Are Japan's Big 3 Automakers Lagging Behind in the EV Race?

Japan-based carmakers, once viewed as electric vehicle (EV) visionaries who popularized mass-market hybrid green vehicles, failed to capitalize on the initial momentum. In 1997, Toyota Motor TM had pioneered hybrid powertrain with its first-generation low emission vehicle, Prius. Two years later, Honda Motor HMC rolled out its first-generation super-efficient hybrid EV, Insight. Honda Insight was the first hybrid available in North America. Another Japan-based auto biggie Nissan Motor NSANY took the electrification game a notch higher by introducing Nissan Leaf in 2010, which was the first fully-electric car designed for the mass market. While many believed that Japan-based automakers will follow Nissan’s footsteps and spend heavily on e-mobility, unfortunately it did not happen. Nissan Leaf is the only popular and successful electric car coming from the nation.

While Honda currently sports a Zacks Rank #1 (Strong Buy), Toyota and Nissan carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Japan’s EV Game Drifts Into Slow Lane, Other Nations Pick Pace

Japan’s domination in the EV industry diminished considerably over the years. Meanwhile, other countries are fast changing gears to electric.U.S.-based red-hot EV maker Tesla TSLA currently leads the shift toward e-mobility revolution. Amid the buzz generated by Tesla and increasing popularity of EVs due to climate change concerns, many automakers across the globe are revving up their electric goals. U.S. auto giants General Motors GM and Ford F, along with European biggies including Volkswagen VWAGY and BMW AG have outlined ambitious EV plans and are likely to introduce new green vehicles in the coming years. With green vehicles striking the right chord with investors, China-based EV startups are fast choosing to go public.

Notably, China and a few U.S. states including California plan to ban the sale of new gas-powered cars by 2035. As part of the green industrial revolution, United Kingdom intends to phase out the sale of gasoline cars by 2030 and hybrid vehicles by 2035. In comparison, Japan seems to be somewhat lagging behind in the EV race. However, the country is gradually trying to catch up with other nations.

Last month, Japan’s Prime Minister Yoshihide Suga announced that the country targets to become carbon neutral by 2050. In a bid to reduce carbon footprint, Japan has to accelerate its EV strategy and lower its dependence on fossil fuels for electricity generation. Compared to other nations like the United States, China and Britain, automakers in Japan face milder fuel efficiency targets. The government aims 50-70% of the vehicles to have next-generation energy source including clean diesel engines by 2030.

Amid such a scenario, let us take a look at how the Big 3 Japan-based automakers are positioned in the EV space.

TM, HMC & NSANY in Spotlight

Toyota: While Toyota is still the frontrunner when it comes to hybrid vehicles, the auto giant still doesn’t have 100% battery electric vehicle (BEV) in its lineup. Toyota’s luxury brand, Lexus is entering the EV world with Lexus UX 300e, which will be a fully-electric version of the UX crossover. Customer deliveries of this first pure-electric Lexus will start early next year. At least 10 new models are expected to be launched by 2025. Still focused primarily on hybrids, Toyota’s EV takeoff will be slower than peers. The auto giant targets to sell 500,000 BEVs worldwide by 2025, which represents a small percentage of the 5.5 million electrified cars that will mostly be hybrids. Contrarily, its leading global rival Volkswagen Group targets annual BEV sales of around 3 million by 2025, including 1.5 million from the Volkswagen brand itself.

Nonetheless, Toyota is laying essential groundwork to step up the e-mobility business and is likely to take a more aggressive approach from 2025 onward. The company is working on a dedicated platform for 100% EVs, called e-TGNA, much similar to Volkswagen’s MEB platform. Collaboration with Subaru and Mazda is likely to aid Toyota's ambitious electrification goals.Alliances with CATL, BYD and Panasonic bode well for its EV battery technology prospects. Toyota’s partnership with Hino to manufacture a heavy-duty hydrogen fuel cell electric truck is in sync with its goal of providing durable vehicles equipped with cutting-edge technology to customers. Toyota has long touted hydrogen fuel cell-powered vehicles as the ultimate green transportation, and views this technology as a more efficient alternative to battery power for electric cars, embraced by many rivals as a zero-emission alternative to gasoline vehicles.

Honda: While most automakers are betting on sedans and sport utility vehicles in their transition toward EVs, Honda has gone for a more compact all-electric car Honda e. Honda e is the company’s first ever pure EV launched this year. The model will be sold in Europe and Japan. The company has no intentions of marketing Honda e in North America and China. The company plans to roll out another fully-electric car in Europe by 2022.

Honda strives to electrify two thirds of global sales by 2030, wherein hybrids will form 50% of the mix, and BEVs and fuel-cell vehicles will account for 15%. Importantly, the company aims to electrify all European mainstream models and introduce 6 new electric models in the region by 2022. Honda’s strategic collaborations are expected to level up its footing in the EV space. For instance, the company’s joint venture with GAC Group aims at building electric battery cars and plug-in hybrid vehicles in China to meet the country’s green car quotas. Further, Honda’s deals with General Motors and Hitachi are expected to bolster prospects. In September, Honda and General Motors inked a deal to form the North American automotive alliance. This tie up builds on the agreement between the companies in April to co-build two new all electric Honda vehicles based on General Motors’ Ultium battery-powered EV platform.

Nissan: Nissan has been the pioneer in the mass-market EV space, with its Leaf model providing all-electric motoring since its debut in 2010. A decade after releasing Leaf, the company expanded the EV lineup by launching Ariya SUV, which will go on sale next year. Unlike Leaf’s front-wheel-drive setup, Ariya will have GT-R’s torque split system. Ariya will feature Nissan's fresh corporate styling, 21-inch wheels and a dual-engine all-wheel-drive system, and is expected to offer a maximum range of 300 miles.

Nissan’s Leaf is still one of the hot-selling EVs in the word. However, immense competition is starting to abate the company’s presence in the EV market, more so as it took the company a decade to bring another pure electric car model in the market. With Nissan turning over a new leaf with Ariya, which boasts unique features, we expect it to give a tough competition to the existing and upcoming EVs. The success of Ariya is all the more critical for the company, which strives to emerge from the sales slump and the crisis precipitated by former chairman Carlos Ghosn's departure.

Nissan is actively seeking to revive its pole position in the e-mobility space with the launch of new products and ambitious EV plans. The company is on track to launch at least eight all-electric vehicles by 2023, while expanding the e-POWER technology. The automaker targets more than 1 million EV sales by fiscal 2023. The strategic alliance between Nissan, Renault, and Mitsubishi will further bolster EV development.

Final Thoughts

While Japan-based automakers have been slower in embracing the EV revolution than global peers, auto biggies including Honda, Nissan and Toyota have started becoming serious about an electrified future and are seeking to make up for the lost time, as is evident from their strategic alliances, new offerings, as well as  ambitious plans. All-electric launches including Honda e, Nissan Ariya, Lexus UX 300e, Mazda’s MX -30 are set to fuel Japan’s EV industry in the near term.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Ford Motor Company (F): Free Stock Analysis Report
Honda Motor Co., Ltd. (HMC): Free Stock Analysis Report
Nissan Motor Co. (NSANY): Free Stock Analysis Report
Toyota Motor Corporation (TM): Free Stock Analysis Report
General Motors Company (GM): Free Stock Analysis Report
Tesla, Inc. (TSLA): Free Stock Analysis Report
Volkswagen AG (VWAGY): Free Stock Analysis Report
To read this article on click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.