Japanese car companies that are not active in electrification, make money and earn cramps?

At the Tokyo Motor Show, many people ridiculed the electrification performance of Japanese electric vehicles, which are several generations behind the Chinese market.

However, the Japanese automakers that have recently announced their financial reports one after another have not been ambiguous at all, which is in stark contrast to the lower than expected profits of automakers such as GM and Ford, which are actively transforming to electrification.

Is it true that it is easy to fall if you run too fast, and it is more prudent to follow the strategy?

The victory of the Japanese system

Toyota, Honda, Nissan, and Mazda, which recently announced their earnings reports, have all seen significant increases in profits and raised their earnings forecasts for the full fiscal year.

We have discussed before that Toyota, the leading big brother, is in opposition to the "pure electric only", and at the same time is happy to raise a new high profit, and the net profit is more than five times that of Tesla.

In the first half of fiscal 2023 (April 1, 2023 to September 30, 2023), Toyota and Nissan more than doubled their profits year-on-year, and Honda's profits also increased by 54%, while the profits of the Topix constituent companies increased by 30% over the same period.

In addition to the weakening of the yen and the recovery of the supply chain, part of the reason for this is that the sales of Japanese cars in overseas markets, especially in the United States and Europe, are very good, and the only thing that has collapsed is the performance of the Chinese market.

In the Chinese market, Japanese cars were beaten by local electric car brands, but the global performance was not greatly affected by the strong boost of the European and American markets.

Nissan Motor reported operating income of 3.1457 trillion yen (about 20.7 billion US dollars), a year-on-year increase of 620.8%, a consolidated operating profit of 208.1 billion yen (about 1.37 billion US dollars), a year-on-year increase of 116.4%, a net profit of 190.7 billion yen (about 1.25 billion US dollars), a year-on-year increase of 173.3%, and an operating profit margin of 6.6%.

At the same time, Nissan raised its full-year guidance for fiscal 2023 (April 1, 2023 to March 31, 2024). It is expected that revenue will increase by 400 billion yen (about 2.6 billion U.S. dollars), operating profit will increase by 70 billion yen (about 4.08 billion U.S. dollars), and net income will increase by 50 billion yen (about 3.57 billion U.S. dollars).

Honda's revenue in the second quarter was 498 million yen (about 32.8 billion US dollars), a year-on-year increase of 17%, operating profit was 302.13 billion yen (about 1.99 billion US dollars), a year-on-year increase of 31%, and net profit was 253.2 billion yen (about 1.66 billion US dollars), a year-on-year increase of 34%.

Honda's global sales in the quarter were 1.03 million units, up 6.5% year-on-year, of which North America surged 40% to 385,000 units, Japan increased 8% to 144,000 units, and the European market increased slightly from 22,000 units to 23,000 units.

Although the scale of China's new energy market has expanded and the price war has intensified, resulting in a decline in demand, Honda's global performance is still very good.

Based on this, Honda expects full-year revenue to increase by 18% to 20 trillion yen (US$131.8 billion), operating profit to increase by 54% year-on-year to 1.2 trillion yen (about US$7.9 billion), and net profit to increase by 43% year-on-year to 930 billion yen (about US$6.12 billion), all of which are record highs.

Even Mazda, which has a very low presence in the Chinese market, performed quite well in the last fiscal quarter. Revenue rose 20% to 1.23 trillion yen (about 8.24 billion U.S. dollars), operating profit surged 33% to 99.6 billion yen (about 670 million U.S. dollars), and net income remained unchanged at 70.9 billion yen.

Mazda's performance was good, mainly benefiting from foreign exchange rates and the popularity of high-margin SUV models such as the CX-50 and CX-90. Based on this, Mazda also raised its full-fiscal year performance forecast, expecting revenue to increase by 25% to 4.8 trillion yen (about 32.2 billion US dollars), operating profit to rise 76% to 250 billion yen (about 1.67 billion US dollars), and net profit to increase by 19% to 170 billion yen (about 1.14 billion US dollars).

Pure electric heat fades?

Okazo Securities expects the Japanese auto industry, which relies mainly on gasoline-powered and hybrid vehicles to drive sales, to surpass its peak of 5.4 trillion yen set in fiscal 2015 this year.

This is in stark contrast to U.S. automakers such as Ford and General Motors, which have been aggressively investing in pure electric vehicles, after GM abandoned its 400,000-unit EV production target when it reported its earnings last quarter, and Ford postponed its $12 billion EV-related production plan and sharpened its Mach-E production target.

Japanese automakers, led by Toyota, have long advocated that reducing carbon emissions is not a pure electric way, and that hybrid and hydrogen fuels should also be taken seriously. However, the success of electric vehicle companies such as Tesla and BYD in the Chinese market has sparked criticism of Japanese automakers.

Although they have hit a wall in China, Japanese cars are doing well in other markets, especially in North America. At the recently opened Los Angeles Auto Show, electric vehicles are only a supporting role, and the leading role is still gasoline or gasoline-electric hybrid vehicles, especially Japanese SUV models, such as the next-generation Subaru Forester, Toyota Crown SUV, etc.

In this way, the Japanese automakers, who have adopted a follow-up strategy in terms of electrification, have eaten this wave of dividends. As Christopher Richter, a senior analyst at CLSA, said, "If you take too big a step, you're likely to hit a wall." Ignoring external pressures and getting things done is more important than doing them quickly. Japanese automakers seem to be aware that the road to electrification will not be easy. ”

Of course, Japanese cars don't really give up on the pure electric strategy, as we said, they don't want to be the first to run, but they don't want to be at the bottom either.

In April 2022, Honda announced that it would invest 5 trillion yen over 10 years in research and development of electrification and software technologies. By 2030, Honda will launch 30 BEVs worldwide, with an annual production capacity of more than 2 million units.

Nissan announced in its Nissan Ambition 2030 that it will launch 27 electric vehicles globally by fiscal 2030, including 19 pure electric models and 8 e-POWER models.

At least in the short term, the profits of gasoline vehicles are much higher than those of pure electric vehicles.