Japan's Sluggish EV Industry: Why the Rest of the World is Ahead

The electric vehicle (EV) market is rapidly growing globally to achieve carbon neutrality. However, the Japanese automotive industry is lagging behind in this market, leading to growing concerns. There are calls for the government and industry to work together to develop countermeasures.

Global EV sales in 2021 reached approximately 6.6 million units, a threefold increase from 2019. China alone sold over 3.5 million new energy vehicles, including EVs and plug-in hybrids, and aims to sell 5 million in 2022. In line with this trend, Toyota Motor Corporation has set a target of 3.5 million EV sales by 2030.

On the other hand, Japanese manufacturers shipped only about 120,000 EVs in 2022. Tesla, which currently dominates the global EV market, operates large factories in the United States, China, and Europe. BYD from China has also rapidly emerged as the world's third-largest EV manufacturer. Furthermore, European companies, including those in Germany, have begun full-scale EV production in response to their decarbonization policies. Japan is falling behind in the EV market.

There are several reasons why the Japanese automotive industry has lagged behind in the EV market. First, Japanese manufacturers, proud of their internal combustion engine and hybrid technologies, have neglected EV technology development. It is also likely that they hesitated due to the high costs of EV mass production and the long time it takes to achieve profitability. However, it's not that they were entirely late in starting EV development. Japanese companies, including Mitsubishi, which launched the i-MiEV in 2009, had been releasing EVs since the early 2010s. The problem was their failure to transition to full-scale mass production.

It may have been challenging to expand the business into EVs while continuing to use the existing internal combustion engine vehicle production facilities, which are their primary revenue source. The domestic market environment was also not conducive to accelerating EV commercialization. In Japan, there were concerns about the lack of EV charging infrastructure, the safety of lithium-ion batteries, the cost burden of batteries, and the country's reliance on overseas sources for key materials like rare earths. A cautious approach towards EVs persisted. The COVID-19 pandemic further hindered the acquisition of overseas market information, possibly leading to an underestimation of market changes.

Behind this complacent response of the Japanese automotive industry was the practical issue of the high cost of building an EV supply chain due to the vertically integrated structure of automobile production. Component manufacturers have different circumstances, making it difficult to accurately gauge where the future turning point lies.

Nevertheless, the Japanese automotive industry needs to respond now. Unlike internal combustion engines, EV bodies require far fewer components. Many component manufacturers will become obsolete in the EV era, which inevitably leads to job losses. Furthermore, if EVs and EV components produced domestically are manufactured using coal-fired power, they could become subject to carbon border taxes implemented by countries like those in Europe. The country also heavily relies on overseas sources for key components like batteries and cells. It is time for the Japanese government and industry to join forces and establish a domestic EV ecosystem.

Recently, there have also been concerns that Japanese companies are falling behind in the 'CASE' area, referring to the transformative period of mobility encompassing autonomous driving, connected cars, car sharing, and electric vehicles. Given that the EV industry can be a significant opportunity for the Japanese economy under these circumstances, arguments for developing a larger vision from a national industrial strategy perspective are gaining traction. Japan, which has lagged behind in the EV market, needs to strategically seize this opportunity.