An entire nation’s automotive industry may have misjudged the moment. Environmental issues are forcing changes it doesn’t seem ready for. New competitors boasting more efficient technologies have led some observers to wonder if it will survive at all.
Am I talking about America’s automotive industry during the infamous 1970s Malaise Era, or the Japanese auto industry in the 2020s? In the growing arms race around battery-electric vehicles, Japan’s automakers may have some serious catching up to do.
On a lot of levels, comparing the Toyota of today to, say, Ford in 1977 is rather unfair. After all, automakers like Toyota, Honda, Mazda, Subaru and the rest — though hammered by the pandemic and the chip shortage — continue to be handsomely profitable and still produce high-quality, reliable, and fuel-efficient traditional cars and hybrids. It’s hard to start a Death Watch for a company like Toyota when it sold more than 10 million cars globally last year.
But buyers who are loyal to Japanese brands and want to break up with gasoline entirely are better served by Tesla, Ford, Chevrolet, or Hyundai.
Nissan, an early pioneer in the EV world with the soon-to-be-discontinued Leaf, offers just one electric crossover and its production is already flagging. Mazda’s sole battery electric vehicle, the MX-30, only has about 100 miles of range and is only sold in California, as if it were a compliance car from a decade ago. Toyota has one battery-electric vehicle it co-developed with Subaru and also sells as a Lexus. All three versions suffer from middling range, subpar tech, and a lack of fast-charing power like many rivals; two were also recalled last year because their wheels were falling off. (It doesn’t, to paraphrase a TV show from my youth, smack of effort.) Then there’s Honda, which has just one fully electric SUV coming out next year called the Prologue — and under the skin, it’s actually one of General Motors’ EVs.
It’s an unfathomable outcome for the Japanese auto industry. Not that long ago, Japan Inc. was teaching the rest of the world how to efficiently and reliably make cars; Honda was making engines for GM, not the other way around. Now, even Toyota, the creator of the Prius and godfather of the original hybrid car, is being called out by environmental activist groups.
Things do seem to be changing rapidly. Several Japanese automakers are planning multibillion-dollar battery plants now, including in the U.S.; Honda is doing one in Ohio, Nissan in Tennessee, and Toyota in North Carolina. All of them, including tiny, independent Mazda, are planning big expansions of their all-electric lineups.
Toyota, in particular, has signaled under its new CEO that it’s deadly serious about EVs. Earlier this month the automaker announced what it calls “New Technology That Will Change the Future of Cars”: a significant revamping of its manufacturing processes to cut EV costs; a third of its global sales to be electric by 2030; newer, cheaper kinds of batteries; and ultimately, solid-state batteries — a kind of holy-grail technology being sought by countless companies — that could enable 900 miles of electric driving.
But it’s worth asking how these companies got relegated to “EV laggard” status, and the answer is complicated. In talking to countless people in and around the auto industry, I’ve come to the conclusion that Japan’s predicament has to do with perception as much as it does with conditions on the ground. And it speaks to the question of whether the future of cars will really — or should be — be fully battery-powered, and if so, how long it will take to get there.
But given how heavily the car market is trending toward battery EVs right now, Japan’s automakers may not have a choice but to meet the moment.
Understanding Japan’s EV Skepticism
As global as car companies are, they’re often still rooted in their cultures and values at the home office. And Japan has plenty of reasons to be skeptical of battery EVs.
As a country, it’s poor in natural resources, making the raw materials key to EV batteries tough to obtain. Japan’s densely populated cities make car ownership generally undesirable, let alone ones that need to be charged somewhere. And the 2011 Fukushima disaster led to a decline in electricity from nuclear power plants. Japan made up the gap using fossil fuels, leading to a belief that fully battery-powered cars wouldn’t be as “green” as fuel-sipping hybrids since they relied on a dirty energy grid.
That local backdrop helps explain why Toyota, usually the world’s largest or second-largest automaker, has tilted so heavily toward hybrid evangelism. Over the past few years, it’s turned much of its car lineup into hybrids, even its latest pickup trucks — a stratospheric reduction in carbon emissions, which the company deserves credit for. It argues that it takes fewer scarce minerals to build smaller batteries for hybrids than full EVs.
And Toyota says that it operates globally, with cars tailored to different regions’ needs; it’s a lot easier to fully electrify the cars in a country like Norway than it is in parts of Africa, where Toyota is a top-seller.
Finally, Toyota has spent several decades leading the charge for hydrogen as a power source for cars — both for fuel-cell EVs and as a zero-carbon liquid fuel for internal combustion. But right now, Toyota sells just one hydrogen fuel-cell car in America and only a handful of fueling stations exist on this continent. I’ve heard from those in the know that Toyota viewed hydrogen as a kind of 100-year project; the first in a long-term push toward what could become a kind of hydrogen-powered society as the supplies dwindled and petroleum became too expensive for most people.
