Japanese Car Giants Face Sales Avalanche

In the past two years, the Chinese automotive industry has rapidly risen, and the most direct and significant impact has been on the Japanese automotive industry, as China's car-making philosophy is most similar to Japan's. Recently, Japanese media have been collectively reflecting on why Japanese cars are not selling well.

Is it really because they have been defeated by Chinese cars? This is probably hard for the Japanese to accept. Some say it's because they have been defeated by the times, but the times are just a vague excuse, and it's probably not that simple.

Recently, several Japanese media outlets reported the news of a collapse in sales for three major Japanese car manufacturers and have collectively reflected on why Japanese cars are not selling well.

On May 10th, according to Kyodo News, sales data for the three major Japanese car manufacturers in China for April was released. Toyota's sales fell by 27.3% year-on-year to 118,200 vehicles. Honda's sales fell by 22.2% to 73,831 vehicles, and Nissan's sales fell by 10.4% to 54,921 vehicles.

The decline in sales for joint ventures in China is even more apparent, with FAW Toyota's sales falling by 31.2%, GAC Toyota's sales falling by 32.1%, and GAC Honda's sales falling by 44.6%. Lexus and Dongfeng Honda's sales growth have other reasons and are not considered for reference.

Japanese cars are not selling well in China, but are they selling well in the global market?

According to data released by Toyota, in the first quarter of 2024, they sold 2.4 million vehicles, a year-on-year increase of 0.1%, which is very weak.

If we look at the regional data, we will find that Toyota's real data is even more bleak. This is because Toyota is selling like crazy in North America and Europe, while other global markets are plummeting.

In the first quarter, Toyota sold 658,000 vehicles in North America, a year-on-year increase of 20.9%; of which, 565,000 vehicles were sold in the United States, a year-on-year increase of 20.3%, 57,000 vehicles were sold in Canada, a year-on-year increase of 28.5%, and 28,000 vehicles were sold in Mexico, a year-on-year increase of 25.4%.

At the same time, Toyota sold 309,000 vehicles in Europe, a year-on-year increase of 11.2%.Toyota's traditionally strong markets in Southeast Asia and Latin America have seen a drastic decline in sales, for instance, a 21.7% drop in Thailand, a 45.1% decrease in Vietnam, a 2.6% reduction in Brazil, and a 12% fall in Argentina.

Another peculiar phenomenon is that Toyota's sales in its home market of Japan have plummeted by as much as 29%, reflecting the truly concerning state of Japan's economy and consumer spending.

Upon examining these figures, you will notice a peculiar phenomenon: Japanese cars continue to sell well in the traditionally developed automotive markets of North America and Europe, but in emerging markets, there is almost a universal decline.

Other Japanese automakers are following a similar trend. Why is that?

In the Japanese media's introspection, they do not admit to losing to China. Instead, they believe that Chinese cars do not respect the century-old accumulation of automotive technology, do not play by the rules, and collectively act like rogues. They argue that such petty cleverness is not sustainable.

At the same time, the Japanese believe that the decline in first-quarter sales was influenced by economic fluctuations, with North America and Europe's economies being relatively stable, while Latin America and Southeast Asia's economies have declined significantly.

Does this argument hold water? It sounds plausible, but if you look at China's automotive export data, you might not be so calm.

From January to February 2024, the top ten countries for Chinese car exports were: Russia, Mexico, Belgium, the United Kingdom, the United Arab Emirates, Saudi Arabia, Brazil, the Philippines, Australia, and Thailand.

Therefore, it is essentially possible to conclude that in today's global automotive market, the traditional large markets of North America and Europe are more inclined to recognize traditional cars, while emerging markets are more open to accepting new things.

We can almost certainly predict that in the coming years, Japanese car sales will continue to decline. So, where did Japanese cars lose out?Some argue that Japan has chosen the wrong direction for innovation by persisting in investing in hydrogen energy. In reality, first of all, it currently appears that hydrogen energy may not necessarily be the wrong path; secondly, investment in future directions is not the reason for the current decline in Japanese car sales.

The rise of Japanese automobiles stemmed from two significant opportunities in the global automotive development. The first was the surge in oil prices since the 1990s, where Japanese cars took the right path of fuel efficiency; the second was the rapid democratization of global automobiles since the 1980s, moving away from being luxury items to more affordable options, and Japanese cars took the right path of offering good quality at a reasonable price.

After the 2020s, the global automotive industry is facing two major transformational opportunities once again. The first is the transition from fuel-powered vehicles to new energy represented by electric vehicles; the second is the shift of automobiles from traditional means of transportation to experiential driving toys. Many people are increasingly focusing on the experience and the "joy of driving" beyond just transportation.

At this critical juncture of transformation, Japanese automobiles have taken two wrong paths. First, Japanese automobiles are not inactive in transitioning to new energy, nor have they taken the wrong path with hydrogen energy; rather, they have chosen to innovate in small steps based on maintaining traditional advantages, thus missing significant opportunities.

What are the traditional advantages of Japanese automobiles? They are fuel efficiency and lightness, so when they make electric vehicles, it is usually with the mindset of converting from oil to electricity. They have not realized or have not valued that electric vehicles represent a completely different driving and propulsion model.

Second, by sticking to traditional advantages, Japanese automobiles have neglected autonomous driving and the human-vehicle experience, thus missing even more important opportunities.When Chinese automobiles are making autonomous driving and the driving experience cool and trendy, Japanese cars remain cold and utilitarian modes of transportation.

Of course, these are not insurmountable technical challenges. As long as there is a swift shift in mindset, it is not difficult for the Japanese to catch up.

However, in the face of transformation, it is often the mindset that shackles innovation, rather than technology.