[Big read] Chinese EVs sending shockwaves through the Japanese auto industry

At Southeast Asia’s biggest car show held in the suburbs of Bangkok, Thailand, in the second half of March this year, Chinese automaker BYD announced it held 40% market share for electric vehicles (EVs) in Thailand, and sold a few of its bestselling models by slashing at least 100,000 baht (US$2,790) off prices. In Japan, the auto industry took notice.

Starting from the 1960s, the Japanese auto industry went all out to capture the Southeast Asian market, and European and American automakers soon followed their lead. But the Japanese gained a firm foothold with more competitive prices, performance and value for money. Today, Japanese brands still hold a market share of around 75% collectively in Southeast Asia, which has a total population of more than 600 million. In recent years, however, they are seeing increasing competition from a new rival: China. 

The Japanese weekly Toyo Keizai recently published an analysis on the new conditions facing the Japanese auto industry in Southeast Asia, observing that just a few years ago even the Chinese found it hard to believe that the quality of China-made cars would be able to compete against Japanese makes. But the past two years have shown Japanese automakers it was time to take the Chinese brands seriously, as they begin to pursue Southeast Asia car buyers more actively.

BYD entered Thailand in November 2022. According to Thai website Autolife Thailand, BYD is expanding its operations in Thailand quickly. BYD vehicles made up 40% of the 76,000 EVs sold in Thailand last year, making it the market leader in the segment. And BYD’s new Thailand plant — its first in Southeast Asia — was officially put into operation on 4 July this year.

The brand is also working with strong local partners in Indonesia, the Philippines, Malaysia and Singapore to export its products to these markets. At the same time, BYD is exploring opportunities for producing cars in these locales to further grow its business in the region.

Speaking to Lianhe Zaobao, Tsuguo Nobe, a visiting professor at the Global Research Institute for Mobility in Society, Institutes of Innovation for Future Society at Nagoya University, said as the emerging economies in Southeast Asia develop rapidly, competition between Japanese and Chinese automakers is also heating up. “The low-cost strategy of the Chinese manufacturers is giving them an advantage, and is especially effective in developing countries, creating a Chinese wave,” he said. 

“If emerging countries all start introducing environmental policies, Chinese manufacturers will have a chance to win out against its competitors.”

Prof Nobe also said China’s Belt and Road Initiative has successfully opened the doors of manufacturing in Southeast Asian nations to the country, adding to the sense of crisis for Japanese carmakers.

The future of the Japanese auto industry is one of the top concerns of Japanese Prime Minister Fumio Kishida’s government. Two years ago after touring the Toyota research centre in Silicon Valley in the US, then Japanese Minister of Economy, Trade and Industry Yasutoshi Nishimura revealed that the government was planning to reform the Japanese auto industry.

He said, “The automotive industry is entering a period of major transformation. We would like to discuss the early introduction of autonomous driving and measures to promote its widespread use and advance decarbonisation.” After Nishimura returned to Japan, PM Kishida called a cabinet meeting to discuss the direction of development for the Japanese auto industry.

EVs, which are at the forefront of transportation innovation, have been rapidly developing in recent years, but in Japan the trend is not apparent. According to a report in Yomiuri Shimbun, Japanese car manufacturers have a combined market share of 30% worldwide, but when it comes to EVs, their combined market share is in the single digits.

Faced with the fierce advance of Chinese EV makers in Southeast Asia, Akio Toyoda, chairman of Toyota Motor Corporation, who was speaking at an Asian investment conference at the start of the year, was reflective. “Japan needs to think carefully about a new strategy in Southeast Asia,” he said. 

Southeast Asia was one of the earliest overseas markets for Japanese car brands, and one of its most highly valued. At a summit with ASEAN leaders in December last year, Japanese Prime Minister Fumio Kishida announced three plans to take ASEAN-Japan relations to new heights, one of which was to develop a new generation auto industry together with ASEAN, to strengthen Southeast Asia’s standing as a manufacturing and export hub for automobiles. 

Japanese manufacturers have produced more than three million vehicles in Southeast Asia, making up 80% of the region’s total output. Some of the vehicles are exported to the Middle East. 

Nikkei Asia reported in May that Japan was working with ASEAN to set out the first overall blueprint for car production and sales in the whole region, and would set out a strategy with 2035 as the target at the ASEAN-Japan economic ministers meeting in September.

