In August this year the China Association of Automobile Manufacturers (CAAM) announced it hit 2.14 million vehicle exports in the first half of 2023. This was an increase of 76% compared to the same period last year and besting Japan’s 2.02 million, making China, for the first time, the world’s top auto exporter (NikkeiAsia – subscription required).

Then in October, the International Monetary Fund announced that Germany’s economy is projected to dislodge Japan’s as the world’s third largest in 2023 (Bloomberg – Subscription required). This, as the yen crosses the 160 mark against the euro and close to a 33-year low against the dollar.

At the end of last month the Japan Mobility Show opened in Ariake, Tokyo, the tent-pole event for automotive brands in the country. The two-week event carried this messaging throughout: “Remember that feeling of being excited about what tomorrow holds? The feeling of dreaming big. We want to recapture that.” It certainly captured the public’s imagination. Arriving at the show on a weekday morning I found myself stuck in crowds more reminiscent of a rock concert. The future of mobility in Japan was certainly of interest and looking bright.

The show didn’t disappoint either. Every brand had its futuristic concept cars (and trucks) on display with crowds jostling to get their photos, and most of these were BEVs (battery electric vehicles), with various levels of built-in autonomy.

The problem is that the world being painted here, with its concept models and warm, fuzzy lifestyle photography, is very different to the reality of 2023 Japan. The move to electric is being led by Chinese, European and US consumers. Japan at 2.1% (April 2023) doesn’t even rank in the top 25 of countries with the highest EV sales. And in terms of the brands being bought, it’s BYD and Tesla. The only Japanese company in the top 25 is Toyota at 16 (and then only if you include hybrids).

So what’s going on? We know globally the incumbent industry has been caught sleeping, while BYD and Tesla rush ahead. However, Europe is reorienting itself and the US, with its Inflation Reduction Act (IRA), is rebuilding its whole automotive industry with government subsidies. Meanwhile in Japan… Toyota (which launched its Prius way back in 1997) recently argued for a range of power trains (and is still persisting with hydrogen), then replaced its CEO, with a promise of a renewed focus on EVs. Nissan, who brought us the Leaf (2010) took another 12 years to launch the Ariya, and more recently the Sakura Kei-car.

Part of the problem is that Japan has always been domestically focused, with a very low tolerance for risk. In a roundtable discussion we recently hosted with the British Chamber of Commerce, a Japanese executive commented that “Japanese companies benchmark against their Japanese competition and no one really want’s the pressure of being No.1”.

Combine that with a Japanese public who are not engaged with global concerns around climate change, and you have an environment that is not conducive to change.

This is not a new phenomenon. In the late 1990s, Japan had (arguably) the most advanced mobile phone ecosystem in the World. In 1999 NTT DoCoMo launched i-mode – the world's first (and always on) mobile internet-services platform. The infrastructure and the phones that used it were far ahead of the West, but, again, domestically focused with no appetite for international expansion. Then came the iPhone. Today Apple dominates and what is left of Japan’s mobile phone brands run Android.

But it doesn’t need to be this way. Japan remains one of the world’s leading centers of R&D and importantly, high-tech manufacturing. Toyota, despite its initial reluctance to embrace an all-electric future continues to demonstrate industry leading innovation – solid-state battery R&D and steering ‘by wire’, being just two recently demonstrated to journalists.

Projects seem to flourish when Japan looks internationally – collaborations which combine a greater tolerance for risk with Japanese engineering and technological prowess.

Take Mitsubishi FUSO, part of Daimler Truck (and – full disclosure – an Eat Creative client). In 2017 the company launched the eCanter, Japan’s first series-produced, all-electric truck. And not just a vehicle, but also a range of digital services to ease the move for companies from internal combustion and support them through the life of the vehicle. Expanding further, Daimler Truck recently launched its EV-only Rizon Truck brand in the US.

And as we put this piece together, TSMC, the Taiwanese semi-conductor company is in discussion to build a third plant in Japan that will make the smallest and most advanced chips in the world.

Japan’s future has the possibility to be very bright – but it needs to decide its role in the world. Does it embrace a more international outlook and tackle the global challenges where Japanese companies and partnerships can lead? Or does it remain domestically focused and slowly become less relevant?

We hope it has the courage to do the former.