Electrification changing structure of Japan’s auto parts industry

By Hiroyuki Kume / Yomiuri Shimbun Staff Writer

15:41 JST, September 1, 2021

The global rush to decarbonize means many nations are mandating a switch from vehicles that run on gasoline to electric automobiles. The structure of Japan’s automobile industry faces change amid this wave of electrification, with some gasoline engine-related subcontractors forced to go out of business.

Back in April, Honda Motor Co. announced that by 2040 all its new automobiles sold worldwide will be electric vehicles and hydrogen fuel cell electric vehicles. Honda was the first major Japanese automaker to announce this goal to completely eliminate vehicles requiring gasoline.

That same month, Osaka Giken Co., a manufacturer of casting equipment for gasoline engine parts in Matsubara, Osaka Prefecture, was ordered by the Sakai Branch of the Osaka District Court to begin bankruptcy proceedings with debts of about ¥300 million.

Osaka Giken’s largest customer was Honda, but after the automaker’s announcement, Osaka Giken stopped receiving the orders it had expected.

The parts maker had only about 10 employees and had been supplying major automakers around the world for about 60 years.

“Electrification is going at an unimaginable pace, so subcontractors focusing only on engines cannot find a way to survive,” said Osaka Giken President Ryuzo Ohde. “Business operators and engineers should change their mindsets and hurry to develop the technology and products needed for electric vehicles. Otherwise, they will lose most of the world’s markets.”

New entrants motor in

The world’s major countries have all begun to tighten their environmental regulations.

In July, the European Union announced a policy to effectively ban the sale of gasoline-powered vehicles by 2035. Manufacturers will be able to sell electric and fuel cell vehicles, but not hybrids, which mainly use internal combustion engines with electric motors as auxiliaries.

A month later, the administration of U.S. President Joe Biden set a goal to mandate that by 2030 50% of all new cars sold in the United States will have to be zero emission vehicles.

Also in China, the world’s biggest automobile market with annual sales of over 25 million vehicles, the government has announced a plan to make electric vehicles the main source of new car sales by 2035.

The Japanese government plans to require all new passenger cars be electrified vehicles, which includes hybrids, by 2035.

Electric vehicles are said to have 30-40% fewer parts than gasoline-powered automobiles. Without complicated mechanisms such as engines and transmissions, electric vehicles are also easy to standardize. For these reasons, a number of companies are entering the market as new electric vehicle parts manufacturers.

Nidec Corp. has positioned the motor-related business as a pillar of growth for the future and has hurriedly fostered relations with clients in China, where the market for electric vehicles is expanding. It has reached agreements with manufacturers such as Guangzhou Automobile Group and Geely Automobile Holdings Ltd. Nidec has set a goal of increasing global shipments of motors for electric vehicles to 10 million units by fiscal 2030.

As a step toward the realization of this project, the company has begun to consider the establishment of a joint venture with an affiliated company of Taiwan-based Hon Hai Precision Industry Co., which manufactures Apple iPhones on consignment and is considered to be a promising candidate for manufacturing an Apple car.

“In the future, the market will see more and more new entrants from different industries, such as tech companies and electronics appliance manufacturers,” said Jun Seki, president of Nidec. “Competition will become fiercer.”

In the eyes of Seki, who is a former vice chief operating officer of Nissan Motor Co., the world of electric vehicles is likely to see a trend toward horizontal specialization in which powerful parts companies will take the lead in supplying key components to major automakers.

What lies ahead is the rapid decline in production costs. In China, the SAIC-GM-Wuling Automobile Co. launched a low-cost electric vehicle in July 2020, listed at 28,800 yuan, or about ¥490,000. Tesla Inc., the world’s largest electric vehicle maker, drastically lowered the price of its mainstay Model 3 sedan in February this year. The starting price in Japan was reduced from ¥5.11 million to ¥4.29 million.

Concrete road map needed

Japan’s automotive industry has enhanced its competitiveness by forming a pyramid structure with major auto companies at the top and parts makers below. This industrial structure will possibly change.

“If we lag behind in our response, the Japan’s auto industry may decline like its electronics industry, which suffered from aggressive moves of Chinese and South Korean companies,” said Toru Amazutsumi, a technology consultant specializing in automobile electrification.

There are 5.42 million people working domestically for Japan’s auto industry, according to Japan Automobile Manufacturers Association, Inc. estimates.

“In order to protect the auto industry, the government needs to set out a concrete road map for decarbonization from a long-term perspective as soon as possible,” said Meijo University Prof. Takenori Tanaka, an expert on the industry. “We should nurture start-ups created in this electrification push and actively support the development of new materials for their endeavors.”