Honda | KrASIA

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At the foot of green hills where farmers raise chickens and cultivate jasmine tea and rice, construction workers have been putting the final touches on an infrastructure project that policymakers hope will bring new growth to the southern Chinese region of Guangxi and neighboring inland provinces.

Most of the massive trade China conducts with other nations flows through ports and airports along the country’s long and prosperous eastern coast, particularly at the mouths of the Yangtze and Pearl rivers. Opening after four years of construction, the new Pinglu Canal is intended to divert some of China’s east-west trade flows toward the country’s short southern coast and intensify economic connections with Southeast Asia, which in recent years has overtaken both North America and Europe to become the country’s biggest trading partner.

Dubbed by officials as the “project of the century,” the new north-south link will enable cargo ships to turn south from the Xi River, which flows east into the Pearl River Delta, and reach the sea more quickly at the Beibu Gulf, known outside China more commonly as the Gulf of Tonkin.

During a visit last month to Qinzhou, where the canal reaches the Beibu, excavators were removing sediment from the riverbed while cranes swung concrete panels into position to line the new channel. Trucks carrying cement and construction materials clogged nearby roads.

Fisher Tan Hui has already been diverted. Access to the stretch of the Xi where he has long made a living catching fish near Hengzhou, where the canal starts, has been restricted for construction work, so lately he has been ferrying tourists around instead.

“I took seven people out for a two-hour boat ride along the canal yesterday,” Tan said. “I hope more tourists will come.”

Chances are high as the authorities are publicly showcasing the Pinglu as a great feat of engineering, comparing it to the opening of the Grand Canal—which still runs from Beijing almost all the way to Shanghai—more than 1,000 years ago.

While the Pinglu is less than a 10th as long as the Grand Canal, it was completed just four years after construction began. This impressive pace contrasts with the halting advance of canal projects involving Chinese interests in Southeast Asia and other regions. Yet the question of payback on China’s RMB 72.7 billion (USD 10.8 billion) investment in the Pinglu barely enters into discussion.

For Beijing, which has funded Pinglu’s construction through state-owned policy and commercial banks, direct returns on investment are not the point, said Jean-Paul Rodrigue, a professor of maritime business administration at Texas A&M University at Galveston.

“You create accessibility and all sorts of spillover effects [like] new investment, new markets, new trade relations,” he said. “We’re talking about a decade or two in the future. Meanwhile, you have a very big infrastructure sunk cost.”

This year’s priority has been to complete the canal in time for the China-ASEAN Expo. “All localities and relevant departments in the region must go all out, fulfill their mission and leave no regrets,” was the message that came out of a meeting of regional Communist Party leaders last month.

Getting to this point has been a huge undertaking. Although the lower section of the Pinglu tracks the course of the Qin River out to the Beibu Gulf, the upper section was blasted through Guangxi’s mountainous interior. Some 315 million cubic meters of earth and rock were excavated from the hills and the channel of the Qin, enough to fill Beijing’s National Stadium 105 times.

All this digging still left the problem of smoothing out a 65-meter decline to sea level for boats traveling out into the gulf. To deal with this, engineers constructed three sets of hydraulic locks capable of lifting or lowering a loaded ship weighing up to 5,000 metric tons. The massive lock doors can snap shut in 30 seconds.

Key components of the locks’ hydraulic operating systems were designed and manufactured domestically. The canal project also produced significant technological breakthroughs, such as the vertical stacking of water-saving pools and the use of 3D printing to make the hydraulic gates’ control mechanisms, according to state media interviews with project engineers and researchers.

While China’s infrastructure building in recent decades has focused on highways, railways, dams, ports, and airports rather than waterways, groundwork for the Pinglu was laid by other recent projects such as the Jianghuai Canal.

The 355-kilometer waterway parallels a stretch of the Grand Canal and was completed in 2023 as part of a wide-ranging effort to shift water from the free-flowing Yangtze to rivers like the drier Huaihe in north China. Planners are currently evaluating plans for two more extended north-south canals: The Xianggui, which would link the Yangtze and the Xi rivers, and the Ganyue, which would connect the Yangtze and Pearl rivers.

Such ambitions have raised concerns about potential overbuilding. In an interview with Chinese media, Charles Guowen Wang, director of the Center for Logistics and Supply Chain Management at the China Development Institute in Shenzhen, said some proposed inland canals would involve “huge water resource consumption, inter-provincial coordination costs and high engineering investments. … We need to be realistic.”

