Transport revolution leaves bump in the road for Japanese car giants
Much-admired industry faces challenges from electric and self-driving vehicles, writes Alan Tovey
Japan’s automotive industry has long been admired globally. Building up from a shattered post-war economy, it was at the forefront of the country becoming a manufacturing superpower and is worth 21 trillion yen (£150bn) a year.
It is the world’s third largest producer with annual production of around 9m, half of which is exported.
Millions more vehicles roll off factory lines at foreign plants owned by Japanese firms every year.
Marques such as Toyota, Nissan, Honda, Mazda and Mitsubishi are all household names. But the most recent quarterly results across the industry highlighted how Japan’s automotive sector is stalling. Toyota, which battles with Volkswagen Group for the title of the world’s biggest automotive business, with each producing close to 11m vehicles annually, reported its smallest profit in almost a decade.
Nissan sounded the alarm, warning it faces a record Y470bn annual loss. It is undergoing a painful restructuring to take out excess global capacity, with 11,000 jobs going worldwide.
Its troubles are complicated by aftershocks from the arrest of former boss Carlos Ghosn over alleged financial crimes, and its difficult relationship with partner Renault.
Mitsubishi, a junior partner in the Nissan-Renault alliance, warned of an Y140bn annual operating loss, and pulled back from some markets, including the UK.
Management at Honda said they needed to “reshape” the business as they worried investors with an Y80.8bn loss in the first quarter.
Coronavirus was to blame for much of the red ink, with buyers sitting on their hands. But the losses also revealed how some Japanese manufacturers had been aggressively discounting. As sales ebbed because of the pandemic, they were left exposed.
About 5.5m people – almost a tenth of Japan’s workforce – are employed in the automotive or related industries, and signs that such a key sector is no longer ticking over smoothly offer a major concern to Tokyo. Although fiercely denied by the companies, reports that the Japanese government tried to force a merger between Nissan and Honda to protect them in the face of falling sales would appear to have some logic to them.
Such a tie-up would follow the Japanese tradition of keiretsu – often competing companies with crossholdings in each other – which encourages stability in the markets and reduces the chances of takeovers. But how Honda would function within such a framework is questionable.
Toyota is a different case given it has about £60bn of cash – enough to see it through the crisis. A sign of its confidence was news at the start of the year that Toyota planned to build its own “city of the future” on a 175-acre site at the base of Mount Fuji.
The so-called Woven City is planned as a “living laboratory” – an incubator for new forms of transport and technology such as robotics, autonomy, hydrogen fuel and smart homes. The name is a nod to the company’s origin in 1867 as a maker of powered weaving looms.
The global car industry is facing a revolution. Self-driving cars, mobility services such as ride-sharing and the move to electric – and potentially hydrogen – power mean that the days of personal ownership of vehicles with internal combustion engines are almost certainly numbered. The challenge for Japan’s carmakers is what to do with their factories making vehicles whose time may soon be up.
There’s no better warning than comparing Toyota with Tesla. The former makes 11m cars annually and is profitable ( just), while Elon Musk’s company has made just over 1m cars since being founded in 2003 and has only the vaguest familiarity with profit. Despite this, Toyota is valued at about $215bn (£163bn), while Tesla is not far off double that, at $391bn. The market is pricing in the disruption that is coming to the sector.
While Toyota looks unlikely to be a target for foreign buyers, Japan’s smaller and more troubled automotive manufacturers could be – especially for cash-rich companies from China.
It’s already happening elsewhere but on a smaller scale. Chinese conglomerate Geely has snapped up Volvo and Lotus, both of which are thriving under the new ownership, while Shanghai Automotive Industry Corporation acquired MG and works with VW and Chevrolet to build cars for its home market.
Perhaps the biggest danger for Japan’s much-admired car industry is if the focus on its internal troubles means it stops innovating and becomes vulnerable.
A Nissan employee on the assembly line at the Oppama plant in Yokosuka near Tokyo