The joint strategy blueprint is expected to cover talent development, decarbonisation of production processes, sourcing of mineral resources, investment in biofuels and other new energy sources, as well as the publicity strategy for producing environmental-friendly vehicles in ASEAN. The Japanese side is said to be ready to invest 140 billion yen (US$913.7 million) to help train workers in ASEAN.

Japanese car makers are also taking the initiative to strengthen collaboration with local players in Southeast Asia. Mitsubishi Motors, for example, announced plans to begin a “study of collaboration” with PTT, the Thai state-owned oil and gas company, for the manufacturing, sales, and export of EVs. Late last year, Toyota signed an MOU with the Charoen Pokphand Group (CP), Thailand’s largest private company, and True Leasing amongst others, to work together in attaining Thailand’s decarbonisation goals.  

The flurry of relationship building is a departure from the Japanese automakers’ previous insistence on going it alone, but faced with increasing competition they are left with little choice as they attempt to defend their leading position as a car exporter. 

Observers have pointed out that the first thing to do if Japan’s auto industry wants to hold on to its leadership position is to catch up with the other contenders in the EV market. But before that becomes a possibility, the problem of inadequate EV charging facilities within Japan is a stumbling block. 

Wakamiya Issei, marketing director for Toyota Motors in Nerima City, Tokyo, told Lianhe Zaobao, “The company is now employing a multi-channel strategy and taking an all-round approach in R&D that’s not limited to EVs, and will continue to manufacture existing petrol and hybrid vehicles that are popular, to provide more choices for consumers.”

But he admitted that in the sales of EVs, “We are a bit behind.” He said, “If we don’t move faster and put in more effort to catch up, this will not be good for Japanese cars.”

Data from the International Energy Agency (IEA) show that of the total number of new vehicles sold globally last year, 14 million were EVs, making up around 18%; meaning that for every five vehicles sold, one was an EV. In contrast, Nikkei Asia reported that of the total of passenger vehicles sold in Japan last year, only 2.2% or 88,535 were electric-powered. 

Wakamiya said, “Charging facilities in Japan are still lagging behind, even if we want to actively promote electric cars, sales are unlikely to grow in the short term.”

According to data from Japan’s Ministry of Economy, Trade and Industry, there are currently 220,000 EVs in Japan, but only 30,000 charging stations. The Japanese government has committed to step up efforts to build more charging stations, to reach the target of 300,000 by 2030. 

Oki Yuji, 61, who is in construction, bought a Tesla half a year ago. He told Lianhe Zaobao, “I didn’t buy a Japanese car because there are not many choices for Japanese EVs.”

“We thought over it for a long time before making the decision, the key consideration was environmental protection. But the biggest difficulty we have now is locating charging facilities. When we travel long distances, we always feel uneasy. Once, we were driving to Mount Fuji. It was just a three-day trip but we had to spend half a day looking for a charging dock.”

Hitaka Emi, who had moved to Japan from Hong Kong, on the other hand, was satisfied with the availability of charging stations in Japan. An English teacher, she often goes on long-distance drives around Japan for leisure. “I started driving a Japanese-made EV during the pandemic, she said. “When I first bought the car, people around me were worried, because they thought there weren’t enough charging stations in Japan. What happens if I run out of battery halfway? But I never felt inconvenienced.”

“Japanese manufacturers provide reasonably priced charging, and there are also charging stations at the rest stops along the highways. I have driven around half of Japan in an electric car, and saved a lot of money on petrol, while being economic and environmentally-friendly at the same time.”

But when Hitaka bought a new car in May this year, she chose a BYD electric car. She explained, “Just one reason: it’s cheap and good. Compared to Japanese EVs, the Chinese ones cost half as much, all the functions are very advanced, and there’s voice control. For the same functions in a Japanese car, you have to pay extra.”

At present, BYD EVs are still a rare sight on the roads of Japan. Emi feels this is because of the biases Japanese consumers have against Chinese products. “Some Japanese friends will ask, are China-made products reliable? They don’t know…after the pandemic, I went to Hong Kong and mainland China, and it really opened my eyes to the development of EVs over there.” 

The EVs currently sold in Japan fall mainly into two categories: pure electric cars and plug-in hybrids (PHEV) that can be powered by a battery pack or petrol. Japanese consumers have a clear preference for PHEVs, which are selling even better than combustion vehicles — last year, PHEVs made up 55% of the total number of passenger vehicles sold in the country.

