These days environmental initiatives from auto makers -- and the requisite ad campaigns trumpeting them -- are almost as common as new vehicle launches. So it's understandable that cynics question how green car manufacturers really are. From an environmental standpoint, however, it's hard to quibble with the latest energy-related move from Honda Motor (HMC).
As 2005 drew to a close, the Japanese auto maker quietly announced plans to launch production of solar cells next year. The panels won't be for Civics, Accords, or any other Honda cars, though. Instead, they'll be used in homes and businesses. Honda says the new $86 million factory in western Japan will annually produce panels that together could pump out a total of 27.5 megawatts of power -- enough for 8,000 homes.
If the cells prove successful in Japan, it won't be long before Honda's solar panels find their way overseas. "This is a big area, with big growth potential," says Michiyoshi Hagino, the senior managing director at Honda who's heading the new business. "When we can show that we can do this business with confidence in Japan, we'd like to take it to the U.S. or Europe."
LONG, SILICON. Why now? Honda says it's not just a question of good publicity. One important reason for its entry is a new solar technology developed by its researchers. Most solar cells on the market today are silicon-based. Honda’s engineers are commercializing a way to produce cells using a thin film made from a compound of copper, indium, gallium, and selenium. The carmaker says these provide similar output to silicon-based cells, but require far less energy to manufacture.
That should mean cheaper solar panels for customers. Today it costs about $16,800 to outfit a home with solar cells capable of churning out 4 kilowatts of power. Reports in the Japanese media reckon Honda's cells will likely retail at around $12,500. With production still over a year away, Hagino can't confirm the final price, but does say, "We wouldn't enter the business if we couldn't compete."
Whether a car company should be entering the solar business is a tougher question. On one hand, while solar cells might not be a core business for auto makers, it's at least a high-growth industry. According to Photovoltaic News, a trade publication that follows the solar industry, output of such cells tripled to 1,194 megawatts between 2001 and 2004. This year, Sharp -- the world's biggest producer of solar panels, with 27% of the global market -- expects worldwide demand to increase to 1,250 megawatts.
HOME HYDROGEN. Honda faces no shortage of rivals on its home turf. In addition to Sharp, Japanese electronics companies Kyocera (KYO) and Sanyo (SANYY) are among the world's largest producers of solar cells. And others are stepping up production. On Feb. 3, Mitsubishi Heavy Industries said it would quadruple production of its solar cells to 50 megawatts per year and build a new factory in Nagasaki. A day earlier, Kaneka, a major chemicals maker, said it would double its solar-cell output to 55 megawatts by 2007.
Solar experts believe Honda's presence can only add to the momentum. "Nobody can tell when this business will reach the mainstream, but it's an important development that one of the world's leading auto makers is acknowledging the value of solar energy," says Kosuke Kurokawa, professor of power electronics at Tokyo University of Agriculture & Technology.
Honda ultimately may want to use solar panels in vehicles. One vision is that car owners might have their own mini-hydrogen stations at home someday, with solar panels providing the electricity needed to produce the hydrogen for their fuel-cell cars. "Of course, this won't replace plans for infrastructure. We'll need to have public hydrogen stations as well," Hagino says. "But we're trying to move in a direction where it will become easier to roll out fuel-cell cars."
NO CASH COW. Still, not even Honda expects solar cells to be a big revenue driver in the short term. For one thing, its 27.5-megawatt output will only give it a small fraction of the world market. And if the auto maker's cells do end up retailing for $12,500 per home, annual sales would be just $100 million -- or 0.12% of Honda's total revenues. For another, as Hagino readily accepts, reasonably priced fuel-cell cars remain years away.
In any case, Honda's solar plant is a relatively small investment when you consider that the company spent $4 billion on research and development last year, and announced last week that it earned $1.67 billion in profits for the quarter to December.
"I don't think Honda's solar-panel business will ever make economic sense, or be a large money loser either," says Yasuhiro Matsumoto, an analyst at BNP Paribas in Tokyo. That may be so, but it also won't harm this auto maker's green credentials. Can the ad campaign be far behind?
Rowley is a correspondent in BusinessWeek's Tokyo bureau
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