Will Japan lose its leadership in automobile manufacturing?
The global transition towards EVs is in full swing. And the country leading that charge is, of course, China. While the push to phase out internal combustion engines in favour of electric mobility will be a net plus for the world, there might be regions that lose out in the short term. One of these hard-hit regions could very well be Japan.
Japan has an illustrious history as one of the top automobile manufacturers in the world. The country has the fourth largest domestic market and is the largest exporter in the world by volume (second largest by value behind only Germany). It exported more than 3.8 million units in 2021 alone, and its marques count as some of the largest and most trusted worldwide, with household names like Toyota, Suzuki, Honda, Nissan, Mazda, Mitsubishi, Kawasaki, Yamaha and many more.
The Japanese automotive industry has long been heralded as an industry vanguard, constantly pushing the envelope in automotive technology and production. It pioneered industry landmarks like Just in Time Manufacturing, Lean Six Sigma and the use of industrial robots. Its products routinely rank as the best in terms of efficiency, reliability and safety. But a new challenger is fast rising.
The Chinese EV Miracle
The rapid boom in China’s EV industry has been nothing short of legendary. The country has gone from selling 366 units in 2008 to more than 3.3 million in 2021, a growth rate of more than 200% a year! It is now the largest producer in the world, with a 57% share, and dominates the passenger, electric bus and light commercial vehicle markets. It is on track to export more than 5.5 million electric vehicles by 2030, and companies like BYD and SAIC have become some of the most watched players in the industry.
Meanwhile, Japanese complacency, especially Toyota’s long refusal to invest in EVs, has left it in an awkward position, where it is now lagging behind China in key technologies. Japanese makers find their reputation for excellence under assault, and Tesla’s opening of a Gigafactory in Shanghai is emblematic of this stagnation.
In many ways, this is ironic, as China is following almost the same trajectory charted by Japan. Japanese vehicles, too, had a stigma in the major export markets, forcing manufacturers to focus on the cutthroat domestic market. The intense competition in the domestic market made Japanese vehicles some of the best value for money in the world, and, in the wake of the 70’s Arab oil shock, Japanese brands like Toyota and Nissan burst onto the world stage and rapidly took it over.
High oil prices made consumers value fuel efficiency, and so Japanese cars proliferated to such an extent that they were viewed as an existential threat to many countries’ domestic industries. Japan has shared the top spot with Germany ever since.
A New Era in Automobile Manufacturing
Now, the time seems ripe for China to do the same. Surging fuel prices and climate change concerns have made EVs look very attractive to consumers, as can also be seen with the popularity of Tesla. But Tesla is pricey and high-end, while Chinese cars are more for the everyman. Electric vehicles look more and more practical each year as countries build out their charging networks and expand mineral production. And China is in a perfect spot to take advantage of this.
Sure, there are some challenges for China, most notably rising labour costs, the US semiconductor embargo and competition for all-important lithium mines. Neither will the Japanese auto industry just roll over, as it is still one of the world’s most respected, globalised and efficient.
Japanese makers still have enormous technical, industrial, marketing and design advantages, but they might slowly lose their reputation as the ordinary person’s workhorse. Either way, there is no doubt that this decade will be the most transformative for the auto industry since the very invention of internal combustion engines.