JAPAN Trends and Developments Contributed by: Haseru Roku, Nagashima Ohno & Tsunematsu
Therefore, Japanese automakers’ slow EV shift may lead to a decline in their global market pres- ence. Poor sales in the Chinese market, where NEV adoption is rapidly increasing, are particu- larly concerning. Many automakers are re-eval- uating their strategies in China. In October 2023, Mitsubishi Motors announced its withdrawal from production in China, selling its shares in its Chinese joint venture at a low price to its partner, Guangzhou Automobile Group. Other Japanese automakers are also halting gasoline vehicle production lines and reducing person- nel in China. As a result, there may be future M&A activity by Japanese automakers to divest their Chinese operations. Conversely, some are seeking to enhance competitiveness by partner- ing with major local Chinese companies. In May 2024, Toyota announced a strategic partnership with Tencent, a major Chinese technology com- pany, to collaborate in AI, cloud computing, and big data. Nissan also announced a partnership with Baidu, another major Chinese technology company, on AI technology. Whether traditional automakers in Japan will consider taking a more aggressive approach (via new investments, joint venture or otherwise) to get into the EV markets in China and elsewhere is yet to be seen. Impact on auto parts manufacturers The EV shift is also affecting mergers and acquisitions among auto parts manufacturers that supply Japanese automakers. Japanese automakers have long been known for valuing their parts manufacturers in their supply chains, and through capital ties and collaboration such as joint development, they have built up close business relationship known as “keiretsu”. How- ever, the components required for gasoline-pow- ered vehicles and EVs differ significantly, leading to inevitable changes within these keiretsu net- works. Moving forward, it will be worth watching to see whether M&A transactions involving the
addition of new keiretsu companies or the sepa- ration of existing ones will occur. Chinese companies’ global expansion Chinese companies with advantages in AI and in-vehicle battery technologies view the EV shift as an opportunity to seize leadership in the next-generation market and are accelerating their global expansion. In January 2024, BYD’s EVs were sold in the Japanese market for the first time, with plans to expand to over 100 deal- erships by 2025. Zhejiang Geely Automobile’s Zeekr brand has also announced plans to enter the Japanese market in 2025. Attention is also focused on potential inbound M&A by Chinese automakers and parts manufacturers. How- ever, for Chinese companies to conduct M&A in Japan, they must navigate the Foreign Direct Investment (FDI) regulations under the Foreign Exchange and Foreign Trade Act (FEFTA), which are becoming increasingly stringent in recent years. Japan’s FDI review under FEFTA Under Japan’s FDI screening framework, busi- ness activities are classified as either “designat- ed industries” or “non-designated industries”. Foreign investors must submit a prior notifica- tion and obtain government clearance before investing in Japanese companies operating in designated industries, whereas only a post- investment report is required for non-designated industries. Determining whether a target busi- ness falls into the “designated” category there- fore becomes a crucial step in the FDI process. However, the automotive sector itself is not so easy to define. Manufacturing vehicles and their components is generally deemed a non- designated industry, meaning foreign investment would not ordinarily require prior clearance. Yet EV and autonomous driving technologies
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