China has taken away Japan’s car dominance so how will Japanese brands fight back now?
For decades Japanese car makers earned about half of their profits abroad, but today they are being squeezed in export markets. Profits have fallen across the board and they are curbing their Chinese operations. This is also starting to become the norm here in Malaysia as new Japanese cars become a less common sight but Chinese cars are a very common sight to see.
Honda is reducing annual capacity for its Chinese-made petrol vehicles by 500,000 units, from 1.5 million. In June, Nissan shut its passenger vehicle plant in Jiangsu province. Mitsubishi Motors also withdrew from Chinese production and sales last year. By contrast, Tesla and BYD are expanding operations.
Moreover, last month, Tesla received approval to double its capacity at its plant near Berlin and BYD has partnered with Forvia to build electric vehicle plants in Turkey and Hungary, sidestepping recent EU tariffs. The growth is reflected in company profits and even here in Malaysia, the reception for Tesla electric vehicles (EVs) is insane despite the mediocre product.
It is this expanding revenue base that poses another existential threat to Japan. Its cautious approach to EV adoption isn’t just about protecting its successful hybrid technology where it’s about preserving the very foundations of its industrial base. This multiplier effect is particularly crucial, every yen of automotive production generates 1.8 yen in other sectors.
It’s this deep integration into the broader economy that also makes Japan’s EV transition so precarious. The stakes are particularly high given Japan’s competitive positioning. While Japanese suppliers excel in traditional combustion engine components, they lag Chinese rivals in EV technology.
On top of that, Oxford’s analysis shows Japanese companies maintaining strong positions in transmissions, pistons and engine blocks, but falling behind China in critical EV components such as lithium-ion batteries and static converters. The economic implications could be severe and while Japanese automakers were the top sellers in Malaysia for so long, it may change soon.
In Oxford’s most aggressive scenario, where Japan transitions entirely to BEVs with high import penetration of components, the output in the economy could fall by 24.7 trillion yen, about 2.2 percent of 2023 value. Even more concerning, this scenario could result in the loss of 715,000 jobs, equivalent to 1.1 per cent of 2023 employment. So how will Japan fight back?
