Why Are Honda and Toyota Trying to Compete With SpaceX?

It's only March, and we already we have a blue-ribbon winner for the most unexpected business news of 2025. According to CNBC, carmakers including Honda Motor Co. (NYSE: HMC), Toyota Motor Corporation (NYSE: TM), and China's Geely Holding (owner of the Volvo Cars and Polestar brands) are all now investing in...rockets. Wild though it sounds, these three automotive companies have collectively sunk more than $300 million into the twin space businesses of rocket design and satellite manufacturing.

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

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Cars in space?

Since 2019, Honda has been developing what CNBC calls a "proprietary reusable rocket." Toyota made a $44 million investment in Japanese rocket start-up Interstellar Technologies earlier this year. Geely, meanwhile, is investing $326 million in satellite manufacture.

But does any of this make sense?

Well, the satellites part may. After all, Elon Musk famously juggles jobs running both the world's No. 1 (or No. 2?) electric-vehicle (EV) company, Tesla, and SpaceX, a space company with its own proprietary Starlink satellite constellation, which can be used to provide mobile internet service to Tesla EVs. If Geely aspires to do something similar, then yes, in fact, it might make some sense for Geely to be investing in satellite manufacture.

Yet I'm still not convinced that this isn't an example of "diworsification" -- what we call it when a company spreads itself too thin doing too many things, rather than focusing on what it's best at. And I'm even less sanguine about the prospect of Honda and Toyota apparently trying to turn themselves into rocket companies.

Granted, as CNBC points out, "connected vehicles" -- cars that talk to each other via satellite and receive internet service, location data, and software updates back -- could grow to be a $742 billion annual business by 2030. That sounds like an optimistic, pie-in-the-sky estimate to me, but I suppose it could happen.

Still, just because somebody might make money from linking up satellites to cars, that doesn't necessarily mean that the car companies are the best ones to do it. It seems to me that this is an idea more likely to burn up shareholder capital than to help propel Honda and Toyota into the 25th century, à la Buck Rogers.

Image source: Getty Images.

A better way to invest in space

All of this is to say: If you start seeing press releases from publicly traded car companies, boasting of how forward-thinking they are and how they're investing in rocket technology, don't get too excited.

It may sound sort of logical at first, as companies describe the vertical integration advantages of owning the cars that use the satellite data, the satellites themselves, and the rockets that launch the satellites. But even if Honda and Toyota succeed in developing this kind of technology, they'll be decades behind market leaders like SpaceX and Rocket Lab USA, which have been working on this since 2002 and 2006, respectively.

They'll be decades less efficient at it, too. When you consider it's taken roughly 20 years for SpaceX to turn a profit launching rockets into space, and that Rocket Lab is still probably still a couple years away from turning a profit, chances are that any investments Toyota and Honda make in this space are likely to be money-losers for quite some time.

Carmakers will be much better off outsourcing satellite design and rocket launches to the companies that already know how to do those things well, and focusing their own efforts on building good automobiles down here on Earth. The more each company focuses on what it's already good at, the better things are likely to go for shareholders.

The upshot for investors

The good news for Honda and Toyota shareholders is that it's not too late for those companies to change course before they get too committed to space investments. Neither company is far enough along in space research that it shows up yet anywhere in their earnings reports.

Toyota did $298 billion in business last year, according to data from S&P Global Market Intelligence. Its space business, though, is no more than a rounding error, part of a $9 billion "all other" catchall category of its business that encompasses prefab housing investments, a web portal, and "information technology related businesses." Honda's space ventures most likely reside within an even smaller category of "power products and other businesses," involving revenue of less than $3 billion annually.

For the time being, Honda's and Toyota's involvement in space is more a curiosity than a serious attempt to build a business. It should stay 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.