August 26, 2024
TOKYO – Japan’s car industry, which has stalled in the development of electric vehicles (EVs) amid what it often describes as a “once-in-a-century industry transformation”, has now consolidated into two broad camps as it aims to make up ground lost to China.
In one camp is the world’s largest carmaker, Toyota, whose group includes companies such as Daihatsu, Suzuki, Subaru and Mazda.
Total group sales in the year ended March came to 16.6 million vehicles, helped by its hitherto dominance in hybrid vehicles and combustion-fuel cars.
In the other camp are long-time competitors Nissan and Honda, which set aside their rivalry and joined hands in March, with Mitsubishi entering their alliance in August. The three companies had combined sales of 8.3 million units in the year ended March.
The partnership aims to leverage the economies of scale that will come with jointly developing technology and cross-optimising parts across their brands, as well as sharing supply chains and resources. But they will still produce their own vehicle models.
Describing this as a “strategic move”, Mr Dean Enjo, vice-president and senior analyst at Moody’s Ratings, told The Straits Times: “This consolidation offers significant advantages, such as strength in numbers, mutual support and shared resources in an increasingly competitive industry.”
Honda president Toshihiro Mibe told a news conference on Aug 1: “We expect that the combination of technologies and knowledge cultivated by Nissan and Honda, as well as the strength and experience of Mitsubishi Motors, will enable us to more quickly resolve various issues related to electrification and intelligence on a global scale, and help lead societal reforms as a top runner.”
This is expected to help the three companies be more efficient in the development of EVs, as well as what is known as software-defined vehicles that are often compared with smartphones in allowing software updates that can improve performance.
Cost savings can be passed on to consumers while pooling the companies’ best engineers together should, in theory, help speed up development.
Mr Mibe confessed to feeling a sense of crisis: “None of us, working alone, can catch up with our rivals.”
There has long been friendly domestic competition, and the main cause of alarm for Japanese carmakers has been external. They had misread the demand and rapid growth of such EV brands as the United States’ Tesla and China’s BYD.
Japanese carmakers have, in comparison, been late to the game, focusing instead on hybrid vehicles and hydrogen fuel-cell vehicles. But hybrids, while often touted as cleaner, are nonetheless polluting as they still rely on petrol.
Hydrogen vehicles, meanwhile, remain unpopular, given their steep cost and lack of public refuelling infrastructure.
As EVs speed off globally, climate activists doubt the commitment of Japanese carmakers to net-zero emissions goals, while shareholders are questioning the wisdom behind their overall strategy.
Nissan, Japan’s largest EV manufacturer, sold less than 140,000 EV units worldwide in 2023. This is but a fraction of the 1.8 million moved by Tesla and 1.57 million sold by BYD.
BYD, buoyed by global demand for its affordable EVs, even overtook Honda and Nissan to become the world’s seventh-largest carmaker by number of vehicles sold in the April-June quarter, a Nikkei report said on Aug 23.
This leaves Toyota as the only Japanese carmaker that is ahead of BYD, with European and US manufacturers in between.
BYD’s ascent is thanks to Beijing having long regarded EVs as a strategically important industry. In the 2000s, China decided to “overtake by changing lanes” by going all in on EVs rather than conventional-fuel vehicles through heavy grants and subsidies for both manufacturers and buyers, and investment in public charging infrastructure.
This has allowed China to build up its own supply network of vehicle batteries, with the economies of scale helping to reduce prices for buyers.
In comparison, Japan’s EV segment is lagging behind, and its vast domestic market is still dominated by petrol vehicles and hybrids.
Such vehicles are falling out of favour in China, where even smartphone maker Xiaomi has muscled in on EVs and aims to be a “top-five” carmaker in 20 years, and there are similar concerns that Japanese carmakers will lose ground to China across developing Asia and Latin America.
“Toyota, Honda and Nissan have maintained a standstill attitude towards the Chinese market, losing market share in an oversaturated market (while they exercise) no price discipline,” Fitch Ratings senior director Satoru Aoyama told ST.
It is thus hoped that the “paradigm shift” of the Honda-Nissan-Mitsubishi alliance can lead them to “invest in new technologies, maintain high capacity utilisation, and regain market share”, he added, although he did say that it is too early to tell if implementation would be effective.
Nonetheless, Japanese newspapers were bullish.
The Yomiuri Shimbun said on Aug 13 that this is “an opportunity to turn the tide for the country”, while the Sankei Shimbun said a day later that although Japan’s stalled EV development had “begun to affect its international competitiveness”, the consolidation into two camps will hopefully “breathe new life into their EV businesses”.