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(Afeela Sony Honda Mobility)

Honda Motor Co. and Sony Group Corp. have scrapped plans to jointly develop an electric vehicle and will rethink their partnership as the carmaker’s financial troubles deepen.

Development of the first- and second-generation Afeela EVs will be shelved effective immediately, the companies said in a joint statement March 25. They will also re-evaluate Sony Honda Mobility Co., their joint venture established in��2022.

Honda and Sony’s decision to scrap the Afeela just months before the first vehicles were expected to roll off production lines underscores the strain on legacy automakers due to high costs and fluctuating demand. Honda CEO Toshihiro Mibe, who warned weeks ago of 2.5 trillion yen ($15.7 billion) in EV-related charges, is due to announce a new business plan in May.

“Honda had already announced an EV overhaul, so there was concern about what would happen to Afeela,” said Hideki Yasuda, an analyst at Toyo Securities Co. “Sony should seek ways to remain in the business, with or without Honda.”

When Sony Honda Mobility was created, its goal was to combine Honda’s vehicle development and production capabilities with Sony’s expertise in image sensors and entertainment. It planned to target the premium EV market in North America initially, then later expand into Japan and Europe.��

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But the venture faced a series of challenges, including a late start compared with peers such as Tesla Inc. and China’s Xiaomi Corp.,��pushback��from Honda dealers in America unhappy with Afeela’s direct-sales approach, and, above all, weaker U.S. demand after President Donald Trump scrapped incentives and other programs supporting EV adoption.��

Ahead of the first deliveries that had been planned for later this year, Sony Honda Mobility faced mounting red ink, including a more than doubling of its operating loss last year to 52 billion yen.

Foreshadowing the Afeela’s demise, Honda had already canceled the development and launch of three of its own Zero Series EV models in North America, which were to be built at the same production hub in Ohio as the Sony Honda Mobility model. That move��shocked investors��and raised questions about Honda’s overall automotive strategy under Mibe.

The sudden about-face could also impact Sony’s leadership, potentially affecting the future career path of its executives. Izumi Kawanishi, chief operating officer of Sony Honda Mobility, has been viewed as one of the leading candidates to eventually lead the Sony Group, and the joint venture with Honda was seen as a platform for him to build experience and a track record in a new growth area.��

With the project now halted before launch, attention is turning to how Kawanishi will reposition Sony’s automotive ambitions going forward, and what role he may play in shaping the company’s strategy in the sector.

Even as global momentum for fully electric vehicles slows, automobiles remain a promising frontier for Sony, offering a potential avenue to extend its ecosystem of entertainment assets spanning music, films, anime and gaming. It’s already a major supplier of car sensors to the auto industry.

Sony hopes to benefit from a shift toward more autonomous driving. As self-driving technology improves and becomes more widespread, vehicles could increasingly resemble mobile living spaces, where demand for in-transit entertainment mirrors what passengers already are used to experiencing on airplanes.

Sony’s push into cars also reflects lessons from past missteps. The company lagged in the global smartphone race, leaving its image-sensor business heavily exposed to the performance and strategy of key customer Apple Inc. Moving further downstream into vehicle production, rather than limiting itself to component supply, could diversify revenue streams, stabilize earnings and strengthen the group’s overall business portfolio.

Customers who had already placed orders for the first-generation Afeela will be fully reimbursed, Honda said March 25.