The Japanese automotive industry has long been a formidable presence in the global market, particularly in China, which has become the world's largest automotive marketHowever, recent data reveals a stark downturn in the performance of Japan's top three car manufacturers — Toyota, Honda, and Nissan — within the Chinese market in 2024. This noteworthy decline may indicate the beginning of a challenging era for Japanese auto brands that were once the leaders in this sector.

In 2024, Toyota's sales in China fell by 6.9%, translating to approximately 1.776 million vehicles soldHonda experienced an even more significant drop, witnessing a staggering 30.9% decrease to a mere 852,000 units, marking the lowest sales figures for the brand since 2014. Nissan, too, faced trials with a 12.2% reduction in sales, bringing its total to 697,000 vehicles — the lowest since 2008. These figures starkly contrast with a thriving domestic auto market; the once-dominant Japanese cars, which accounted for one in every four vehicles sold in China, have now seen their market share shrink by almost half, indicating a swift decline in their once unassailable position.

As of 2024, the market share of Japanese automakers in China plummeted to 11.2%, a drop of 3.2 percentage points from the previous year and marking a historical low

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Conversely, domestic Chinese brands have experienced unprecedented growth, increasing their market share to approximately 61%, a representation of an 8.6 percentage point rise year-on-yearThis present landscape signals a seismic shift in consumer preferences, with local brands gaining favor as they ramp up development in electric and smart vehicle technologies that align with current demands.

Reflecting on a time just four years prior, when Japanese brands enjoyed a market share of 23.1% in China, the current situation highlights a rapid declineIn 2020, Toyota alone sold nearly 1.8 million cars in China, setting annual sales records for eight consecutive years, while Honda peaked at an impressive 1.627 million unitsHowever, as the market has evolved with a strong push towards electrification and smart technology, these once dominant players appear to have hesitated in their transition strategies, allowing newer entrants like BYD to nab a significant portion of the market.

Between 2020 and 2022, Japanese automakers’ market share in China dipped significantly to 17.8%, demonstrating a need for more aggressive investment and development of electric vehicles (EVs). Alarmingly, sales of Japanese companies’ EVs were disappointing, with Honda’s new energy vehicle sales representing only 1.5% of their total vehicles sold, Toyota falling even lower at 0.78%, and Nissan barely registering at 0.15% in 2022. Nissan’s CEO, Makoto Uchida, expressed concerns acknowledging that their expectations for change in the Chinese market were too optimistic, prompting a reevaluation of their strategies towards electrification.

In response to this downturn, Japanese car manufacturers have begun ramping up investments to reclaim their market presence

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For example, Toyota is demonstrating its commitment to EV technology by projecting an investment of 5 trillion yen before 2030 for electrification effortsHonda plans to ensure that all models introduced into the Chinese market by 2027 will be either hybrid or electric and stop introducing new gasoline-only powered vehiclesNissan, too, announced a notable 2 trillion yen investment towards developing electrification technologies in 2024.

Despite new electric models making their debut, the performance of these products has yet to stabilize sales for the Japanese automotive strongholdsNissan has been recording sales drops since 2022, and Honda maintained a disheartening trend of declining sales over four consecutive yearsIn an attempt to recapture market share, they have resorted to aggressive pricing strategies

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The Honda Accord, for instance, saw a price cut of 50,000 yuan, while the price for Nissan's Sylphy dropped to as low as 80,000 yuanHowever, these price reductions did not stem the tide of declining sales and, in some cases, strangled profit margins, leading to concerning financial reports.

For the first half of the 2024 fiscal year, Nissan reported a staggering 93.5% drop in net profit to ¥19.223 billion, while Toyota's operational profits faced their first decline in two years, down by 20% in the third quarter aloneFurthermore, significant corporate restructuring efforts are underway, characterized by production cuts, plant closures, and thousands of job layoffs, particularly at Nissan, which announced a plant closure in Changzhou and a 10% reduction in output in June 2024, alongside a massive layoff of 9,000 employees in November, equating to about 7% of its total workforce

In parallel, Honda closed its factories in Guangzhou and Wuhan, each aimed at reducing production capacity to recalibrate amidst declining demand.

The issue at hand is profoundHow can Japanese automakers pivot back to growth? The answer may lie not only in the domestic market where they’re also experiencing difficulties but also in global competition as they face not only domestic challengers but significant foreign ones as wellIn 2024, electric vehicle sales in Japan fell by 33%, marking the first decline in four yearsWith Nissan accounting for about 50% market share, it sold just 30,749 electric vehicles, down by 44%, while Toyota and Honda experienced similar declines in this sector.

In contrast, Chinese EV manufacturer BYD managed to sell 2,223 electric vehicles in Japan, marking a 54% increase, surpassing Toyota for the first time

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Similarly, Tesla sold about 5,600 units, up 3%, demonstrating active competitionThe realization of the urgency surrounding electrification has pushed Japanese manufacturers to initiate collaboration and mergers to fortify their footholds in an increasingly volatile marketIn December 2024, Honda and Nissan announced that they would begin formal merger negotiationsFor Honda CEO Toshihiro Mibe, the potential merger is a step towards adapting to the rapidly changing market dynamics attributed to electrification for enhancing corporate value.

To regain competitiveness, Japanese manufacturers are making moves to integrate domestic intelligent driving suppliers to catch up with local brands in technologiesFor example, GAC Toyota and Dongfeng Nissan have adopted advanced driving systems from Momenta and set a schedule to launch new models by 2025. Looking ahead, Toyota plans to not only introduce new electric models but also insists on developing Plug-in Hybrid Electric Vehicles (PHEVs) as part of their commitment to sustainable mobility.

Anticipation is building for 2025, which has been earmarked as a significant year in terms of electric vehicle launches, with Honda targeting a lineup of at least five new models for the Chinese market

Meanwhile, Nissan rolled out their "Electric Arc Plan," with new models debuting in fiscal 2025, focusing on rejuvenating its product arsenalBeyond the Chinese market, the ambitions of Japanese automakers stretch global, as evidenced by Honda's development of the all-electric AFEELA 1 — a joint venture with Sony, designed to feature advanced driving assistance systems and launched initially in North America and Japan.

In response to the escalating competition and the imperative to transform, Toyota, Honda, and Nissan are all actively seeking solutions to ameliorate their current challengesAs they navigate through this period of uncertainty, the coming years are expected to be critical, and it remains to be seen whether their new electric products can stand out amid stiff competitionThe landscape is ripe for change, but whether these iconic manufacturers can adapt to the evolving market remains a burning question.