Meanwhile, Chinese-backed canal projects overseas have made far less progress.

Two years ago, Chinese government officials and executives from state-owned China Bridge and Road Corporation joined Cambodian Prime Minister Hun Manet at a ceremony to break ground on the Funan Techo Canal, a USD 1.7 billion channel to run from Phnom Penh to the Cambodian coast.

The 180-kilometer canal, to be built by a China Bridge joint venture and scheduled for completion in 2028, would reduce Cambodia’s reliance on Vietnamese seaports along the Mekong River Delta and, in the eyes of some observers, give Beijing strategic leverage against Hanoi.

Although local officials announced last year that they had finalized the scope of work to be done, construction has yet to begin amid extended discussions over land rights and financing. On September 9, however, Cambodian officials signed an agreement in Xiamen, China, to receive around USD 1 billion in financing from the Export-Import Bank of China.

“The new Chinese financing could remove the biggest obstacle, but the real test now is whether we see compensation accelerate, contracts mobilized, heavy equipment deployed and sustained construction along substantial portions of the route,” said Ear Sophal, an associate professor of political economy at Arizona State University who studies Cambodia.

The government of neighboring Thailand in 2023 shelved a proposal backed by Chinese business interests to build a canal cutting across a narrow strip of land above the Malay Peninsula that would enable ships to bypass the Strait of Malacca. A year later, the Nicaraguan government revoked a concession granted to Chinese businessman Wang Jing to develop a USD 50 billion alternative to the Panama Canal after a decade of relative inactivity.

“Inside China, Beijing can mobilize financing, land, engineering capacity and political authority with extraordinary speed,” said James Borton, a senior fellow with Johns Hopkins University’s SAIS Foreign Policy Institute. “Overseas, even a strategically friendly country such as Cambodia introduces additional layers of sovereignty, financing, environmental review, compensation, domestic politics and relations with neighboring states.”

Back in Guangxi, the idea of building the Pinglu is credited to Sun Yat-sen, leader of the republican movement that brought down China’s imperial dynasty in 1911. In his 1920 book “The International Development of China,” Sun argued that the construction of a shipping channel to the Beibu port of Qinzhou would boost the economy of inland areas like the provinces of Yunnan and Guizhou.

In any case, the opening of the Pinglu should save companies in the area time and money. Compared with the current riverine route to Pearl River Delta ports like Guangzhou, Shenzhen, and Hong Kong, the canal will provide a 560-kilometer shortcut. This could translate into RMB 5.2 billion (USD 773.2 million) in annual savings, according to state broadcaster CCTV.

To add to the attraction, cargo ships will not be charged to transit the Pinglu’s locks for the rest of 2026. They are then to be charged RMB 1 (USD 0.15) per gross ton per lock. This compares with prices for auctioned slots to transit the locks of the Panama Canal which exceeded USD 2.5 million in some cases last month.

Chinese brokerage TF Securities estimated in a report two years ago that by 2035, the Pinglu Canal would bring 200 million tons of incremental annual freight volume to state-owned Beibu Gulf Port, whose portfolio includes Qinzhou as well as the nearby ports of Fangchenggang and Beihai.

This would represent a big jump from the 358 million tons of cargo the ports handled last year. The busiest terminal of Beibu Gulf Port, whose Shenzhen-listed shares have risen 27% over the past year, is operated by a joint venture with Singaporean state company PSA International.

Currently, trade between this corner of China and Southeast Asia is centered on bulk commodities, with coal, building materials and grain sent south and mineral resources coming north. Like local governments elsewhere in China, authorities in Guangxi in recent years have liberally doled out subsidies to incentivize high-tech manufacturing, but the results have been unimpressive.

Nanning, for example, extended financial support to electric vehicle maker Hozon New Energy Automobile, which set up a large factory not far from the Pinglu Canal. But despite aggressive marketing of its Neta-branded cars in Southeast Asia, Hozon racked up heavy losses and halted most production last year. The factory appeared dormant last month, with hundreds of uncompleted cars visible within.

Pinglu could potentially play a role in the accelerating shift of Chinese supply and production chains into Southeast Asia. Companies have been relocating operations both to take advantage of lower labor and other input costs in certain countries and to cope with heightened barriers to “Made in China” products in the US and other export markets.

“In the bigger picture, this strengthens ASEAN’s position in global supply chains as a cost-efficient manufacturing hub,” said Priyanka Kishore, director and principal economist at Asia Decoded, a Singapore-based research company.

