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So far, Japan and its automakers have lagged behind in the race for electric vehicles, the industry's fastest-growing product area. Battery electric vehicles and plug-in hybrids (PHEVs) accounted for around 13% of all cars sold globally in 2022, up from 2.6% in 2019. In some markets, including China, the share is around twenty %. But in Japan, it was only 2%. Companies taking the lead in the EV race include newcomers like China's Tesla and BYD, and established giants like Germany's Volkswagen. However, Japanese car manufacturers are not one of them. Neither is in the top 20 for global EV sales, even though Nissan and Mitsubishi launched some of the world's first EVs more than a decade ago. Toyota, the world's largest automaker, sold just 24,000 EVs out of 10.5 million total sales in 2022. (Tesla sold 1.3 million.) Sales of Toyota's first all-electric model, an SUV called the bZ4X, had to be halted last summer due to failures that caused wheels to drop. Critics worry that this early stagnation of electric vehicles could bankrupt the Japanese auto industry as a whole. Some see parallels with semiconductors and consumer electronics, industries in which Japanese companies were initially dominant, then missed important trends abroad and ended up losing out to nimbler competitors. A similar drop in the auto industry, which accounts for almost 20% of Japanese exports and around 8% of Japanese jobs, would have huge economic and social implications. Japanese automakers are now rushing to catch up. Toyota has a new CEO, Sato Koji, who has been chosen in part to lead the company's electrification drive. In its first press conference on April 7, Toyota announced plans to launch ten new EV models and increase annual EV sales to 1.5 million by 2026. "We will implement 'full electrification, which we can do immediately Sato said. Honda plans to launch 30 EV models by 2030 and formed an EV joint venture with Sony last year, with the company describing a corporate reorganization that takes effect this month as an "acceleration of electrification." Nissan announced it would launch 19 new electric vehicle models by 2030, now calling electrification the "heart of our strategy."
Japan's slow start with EVs is partly due to its past successes, or as JATCO's Sato puts it, it's a classic case of the innovator's dilemma. Industry leaders have been reluctant to embrace new technology that could undermine areas where Japan leads, such as standard hybrid vehicles, which combine an internal combustion engine (ICE) and an electric motor powered by batteries that capture energy from the regenerative braking (instead of recharging from outside). electricity, as with PHEVs). Engineers at Japanese companies that modified complex hybrids were also unimpressed with electric vehicles, which are mechanically simpler. "In the industry, there are still a lot of people attached to the engine," says Sato. Executives were concerned about the implications of the EV change on their wide network of providers like jATCO, given that EVs require fewer parts and accessories than ICEs. Automakers assumed that eventually switching to electric vehicles would be child's play: "The logic was that when the time comes, we can easily switch from hybrids to electric vehicles," says a former executive at a large Japanese auto company.
Japan has also taken a wrong turn with hydrogen, another emerging automotive technology with the potential to be carbon-free. Toyota, Japan's largest and most influential carmaker, has bet that hydrogen fuel cells will become the main method of electrifying cars. Abe Shinzo, Japan's prime minister from 2012 to 2020, championed policies aimed at turning Japan into a "hydrogen society"; in 2015, Toyota delivered its first hydrogen fuel cell sedan, the Mirai, to Abe himself. While hydrogen can play an important role in decarbonising hard-to-electrify sectors, such as steel production or long-haul trucking power, it has so far proven illogical as a technology for electrifying light-duty consumer vehicles. Even in Japan, which has built its fair share of hydrogen refueling infrastructure, Toyota has struggled to sell the expensive Mirai: The company has only sold a total of 7,500 fuel cell vehicles in its home market.
While governments in China, Europe and the United States are increasingly subsidizing electric vehicles as part of their climate policies, Japan has done less to encourage their adoption. The government has called for 100% of vehicles sold by 2035 to be electric, but this includes hybrid vehicles, unlike other governments that have more strictly defined the next generation of vehicles. Subsidies for fuel cell vehicles remain much higher than those for electric vehicles. Tight regulations have hampered the expansion of EV charging infrastructure: Japan has about a quarter fewer public EV chargers than South Korea, its much smaller neighbor.
Continued skepticism about electric vehicle technology explains part of Japan's mistrust. Japanese automakers and officials are “still wondering,” says Tsuruhara Yoshiro of AutoInsight, an industry magazine: “Are electric vehicles what consumers want? Does it add value? Is this the best way to reduce CO2? Toyoda Akio, former CEO of Toyota and grandson of the company's founder, was fond of saying that "carbon is the enemy, not the internal combustion engine." Even under Sato, a Toyoda protégé, the company sticks to what it calls a “multi-lane” strategy that sees EVs as part of a diverse fleet. “We believe that the way to achieve the largest net reductions in carbon dioxide emissions globally is to tailor the solution to each part of the world,” says Gill Pratt, Toyota chief scientist. For example, in developing countries, where the adoption of renewables has generally been slower than in the West, traditional hybrids could offer a more practical and cost-effective way to reduce emissions in the meantime.
But some believe that Japanese automakers are simply moving too late to keep up with developments in more developed markets. "They are like the closed country of the Tokugawa shogun era: they refused to see what was happening in the world," says management consultant Murasawa Yoshihisa. While Japanese cars were once synonymous with energy efficiency, and therefore green, they are at risk of becoming synonymous with climate denial. According to a recent Greenpeace study, Japan's three largest automakers (Toyota, Honda, and Nissan) rank last among the world's top ten automakers for decarbonization efforts.
As Toyota's experience with the bZ4X suggests, designing and building high-end electric vehicles may not be as simple as Japanese companies assumed. "They were so confident that once they decided to do that, they would dominate the EV market," says Murasawa. "But their offers turned out to be outdated." Creating electric vehicles that appeal to consumers requires a greater emphasis on software, while Japanese companies have traditionally prioritized hardware. As they prepare, Japanese companies are already losing loyal customers. Japanese brands that have "built a legacy" in the United States have been "caught by surprise in the context of 2022," concludes S&P Global Mobility, a research firm. As the study points out, consumers who switched to electric vehicles in 2022 were largely turning away from Toyota and Honda.
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