Honda is expected to purchase 123 GWh of pure electric vehicle power batteries in China from CATL between 2024 and 2030.

(Image credit: Honda China)

Japanese auto giant Honda (NYSE: HMC) appears to have an ambitious plan for its electric vehicle push in China, as it has signed a major supply agreement with local power battery giant CATL.

Between 2024 and 2030, Honda is expected to purchase 123 GWh of pure electric vehicle power batteries in China from CATL, according to statements released by the companies on December 8.

CATL said the power batteries will be produced at its plant in Yichun, Jiangxi province, and the purchase agreement will help Honda strengthen its long-term stable battery supply.

Honda said in its statement that this is part of a move to ensure it receives a long-term stable supply of power batteries as it continues to expand its e:N brand of pure electric vehicle products and sales.

Honda plans to launch 10 e:N branded pure electric vehicles in China by 2027, it said.

In addition to solidifying a stable supply of power batteries, Honda will continue its various electrification initiatives across the value chain to achieve its 2050 carbon neutrality vision early, the Japanese automaker said.

In 2020, Honda and CATL signed a strategic cooperation agreement covering the joint development, stable supply, recycling and reuse of power batteries.

On September 7, Honda China announced that it signed an agreement with Dongfeng Motor and GAC Group to set up HDG (Beijing) Trading Service Co Ltd, a joint venture dedicated to power battery procurement, at the end of September.

In the future, Honda's two joint ventures in China, Dongfeng Honda and GAC Honda, will have their battery supplies sourced by this new joint venture, rather than by them alone from CATL as before, to improve efficiency, Honda China's press release said at the time.

In November, HDG, whose main business is sourcing power batteries for Honda China's e:N brand of pure electric vehicles, was officially established, Honda's press release said yesterday.

Securing 123 GWh of power batteries is an aggressive plan for Honda.

The Japanese automaker currently sells two pure electric models in China, the e:NS1 and e:NP1, using two battery packs of 53.6 kWh and 68.8 kWh capacity.

Based on an average battery pack capacity of 60 kWh per vehicle, the power batteries that Honda plans to purchase from CATL could power about 2 million pure electric vehicles or an average of 280,000 vehicles per year.

The purchase agreement also means that Honda will purchase an average of about 17.6 kWh of batteries from CATL per year between 2024 and 2030.

For reference, Tesla purchased about RMB 13 billion worth of batteries from CATL in 2021, or about 20 GWh.

In China's new energy vehicle (NEV) market, mainstream joint venture brands are clearly lagging behind, but Honda's latest move is an unexpectedly aggressive plan.

On October 13 last year, Honda held a launch event with GAC Honda and Dongfeng Honda for the company's electrification efforts in China, officially unveiling the e:N brand of pure electric vehicles.

On April 27 this year, Dongfeng Honda's e:NS1 was officially launched in China, making it Honda's first pure EV model in the country. On June 20, GAC Honda's first pure EV, the e:NP1, was officially launched in China.

But the performance of these models has been very weak, with Dongfeng Honda's e:NS1 selling a maximum of 878 units a month so far and only 297 units in its latest sales in October, according to a report by local media Jiemian on Thursday.

The GAC Honda e:NP1 also performed poorly in sales after its launch in June, selling only 629 units in October, according to the report.

In contrast to Honda's weak performance, China's NEV market is growing rapidly.

Wholesale sales of NEVs in China reached a record 728,000 units in November, with retail sales of 598,000, according to data released yesterday by the China Passenger Car Association (CPCA).

In terms of retail sales, China's NEV penetration rate reached a record 36.3 percent in November, up 15 percentage points from 20.8 percent a year earlier.

In November, NEV penetration among local Chinese brands reached 56.5 percent, with luxury brands at 32.1 percent and mainstream joint venture brands at just 5.2 percent, according to the CPCA.