Japanese automakers have been global leaders in automotive technology for decades, but the transition to electric vehicles (EVs) has revealed significant gaps. In 2022, Japanese cars accounted for less than 5% of battery-electric vehicle (BEV) sales worldwide.
This starkly contrasts with the rapid advancements made by Chinese and American manufacturers, particularly Tesla and BYD, who dominate the global EV market.
But why? Japan used to be the global leader in battery powered vehicles.
Well, there are several factors:
Hybrid Focus: Yes, Japan was really a early leader in the beginning of EVs, hybrid vehichles, with cars like the Toyota’s Prius leading the market. But hybrids are very different from EVs, and this focus has delayed the full transition.
Toyota Prius - The most sold hybrid vehicle ever made Government Policies: Japanese subsidies have historically supported hybrids and hydrogen fuel-cell vehicles (Japan is the biggest proponent in the world of this largely obscure technology) over BEVs, and that is still the case. This contrasts with the aggressive EV subsidy policies in China and the US, which have accelerated EV adoption in those regions.
Supply Chain and Infrastructure: Japan has an immensely efficient supply chain for hybrid and gas vehicles. However, as a conservative country, both the private sector and the government are hesitant to develop Japan’s EV supply chain until there is more widespread adoption. Unfortunately, this adoption is unlikely to occur without an already developed supply chain. It's a classic case of "which came first, the chicken or the egg."
Japanese highway rest stops are amazing attractions in and of themselves, but sadly, they have almost exclusively catered to gas cars so far
Strategic Moves to Catch Up
Despite these challenges, Japanese automakers are making significant strategic moves to catch up in the EV race. The Japanese government has also recognized the strategic importance of the EV industry and is providing substantial support. (Diamond | What happens if EVs stall?)
Toyota's Expansion
Despite Toyota’s so-far lackluster EV lineup, the company is leading the charge in Japan with aggressive expansion in its battery production capabilities. Toyota's efforts are expected to secure around ¥120 billion in subsidies for FY2024, underscoring its dominant position in the industry.
Main EV efforts:
PPES: Prime Planet Energy & Solutions, a joint venture with Panasonic, is producing batteries at the Himeji plant in Hyogo Prefecture. This facility is a cornerstone of Toyota’s strategy to integrate battery production within its operations. By expanding this plant, Toyota aims to meet the growing demand for EV batteries and reduce its reliance on external suppliers. This move not only ensures quality control but also enhances production efficiency and cost management.
PEVE: Primearth EV Energy, another critical part of Toyota’s battery strategy, is expanding the Kosai plant in Shizuoka Prefecture. This facility focuses on producing batteries for Toyota’s expanding EV lineup. The investment in PEVE highlights Toyota’s commitment to securing a stable and high-quality battery supply, crucial for scaling up its EV production. By having a dedicated battery production line, Toyota can ensure a consistent supply of cutting-edge batteries, which is essential for maintaining its competitive edge.
Toyota’s approach is both comprehensive and aggressive, reflecting its understanding of the urgent need to catch up in the EV race. By securing control over its battery production and leveraging substantial government subsidies, Toyota is positioning itself to reclaim its leadership in the automotive industry. However, it remains to be seen if these moves will be sufficient to match the rapid advancements of competitors like Tesla and BYD.
Honda's Strategic Alliance
Honda might be late to the game, but for being a relatively small car manufacturer, they are going full throttle! In collaboration with the Japanese battery manufacturer GS Yuasa, the company is building a new factory in Shiga Prefecture with a massive investment of ¥434.1 billion. This collaboration aims to shift from hybrid vehicle (HV) batteries to focus more on BEVs.
Main EV efforts:
GS Yuasa: Partnering with Honda to build a new plant in Shiga, GS Yuasa is playing a critical role in Honda’s EV strategy. The new factory will significantly increase Honda’s battery production capacity, enabling it to support its ambitious EV production targets. This partnership reflects Honda’s strategic pivot towards BEVs, recognizing the need to reduce its reliance on hybrids to stay competitive in the global market. By leveraging GS Yuasa’s expertise, Honda can accelerate its transition to EVs while maintaining high standards of battery performance and reliability.