Yet Southeast Asian governments may be starting to reconsider the merits of this kind of relationship.

“ASEAN governments face a delicate calculation,” Borton said. “They want the infrastructure and investment that come with deeper Chinese economic integration, but they do not necessarily want Southeast Asia to become the release valve for Chinese industrial overcapacity displaced from the US and European markets.”

Residents along the Pinglu, however, are hopeful the canal will generate new business opportunities.

“I am focusing on saving money so I can buy a house,” said Su Zixuan, a 20-year-old fish trader in Qinzhou. “I don’t know much about the canal, but I hope it makes this city develop faster.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.

Note: RMB figures are converted to USD at rates of RMB 6.73 = USD 1 based on estimates as of September 15, 2026, unless otherwise stated. USD conversions are approximate and, where appropriate, rounded for ease of reference. They may not fully match prevailing exchange rates.

22:T10ec, Pinglu Canal underscores China's turn toward Southeast Asia 23:Tdf5,

DJI and Insta360 compete in overlapping hardware categories, and their rivalry has extended to patent disputes. Their headquarters are also only a short drive apart in Shenzhen.

They have plenty of company. Across the city’s hardware belt, businesses making cameras, batteries, robots, and 3D printers operate within easy reach of one another. Few places offer such a concentration of engineers, component suppliers, prototyping services, and manufacturers.

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Building a working prototype is only the beginning. Producing thousands of units can expose problems that were less obvious when making one. A component may be difficult to source in sufficient quantities. An assembly process may need simplifying. Solving those problems often requires designers and manufacturing specialists to work through changes together.

Shenzhen makes it easier to find that expertise nearby. Some companies are close enough to share an elevator. Robotics companies EngineAI and Astribot, for example, occupy different floors of the same office tower. Proximity does not necessarily mean collaboration, but it illustrates how concentrated the industry has become.

Insta360’s own history illustrates the appeal. It moved to Shenzhen in 2015 after encountering difficulties scaling up production of optical modules for its panoramic cameras. The local supply chain helped it address that bottleneck.

The city’s pool of expertise also expands as people move between companies or start their own. EcoFlow’s founder previously worked in DJI’s battery division, while Bambu Lab’s founding team came from DJI’s consumer drone business. Both went on to build companies in different product categories while remaining in Shenzhen.

An employee’s departure can mean a loss of experience for one company while adding to the range of businesses nearby. Suppliers gain potential customers, and engineers gain more places to apply their skills.

Over time, these connections give new companies reasons to remain in Shenzhen, including those competing with established players. They can tap production expertise, supplier networks, and industry relationships that would take time to build elsewhere.

How has China responded to calls for an AI slowdown?

Chinese officials have criticized the warnings from Amodei and other American AI leaders as an effort to “monopolize” development. A Foreign Ministry spokesperson warned that the executives are “spreading narratives of threat, engaging in confrontation and resorting to malicious competition.”

The Chinese Communist Party-affiliated Global Times wrote that Amodei’s latest essay on risks—in which he said that a swarm of AI agents “could be capable of taking over the entire internet” in six to 12 months—is “geared toward safeguarding the US lead in AI relative to China.”

China has also pushed back against allegations by Amodei and US government agencies that Chinese labs are using “industrial-scale” distillation, a technique used to train AI models using input from larger models, to soak up the capabilities of frontier American models. A commentary published by the state-run People’s Daily described distillation as common practice, and accused Washington of a “blatant double standard” by allowing US companies to distill Chinese models while labeling the same activity by Chinese companies an “attack.”

The US “continues to adhere to a hegemonic logic where ‘only the US wins,’ rather than ‘shared success for humanity,'” the article argued.

How does Beijing view AI risk?

Although Chinese officials dispute the US warnings and characterization of Chinese AI as a threat, they have become increasingly vocal about security and the need to avoid a “loss of control.”

In an article published on September 13, Chen Yixin, China’s minister of state security, warned that the latest Anthropic and OpenAI models can “exploit cyber vulnerabilities” and develop malware. He also wrote that the open-source AI agent tool OpenClaw, which went viral in China earlier this year, can remotely hijack devices and leak sensitive user information.

His worries echoed a speech Xi gave at the World Artificial Intelligence Conference in Shanghai in July, where the president called for stronger oversight and governance to “ensure that AI remains under human control at all times.”

