Japanese automakers are rethinking their strategies in China and Thailand after sales fell sharply in the second quarter of 2024, Nikkei Asia reported. Consumers in these important markets are increasingly turning to electric vehicles.

In China, Honda reported sales of 209,000 vehicles in the second quarter, down 32% from a year earlier. As a result, the company is now targeting sales of 3.9 million vehicles in fiscal 2024, 220,000 fewer than originally planned.

"The market share for internal combustion engine vehicles is shrinking in China as new energy vehicles and alternative fuels are growing at an unexpected pace. The price war is also making business very difficult," said Eiji Fujimura, Honda's chief financial officer.

Japanese automakers are likely to cut production in Thailand and China. Photo: Nikkei Asia

According to Tokyo-based research firm MarkLines, the market share of Japanese brands in China was just 12.2% in the first half of 2024, while local brands accounted for 62%.

This rate decreased sharply compared to 21.3% in 2019. Among the 10 best-selling new car models in China in June, 5 were from the Chinese brand BYD, while Nissan Motor was the Japanese brand with products in 6th place.

Nissan President Makoto Uchida said demand for internal combustion engine vehicles remains strong but cautioned against being optimistic. The Japanese brand produced 169,000 vehicles in China last quarter, down 17% from the same period last year. In June, it closed a factory that accounted for 8% of its capacity in the country.

''We need new energy vehicles developed in China to survive,'' said Makoto Uchida, referring to four concept vehicles that Nissan unveiled at an auto show in Beijing in April.

In the second quarter of 2024, Toyota's new vehicle sales in China, including its luxury brand Lexus, fell 18% year-on-year to 411,000 vehicles.

''The speed of expansion of new energy vehicles is unexpected. To withstand this period of rapid change, we have to spend more on advertising plans and dealer support,'' said Masahiro Yamamoto, Toyota's chief accounting officer.

Masatoshi Nishimoto, head of research and analysis of Japanese automakers' production and development strategies at S&P Global Mobility, said Chinese brands are leading the domestic market because they can produce low-cost electric vehicles using domestically produced batteries, meet Chinese consumers' preferences for high-tech cars, and quickly launch new models.

''Japanese automakers are not necessarily worse off than their Chinese rivals, but they are at a disadvantage. Adjusting production capacity and strengthening cooperation with local partners will help reduce operating costs in China,'' Masatoshi Nishimoto analyzed.

In Thailand, Chinese automakers are also challenging Japanese automakers, where the electric vehicle market is growing and Chinese EVs are gaining market share thanks to subsidies from the Thai government.

Among the top 10 manufacturers in Thailand, Toyota had the highest market share at 38% in the first half of the year but sold 15% fewer vehicles than in the same period last year. Sales of Honda, Nissan and four other Japanese brands also declined. Meanwhile, BYD's sales increased 32% compared to the first half of 2023.

Honda announced in July that it would consolidate its two manufacturing facilities in Thailand into one by 2025. Suzuki Motor also said in June that it would stop making cars in the country.

Honda merges two manufacturing facilities in Thailand. Photo: Nikkei Asia

Optimizing operations has become increasingly important as the yen rebounded last week, raising the risk of a decline in profits, forcing investors to abandon hopes that a weaker yen would continue to boost automakers’ profits.

''Japanese automakers' profits last quarter were boosted by the weak yen, but that won't happen from this quarter onwards. What will be important then is whether they can make up for that loss by succeeding in markets like the US and India,'' said Koji Endo, executive director at analysis firm SBI Securities.

In fact, major Japanese automakers such as Toyota Motor and Honda Motor increased their sales in Asia last quarter, thanks to the weakening of the yen during the period and maintaining growth momentum in other countries.

Specifically, Toyota's revenue reached 2.2 trillion yen ($15 billion), up 14% compared to the same period last year, while operating profit increased 32% to 245 billion yen. Honda's revenue in Asia reached 990 billion yen, up 4.4%, although four-wheel vehicle sales fell 23% to 264,000 units.