AESC: Continuing production of Honda batteries at the expanding Ibaraki plant, AESC (Automotive Energy Supply Corporation) is integral to Honda’s battery supply chain. This expansion is part of Honda’s broader strategy to secure a stable supply of high-quality batteries, essential for its new EV models. By expanding its battery production capabilities, Honda aims to overcome supply constraints and ensure that its EVs are equipped with the latest battery technology.
Honda’s partnership with GS Yuasa is a strategic move that underscores its commitment to catching up in the EV market. By building new production facilities and expanding existing ones, Honda is ensuring a reliable supply of advanced batteries. However, Honda’s late entry into the BEV market plus is lack of the funds Toyota has could mean it faces an uphill battle in gaining market share from more established EV manufacturers.
Nissan's Cautious Approach
With the Leaf, Nissan was one of the first serious entrants into the BEV space. However, since then, likely partly due to its former CEO, Carlos Ghosn’s ousting, the company has lagged behind seriously.
Now, Nissan is attempting to regain its foothold in the EV market by acquiring Vehicle Energy Japan (VEJ) and expanding its battery production. Nissan’s cautious approach reflects its strategy to carefully rebuild its EV presence:
AESC: Previously sold to China’s Envision Group, AESC continues to supply Nissan with batteries. Despite the sale, AESC remains a critical part of Nissan’s battery supply chain. The company’s production facilities are being expanded to meet the growing demand for EV batteries. This expansion highlights Nissan’s strategic focus on ensuring a reliable and scalable battery supply. By maintaining a relationship with AESC, Nissan can continue to benefit from its established production capabilities and technological advancements.
VEJ: Acquired by Nissan in 2022, Vehicle Energy Japan is focusing on domestic battery production. This acquisition is part of Nissan’s strategy to regain control over its battery supply and reduce its dependence on external suppliers. The expansion of VEJ’s production capabilities is expected to significantly boost Nissan’s ability to meet its EV production targets. By bringing battery production in-house, Nissan can better align its supply chain with its production needs, ensuring greater flexibility and responsiveness to market demands.
Despite being a maverick in the space, Nissan’s current strategy appears more cautious compared to its peers, focusing on rebuilding and securing its supply chain. This approach is prudent but might lack the aggressive push needed to quickly regain market leadership. Nissan’s success will depend heavily on its ability to innovate and scale its production efficiently.
The Wildcard: Panasonic
Panasonic has over the years sailed up as one of the largest players in the EV space. As a EV battery maker, Panasonic has ridden the wave of Tesla’s massive battery demand, but the company is now diversifying its partnerships to reduce risk. Collaborating with Subaru and Mazda, Panasonic aims to strengthen its domestic production capacity.
Diversification and Partnerships: Panasonic is strategically diversifying its customer base by partnering with Subaru and Mazda for domestic battery supply. This diversification reduces Panasonic's reliance on Tesla, ensuring a stable and scalable demand for its batteries. These partnerships highlight Panasonic's commitment to supporting Japanese automakers and boosting its production capabilities, ultimately reducing the risk associated with relying on a single major customer.
Mazda and Subaru Collaborations: Both Mazda and Subaru, with significant investments from Toyota (5% and 20% respectively), are collaborating with Panasonic to secure a stable battery supply. These partnerships are part of Mazda and Subaru's strategies to increase EV production and reduce reliance on internal combustion engines. The collaboration allows Mazda and Subaru to access advanced battery technology from Panasonic, enhancing their competitiveness in the global EV market and ensuring their EVs meet high performance and reliability standards.
Panasonic’s diversification strategy is a smart move to mitigate risks and secure its market position. By partnering with multiple automakers, Panasonic ensures a steady demand for its batteries and reduces dependency on a single customer. This strategy, combined with its technological expertise, positions Panasonic well for future growth in the EV market.
Does It Even Matter If Nobody Wants EVs?
The global EV market slowdown is casting a long shadow over the industry, with battery manufacturers bearing the brunt. Panasonic's battery business revenue dropped by ¥55.9 billion to ¥915.9 billion in FY2023, primarily due to Tesla’s declining performance. In a desperate bid to stay afloat, Panasonic and other Japanese manufacturers are now increasingly reliant on government subsidies to support their expansion plans.
