Global Courant
Japanese automakers risk a repeat of the decline of Detroit’s big three automakers – Chrysler, Ford and General Motors – because of their resistance to electric vehicles (EVs). Nearly 40% of Americans who bought a Tesla did switched from Japanese brandsmainly from Toyota and Honda.
At a time when 25% of new car sales in China are EVs or plug-in hybrids, a lack of EVs is costing Japanese brands significant sales. In a market weakened by Covid-19Japanese brands tumbled the most — with a third from the previous year — compared to just 9% for US and European brands.
After surpassing Germany to become the world’s second largest auto exporter in 2022, China is on track to surpass Japan relatively quickly. Given the prolonged decline in car sales in Japan – with sales in 2022 26% lower that of 1996 — a loss of export market share is a serious blow.
The export problem is also largely caused by electric cars, which now account for half of all Chinese car exports. Most of these are made by foreign brands, usually through joint ventures with domestic partners.
In the first half of 2022, Western Europe accounted for about 34% of China’s total car exports. China’s share of the European EV market is predicted rise from 5% in 2022 to 15% already in 2025.
Japanese automakers are finally waking up and making some changes. In December 2021, Toyota announced its goal of producing 3.5 million battery EVs by 2030, up from the previous goal of 2 million.
The new target is equivalent to 35% of the company’s global sales by 2022. Honda is now targeting 2 million battery EVs by 2030, equivalent to half of current sales. Even with these changes, Japan significantly remains behind other rich countries.
The future of cars is electric. Image: Twitter
Unfortunately, these companies are still hedging their bets by spending billions of dollars on cars that are either losing popularity – like hybrids – or were never popular, like plug-in hybrids and the truly useless hydrogen fuel cell vehicle.
In 2022, global sales of battery EVs and plug-in hybrids combined overtook traditional hybridsbut battery EV sales were three times as high as plug-in hybrids.
The plug-in hybrid will arrive in January 2023 share in the United States was still a measly 1.2%, while the share of battery EVs reached 6.2% and will continue to rise. Bloomberg New Energy Finance believes that global gasoline car sales peaked in 2017 and will never recover.
Yet both the Japanese government and car manufacturers are still possessed with the romance of hydrogen fuel cell cars. Tokyo assigns more grants to fuel cell cars than to EVs. The Mirai, Toyota’s fuel cell car, was introduced in 2015, but has since sold only 22,000 units worldwide.
The irony is that Chinese brands seem to be repeating exactly what Japanese automakers did to Detroit’s big three for the same reason: a shift in technology and market conditions that dominant oligopolists can’t adapt to.
Until the two oil price shocks of the 1970s, the market share of Detroit’s three major markets held at 85%. Then oil prices suddenly rose in tandem with the government’s imposition of tighter controls on pollution.
Japanese brands took the opportunity to offer smaller, more reliable, more fuel efficient and less polluting cars, while Detroit resisted improving fuel economy and reducing emissions.
Japanese automakers are also more likely to put computer chips in their cars than others. Within less than a decade of the oil price shocks, Japan became the world’s largest car exporter, prompting protectionist measures in both the United States and Europe.
Today, Detroit’s combined market share in the United States has fallen to just 40% and Toyota has become the largest automaker in the world, a status General Motors previously enjoyed for 77 years.
Just as success blinded Detroit to a change in time, it has done the same with Japanese brands. The recently retired Toyota leader Akio Toyoda rejected EVs as overhyped and repeated the myth that switching to EVs would actually increase carbon emissions.
Akio Toyoda had dismissed EVs as overhyped. Image: Twitter
The latter is only the case where coal generates one unusually high share of electricity — worldwide, EVs emit 30% less than petrol cars and the benefit continues to grow as the use of renewable energy sources increases.
Toyoda’s successor, Koji Sato, told the press, “we are going to implement electrification thoroughly, which we can do immediately.” But many analysts remain skeptical of his commitment.
Japanese automakers seem to assume they can still focus on hybrids and catch up when it comes time to focus on EVs. But it is not clear whether catching up will be easy, partly due to the internal company culture.
It’s common for managers and engineers at highly successful companies to become too attached to the business model and technology that originally brought them success. Insiders say many Japanese executives are hesitant to stray too far from the policies of the seniors who promoted them.
It is not impossible for Toyota, Honda and other Japanese automakers to change course and avoid a market share collapse. But time is not on their side.
Richard Katz is a Senior Fellow at the Carnegie Council for Ethics in International Affairs. This is a modified version of a piece that originally appeared here on Japan Economy Watch.
This article was originally published by East Asia Forum and has been republished under a Creative Commons license.
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