Over the past year, China’s AI governance has expanded beyond content control to address broader risks, most visibly those posed by increasingly autonomous agents, according to a July report by Beijing-based AI safety consultancy Concordia AI. The company also found that frontier AI safety research in China has intensified: Agent safety accounted for more than a quarter of new papers in early 2026, up from 8% in early 2025.

“I think their biggest concern is that frontier AI systems, especially when available to the US government, could destabilize China’s cyberspace in ways that affect the physical world, hence threatening regime security,” said Rebecca Arcesati, head of the science, technology, and innovation program at the Mercator Institute for China Studies (Merics).

Jacob Cooke, co-founder and CEO of WPIC Marketing and Technologies, an e-commerce and technology consultancy, said that while the Chinese government seems to be taking general AI risks more seriously, it is unlikely to embrace a global research slowdown or self-regulation because it deems such proposals “vehicles for containing China’s AI development, similar to US chip restrictions.”

How have Chinese companies responded?

Discussion of AI’s long-term threat to humanity appears muted among China’s tech giants. They are focused instead on immediate operational risks.

Since Anthropic’s Claude Mythos preview shook the cybersecurity world earlier this year—the company deemed the model too dangerous to release publicly—Chinese companies have been racing to catch up. Several leading players have formed dedicated teams to develop products comparable to Mythos, though they are still lagging, according to a source close to the efforts.

Zhipu, also known as Z.ai, has been one of the more outspoken Chinese companies on AI safety. When it released its GLM-5.3 model last month, it also launched a “Shield of Open Source” initiative, offering free security audits to help users fix software vulnerabilities, and automated code-auditing tools, through its ZCode platform.

However, during a media roundtable at an annual Huawei event in Shanghai on September 17, rotating chairman Eric Xu said Chinese companies should move faster so that they can feel the same risks that American AI leaders already sense.

Xu argued that China’s largely open-source AI models are relatively transparent, while US companies with far greater computing power may be the only ones who know how sophisticated their models have become and what dangers they pose.

Xu added that the industry must balance rapid development with effective safeguards. “The bottom line is we need to ensure AI for good,” he said, “not AI for bad or evil.”

What is the current state of US-China AI competition?

Industry watchers say the gap between US closed-weight models, which are run through their vendors, and Chinese open-weight models, which can be downloaded and run on one’s own hardware, is rapidly closing.

And while the US is still considered ahead in AI performance, China leads in adoption. In one survey published by Morgan Stanley on September 14, 80% of respondents in China used AI at least once a week, compared to 54% in the US.

“The proliferation of Chinese open-weight models as a cheaper alternative is not only shaping global tech markets seeking to distance themselves from dependence on US tech, but also having impacts within the United States, as many startups have begun using open-weight models to build and train their own models more cheaply,” said a report by the Center for Strategic and International Studies published last week.

What can be expected during the Trump-Xi summit?

US treasury secretary Scott Bessent and Chinese vice premier He Lifeng met in New York ahead of Xi’s visit to the White House. In the run-up to the visit, the US was thought to have discussed “shared risks” in AI with China, Bessent told US media outlet Axios.

“Given the strategic utility of AI superiority is undeniable, striking the right balance and establishing an appropriate framework for addressing these issues may be the most important topic of the Trump-Xi meeting,” said Andy Mok, a senior research fellow at the Beijing-based Center for China and Globalization.

Sun Chenghao, a fellow with the Center for International Security and Strategy at Tsinghua University, said the two sides may find common ground in AI safety. “Both countries increasingly recognize that some AI risks are transnational and will not stop at national borders simply because the two countries are strategic competitors,” Sun wrote on Thursday. “Addressing these issues does not require prior agreement on chip controls or technological leadership.”

But other analysts expect mutual distrust to limit progress. The two sides agreed to hold a formal AI dialogue after the presidents met in May, according to Beijing, but no talks have been held officially.

Gavekal analyst Laila Khawaja said in a note that bilateral talks on AI are unlikely to produce binding agreements or major policy shifts. “The prisoner’s dilemma of AI competition among US AI labs and the competitive nature of the US-China relations means the call to slow down frontier AI development is unlikely to materialize,” she said, adding that the most realistic outcomes are continued dialogue, establishment of crisis communication mechanisms and incremental cooperation in narrowly defined areas of shared concern.

Arcesati at Merics cautioned, “Trust between the two countries is extremely low, and no one side seems to have the incentives to put safeguards on its own industry’s development so long as the other doesn’t move first.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.

