Without specifying a partner, the CEO of Honda Motor Co., Ltd. (NYSE:HMC) said yesterday that he hopes that his company can work with China to develop batteries for an all-electric vehicle . Of all the major auto makers, Honda has shown the least interest in building an EV. Toyota Motor Corp. (NYSE:TM) currently holds the lead in cars that use electric power with its Prius hybrid. General Motors is set to launch its Chevy Volt later this year and Nissan is prepping its Nissan Leaf EV as well. Ford Motor Co. (NYSE:F) has its Fusion hybrid in showrooms now, and there’s Tesla Motors’ on the brink of its IPO too. One other player with skin in the game is Berkshire Hathaway Inc. (NYSE:BRK-A), which owns 10% of Chinese auto maker BYD Co. Ltd. (BYDDF), a Shanghai-listed company that trades in the US on the Pink Sheets.

BYD has introduced an electric/gas hybrid in China and expects to sell 800,000 units in 2010, double its 2009 sales. The company is also working on an all-electric car designated as the e6, shown in the photo at the 2010 Detroit Auto Show.

Honda believes that it will take 10-20 years before EVs become widely accepted in the car market. The company’s CEO put it this way, “There needs to be a major breakthrough in battery technology.” Honda must think that now is a good time to look for a partner to help it get an EV out the door sometime in the next 10 years.

The company already has Chinese partners and it is expanding its manufacturing to try to keep up with demand. China has passed the US as the world’s largest car market, with anticipated sales of more than 10 million annually as far as the eye can see. Honda sold 576,223 units in China last year, and the company is adding capacity with its current Chinese partners.

Honda’s decision to go looking for a battery partner may be the result of an anticipated announcement by the Chinese government that it will offer subsidies on EVs. The government is expected to offer a subsidy of about $8,800 on an EV and less than $500 on hybrids like the Prius.

BYD could be at the top of Honda’s list of potential partners. The company uses a lithium-iron-phosphate battery technology that is much safer for automobile use than the lithium-cobalt technology that is now widespread. This is an important consideration when you think about what might happen in what might otherwise be just a fender-bender.

The BYD battery also charges very quickly and has a range of more than 180 miles, far more than any other battery currently on the market. The iron used in the battery is far less expensive than cobalt, and BYD says the battery maintains 80% of its capacity after 2,000 charges.

Finally, the BYD hybrid costs about $22,000. Compare that with the projected $40,000 for a Chevy Volt or Nissan Leaf. Honda knows from experience that a moderately priced entry model can lead to bigger things.

A link-up between Honda and BYD also gives the Japanese car maker the benefit of working with a company that is already shipping proven products, including an EV for Chinese consumers. The all-electric e6 uses two electric motors, one to drive the front wheels and one to drive the back, and two gearboxes with a total of 210 primary parts. A standard V6 gasoline powered engine has 1,400 parts.

BYD expects to ship the e6 to the US by the end of this year, at a projected price of about $40,000. A partnership with Honda would get that car into US showrooms much more quickly than anything else the company could do on its own.

There are significant benefits to both Honda and BYD if the two companies can get together. BYD gets a distribution network in the US overnight, and Honda gets a long-term battery partner. It could happen.

Paul Ausick

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.