Honda and Sony join hands to shatter the dream of building a car! Afeela project comes to a sudden halt, traditional car companies warn of rising electrification costs.

The leading Japanese car manufacturer Honda Motor Co., Ltd. Sponsored ADR (HMC.US) and the dominant player in the Japanese technology and entertainment industry Sony Group (SONY.US) have abandoned a grand plan to jointly develop an electric car, and are now reconsidering their previous collaborative relationship as the financial fundamentals of this large Japanese car company deepen. The significance of this latest development for Japan's ambitious electric vehicle industry is not just "a project failure," but rather the multiple pressures traditional Japanese car manufacturers are facing in the trend towards electrification (EV) being exposed. The two Japanese companies announced in a joint statement on Wednesday local time that the development plans for the first and second-generation Afeela electric cars will be immediately suspended. They will also reevaluate their joint venture company Sony Honda Mobility Co., established in 2022. Following this news, the stock market ADR trading price of Honda Motor Co., Ltd. Sponsored ADR (HMC.US) fell slightly in pre-market trading, while Sony (SONY.US) ADR trading price remained stable. Honda and Sony have decided to abandon the Afeela project, a high-end electric car that combined Honda's global top-tier vehicle development and production capabilities with Sony's expertise in high-performance chips, image sensors, and entertainment. The collapse of this major project highlights the operational cash flow pressures that traditional Japanese car manufacturers are facing as electric vehicle development costs continue to rise. The CEO of Honda Motor Co., Ltd. Sponsored ADR, Toshihiro Mibu, warned weeks ago that the company would face 2.5 trillion (about $157 billion) in electric vehicle-related costs, and he is expected to announce a new business expansion plan in May. Senior analyst Yasuda Hideki from Toyo Securities said, "Honda Motor Co., Ltd. Sponsored ADR has already announced a comprehensive reorganization of its electric vehicle business, so the market was already concerned about how Afeela would evolve. This is an important driving factor for Sony, so it should continue to move forward, with or without Honda's participation." According to the car manufacturer, customers who have placed orders for the first generation Afeela will be eligible for a full refund. Honda Motor Co., Ltd. Sponsored ADR has also cancelled three electric cars that were planned to be developed and launched for the North American automotive market, and expects to record an operating loss between 270 billion and 570 billion by the end of March. The so-called Afeela EV Project, essentially led by the joint venture company Sony Honda Mobility established in 2022, was a high-end pure electric vehicle project that aimed to combine Honda's vehicle engineering and manufacturing capabilities with Sony's software, sensors, entertainment, and digital cockpit capabilities to create a more software-defined high-end electric vehicle. According to the previous public plan, the first model Afeela 1 was originally scheduled for mass delivery in California in 2026 at a starting price of $89,900, with even a second high-end model planned to be launched in 2028. However, after reassessing its own EV strategy, Honda no longer has a viable path to bring the Afeela series to the market. For the Japanese electric vehicle industry, the significance of this event is not just "a large EV project failure," but rather the threefold pressures that traditional Japanese car manufacturers are facing in EV transformation being exposed: firstly, high-end electric vehicle development is becoming increasingly costly, with Honda warning this month that its EV business may incur up to 2.5 trillion (about $157 billion), with electric vehicles accounting for just 2.5% of its global sales last year; secondly, Japanese car manufacturers are simultaneously facing competition from China, policy changes in the US, and the volatility of automotive demand amid global economic uncertainty; thirdly, it further indicates that the Japanese government's attitude towards electrification is not firm enough, and in the future, Japanese car manufacturers are more likely to strengthen hybridization, selectively make EVs, and accelerate alliances or integrations, rather than each company independently betting on full-stack electric vehicles. In other words, the cancellation of the Afeela project signifies that the Japanese electric vehicle industry is transitioning from the "conceptual cooperation period" to the "cash flow and survival prioritization period."