But things have changed in recent years to challenge that thesis. Volkswagen’s diesel cheating scandal didn’t put a nail in internal combustion’s coffin, but it did force it to pick out a burial plot. Tesla’s sky-high stock price has investors demanding the same from other car companies. And the data around rising global temperatures from carbon emissions has only gotten more shocking in recent years. Hydrogen — which shows promise in heavy trucking, aviation and industrial applications — could still be a major fuel source, but the world clearly can’t wait 100 years.
Then there’s China, which is what really made the wake-up call that kicked Japan out of bed.
This year’s Auto Shanghai show, a motor industry expo that was the first one held in person since China’s COVID lockdowns ended, showed the world just how far ahead the Chinese automakers are with battery EVs. Driven by government mandates and ample funding, their battery supply chains are robust, their sales are booming, they’re rapidly expanding into places like Europe and Australia where they’re getting good reviews to boot. (For now, Chinese cars are kept out of the U.S. market by steep tariffs, but their arrival seems inevitable — if American consumers will have them.) And in China, those buyers are turning away from “foreign” brands like Honda, Ford and Toyota to buy local.
Even if you think, as I do, that any transition to an EV car market will be messier and take longer than even car companies will publicly admit, the staggering public and private investments into battery plants and EV tech prove this is where the market is going right now. America alone is dumping billions of tax dollars into EV incentives and charging stations. Last week, Ford got a $9.2 billion Department of Energy loan and it’s certainly not for hydrogen fuel cells.
Meanwhile, demand for battery EVs is soaring; their share of the car market in America increases like clockwork every quarter. Hybrids are starting to be considered passé among the green crowd, even if they don’t necessarily deserve to be.
In order to compete in the world’s two biggest car markets now and beyond, they need to go electric. And soon.
Catching Up
It’s also important to understand that the entire auto industry’s move to battery electric power is a reluctant one. If any of these car companies could get a free pass to keep making the same kinds of cars and engines, with the same parts suppliers, dealer networks, and sales models they’ve used for a century, they’d take it in a heartbeat. Excitement from the marketing department masks real, palpable fears about whether they can pull it off or not, and we should all be questioning the authenticity of promises to go “zero-emission” by a hard date like 2035 even as they put billions of dollars into making new gasoline trucks and SUVs. The auto industry is slow to change on its best day, and this very expensive sea change is driven by regulations, China, and Tesla, not a passion for clean transportation.
So if you argue the Japanese automakers are behind the curve on EVs, you also have to ask, behind whom and behind how? The Tesla Model Y is now the best-selling car in the world, but Tesla struggles to launch new products; the same cannot be said of Toyota. EVs are still expensive and unprofitable for most car companies. Even Japan’s competitors are just now ramping up battery factories in America, driven by climate-friendly legislation pushed through over the past two years by the Biden administration. And every car company making EVs — GM, Ford, Hyundai, Volkswagen, all of them — is dealing with production defects, delays, software bugs, battery issues, and other problems.
But as Automotive News reported recently, Tesla and the Chinese car companies are not just making EVs but resetting the entire manufacturing process just as the “lean” manufacturing techniques pioneered by Toyota once did. Now Japan’s automakers are having to rethink how they make cars, just as they once forced the Americans and Europeans to do. Indeed, the future of Toyota manufacturing looks a lot like what Tesla’s doing now, which says a lot.
This isn’t just about making a new type of car; it’s about rethinking the entire car industry from top to bottom, including how the labor force and supply lines operate. Every automaker is still figuring it out. But while we’re still in the Wild West days of moving away from fossil fuels, waiting to act is no longer an option even from a business perspective — let alone a climate one.
Toyota’s big battery announcement does signal that change is coming. A 900-mile battery? I’ve heard these kinds of pie-in-the-sky claims from sketchy startup companies my entire career. It is not the kind of thing I hear from Toyota, arguably the most powerful manufacturing apparatus on the planet and a company whose culture stresses under-promising and over-delivering. Even Toyota’s “It’s coming!” promises around hydrogen never got this specific. So when Toyota lays down the gauntlet, I’m inclined to believe it’ll either make good on its word or come pretty damn close.
Even so, by the time the Japanese automakers get their best and most “modern” EVs on the road — software updates, more automated driving assistance, cheaper costs, better range — competitors like Ford and Hyundai will be on round two or three of doing the same thing.
For now, the Japanese automakers are probably smart to keep at least some powder dry when it comes to hybrids and hydrogen, especially in those places on Earth that might not be best served by fully electric cars quite yet. But if they don’t get moving on the EV front, they won’t have a chance to find out.
REPEAT Project
SEIA and Wood Mackenzie