【By Liu Bai, Observers Network】"I can feel a trend, the competitiveness of Japanese automakers is being gradually weakened, and their momentum is also slowly disappearing," said Manabu Hirai, head of automotive business at Deloitte Tokyo.

"The rise of Chinese electric vehicles has shaken the crown jewel of Japan," pointed out an article published by the Financial Times on September 30, stating that Chinese electric vehicles are causing serious shocks to the Japanese automobile industry. BYD's global sales have already exceeded Honda and Nissan, with the goal of challenging the leader Toyota. Japanese automakers lag behind China in the development speed of new models and high-tech electric vehicles, leading to a gradual decline in competitiveness, especially in the Chinese and Southeast Asian markets, where Japanese automakers are losing market share. Analysts say that the excessive number of Japanese automakers leads to a lack of scale advantages, and mergers and acquisitions may be an important hope for seeking a way out.

The report said that the "survival threat" posed by China to the Japanese automobile industry finally began to show last year. According to data from automotive industry data provider MarkLines, Chinese electric vehicle giant BYD rose to the seventh position in the global car sales ranking, surpassing Honda and Nissan for the first time.

After leaving behind Japan's second and third largest automakers, Toyota, the "leader" of the Japanese automobile industry, became the next target of BYD.

The article points out that the major transition from internal combustion engines to electric motors, as well as the rapid rise of the Chinese electric vehicle industry, has brought severe challenges to the automobile industry, which is the pillar of the Japanese economy. Investors in Japanese automakers must make judgments about the future direction of the electric vehicle market.

Chinese automobile brands at the Indonesia International Auto Show. Visual China

Some people think that insufficient charging facilities and the rapid depreciation of electric vehicles after purchase may slow down the growth of electric vehicle sales. Investors who hold this view are optimistic about the bright future of hybrid vehicles from companies like Toyota.

"Last year, the total global car sales were 95 million units, of which 6.6 million were hybrid vehicles. Japanese automakers have huge potential to increase their market share in this area," said Kota Yuzawa, an automotive analyst at Goldman Sachs. "In the foreseeable future, this will be a relatively protected growth industry. The sales of plug-in hybrid vehicles were 6.2 million units, and pure electric vehicles were 10.6 million units, while fuel vehicles were 71.7 million units."

On the other hand, those who are pessimistic about Japanese automakers believe that high-tech electric vehicles and the software revolution will accelerate, and the global market will follow China's example. According to data from the International Energy Agency (IEA), nearly half of China's annual car sales in 2024 were electric vehicles, compared to about 20% in the EU and only 10% in the US.

Toyota and other Japanese automakers are launching high-tech electric vehicles similar to BYD very slowly, raising doubts about whether they can catch up with Chinese automakers. Industry insiders believe that Japanese automakers have fundamental problems in the speed of new model development: Masato Shoji, a partner at Deloitte Tohmatsu, estimates that the development cycle for new cars by Japanese automakers is 6 to 7 years, while some Chinese automakers require only 18 months.

"Looking at the time dimension of the next 10 years, I think Japanese automakers will face very difficult situations," said Manabu Hirai, head of automotive business at Deloitte Tokyo. "I can feel a trend, the competitiveness of Japanese automakers is being gradually weakened, and their momentum is also slowly disappearing."

Company documents show that since 2020, except for Toyota, which has maintained steady sales in China, the sales of other Japanese automakers in China have declined sharply.

The next major battlefield is Southeast Asia. According to PwC data, Chinese automakers bring huge competitive pressure in the six largest automotive markets in Southeast Asia, and the market share of Japanese automakers has dropped from 73% in 2021 to 64% in 2024.

In the first half of this year, the market share of Japanese automakers further dropped to 62%, while in the 2010s, it was around 77% on average. In contrast, the market share of Chinese automobiles in the region has risen from almost zero to over 5%, occupying a place in the Southeast Asian market, which has an annual car sales of about 3.3 million units.

"The entry of Chinese electric vehicle manufacturers signals the end of Japan's era of dominance in Southeast Asia," said Patrick Ziechmann, a partner at PwC Malaysia.

Ramesh Narasimhan, former president of Nissan Thailand, also openly stated that as Chinese companies continue to launch "offensives," Japanese automakers will continue to lose ground in their own "backyard," which was once a place where they never lost. He said that Chinese automakers quickly expand their sales and market share with flexible pricing strategies, and "this trend is visible in all Southeast Asian markets."

Analysts said that a key variable in the competition in the Southeast Asian market is: whether the appeal of electric vehicles can be maintained when subsidies are reduced, as expected by the market; additionally, whether electric vehicle models can maintain price stability in the used car market is also crucial.

However, Japanese automakers do have a "stable shelter" that is not affected by Chinese competition: the United States, India, and the domestic market.

Japanese automakers face resistance from the Trump administration, with a 15% tariff on Japanese car exports to the US. However, in reality, this impact has been buffered by the depreciation of the yen (reducing the price of Japanese export products) and decades of investment in the North American supply chain. Moreover, there is strong demand for hybrid vehicles in the US market, especially under the Trump administration's cut of electric vehicle subsidies.

India may also become a growth engine: as the middle class expands, more Indians are switching from motorcycles to cars.

Despite increased global competition, Toyota remains the most profitable company in the automotive industry, with sufficient cash reserves available for its own transformation and investment in various technologies. In the previous fiscal year, Toyota's net profit reached 4.8 trillion yen (approximately 230 billion yuan), while Tesla's net profit during the same period was 8.4 billion USD (approximately 60.2 billion yuan).

However, Toyota's market value of 314 billion USD is still less than a quarter of Tesla's. Some people believe this is due to undervaluation, but others say it reflects Toyota's difficulties in innovation.

"One of the issues I am worried about is software and autonomous driving technology," said Kota Yuzawa. Japanese automakers' slow progress in this area is a risk, rather than an immediate threat.

A big hope for investors in the Japanese automobile industry is the possibility of industry consolidation. In February 2024, the merger talks between Honda and Nissan collapsed, but this event also triggered more speculation about industry consolidation.

"There are too many car manufacturers in Japan. The key reason why BYD is so powerful is its operational scale," said Matthew Fine, portfolio manager at Third Avenue Management, which holds shares in Subaru. "Japanese companies are self-restrained due to the lack of scale advantages."

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