Sony and Honda's Joint Venture Aims for US EV Market: Can Afeela Break Through?

Sony and Honda's Joint Venture Aims for US EV Market: Can Afeela Break Through?Sony Honda Mobility (SHM), a joint venture between Sony Group and Honda Motor Co., is poised to unveil the prototype of its first all-electric vehicle, Afeela, at CES in Las Vegas in January 2025

Sony and Honda's Joint Venture Aims for US EV Market: Can Afeela Break Through?

Sony Honda Mobility (SHM), a joint venture between Sony Group and Honda Motor Co., is poised to unveil the prototype of its first all-electric vehicle, Afeela, at CES in Las Vegas in January 2025. Two and a half years after the launch of this landmark collaboration, SHM President and COO Izumi Kawanishi stated that Afeela's hardware is largely complete, with the focus now shifting to final software refinements. The plan is to begin deliveries in the US market in 2026, followed by a rollout in Japan. Afeela's arrival not only signifies a powerful alliance between two Japanese giants in the automotive sector but also heralds a new software-centric EV model, particularly noteworthy in the rapidly evolving electric vehicle market, an area where traditional Japanese automakers have struggled to keep pace.

However, Afeela's US market debut faces significant challenges. Takami Nakanishi, chief analyst at Tokyo-based automotive consultancy Nakanishi Research Institute, considers the timing of SHM's entry into the fiercely competitive US EV market "very bad." The incoming Trump administration's promised cuts to EV subsidies will severely impact the market. A report by the National Bureau of Economic Research predicts that eliminating existing tax credits could decrease EV sales by nearly 30%. Furthermore, potential tariff increases under a Trump administration would further inflate operating costs, significantly impacting Afeela's competitiveness.

Kawanishi countered that while US policy uncertainty exists, EV adoption is an unstoppable trend, and these challenges won't be existential. He believes Afeela's ultimate success hinges on its software quality and user experience. Michael Dunne, CEO of US automotive consultancy Dunne Insights, echoed this sentiment, emphasizing that Afeela's success depends not on its hardware, but on a smooth, intuitive software experience. Most automakers struggle with in-car software, frequently experiencing issues like screen freezes, frequent safety alerts, and clunky navigation systems. Dunne believes SHM's strong software and entertainment capabilities, thanks to Sonys expertise, will give them an edge over traditional automakers in the software-defined vehicle space.

Afeela uniquely integrates Sony and Honda's core strengths. Sony's deep technological expertise in image sensors, AI, robotics, and entertainment seamlessly combines with Honda's extensive experience in automotive development, manufacturing, and after-sales service, resulting in an EV that blends technology and comfort. The prototype features a display screen between the headlights displaying battery charge, weather information, or personalized animations; sleek, handle-less doors that open automatically upon proximity; and a rectangular steering wheel to avoid obstructing the panoramic screen spanning the front seats.

Entertainment is a key highlight. Rear-seat displays, multiple speakers, and noise cancellation create an immersive audio-visual experience. The 2023 prototype boasts 45 cameras and sensors for interior and exterior monitoring, leveraging Sony's position as the world's largest supplier of smartphone camera image sensors. Data from these sensors is processed by Qualcomm chips using AI, enabling features like automated parking and driver-assistance systems. Furthermore, Afeela's software supports over-the-air updates, similar to smartphone operating systems, allowing for continuous optimization and upgrades.

SHM's development of Afeela drew inspiration from Tesla and Chinese automakers, focusing on optimizing the in-car experience and enhancing entertainment features. Kawanishi, who was involved in developing Sony's PlayStation consoles and Aibo robotic dog series, and played a crucial role in Sony's Vision-S concept car, brought significant expertise to Afeela's development.

Market research indicates Afeela's selling points align with consumer demand. A S&P Global Mobility survey revealed that about half of US respondents desire connected car services and are willing to pay for upgrades like navigation, infotainment, and advanced driver-assistance systems (ADAS). However, experts remain cautious about Afeela's market prospects. Jin Tang, senior chief research officer at Mizuho Bank, suggests that while Afeela is competitive in electrification, the quality of its connected services, AI, and autonomous driving technology remains to be seen.

Afeela's success will depend on its software quality and user experience, and its ability to carve a niche in the fiercely competitive US market, currently dominated by Tesla with nearly half the market share. Afeela will face stiff competition from Hyundai, Kia, and numerous other models. Selling 30,000 to 40,000 Afeelas annually would be considered a strong performance.

Pricing will be crucial. Considering the numerous sensors, high-cost chips, and batteries, Afeela's price may exceed the average price of a new US car. The elimination of EV subsidies under a Trump administration would further diminish its price competitiveness, potentially limiting its target market to affluent consumers willing to purchase a premium EV even without subsidies. SHM aims to highlight Afeela's advanced driving and entertainment capabilities to attract this segment.

SHM's collaboration with Epic Games, using augmented reality (AR) for driver assistance and in-car gaming, is a key selling point. Ryokei Katsura, senior technical analyst at Daiwa Securities, believes cars are ideal for AR technology, and Afeela could achieve AR breakthroughs. Nakanishi suggests that as autonomous driving matures, SHM's entertainment and gaming strengths will become even more prominent, helping Afeela find its place in the market.

Despite the challenges, Kawanishi remains confident. He views Afeela's software and over-the-air updates as a significant departure from the traditional automotive industry, emphasizing that the product launch is just the beginning, and continuous development and innovation are key to long-term success. Sony and Honda have invested 50 billion (approximately $333 million) in the joint venture. For both companies, sales figures aren't the sole measure of success; expanding the automotive sensor business and producing competitive high-tech vehicles are ultimate goals. Afeela's market performance will be a critical indicator of the success of this Sony-Honda collaboration.