Can Chinese EV makers be successful in Japan? – Finding counterpoint

For an automotive market like Japan, which is home to global giants like Toyota, Honda, Nissan and Mazda, and which has seen the early entry of hydrogen vehicles, it’s easy to assume the country would be a big market for new energy vehicles. (NEV). But the numbers tell a different story. According to the latest Counterpoint Research Global Passenger Vehicle Trackers report, NEV penetration in Japan is around 1% compared to around 15% in China.

Global NEV penetration, 2018-2022F

Total NEV sales in Japan from 2018 to 2021 were only 4% of total sales in China in 2021. It is easy to conclude that Japan is not an attractive market for EV manufacturers. But opportunities can be found by looking deeply into the market. In fact, the Japanese government is now actively encouraging electric vehicles by providing subsidies for setting up electric vehicle charging stations.

FCEV vs BEV: What will be the future trend?

The debate over fuel cell electric vehicles (FCEVs) and battery electric vehicles (BEVs) has been going on for years. Many in countries like Japan and South Korea still believe hydrogen will be the future, while China is pushing BEVs. Leading NEV maker, Tesla, has also bet on BEVs and climbed to the top of China’s NEV market by reaching nearly 50% market share in the first half of 2022.

Comparison BEV and FCEV

FCEV has many advantages, but BEV can be scaled faster due to more favorable infrastructure construction cost for government and business. Moreover, the BEV beats the FCEV in both unit price and cost of use. Given the current macroeconomic headwinds, any plans to build FCEV infrastructure will find few takers in government or industry in the near future.

The Nissan Leaf BEV was the best-selling NEV model in Japan in 2021, with more than double the sales of the second-place Mitsubishi Eclipse Cross, a plug-in hybrid electric vehicle (PHEV).

Top selling NEV models in Japan by share, 2021

Why did BYD decide to enter the Japanese electric car market?

Chinese BYD recently launched three electric car models in Japan: Seal, Atto 3 and Dolphin. As noted above, the Japanese NEV market is relatively small. So what are the factors driving BYD’s entry into the Japanese electric car market? We discuss it below:

  • Not a newbie to the Japanese car market: BYD already sells its electric buses in Japan. Additionally, through ties with Japanese companies such as Toyota, Kansai Electric Power Company and Keihan Bus Company, BYD has a better understanding of the country’s consumption patterns.
  • Cost competitiveness: In the same price segment, BYD can offer better vehicles in terms of mileage and other performance parameters.
  • Investment in charging infrastructure: Either alone or in collaboration with the government, BYD must increase the number of charging stations and charging points. The difference between China and Japan here is that there is a higher proportion of private charging stations in China. But in Japan, more public charging stations are needed due to the higher cost of land and parking spaces. This is why the Japanese government grants subsidies to set up charging stations for electric vehicles.
  • Location: The Japanese market has a unique taste when it comes to consumer electronics, as consumers here prefer to buy the iPhone SE while their counterparts elsewhere are likely to favor larger screen smartphones. The same is true for vehicles. The Kei car category, created by the Japanese government for the smallest permitted cars, is popular among local motorists. Of the three models launched by BYD, the Dolphin looks a lot like a Kei car. The main reasons why Kei cars are welcome in Japan include:
    • The streets are narrow in Japan, especially in the big cities.
    • There are many mountain roads in Japan.
    • Parking space is scarce.

Chinese EV makers go overseas: Challenges and opportunities

Unlike the era of traditional internal combustion engine (ICE) vehicles, Chinese automakers are big players in the NEV space. NEV core technologies such as battery, motor and electronic control systems are also being developed in China. It is undeniable that Chinese NEVs now dominate global market volumes. Chinese NEV companies and even traditional automakers consider it strategically important to enter overseas markets.

Besides China, Europe and the United States are the other major markets with good penetration and growth of electric vehicles. The rest of the markets are still in the education phase. Therefore, some caution is needed for NEV manufacturers considering entering markets like Japan.

Acceptance of the NEV: Although the safety levels of BEVs, PHEVs and FCEVs have improved and reached that of ICEVs, it still takes time for a large number of consumers to trust NEVs, especially in markets dominated by manufacturers. ‘ICEV. But the situation is gradually improving with more and more friends, relatives or other known people using NEVs.

Cost: Often it is cost that triggers a decision to buy or replace. For Chinese NEV makers, cost control is important because many key parts are still only made by a few players.

Better products: Apart from the core technologies for the car’s hardware, new applications such as smart cockpit, driving assistant and driverless option are introduced on the software side to enhance the car user’s experience. Automakers must continue to focus on removing key consumer pain points.

Brand strength and market competitiveness: Car consumers are more willing to pay extra for a known brand. At the same time, many are looking for more for their money. Therefore, it is important for automakers to study consumer behavior and the composition of the market they plan to enter.

Investment and policies: The NEV ecosystem in many markets is not yet mature. Huge investments are needed to develop this ecosystem, be it manufacturing units, service centers, points of sale or charging stations. With the “zero carbon” goal in mind, many countries are offering incentives to manufacturers and consumers of NEVs, although the risk of policy change still remains.

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