Challenges in the Battery Industry
As Japanese manufacturers ramp up their EV production, they face a global market brimming with challenges. The dominance of Chinese and Korean battery manufacturers creates a fiercely competitive environment. China’s CATL, a major player, is also grappling with setbacks from the EV market slowdown, with significant inventory build-up and revenue growth deceleration.
The real kicker? The global EV market is facing an impending glut. Experts predict that an oversupply of EV batteries and raw materials like lithium and cobalt will continue into 2024. This oversupply is a direct result of aggressive production expansions in anticipation of a demand boom that is now fizzling out. Chinese carmakers, dealing with their own excess capacity, are intensifying global competition by flooding markets with affordable EVs, further straining profits for Japanese and other global manufacturers (IEA) (Electrify News Site) (S&P Global) (#SixthTone).
The Global Supply Chain Crisis
Battery manufacturers across Japan, China, and Korea are scrambling to expand operations globally to secure supply chains and mitigate risks. However, the current EV market slowdown has led to financial strain across the board. Many manufacturers are finding it difficult to stay profitable amidst a surplus of batteries and intense price competition, particularly from Chinese manufacturers who are aggressively cutting prices to maintain market share.
Record Profits from a Different Strategy
Interestingly, Japanese automakers have benefited from being slow to adopt EVs. Toyota, for example, has reported record profits thanks to its focus on hybrid and ICE vehicles. In FY2024, Toyota achieved a net income of ¥4.944 trillion ($34.1 billion), largely driven by strong sales of hybrids and traditional vehicles, even as the global shift towards EVs gained momentum. This hybrid-first strategy has provided a financial cushion, allowing Toyota to invest heavily in future technologies while maintaining robust profitability (Toyota USA Newsroom) (Autoline).
A Silver Lining?
Despite the doom and gloom, some industry experts maintain a cautiously optimistic outlook. The demand for EVs is expected to rebound as supply chain issues are resolved and governments push for greener technologies. For instance, the Japanese government plans to increase the number of charging stations from 30,000 to 150,000 by 2030, which could bolster long-term EV adoption.
Automakers are also shifting towards internalizing battery production to reduce dependency on external suppliers. Tesla and Toyota are leading this charge, with significant investments in in-house battery production. Strategic alliances are becoming vital, with companies like AESC expanding partnerships beyond Nissan to include Renault, BMW, and Honda.
Conclusion
Japan’s automakers have been slow to adapt to the rapidly changing EV market, but strategic moves and government support are paving the way for a potential comeback. Leveraging subsidies, expanding production capabilities, and forming strategic alliances are key to regaining a competitive edge in the global EV market. However, the next few years will be critical as they navigate the challenges of an oversupplied market and fluctuating demand.
The stakes are higher than ever. It’s not just about ramping up production; it’s about ensuring there’s a market ready and willing to embrace these electric vehicles amidst a turbulent and highly competitive landscape. The resilience of Japanese automakers in the hybrid and ICE sectors has bought them time, but the clock is ticking as the global EV market evolves
I am very surprised that you did not at all mention by far the most interesting part of Honda's EV strategy.......Sony Honda Mobility. This is a JV that increasingly looks next generation, and like they have something special on their hands if they market and sell it well. Aside from anything else.....it has the potential to totally reinvent Sony as a mobility technology company and see them get a big second act. And since we now know that Honda's new EVs (O series) and the Sony EV (Afeela) will share the platform its clear that Honda is going to lean heavily on Sony's tech prowess.
Thanks for the comment, and sorry for the late reply! I've actually done some reading on Nissan Sakura after reading your comment and wow, apparently Nissan's leadership was also shocked by the popularity of the car, so they might finally put some more money on the cheap EV segment, something they dominated in the Leaf era. Toyota has for the longest time been saying that they wouldn't enter the EV market seriously until solid state batteries became viable. Maybe they're still waiting for that, but then I think 2027-28 is a bit optimistic. I think we'll see incremental incremental innovations until then, but nothing major until 5-10 years from now, especially when it comes to mass market products. So, if you want an EV in the coming years, buying a used Tesla now or in 2 years will likely give you a similar range, price and experience.