Why Japan's carmaking heavyweights could be facing an electric shock

Japan’s traditional carmaking giants need to raise their game in the race to develop pure, battery-driven electric vehicles or risk being left behind by Chinese, American and European producers, analysts have warned.

Despite dominating car production in Asia for decades, Japan’s big players have been slow to fully develop the battery-only technology that is now eclipsing hybrid vehicles as the most likely type of car to plug petrolheads into the automotive revolution.

Battery technology and government policies to phase out petrol vehicles are driving the change away from hybrids towards a market worth billions of dollars in potential new sales.

Breakthroughs mean that new models such as the Hyundai Ioniq 5 have a socket on the side of the car that can be used to power household appliances. The next step is a car battery that acts as your domestic power storage unit and feeds power back into the grid. Big tech companies such as Foxconn and Huawei are considering making EVs as they become as much about electronics as transport.

Tesla topped the table for worldwide sales of plug-in electric vehicles last year, according to Statista, with more than 500,000 cars. Volkswagen was a distant second, followed by the Chinese market leader BYD.

No Japanese manufacturers made the top 10. Last year, fewer than 15,000 battery electric vehicles (BEVs) were sold in Japan, or less than 1% of overall car sales. Toyota-owned Daihatsu, which has the fourth largest share of the market by domestic sales, does not make any compact EVs.

By contrast sales in Germany, where Volkswagen is leading the charge towards battery-only cars, the figure was 6.9%, while Britain is close behind with a market share for BEVs of 6.6% last year. In China, where 25m cars are sold every year, the share taken by BEVs was 5%. The market share will only grow as these countries phase out petrol vehicles as well as hybrids.

Although Japan says it wants to phase out petrol and diesel cars by the mid-2030s and is a powerhouse producer of hybrid cars, consumers have a limited choice when it comes to BEVs.

The government also faces pushback from the boss of Toyota who said last year that “the current business model of the car industry is going to collapse” if the government moved too quickly. Toyota has no plans to mass produce a BEV vehicle until 2025 although it is also developing fuel-cell electric vehicles (FCEVs) which run on hydrogen.

Bakar Sadik Agwan, senior automotive consulting analyst at GlobalData, a leading research and consulting company based in India, said Japanese manufacturers in particular needed to raise their game.

Tesla recently reduced the cost of Model 3 in Japan in a direct challenge to local producers such as Toyota, Honda and Mazda, he said, who are also facing competition from Chinese cars and South Korea’s Hyundai.

“Several global manufacturers do not have a strong BEV portfolio,” he said. “Though the global manufacturers have not aggressively launched BEVs, most of them are investing in research & development as well as strategic alliances. Unless governments discourage the purchase of conventional vehicles, the demand for such vehicles would continue to be strong in the medium term.”

Another analyst, Shaun Rein of CMR based in Shanghai, went further and suggested that manufacturers such as Toyota faced an existential threat from its Chinese and South Korean competitors if it could not develop pure electric technology.

“Toyota and some of these other companies could go out of business if they don’t wake up,” he said, pointing to commitments by producers such as Ford and Volvo – owned by China’s Geely corporation – to only sell electric vehicles in Europe by the end of the decade.

Toyota says it aims to reduce vehicle CO2 emissions by 90% in comparison with 2010 levels by 2050 and, to this end, is working on a a range of electrified vehicles – including hybrid, plug-in hybrid (PHEV), BEVs and FCEVs.

But the competition from state-backed players is fierce. Although Tesla is still the technological leader worldwide, especially on batteries, China wants to become stronger in this key market through companies such as Contemporary Amperex Technology (CATL) and BYD.

China is also highly motivated to convert drivers to BEVs because it needs to reduce pollution in its mega-cities, Rein said. To achieve this goal, it plans to increase the EV share of new car sales to 20% by 2025 and at least half of all sales by 2035.

In order to persuade consumers to go fully electric cities such as Shanghai are mandating charging points in all residential developments and shopping malls. This month the city’s authorities made it free to obtain special licence plates for BEVs and will withdraw the concession for hybrids in 2023 to ensure more take-up of the zero-emission cars. It is already expensive and time-consuming to obtain a licence for an internal combustion engineer (ICE) car.

Other Asia Pacific countries are using government policy to aggressively drive the uptake of all different types of electric vehicles, although Australia remains an outlier as some states plan to increase rather than decrease taxes on electric vehicles.

In South Korea, the government is collaborating with manufacturers to try to bring down the high cost of EVs, a factor still seen as the biggest disincentive to buyers. The aim is also to produce cars with a greater driving range thus overcoming the other major downside for would-be owners worried about running out of power on longer journeys. Hyundai’s one-size-fits-all platform, which enables it to design all its EVs around the same basic structure, is seen as the template.

Thailand, which is projected to make 2m cars this year and is the 11th largest car producing country in the world, has pledged that 30% of output will be EVs by 2030.

Singapore will not allow the registration of diesel vehicles after 2025, it said this month, which will mainly affect the city-state’s taxi fleet. It aims to eliminate combustion engines by 2040.

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