Japan is no doubt a major automobile producer. However, the thriving electric vehicle market is now dominated by Chinese and other western automakers, which together capture 90% of total EV sales. Japanese players—which used to have full control over the EV market—now only secure a market share of lower than 5%. A major reason is probably the overwhelming success of their hybrid car business.
Back in 2010, Japan-based automobile companies boasted a ≥70% market share on average (90% at maximum) in the global EV market, mainly contributed by the world’s first mass-produced passenger car—the Mitsubishi i-MiEV—and long-standing sales champion—the Nissan Leaf. Within a decade, however, the picture has dramatically changed.
In 2022, global sales of all-electric cars hit 6.8 million units (accumulated between January–November). Specifically, China-based BYD topped the list with sales of 2.9 million units, followed by American EV maker Tesla (2.1 million units), and European players including Volkswagen and Renault (1.2 million units), securing a 40%, 30%, and 20% share, respectively.
In the same year, Japanese automakers—led by Toyota along with other players like Honda and Nissan—sold only around 200,000 EVs, accounting for 2%–3% of total sales. If everything goes as expected, their annual market share will not exceed 5%. So why did Japanese carmakers suffer such a big market share erosion?
Comprehensive Electrification among Chinese, US and European carmakers
As EVs come with fewer auto parts, new comers can enter the market more quickly. Additionally, the rise in emission reduction awareness has accelerated development of the EV market. Originally, gasoline car companies believed that diesel engines could help improve fuel efficiency, but the Volkswagen “diesel dupe” scandal in 2015 completely changed their mind, causing them to turn to focus on all-electric vehicles.
The said two reasons roughly explain why carmakers in China, the US, and Europe accelerated the development of EVs, but why did their Japanese competitors fail to catch up with the change? After the VW scandal, governments across Europe turned to find a new emission reduction solution. At that time, diesel technologies hit a bottleneck and the hybrid technologies of European automakers were inferior to those owned by Japanese competitors. To make a breakthrough, European governments decided to skip the “low emission” goal and instead center on achieving net zero emissions. Therefore, they spared no effort to subsidize all-electric cars, attempting to bring purely clean energy to the automotive industry.
The Japanese government chose a completely different route following the VW diesel scandal. Instead of “going electric”, it decided to fully support hybrid vehicles by announcing the Green Tax Incentive on Eco-Friendly Cars, offering subsidies to all-electric, hybrid, and hydrogen-powered cars. From Japanese enterprises’ perspective, there were already low-emission hybrid vehicles in the market. Moreover, renewable energy facilities were not as sufficient as they were in Europe. Therefore, Japanese companies did not believe that large-scale production of Li-ion batteries and vehicle charging through coal-fired power are beneficial for GHG emission reduction.
However, this point of view has a blind spot. As the Japanese car market only accounts for 5% of global vehicle sales, protecting the hybrid vehicle and local markets means that automakers in Japan are taking the risk of losing EV market shares worldwide. Taking a much slower action to go electric, Honda is now planning to phase out gasoline autos by 2040, whereas Toyoda holds that putting all-in for EVs is not a good idea.
From a long-term perspective, Japanese carmakers are pioneers who brought electric motors to the automotive sector. In fact, the first mass-produced hybrid car and electric car, rolled out 20 years and 10 years ago, respectively, were both made by Japanese players. In 2010, sales of EVs accounted for less than 1% of global car sales. Now, EVs make up more than 10% of all new cars sold worldwide, but Japanese automakers can no longer be seen in this market.
Car companies in China, the US, and Europe spent a fortune on developing EVs largely because the hybrid vehicles made by Japanese players are too strong to compete with, prompting their competitors to give up the market. Although EVs are growing fast, it is unlikely that they will completely replace hybrid cars. To find out who will actually win this electric vs. hybrid war, we have to wait and see.
(Image credit: Toyota)