter.

“Even if Trump wins the election, we don’t expect the Inflation Reduction Act (IRA) to be scrapped,” Hyundai Chief Financial Officer Lee Seung Jo told analysts on an earnings call. Lee said the company continues to monitor possibilities and plans to increase hybrid lineups “to prepare for possible shrinking of the IRA package.” Hyundai said profitability of its hybrid models was similar to that of gasoline cars, highlighting the segment’s growing contribution to the bottom line as sales of pure EVs dropped almost by a quarter.

The Takeaway

The move by Mitsubishi, Nissan, and Honda may be smart thinking, or it may suggest some or all of the companies are struggling and holding on to each other for dear life in hopes that an alliance will stave off insolvency. What seems certain is that come 2030, some familiar names in the automotive space may no longer be around. Of the three, Honda seems to be the strongest. Could it absorb the other two if push comes to shove? There are lots of changes coming for the auto industry in the next five years. Anything can happen — and probably will.