Japanese carmakers’ China sales hit by sluggish EV rollout

Toyota and other Japanese carmakers are suffering the sharpest sales decline in China among foreign brands as analysts warn that their slow rollout of electric vehicles is threatening their future in the world’s largest auto market.

Year-on-year sales volume for the country’s brands in China are down 32 per cent in the first three months of this year, according to research company MarkLines. That compares with 9 per cent falls for both German and US groups and a 7 per cent slide for Korean automakers.

A price war sparked by Elon Musk’s Tesla has also hit European and US carmakers at a time when passenger car sales in China are falling as a result of sluggish economic growth.

But the slowdown has been particularly brutal for Japanese brands — Toyota’s sales declined in the country for the first time in a decade last year.

The sharp fall-off in sales poses a daunting challenge for Toyota, the world’s largest carmaker, which has been slower than rivals to pivot towards electric cars. The automaker has argued that not every country will be able to accommodate EVs because of electricity constraints and affordability and has bet on its hybrid models.

“There are clear signals that [Toyota] is at a tipping point,” said Tang Jin, a senior research officer at Mizuho Bank in Tokyo. He estimates Toyota’s market share in China to be 8 per cent, lagging behind VW’s 14 per cent and GM’s 10 per cent.

“Last year was a watershed moment for China where the new energy vehicle market accounted for 25 per cent,” said Tang, referring to the category which includes plug-in hybrids, pure battery and hydrogen-powered cars.

“Toyota is the best-selling brand among Japanese players, but as overall demand for gasoline-powered vehicles in the market declines, it has not been able to capture business in growing areas.”

Toyota is unveiling two new models from its electric bZ series at the Shanghai auto show this week. The automaker had said earlier in April that two locally-developed models would be launched in China next year.

In March, Toyota’s year-on-year sales in China dropped 19 per cent. Honda also reported a 19 per cent fall and sales at Nissan were down 25 per cent. The slowdown was accelerated by the removal of Beijing’s generous tax cuts on combustion engine cars in December.

“The buying frenzy has slowed down in China,” a Toyota executive said at a news conference in February. “Although Covid restrictions have been lifted, we are currently not optimistic about the market.”

Before the pandemic, Toyota had invested heavily in China to take on Volkswagen, which entered the market 17 years earlier in 1985 through local joint ventures.

In 2016, Volkswagen sold 3mn vehicles, or 2.5 times more than Toyota but the sales gap between the two automakers narrowed to just 360,000 units last year.

Despite its reluctance to go “all-in” on electric vehicles, Toyota has attempted to accelerate its electric shift in China.

In 2019, the Japanese group signed deals with Chinese battery giant CATL to develop batteries for electrified vehicles. It also partnered with BYD, China’s largest electric and hybrid carmaker, on the sedan bZ3, its second mass-produced electric model in China expected to be launched this year.

The model will be produced at a plant in Tianjin, using a $1.2bn production line dedicated to producing electric vehicles and plug-in hybrids.

The company is also putting its high-end Lexus brand at the forefront of its more aggressive battery push, with all of these models becoming pure electric by 2035.

Analysts said one of the main challenges for Japanese carmakers is whether they can maintain their prices and profitability as Tesla and BYD intensify their price war.

Toyota and other Japanese brands have previously enjoyed relatively high margins for their petrol cars and hybrids but may need to sacrifice short term profitability, according to Jing Yang, a Shanghai-based director for Fitch Ratings.

“Among EV brands, only Tesla and BYD are profitable in China at the moment, and most other competitors are striving to ramp up sales volume at the cost of thin margins or even at loss,” said Yang.