A Brief Glance at Japan’s Automobile-Related Industries

The following is a special edition for automobile-related industries. It is based on the value chain provided in SPEEDA, as well as the fluctuations of fundamental figures disclosed in the securities reports of companies across a ten-year period.

 Automobiles Are Japan’s Key Industry

 Automobiles are regarded as Japan’s key industry. According to materials released by the Japan Automobile Manufacturers Association (JAMA), the number of workers in automobile fields in Japan amounted to 5.29 million people as of FY2015, which was 8.3% of Japan’s entire workforce.

 2016 Unit Sales for Japanese Automobile Manufacturers

 Below are the 2016 unit sales figures for all major automobile groups. Toyota Motor and Volkswagen continue to compete for the top spot, and in terms of the number of automobiles, these two companies together with GM are referred to as the “10 Million Club”.

 In recent years, however, it is becoming difficult to measure business size on automobile unit sales alone. Major trends within the automobile industry will be reviewed later in this report.

 Companies in the Value Chain

 Below is the value chain for the automobile industry. Numerous companies are involved in the manufacturing process before a car is delivered to a consumer.

 In addition, there is a broad range of companies that provide the various components, systems, and technologies used to produce an automobile.

 Industry Trends: Increasing Use of Electricity as a Motive Power Source

 Automobiles can be categorised by motive power source, as can be seen in the below image. Petrol-fuelled vehicles are the mainstream, and according to the International Energy Agency (IEA), even the percentage of petrol-fuelled vehicles owned worldwide in 2020 is expected to be over 70% of the total number of vehicles owned. There are still numerous issues that surround the proliferation of such vehicles as plug-in hybrid vehicles (PHVs), electric vehicles (EVs), and fuel cell vehicles (FCVs), as well as the enhancement of charge station infrastructures.

 The improvement of fuel efficiency, which is an issue for the transportation sector, will continue to require attention going forward. In addition to changing motive power sources, the production of lighter parts and components also has a substantial contribution to the improvement of a vehicle’s fuel efficiency, and is an important research topic for the suppliers of all automobile part and component types.

 Activity in New Areas Like Advanced Driver-Assistance Systems

 Advanced driver-assistance systems (ADAS) are an area of technology that is attracting attention in recent years.

 Traditionally, safety components like seat belts and air bags had been responsible for the safety of the driver and passengers. However, expectations are rising for automobiles equipped with ADAS, and their ability to avoid vehicular crashes and accidents. ADAS technology enhances the sensors (such as radars and cameras) and semiconductors equipped in automobiles, and activates brakes automatically whenever an obstacle is detected. Furthermore, it can be used to adjust the distance between a driver’s car and the car in front of the vehicle on expressways and motorways. These features have led to increasing expectations for automobiles equipped with ADAS, and their ability to avoid obstacles on the road.

 In addition to existing automobile component manufacturers, semiconductor manufacturers like Renesas Electronics and Intel are entering the industry one after another.

 “Connected Cars” and the Entry of Players from Other Industries

 The external environment surrounding automobiles is also changing. For example, the structure of “connected cars”, or cars equipped with internet access, comprises diverse fields like communications systems, security, and payment services, leading to expectations for the further expansion of the automobile manufacturing industry.

 Restructuring Amongst Automobile and Component Manufacturers

 Amidst the aforementioned changes in this industry’s environment, several reorganisations are taking place between automobile manufacturers and component suppliers.

 In August 2016, Toyota Motor turned Daihatsu Motor into a wholly-owned subsidiary, and both companies established an internal company referred to as the “Emerging-market Compact Car Company” on 1 January 2017. In addition, Toyota formed an alliance with the major car dispatch operator Uber in May 2016 in the ride-sharing field, thus expanding its areas of service.

 In October 2016, Nissan Motor acquired 34% of Mitsubishi Motors’ stocks, making Nissan the company’s largest shareholder. When figures for both the Nissan-Renault alliance and Mitsubishi are added to Nissan’s total unit sales, the company ranks third after Toyota and Volkswagen.

 Honda Motor began joint research with Softbank in artificial intelligence (AI) in July 2016. In December 2016, the company announced an alliance with Waymo, which is under the umbrella of Alphabet, in research for completely automated driving technology.

 Also in December 2016, Denso and NEC announced a comprehensive alliance for the joint development of automobile products that utilise ADAS and AI. In this way, alliances are active in the automobile sector, regardless of industry.

