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Customer LoginsJapanese automakers' investment to develop advanced technologies rises to USD25.6 bil.
As technology-driven trends transform the automotive sector, industry players in Japan are reporting record research and development spending and are looking for innovative ways to remain competitive by forging partnerships and collaborations.
IHS Markit Perspective:
- Significance: Research and development (R&D) spending by Japan's key automakers, including Honda, Mazda, Mitsubishi, Nissan, Subaru, Suzuki, and Toyota, is expected to total JPY2.85 trillion (USD25.6 billion) in fiscal year (FY) 2017/18, a 6.8% year-on-year (y/y) increase.
- Implications: Of this total, Toyota's expenditure is expected to grow 1.2% y/y to JPY1.05 trillion as the automaker focuses on developing eco-friendly vehicles amid strict environmental regulations. Honda's expenditure will rise 9.4% y/y to JPY750 billion as it seeks to develop autonomous vehicles and mobility systems. R&D expenses for Nissan, Suzuki, Mazda, Subaru, and Mitsubishi are expected to rise by 7.1% y/y to JPY525 billion, 14.1% y/y to JPY150 billion, 10.3% y/y to JPY140 billion, 17.3% y/y to JPY134 billion, and 20.2% y/y to JPY107 billion, respectively.
- Outlook: As technology-driven trends in areas such as mobility, autonomous driving, electrification, and connectivity transform the automotive sector, global automakers are having to compete on multiple fronts to remain in the game. As a result, automakers that are already working to cut costs, improve fuel economy, reduce emissions, and become more capital-efficient are not only boosting their research initiatives but are increasingly looking towards consolidation or new forms of partnerships.
Research and development (R&D) spending by Japan's key automakers, including Honda, Mazda, Mitsubishi, Nissan, Subaru, Suzuki, and Toyota, is expected to total JPY2.85 trillion (USD25.6 billion) in fiscal year (FY) 2017/18. This figure represents a 6.8% year-on-year (y/y) increase as automakers continue to seek to gain an edge in the development of next-generation vehicle technologies such as autonomous driving, advanced driver-assistance systems (ADAS), alternative-powertrain vehicles, and connectivity features.
Japan's biggest automaker, Toyota, leads the list of R&D spending by a huge margin. The automaker has been spending more than JPY1 trillion on R&D every year since FY 2014/15 and has earmarked JPY1.05 trillion for the current FY, ending March 2018. This figure represents a 1.2% increase from JPY1.03 trillion last FY. The company is boosting spending in key areas such as autonomous driving, connected cars, artificial intelligence (AI), and robotics.
Honda takes second spot in terms of R&D costs. The automaker aims to spend JPY750 billion during the current FY, a 9.4% y/y increase. Honda has been spending an average of JPY652 billion annually over the past five fiscal years and continues to focus on development of advanced technologies. Honda is followed by Nissan, which has announced that it will spend JPY525 billion on R&D in the current FY, a 7.0% y/y increase. The automaker spent JPY490.4 billion last FY.
Aiming to boost its R&D investment by 14.0% y/y in the current FY, Suzuki's total R&D costs are expected to touch JPY150 billion. The automaker spent JPY131.5 billion on R&D during FY 2016/17. Mazda and Subaru are projecting to spend JPY140 billion and JPY134 billion, respectively, on R&D this FY, representing growth of 10.3% and 17.3%, respectively. Last on the list is Mitsubishi, which has earmarked JPY107 billion during the current FY for R&D. This figure marks growth of 20.2% compared with FY 2016/17, when the automaker spent JPY89 billion.
Outlook and implications
As technology-driven trends in areas such as mobility, autonomous driving, electrification (hybrid, plug-in, battery electric, and fuel-cell vehicles), and connectivity transform the automotive sector, global automakers are having to compete on multiple fronts to remain in the game. Further increasing the complexity of the competitive landscape are technology companies such as Apple, Google, and mobility provider Uber, which have also announced plans to launch self-driving cars, affordable electric vehicles (EVs), and car-sharing services. As a result, traditional automotive players that are already working to cut costs, improve fuel economy, reduce emissions, and become more capital-efficient, are not only boosting their research initiatives but are increasingly looking towards consolidation or new forms of partnerships. This challenging environment affects traditional vehicle manufacturers as well as suppliers, potential new players, regulators, consumers, markets, and the automotive value chain. Commenting on the sustained investments by Japanese OEMs, IHS Markit forecasting analyst Satomi Hamada states that some Japanese OEMs are at risk of falling behind their global competitors in terms of EV developments and efforts to comply with projected regulations globally, and hence are accelerating their R&D spending on such fields.