26:T1156, China rebuffs AI slowdown calls ahead of Trump-Xi summit: 5 things to know 27:T1710,

Honda Motor is launching its first electric two-wheeler models in Indonesia, seeing Southeast Asia as a promising market as the global motorcycle leader steps up its electrics business.

The EM1 e: scooter, which is also scheduled to go on sale in Japan in late August, will be the first electric two-wheeler made by Honda for the Indonesian market. The scooter will cost about JPY 300,000 (USD 2,100) in Japan and has a cruising range of 53 kilometers.

Although the specifications for the Indonesian model have not been disclosed, a Honda representative called it “a vanguard that explores customer reactions and needs as the first mass-market model.”

Honda will release another model in Indonesia within the year with two more on the way possibly next year. There are plans to sell seven e-motorbike models by 2030, with a sales target that year of 1 million units. According to the Association of Indonesia Motorcycle Industry, 5.22 million two-wheelers were sold in the country last year.

The models for Indonesia will include those with cable-charged batteries as well as models that use swappable batteries. Honda is also considering new investments in factories in Indonesia.

Honda aims to sell 3.5 million e-motorbikes globally in 2030, with almost 30% of those sales coming from Indonesia. It plans to electrify all of its motorcycles by the mid-2040s.

The Southeast Asian motorcycle market reached 10.6 million units in 2022, according to Germany’s Statista. It is the world’s third-largest market after China at 15.5 million units and India at 12.63 million units. Indonesia accounts for half the region’s market with a scale of more than 5 million units.

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Honda held the lion’s share of the Indonesian motorcycle market in the fiscal year ended March 2023 with 88%, according to the company. Combined with compatriots such as second-place Yamaha Motor, Japanese brands control more than 90%. They dominate the rest of Southeast Asia as well.

“Japanese companies have a high share in gasoline vehicles and have been slow to electrify,” said Hirotaka Uchida, a partner at U.S. consulting firm Arthur D. Little. “Market leader Honda has started its electrification shift in response to Chinese and local competitors.”

Indonesia’s electric two-wheeler market may be tough for Honda to crack. Although it dominates the gasoline-powered bike market, rivals in the electric sector are increasing. Companies are moving quickly to invest in factories to take advantage of the government’s preferential policies for domestic production, such as an IDR 7 million (USD 465) subsidy for bikes with a domestic production rate of 40% or more that was implemented in March.

One new challenger is Electrum. Backed by Indonesian ride-hailing giant Gojek, the company started building a plant in West Java last month. The plant is initially expected to produce 250,000 units a year and is scheduled to be completed in mid-2024. According to local reports, the company plans to invest USD 1 billion over the next four to five years.

“The production could reach up to 1 million units per year,” said Pandu Sjahrir, CEO of Electrum.

China’s Yadea entered the Indonesian market in February, starting production using the knockdown method in which parts are imported and assembled at a partner company’s factory. The company is considering building a USD 1 billion plant in the Philippines to increase its supply capacity in Southeast Asia, according to Reuters.

Taiwan’s Gogoro, which has been called the Tesla of electric motorcycles, has also formed a strategic alliance with Gojek and is rushing to develop an ecosystem for e-motorbikes in Indonesia.

The market for electric two-wheelers is starting to move in other Southeast Asian countries, following in the footsteps of Indonesia and its abundant government subsidies.

In Vietnam, the world’s fourth-largest market, domestic carmaker VinFast has taken the lead in product launches, and startups are entering the market one after another. In Thailand, state-owned oil companies Bangchak and PTT are in the e-motorbike rental business.

According to Statista, e-motorbikes accounted for less than 1% of the market in Southeast Asia as of 2022. The figure in China is about 20%, with the country leading the rest of the world much as it does in electrified four-wheeled vehicles. In India, the market has entered a growth period, reaching 4% in 2022. Southeast Asia’s market is still in its infancy.

A lack of charging infrastructure is a challenge.

Pricing is also an issue, as e-motorbikes are generally about 30% to 50% more expensive than conventional gasoline bikes.

According to a June report by Japan’s Yano Research Institute, electric two-wheelers accounted for 13% of global two-wheeled vehicle sales, excluding electric kick scooters, as of 2022. The figure is projected to grow as high as 27% in 2030 and 36% in 2035.