While consumer preference can be said to be a major reason for the relatively poor sales of pure electric cars in Japan, the fact that a very limited number of options for pure EVs are available for sale has clearly contributed to this vicious cycle.

Japanese manufacturers also seem unwilling to ramp up EV development because of their reluctance to cut jobs.

Back in 2021, American consultancy Arthur D. Little projected that as many as 300,000 jobs may be lost if Japan were to move completely over to EVs, because EVs use 30 to 40% less components than vehicles with internal combustion engines. 

Nikkei newspaper also quoted an anonymous Toyota executive in a report saying, “We have no choice but to maintain employment, no matter how far we are lagging behind in EV development; we have never considered a complete transformation and have no intention to do so.”

However, a former high-ranking official from the Ministry of Economy, Trade and Industry was harsh in his criticism of this thinking. He said in Nikkei, “We need innovation to be able to protect people’s livelihoods — this is a more pragmatic attitude.”

Japan’s population is declining, which means change is inevitable in its auto industry. In 2019, the number of people with driving licences fell for the first time in 50 years, and Generation Z — those born after 1995, who are more eco-conscious, tend to favour car sharing or other more environmentally-friendly modes of transport. EVs are more attractive to the younger consumers. Korean carmaker Hyundai was quick to capitalise on the trend. In June this year, the brand brought its electric model into the popular Tsutaya Bookstore in Tokyo and started offering car-sharing services there, squarely targeting the young eco-conscious consumers drawn to the bookstore.

In 1853, the US used military means to force open the doors of trade with Japan. The naval ships that sailed into port then were known as the “Black Ships”, and today BYD has also been dubbed a Black Ship in the Japanese media. 

BYD established a Japanese subsidiary back in 2005, and started out as a contract manufacturer for electrical components, before expanding into the production of electric buses. After accumulating adequate experience operating in Japan, BYD ventured into sedans, and has now set the goal of growing its network of 55 showrooms to 100 by the end of 2025.

In the beginning, some industry insiders thought Chinese EVs were just looking to be first movers in Japan, and believed they would soon lose momentum and fade out of the market just as Hyundai did in 2001. To their surprise, however, BYD has shown more staying power, selling 1,400 units in the country last year, when EVs are outside of the mainstream. 

Japanese automakers and car dealers have dominated the market for years, and the market position of stalwarts like Toyota and Honda seem unshakeable, and it was unthinkable for a new foreign brand to break into the market. BYD’s willingness to innovate and its success in the market has somewhat shocked Japanese auto into taking action. If BYD can further change Japanese consumers’ perception of Chinese brands and EVs, it will become the biggest catalyst for change in the Japanese auto industry.

An analysis published by Japanese news website JBPress said the subsidies and support provided by the Chinese government have given a huge boost for the development of EV technology among Chinese automakers, enabling them to make headway in the global market, which is very different from how Japan’s individual automakers go it alone. To deal with competition, Japan’s automakers will have to join forces. 

Public opinion is also urging the Japanese government to work with the country’s car manufacturers to come up with a new strategy for development to defend the industry’s market share and international standing.

In May this year, the Ministry of Economy, Industry and Trade issued a draft strategy for digital transformation of the auto industry, with the goal of supporting the development of “software-defined vehicles”, and the target of selling 12 million of the new generation passenger vehicles by 2030 to secure 30% of the global market share. “Software-defined vehicles” refer to cars whose performance and functionalities can be improved through software upgrades, and no longer rely on engine or other hardware upgrades. 

With the call to collaborate in the industry, Nissan and Honda, the second and third biggest automakers in Japan, have put aside their traditional rivalry to sign a memorandum of understanding in March this year to begin working together on EVs. Makoto Uchida, president and CEO of Nissan Motor, told the media that the new challengers were able to dominate the market because of low prices and speed, and Japanese automakers will not be able to compete without working together.

Toshihiro Mibe, president and CEO of Honda Motor, said, “Japanese auto has to change, we need to bring our strengths together to start a new era.”

This article was first published in Lianhe Zaobao as “中国电动车赶超 撼动日本汽车王国“.

Related: China’s EV market: Rapid development amid slowing sales | [Big read] Unseating China? The global race to make cheaper and better EVs