The importance of keeping up with research initiatives has been further underlined by recent full-year financial announcements and projections made by the automakers. Toyota is bracing for a second straight year of declining operating profit this FY, but plans to spend a large sum on R&D to keep up with the rapidly changing competitive landscape. Commenting on the automaker's plans, president Akio Toyoda said, "Rather than giving short-term profit the top priority, we will steadily and continuously invest in the future." Toyota's most prominent initiatives in this direction include the establishment of an AI R&D company, called the Toyota Research Institute (TRI), in November 2015. The company is headquartered in Palo Alto, California (United States). Toyota announced that it would invest USD1 billion to create the R&D company, spent over a period of five years. Recently, TRI announced a new collaboration and a USD35-million investment over the next four years in research that will use artificial intelligence. The automaker also recently collaborated with Nippon Telegraph and Telephone (NTT), a Japanese telecommunications company, to develop connected and autonomous vehicles.
In terms of partnerships, earlier this year Toyota and Suzuki agreed to begin formal talks to collaborate on technical development in areas such as environmental, safety, and IT technologies, as well as the mutual supply of products and components. The latest agreement between Toyota and Suzuki takes the two Japanese automakers a step closer to a partnership that is expected to give Suzuki, a manufacturer of low-cost minivehicles, access to Toyota's research in environmentally friendly vehicles and autonomous technologies. Toyota in return is expected to benefit from Suzuki's strong market position in emerging nations such as India, where Toyota intends to strengthen its foothold. Suzuki has said that it has been struggling to keep pace with the speed of R&D in the industry, an area in which Toyota is better able to compete. During FY 2016/17, Toyota spent JPY1.0375 trillion on R&D. It expects this figure to rise to JPY1.05 trillion this FY. Meanwhile, Honda has begun talks to co-develop an autonomous driving system with Google-affiliated Waymo as part of its open innovation and collaboration programme. Honda has also established a new R&D centre, dubbed "R&D Center X", in Japan to focus on areas including robotics technology, mobility systems, and energy management. The work of the new research facility will initially focus on developing autonomously operated machines and systems in conjunction with AI. Furthermore, Honda established an R&D Innovation Lab in Tokyo in June 2016 to further strengthen its mobility-related intelligent technologies research and application. IHS Markit's light-vehicle production forecast manager in Japan, Masatoshi Nishimoto, said, "According to the latest fiscal statements by Japanese OEMs, we understand they have big plans to invest in the new vehicle technologies such as AI, autonomous driving, and connected cars in addition to investing in the traditional technologies such as lightweight, electrification, and conventional engines to improve fuel economy. However, to pursue more effective and efficient investment, it is necessary to enhance standardisation and communisation by all Japanese OEMs. For instance, Nissan is expected to leverage the electrification technologies with Mitsubishi under the new alliance. Nissan will supply EVs to Mitsubishi and Mitsubishi will share PHEV [plug-in hybrid electric vehicle] technologies with Nissan. Toyota is also expected to leverage its own HEV/PHEV technologies with Mazda and Subaru in the future and will share other advanced technologies with Suzuki. Considering these movements, I expect in the longer term, Japanese OEMs will be categorised into three groups to survive in the global market: Toyota-Mazda-Subaru-Suzuki, Nissan-Mitsubishi, and Honda."
The moves by the automakers are also in line with Japan's longstanding goal to encourage the development and use of advanced vehicle technologies and alternative-fuel vehicles. The target coincides with the Olympic Games that will take place in Tokyo during 2020, when the Japanese government expects to showcase its "hydrogen society" vision. Recently, the Japanese government announced plans to ease regulations to promote testing of advanced technologies, including autonomous driving technologies. Furthermore, the government will begin testing automated driving vehicles on public roads and highways in Tokyo from September this year until March 2019. Japan's Ministry of Economy, Trade, and Industry (METI) announced plans in 2016 to set up a test site for autonomous vehicles. Following this, Japan's National Police Agency (NPA) released its first draft guidelines for testing automated driving vehicles on public roads in April 2016. According to IHS Markit alternative propulsion light-vehicle forecasts, Japanese production of plug-in vehicles, including EVs and PHEVs, will expand to nearly 214,516 units by 2020, up from 46,256 units during 2016. Production of fuel-cell vehicles is expected to grow to nearly 7,707 units by 2020, up from 2,406 units in 2016.
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The above article is from AutoIntelligence Daily by IHS Markit. AutoIntelligence Daily provides same-day analysis of automotive news, events and trends. Get a free trial.