“In the two-wheeled vehicle market, which targets relatively low-income groups, whether or not cost performance can be improved is the key to popularization,” said Akira Miyakoshi of the Japan External Trade Organization Bangkok office, who is familiar with the market.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.

28:T10f9, Honda looks to kick-start e-motorbike sales in Southeast Asia 29:T10d5,

Honda Motor will soon begin field testing microsized electric vehicles equipped for mapless autonomous driving as part of an initiative to develop next-generation mobility services.

Honda on Wednesday conducted a demonstration of micromobility machines. One was a single-seat minicar that looked like a shrunken phone booth. There were also a two-seat minicar as well as a four-passenger model that resembled a golf cart.

Subsidiary Honda R&D is leading the research and development of the ultra-compact EVs. The company looks to make the vehicles commercially feasible by around the end of the decade.

The EVs are being developed under the CiKoMa brand of next-generation mobility, a technology powered by spatial-recognition cameras and artificial intelligence. Honda will begin officially testing the vehicles at a campground north of Tokyo later this month.

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The demonstration test will initially be conducted with four-seat EVs. Each vehicle will have one stereo camera in front, and six others placed in the front and back, which can instantly detect roadways and obstructions.

The cars will come equipped with driver support features that promote safe vehicle operation. Honda will gradually upgrade self-driving functions with the goal of making the vehicles autonomous in two to three years.

The EVs will not rely on digital maps, with AI developed by Honda R&D capable of analyzing the roads and surroundings to automatically formulate the next driving route. Honda said these are the first vehicles anywhere that can recognize roads and independently map out routes.

Using the AI, the cars can respond to passengers hailing a ride.

“The demonstration experiment with the EV minicars will improve the AI technology,” said Yuji Yasui, executive chief engineer at Honda R&D.

The minicars will have four replaceable battery packs installed under the seats, and at present are expected to have a range of 20 to 30 km on one charge. They can be started just by pressing a button on the touch panel and will not require the use of conventional accelerator or brake pedals.

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The minicars travel at speeds of 10 to 15 km per hour—about as fast as a bicycle. They slow down for curves, and when approaching an intersection, a rider can choose the next direction by manipulating a joystick on the right.

“Micromobility” is a term that refers to minicars that are smaller than compact cars. They can fit one to two people and are capable of executing tight turns. Because micromobility vehicles travel short distances, it is a suitable application for EVs.

Micromobility EVs would be easily accessible by first-time drivers and the elderly. Demand is expected to be strong in rural areas and as a tool for reducing carbon emissions.

The vehicles could also serve as an alternative form of transportation for those who wish to avoid buses and subways amid the pandemic.

Toyota Motor group company Toyota Auto Body is developing the one-seat Coms electric minicar, while other major automakers, along with startups, are also joining the field.

Japan’s market for next-generation mobility, which includes micromobility vehicles and electric minicars, could grow as big as 11,350 vehicles sold in 2025, according to the Yano Research Institute in Tokyo, which would be a roughly twentyfold increase from 2020. The market is projected to expand to 102,700 vehicles in 2030.

Honda previously announced a two-seat micosized EV, the MC-beta, in 2013, and conducted proving tests until 2016. But the concept car failed to take off.

“There was little demand for micro-EVs at the time,” said a Honda representative.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.

2a:T1109, Honda to test micro EVs geared for mapless self driving 2b:T2323,

The history of the auto industry has been one of ever-shifting alliances in pursuit of scale: Toyota Motor joining and later parting with General Motors, Mazda Motor doing the same with Ford Motor, and even Renault and Nissan Motor, once seen as exemplary partners but now looking to renegotiate their arrangement.

The joint venture between Sony Group and Honda Motor is something entirely different, a cross-industry tie-up that reflects the changing rules of the game.

In his opening remarks at a news conference last week, Chairman and CEO Yasuhide Mizuno of Sony Honda Mobility bluntly described the purpose of the partnership in a way that seemed to repudiate the approach taken by Honda’s auto business—which he himself had led until recently.

“The mobility industry is reaching a time of transformation, with digital technology and software at the epicenter,” he said. “Leading that transformation requires a completely different approach from the way that existing original equipment manufacturers do things.”

The industry’s focus on competing on scale ties into the strategy of mass production for mass consumption that automakers have followed since Henry Ford, inspired by meat processors, introduced the assembly line in the 1910s. GM surpassed Ford with a multibrand strategy based on acquisitions before Toyota was even founded.

