Automakers Shift Focus: Over $300 Million Invested in Space Ventures

In a surprising turn of events this March, major automotive players like Honda Motor Co. (NYSE: HMC), Toyota Motor Corporation (NYSE: TM), and China’s Geely Holding are investing in the rocket industry. According to CNBC, these companies have pooled over $300 million into rocket design and satellite manufacturing.

As the saying goes: “I did not have that on my bingo card.”

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Car Companies Enter the Space Race

Sincer 2019, Honda has worked on what CNBC describes as a “proprietary reusable rocket.” Earlier this year, Toyota invested $44 million in the Japanese rocket start-up Interstellar Technologies. Meanwhile, Geely is set to invest $326 million in satellite manufacturing.

This raises an important question: Does this make sense?

The satellite investments could be justified. For example, Elon Musk effectively manages both Tesla, a leading electric vehicle (EV) manufacturer, and SpaceX, which operates the Starlink satellite network providing mobile internet for Tesla cars. If Geely aims to follow a similar model, investing in satellite technology could be a strategic move.

Nonetheless, I remain skeptical. These ventures may represent a case of “diworsification,” a term referring to a company spreading itself too thin by diversifying into areas away from its core competencies. The idea of Honda and Toyota becoming rocket manufacturers is not immediately appealing.

It’s worth noting, as CNBC highlights, that “connected vehicles”—which utilize satellite communication for data and services—could potentially evolve into a $742 billion business by 2030. While this might appear optimistic, there’s always a chance.

Risks in Space Investment

Yet, just because a sector may be profitable doesn’t mean automakers are best suited for this venture. The risk is high that these investments could drain shareholder resources rather than propel Honda and Toyota into new markets.

Image source: Getty Images.

Challenges Ahead for Auto Manufacturers

As we observe these press releases from car manufacturers touting their investments in rocket technology, it’s essential to remain cautious. While the concept may seem plausible—combining vehicle production, satellite data, and rocket launches—Honda and Toyota would be significantly behind more established players like SpaceX and Rocket Lab USA, both of which have extensive experience in this field.

For perspective, it took SpaceX nearly 20 years to record profits from rocket launches, while Rocket Lab is still working towards profitability. This means that investments made by Honda and Toyota in space initiatives may yield losses for an extended period.

Outsourcing satellite development and rocket launch capabilities to specialized companies would likely be a more prudent approach. This would enable Honda and Toyota to sustain their focus on producing high-quality vehicles on Earth, which could better serve their shareholders.

Opportunities for Stakeholders

The silver lining for shareholders of Honda and Toyota is that they still have the opportunity to pivot away from deep space investments. Presently, neither automaker has advanced significantly enough in these areas for it to impact their earnings reports.

Toyota generated $298 billion in revenue last year, according to data from S&P Global Market Intelligence. However, its space initiatives are minimal, categorized under a $9 billion “all other” category in its business, which includes derived interests in prefab housing and information technology. Honda’s space activities likely fall under a similarly small segment categorized as “power products and other businesses,” which earn less than $3 billion annually.

For now, the venture into space seems more like a novelty than a serious business initiative. And it should remain that way.

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Rich Smith has positions in Rocket Lab USA. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.