HONDA OPENS ITS DOORS
The famously independent Japanese carmaker is finally admitting it can’t invent the future single-handedly. Will Silicon Valley lend a hand?
Honda Motor Co.’s future is quietly being forged in a secretive lab in Mountain View, California. From this 35,000-square-foot taupe-colored office park, Naoki “Nick” Sugimoto, a 55-year-old Honda veteran, scouts for the world’s best tech partners. Two recent projects from Sugimoto’s lab—a car display enhanced with holograms and an “optical” microphone that dramatically improves speech recognition by reading a speaker’s facial vibrations—wowed crowds of auto and tech enthusiasts at the Consumer Electronics Show in Las Vegas in January.
“When it comes to creating innovations, doing everything in-house is not the right way,” says Sugimoto, echoing a new company line. “Open collaboration is really the key.”
As if to underscore the point, the world’s eighth-largest carmaker recently announced partnership talks with Waymo, the Alphabet subsidiary formerly known as Google’s self-driving-car unit. With the exception of Fiat Chrysler, which has put Waymo’s technology into 100 minivans, automakers have treaded carefully around Google, fearful that the tech giant could someday come to dominate their business.
Times are a-changing for the maker of Baby Boomer favorites like the Civic, Accord and CR-V; the company has long been known for its obsession with solving engineering problems on its own. Since its founding in 1948, Honda has made motorcycles, cars, lawn mowers, jets, fuel cells, humanoid robots and just about everything else in-house. But in a world where cars are rapidly becoming tech gadgets on wheels, Honda’s hallmark masterful mechanical engineering is no longer sufficient. To stay competitive, Honda needs to get over its chronic case of Not Invented Here syndrome, and as Sugimoto’s lab and the Waymo talks make clear, it’s starting to make progress. “Honda is
willing to pursue win-win technology cooperation so that we can openly innovate with other companies and at the same time show our individuality,” says Honda CEO Takahiro Hachigo via email.
The stakes couldn’t be higher. The auto industry has entered a new era dominated by technologies like AI, sensors, apps and ride-sharing. As with every other automaker, Honda’s execs are touting a “cooperative mobility ecosystem”—a distributed fleet of vehicles that communicate with their occupants, other vehicles and sensors on roads, bridges and buildings to make travel safer, less congested and more fun. Nifty, for sure, but it’s clear the company can’t get there alone. “Honda’s core competencies aren’t in these emerging areas,” says Ed Kim, an analyst at Autopacific, an industry consultancy.
Honda sold 4.4 million vehicles in 2015, less than half as many as giants like Toyota, VW and GM. Sales for fiscal 2016, which ended on March 31, grew at a healthy 9.6%, bringing revenue to about $130 billion. But the company is forecasting a 6% drop in revenue for the current fiscal year at a time when other automakers are expected to be flat overall. S&P Global Ratings recently cut its outlook for the company.
Intangible signs are worrisome, too. When it comes to in-car tech, “Honda is seen at this point to be fairly average,” says Alexander Edwards, president of Strategic Vision, a San Diego research firm. Long known for making some of the most reliable vehicles, Honda ranked sixth in owner satisfaction in Consumer Reports’ most recent survey, published in December.
That’s where innovators like Sugimoto come in. Bespectacled and relaxed in jeans and a black North Face jacket, he’s welcoming, though the old Honda habits die hard: He won’t offer a tour of the lab where dozens of stealth projects are in development. The lab’s overarching goal is not blue-sky research but rather to put “technologies into production as quickly as possible,” says Sugimoto, who has an engineering degree from the University of Tokyo and an M.B.A. from UC Berkeley’s Haas School of Business.
Take the holographic car display. In just six months, engineers from Menlo Park-based Leia 3D, working side by side with Honda auto whizzes, adapted the startup’s nanotechnology for use in vehicles. The result is a futuristic dashboard that renders images with depth even when drivers move their heads to view the screen from different angles.
Sugimoto says it’s one of a “low-double-digit” number of projects from a two-year-old program at the lab called Xcelerator. It’s a hands-on incubator, offering startups work space, equipment, funding and mentoring. The optical microphone, a collaboration with Israeli startup Vocalzoom, also emerged from the Xcelerator program.
In 2014, the lab opened a software studio to work with app makers to integrate new in-car conveniences into Hondas and Acuras. It’s working with Visa to let cars auto-pay for parking and gas, and with fast-food chains to allow hungry drivers to place and prepay for orders.
While the Silicon Valley Lab represents a relatively small piece of Honda’s $6 billion global R&D budget, Sugimoto expects its impact to be far-reaching, and not just for Honda. “We don’t claim any exclusivity. We just share the fruits of what we create together,” he says. “Startups and partners can take that to Toyota or whoever and pitch the same proposal. Fine.”
But the broader goal is to revitalize a ho-hum carmaker with a history of engineering greatness. Says Sugimoto, “The purpose is to reenergize the original DNA, stimulate the right brain of all Honda people and figure out the right path to deliver ‘wow’ innovations to our customers.”