Once A Leading Car Maker, Why Is Japan Lagging Behind In EV Race? 

From Carl Benz's first gas engine-powered automobile in 1886 to electric motor-run EVs (electric vehicles), the automobile industry has constantly adapted to new technologies. 

While France and Germany perfected the automobile industry in the late 19th century,  America dominated the industry in the first half of the 20th century with companies such as Ford, General Motors and Chrysler. Post World War-2, Europe and Japan started taking lead to meet the growing demands. Several Japanese companies such as Honda, Mazda, Maruti  and Nissan were among the top-auto manufacturers.  

In the 1980s, Japan became the leading auto-maker globally, overtaking Germany–the pioneer of auto-industry.  

 Cut to 2023, electric vehicles are becoming the fastest-growing product in the auto industry globally as companies become more sensitised towards the risks of global warming and carbon footprints. 

However, Japan hasn't been able to pick up on the new trend. In fact, Elon Musk-owned Tesla and China BYD are leading the industry in terms of EV production. According to The Economist, none of the Japanese car-makers featured in the top 20 list of EV sales, even though Nissan and Mitsubishi launched the world's first EVs almost a decade ago.   

Is Japan losing its reputation of being the global auto-hub?  

EV sales picking up

The sales of battery-powered vehicles (BPVs) and plug-in hybrids (PHEVs) went up from 2.6% of all cars sold in 2019 to 13% in 2022. While Chinese markets had a share of around 20% in EV sales, it wasn't more than 2% in Japan. With over 90%, Norway led the charts for EV sales in 2022, followed by Sweden, Denmark, US and Netherlands. Japan fared last over 2% sales.  

(i) The graph shows EV Car Sales as a percentage of total passenger car sales in that country in the year 2022. Norway has the highest share of EV sales out of its total car sales, while Japan has the lowest at 2.96%.

 

Despite the fact that EV car sales have been picking up, the adaptability in Japan has been low.  By 2022, in Norway EV sales went up by more than 300%. In Japan the EV sales out of total car sales has been a little over 2%.  According to the Japan Automobile Dealer Association, the EV sale in Japan in 2022 was 77,238 units, 3.1 times higher than the previous year.  

(ii) This graph shows the share of EV Cars in the total car sales over the past four years for select countries. A similar trend is noted here as well with Norway and Finland having a high share, and Japan having a slow adaptation rate.

Japan is home to world's largest car company Toyota which managed to sell just 24,000 EVs in 2022, while Tesla sold a whopping 1.3 million units.  

The China challenge

The shift from conventional combustion engines to EVs has rattled the Japanese auto industry. China is emerging to be one of the biggest markets for EVs as one in four vehicles sold in China in 2022 was an EV. But Japan hasn't tapped the market well so far. 

 

(iii) This graph shows EVs sold in Japan as a percentage of total EV Cars sold in the world. A declining trend can be observed since 2012, indicating an extremely low inclination towards EVs by Japan.

 

According to Reuters, the sale of Japanese auto brands in China slumped 32% year-on-year in the first quarter. While the Japanese auto-makers have said they are taking the "go-slow" approach with respect to EVs to "protect consumer choices",  it has affected its sales particularly in China.  "As EVs get more affordable they become more attractive to the core buyers who have been resisting so far, the buyers of foreign brands," Reuters quoted Bill Russo, CEO of Shanghai-based consultancy Automobility.  

What has the Japanese government said?

The government of Japan has set a target to sell only eco-friendly cars by 2035. To meet the goal, it has offered to subsidise part of the cost to buy EVs or Clean Energy Vehicles (CEVs).  In 2021, the Japanese government said it would give a maximum of $7,200 in subsidies to each EV buyer. This excludes Hybrid Electric Vehicles which run on an internal combustion engine paired with electric motors.  

What are the Japanese car-makers saying?  

To keep up with the shift in technology and the sensitisation towards the risk, Honda last month announced an electrification strategy under which at least 10 electric motorcycle models with annual sales of 3.5 million units by 2030 will be introduced.  

"We believe that the value society places on being kind to the environment will only build in momentum,"  Honda President Toshihiro Mibe said last month as the company launched its electrification strategy.  He said that China's automakers were "further ahead" than was expected.  

On April 7, Toyota's new CEO Sato Koji announced plans to launch 10 new EV models and increase annual EV sales to 1.5million by 2026. "We will thoroughly implement electrification, which we can do immediately," Sato was quoted as saying. 

Nissan too has announced plans to release 19 new EV models by 2030 as it said electrification would be the "core" of their strategy. 

Toyota CEO Koji Sato last month said that the company needs to speed up its efforts to meet the customer expectations after the company's first quarter sales dropped by 14.5% in China. 

 

(With inputs from Rohan Bajaj)