Japan’s carmakers have a made-in-China sales crisis

Japan’s vehicle manufacturers are facing a sales crisis in China, data shows, as a rapid shift to electric vehicles (EVs) has upended the world’s largest auto market and led to a plunge in purchases of petrol-powered cars.

Total sales of Japanese  brands in China were down 32% year on year in the first quarter, more than double the pace of the overall market contraction, industry data analysed by Reuters showed.

While other carmakers like Volkswagen have also been caught out by the sharp shift in China, Japanese manufacturers stand out because of their limited showing in the fast-growing category of electric and plug-in hybrid sales.

Production and margins will come under pressure in China as carmakers cut output and prices of petrol-powered cars to keep inventories in check, analysts say, in a worrying sign of the competition Japanese manufacturers could face outside their home market.

“Especially Japanese automakers face a little bit more inventory of new cars,” in China, Yasushi Matsui, CFO at parts supplier Denso, said last week. “They are making adjustments.”

Mitsubishi Motors said last week it had suspended production of its Outlander SUV in China for three months and would take a charge of $77m for slowing sales at its joint venture with state-owned GAC. Mitsubishi, like some other Japanese carmakers, does not break out China sales figures. Industry data analysed by Reuters showed its first-quarter sales in China fell by 58% from a year earlier.

In another shift, Nissan’s Sylphy, a sedan that had been China’s top-selling vehicle for three years, was edged out last year by the BYD Song, a plug-in hybrid made by BYD, China’s top carmaker.

Nissan said it had sold over 5-million Sylphys in China over the years, adding that an electric-drive hybrid version was eligible for incentives in Guangzhou. The company said it was working with other cities on similar support. The e-Power electric-drive hybrid version of the sedan would be central to Nissan’s brand transformation in China, it said.

Biggest loser

Toyota Motor has said its go-slow approach to all-electric cars protects consumer choice, but the strategy is costing sales in China, analysts say.

“Japan is the biggest loser of the price war so far,” said Bill Russo, founder and CEO of Automobility, a Shanghai-based consultancy. “As EVs get more affordable, they become more attractive to the core buyers who have been resisting so far, the buyers of foreign brands. So, you can see the writing is on the wall.”

Japan’s share of car sales in China slumped to 18.5% in the first quarter, down from 24% in 2020, industry data from the China Association of Automobile Manufacturers analysed by Reuters showed. Toyota and its luxury brand Lexus posted a 14.5% drop in first-quarter sales, company data showed.

“We need to increase our speed and efforts to firmly meet the customer expectations in the Chinese market,” Toyota CEO Koji Sato said in an interview last month.

Nissan Motor posted a 45.8% drop in China sales and Mazda Motor sales were down 66.5% in the first quarter. Honda Motor had a 38.2% drop, industry data showed.

Honda CEO Toshihiro Mibe acknowledged the carmaker lagged Chinese rivals in some software technologies. China’s carmakers were “further ahead of us than we expected”, Mibe told reporters at a presentation in Tokyo focused on Honda’s efforts in autonomous driving and services like gaming.

Japanese carmakers built their reputation on factors like durability, but the shift in China showed the draw of lower-priced electric cars and new offerings based on software, said Masatoshi Nishimoto, principal research analyst at S&P Global Mobility in Tokyo.

“Japanese automakers could face a similar struggle in the US as in China,” he said.

Reuters