 Ten Years Ago and Now: A Comparison of Figures for Leading Companies

 The following compares trends for leading industry players over FY2005–15.

 See below for information on revenues, operating profits, and operating profit margins. The amount of operating profit is shown on the vertical axis, with operating profit margin shown on the horizontal axis. The size of the bubbles represents the amount of revenue.

 Toyota is the domestic leader in revenue and unit sales, and its operating profit also grew approximately 150% over the ten-year period.

 Fuji Heavy Industries (trade name changed to Subaru in April 2017) and Bridgestone are two companies whose operating profit margins had increased significantly.

 Fuji Heavy Industries in particular is focused on the North American market, and through enhancing its brand power, the company was able to lower its sales incentives, which are included in SG&A. Looking at the comparison of the unit sales for all companies in FY2015 and operating profits by automobile segment, Toyota stands at approximately JPY 240,000 per vehicle, Nissan at about JPY 100,000 per vehicle, and Honda at about JPY 30,000 per vehicle, while Fuji Heavy Industries registered approximately JPY 570,000 per vehicle, over two times that of Toyota.

 Bridgestone acquired the US company Firestone in 1998, and Bandag, another US company, in 2007. Through these acquisitions, the company aimed for the expansion of its service department and the strengthening of its vertical integration model, and was able to establish a stable profit base that is uninfluenced by raw material prices. Recently, the company’s profit has continued to rise owing to favourable performance in markets in North America.

 NGK Spark Plug holds the top share in the global market for spark plugs, and continues to maintain a high operating profit margin due to the added value of its products. Furthermore, the company is attempting to enter the medical field through the development of artificial bones using ceramic technology.

 Market Capitalisation and EPS Fluctuation

 Below is a list of companies based on the amount of growth in their market capitalisations (excluding treasury stocks), ordered from highest to lowest. The progress of Fuji Heavy Industries stands out. Although Toyota’s market capitalisation has decreased, it boasts the top spot in market capitalisation value domestically, and its EPS is steadily rising.

 Meanwhile, a look at EPS growth reveals companies like Toyota Industries Corporation and TPR.

 R&D Expenses

 A look at the ratios of R&D expenses to revenue for FY2015 shows that Denso has the highest at 8.8%. Denso has acquired high credibility throughout the world for the quality of its products. The company also has a broad range of operations in areas outside of automobiles, such as home appliances, utilising its exceptional technological capabilities in heating and cooling. Moreover, Denso established the ADAS Business & Technology Development Division in December 2015.

 Employees in the Automobile Industry

 In terms of employee number for the entire group, Toyota is on top with over 300,000 employees. A look at the differences between single entities shows that Honda, Nissan, Bridgestone, Aisin Seiki, Asahi Glass, and Takata each have a relatively high number of group companies. Also, Nissan substantially reduced its number of employees in the early 2000s, as did Asahi Glass in FY2014.

 The amount of revenue per employee is provided below for reference. However, it should be noted that there are strict differences between the product and business types of each company.

 Amongst automobile manufacturers and assemblers, Suzuki, which focuses on light vehicles, stands out in the top companies for revenue per employee. Daihatsu, which also focuses on light vehicles, has about JPY 39.1 million in revenue per employee. The top-ranked Nissan Shatai experienced a decline in overall revenue compared to FY2005, so the increase in revenue per employee is likely due to a reduction in the company’s number of employees.

 When looking at the average employee salary for each company, glass manufacturers stand out alongside automobile assemblers. According to the Basic Survey on Wage Structure released by the Ministry of Health, Labour and Welfare, the average annual salary for employees in transportation machinery manufacturing industries aged between 35 and 44 is around JPY 6 million. However, it should be noted that this figure applies to individual companies, as opposed to consolidated group figures.

 In Closing: Significant Changes in Industry Possible

 The automobile industry is characterised by both its large scale and the numerous related industries. In addition to the manufacturing and sale of vehicles, automobile manufacturers also have a particular strength in the financial services business. Furthermore, there are several component and material suppliers that utilise their strong technological capabilities in industries outside of automobiles, and there are companies among them with a high potential for growth moving forward.

 In future, the automobile industry is likely to experience substantial changes. The official launch of automated driving businesses is expected to change the act of driving itself tremendously. Companies are also likely to diversify their businesses, as well as undergo restructuring.