Why Sony wants Tesla to win despite the Honda partnership

When Sony and Honda revealed seven months ago that they were going to develop an electric vehicle together, there was a lot of hype in Japan about a collaboration that brought together two of the largest companies in the country.

However, some of initial expectations faded this month when the two groups confirmed that their first electric car would be sold online in the US and Japan in 2026 — that will be 18 years after Elon Musk launched Tesla’s first electric vehicle in 2008.

Despite all the excitement over a potential electric vehicle champion to challenge Tesla, it’s also tempting to draw parallels to the 2000s, when Sony outsmarted Apple first with the iPod and then the iPhone, as it changed its hardware. hadn’t adapted to the digital age.

There’s an ominous sense of déjà vu to Sony’s and more generally Japanese electric vehicle experimentation. Honda is quite late to the game, and critics say Sony’s efforts could be a costly distraction at a pivotal time when it is poised to become a fully integrated entertainment company.

But with its foray into electric vehicles, Sony is actually turning to the same playbook it used to fuel the turnaround of its sprawling businesses, ranging from movies, music, and games to camera sensors.

There is no exclusivity agreement in the car agreement and the jointly produced car will not be sold under the Sony or Honda brand. Crucially, the deal won’t stop Sony from selling its camera sensors to Tesla, even if the product the two Japanese groups are developing competes with Musk’s vehicles.

Executives emphasize that the relationship is similar to the one Sony currently has with Netflix, a major customer that buys Sony’s movies, even though the two companies are rivals in producing content.

Rather than get caught up in the crowded streaming wars by launching its own service, Sony used what it calls an “arms dealer” approach to sell movie and TV rights to the highest bidder. So far, that strategy is working well.

Some investors have expressed concerns that a partnership with Honda would hurt Sony’s chances of selling image sensors used in smartphones to other automakers. But Jefferies analyst Atul Goyal thinks the deal could actually help drive the shift. And he believes Sony’s real goal is to win Tesla as a customer, not compete against it.

Sony hasn’t necessarily been discreet about its ambitions for cars where its sensors can be used to capture objects in low light, a feature that will be critical in the era of autonomous driving. According to Strategy Analytics, it controlled about 45 percent of the global smartphone image sensors market last year, according to Strategy Analytics. In the automotive sector, the company aims to ship its image sensors to 15 of the top 20 automakers by fiscal year 2025. Given the industry’s transition to battery-powered electric vehicles, one would expect Tesla to be included in that list of 15 manufacturers.

On the mobile front, Apple is also Sony’s largest customer for image sensors, although the iPhone competes with the Japanese group’s Xperia phone.

Many investors had repeatedly urged Sony to stop selling its own smartphones. But the company has plowed on, arguing that staying in the market allowed it to keep abreast of technological advances in the industry. That in turn, it claimed, benefited his ability to make image sensors. It hopes the same will be true by getting its hands on car making and bringing its entertainment resources like PlayStation and movies to the driving experience.

To cover losses, Sony has scaled down the size of its mobile phone business and focused on high-end models that offered higher margins.

People close to the company suggest a similar approach is likely to be taken with cars. Sony and Honda will make electric vehicles using existing facilities, such as Honda’s Ohio plant, and the car chips will likely come from TSMC’s new factory in Japan, in which Sony is co-investing. “People may be disappointed to hear that the scale of the electric car industry will probably be quite small,” said one of the people.

In the end, it doesn’t really matter if the electric vehicle Sony makes is a bestseller or not. The success of this deal for Sony will depend on whether it can convince Tesla and a majority of the 14 other automakers on its prospective customer list that its image sensors are good enough for their all-electric and self-driving vehicles.

kana.inagaki@ft.com

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