As many automakers bet on sedans and SUVs in the switch to electric vehicles (EV), Japan’s Honda has decided smaller is better for its first-ever mass-produced all-battery car.

The Honda e, released in Europe earlier this month, is a compact model meant solely for city driving. That contrasts with Tesla, whose Model 3 sedan dominates the battery EV market, and others such as Audi and Hyundai that have focused on SUVs with long driving ranges...