Representative of this mindset was the idea of the “4 million club,” named for the number of cars an automaker was believed to need to sell each year to survive. This term entered the lexicon with the 1998 “merger of the century” between Daimler-Benz and Chrysler.

The following year saw the creation of the Renault-Nissan alliance. While it was originally intended to save the ailing Nissan, once the Japanese automaker got back on its feet, the partners expanded around the world in leader Carlos Ghosn’s push for economies of scale.

The Japanese-French partnership is now coming to a turning point. The two companies are reportedly seeking to rebalance their capital relationship, which has been dominated by Renault since its inception in 1999.

The immediate reason for the change lies in Renault’s shifting circumstances. The French company has stumbled in Asia, a region it had set its sights on as a growth market for more than a decade, while its home turf of Europe is pushing for a rapid transition to electric vehicles.

Renault is considering separating its electric and internal-combustion-engine operations into separate companies, essentially showing that its single-minded drive for global scale with Nissan has failed.

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Meanwhile, the industry itself is undergoing a shift, as values shifts from hardware to software. German auto parts maker Continental estimates that roughly 30% of the value of a car comes from software, and carmakers are scrambling to recruit or train software engineers.

Just as the partnerships for scale epitomized by the Renault-Nissan alliance are starting to be considered a relic of the 20th century, the Sony-Honda partnership has emerged with a focus on software-driven development.

The recent histories of the two companies show that the decision to team up is no coincidence.

Back in the “4 million club” days, then-Honda President Hiroyuki Yoshino said auto alliances were “like taking part in a three-legged race,” turning his back on the race for scale in favor of laying a foundation for future innovation in Silicon Valley, where the automaker set up a computer science research center in 2000.

Five years later, this became a base for investment in startups with cutting-edge technology. While following the go-it-alone ethos of founder Soichiro Honda in its main business, the company has in fact been an early adopter of the concept of open innovation.

At Sony, meanwhile, Izumi Kawanishi, who spearheaded the revival of the AI robot dog Aibo in 2016, and Hiroki Totoki, now executive deputy president of Sony Group, together envisioned a foray into the auto industry. While the move is often spoken about in terms of electric vehicles, the pair saw “software-defined vehicles,” rather than hardware like electric motors, as their path to success.

This mutual pursuit of the next step forward for the industry led Honda and Sony to join hands.

The alliance will start off developing its own autonomous-driving technology and in-vehicle entertainment software in-house. But that alone would not be enough to win under the new rules of the game, a point that Mizuno, the Sony Honda Mobility chief formerly of Honda, acknowledged in last week’s news conference.

He said that “customers and creators will participate in product development”—in other words, open innovation.

Put another way, the goal is likely to replicate the platform-based model that Apple built with the iPhone. Apple has taken great pains to polish its hardware as a base for its app ecosystem. Similarly, Sony and Honda have joined forces to create electric vehicles that can become a hub for software.

Apple Store in Shanghai. Source: Shutterstock

Whether Sony and Honda will succeed remains to be seen. They face numerous rivals, including Chinese tech company Baidu. Apple is rumored to be considering a foray into the field as well.

The answer may lie in Sony’s game segment, which has succeeded in creating a thriving platform-based business around the PlayStation. Playing catch up with such rivals as Nintendo, Sony’s game segment turned to outside game creators to produce titles for the game console.

Kazuo Hirai, who later became Sony CEO, went to great lengths to create an environment conducive to developer participation under the banner of “Creator First.” And this strategy has help propelled the PlayStation to a blockbuster success.

Kawanishi, who will represent Sony in the alliance with Honda, led the “Creator First” campaign at that time. He also had served as a liaison between Sony’s personal computer business and outside software developers since the 1980s, before the launch of the PlayStation.

“I became convinced that software content is as crucial as the hardware,” said Kawanishi, looking back at those years. “The idea of merging software and hardware and developing a platform for that end came to me through those experiences.”

The Sony-Honda alliance is making a big bet on the newly emerging software-led automobile business model. This also marks an attempt to overhaul the current pyramid made up of millions of parts suppliers with finished carmakers at the top.

“It is time to review relationships with stakeholders that support the industry,” said Kawanishi.

Needless to say, the automobile industry is the pillar that supports the Japanese economy. That mega-industry is now facing a once-in-a-century shift. Leading the change are Tesla and other newcomers overseas.

Sony and Honda decided to join the foray. Whether to stay on the sidelines or take on the change: this is a question facing all automakers.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.

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