In June 2010, about eight years ago, Silicon Valley-based automaker Tesla Motors made Japan its first Asian market for highway-capable electric cars by shipping a dozen right-hand drive roadsters to Yokohama. Earlier that year, Tesla also said it was venturing with Japan’s Panasonic to make electric vehicle fuel cells.
The Tesla move was in line with Tokyo’s push for widespread use of electric vehicles throughout Japan, in the hopes of cutting the country’s carbon emissions 25% by 2020. Almost eight years since, however, it doesn’t seem like “electric” has gained much traction in Japan. In late 2017, major carmaker Toyota said it was sticking to hybrid using hydrogen fuel-cell technology.
And then there is the concern put forth by Moody’s Investor Service “that the push toward alternative-fuel vehicles pose a credit challenge for multiple sectors in Japan, with the large auto sector and sectors such as steel and refining most affected.” Moody’s is a global credit-rating agency that maintains offices in Japan and other countries.
In a recent report, it quoted Moody’s Vice-President and Senior Credit Officer Motoki Yanase as saying, “Over the next decade, Japanese auto manufacturers and associated industries will make sizeable upfront investments in alternative-fuel vehicle technologies while bearing the risk that these vehicles may ultimately not be taken up by the market.”
“In addition to the direct impact on the auto, steel and refining sectors, electrification — and the resultant drop in gasoline consumption — will also reduce a meaningful source of government tax revenue, which funds road construction and public works programs,” he added.
Moody’s noted that “tightening emission requirements, changing consumer preferences amid growing concerns around climate change, and technological innovation were driving the push for alternative-fuel vehicles”. Thus, it estimates that battery electric vehicles and other alternative-fuel vehicles, such as hybrids, plug-in hybrids, and fuel-cell vehicles “may account for around 35% of new vehicle sales globally by 2030, compared to less than 5% in 2017.”
But for automakers, it said, the rising costs in research and development as well as capital investments needed for the shift to alternative-fuel vehicles could squeeze “already thin margins.” In addition, the entry of new carmakers will increase competition, while emerging technologies will take automakers beyond their core competencies and toward new business models.
It is perhaps no surprise then that almost eight years after its first delivery of electric cars to Japan, Tesla appears far from making a big dent in that market. One Nissan executive, however, sees the tipping point at 2025, when he believes that gas cars and electric cars may probably cost the same for consumers. Electric car sales may also be helped by the fact that Tesla’s partner, Japan’s Panasonic, is boosting its production of lithium-ion batteries for cars.
As for Tesla’s foray into China, it has suffered setbacks.
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After announcing in June last year that it was in talks to build electric cars in Shanghai, Bloomberg reported just this February that “an agreement has not been finalized because the two sides disagree on the ownership structure for a proposed factory.” Bloomberg noted that China’s central government wants Tesla to do a joint venture with local partners, while Tesla reportedly wants to own the factory completely.
At the same time, while Tesla currently sells cars in China, an import tax of 25% on these units make them expensive. As such, it now captures only a fraction of the Chinese electric car market currently dominated by local companies BAIC Motor Corp., Warren Buffett-backed BYD Co., and start-ups NIO and Byton.
Just last December, CNBC reported that China’s electric vehicle start-up NIO launched its first mass-produced model at a price that was just half of the starting price of Tesla’s Model X in China. Nio, as a start-up company, gets state subsidies to produce electric vehicles. And perhaps this is why it can afford to sell its cars at a significantly lower price.
With all these developments, I guess we may also see more electric cars on our roads by the next decade. However, I doubt if such cars will be coming from Tesla or from any of the Japanese car makers that currently dominate the Philippine market. They are more likely to come from Chinese companies, or maybe a Tesla factory in China — if ever that gets built.
I think this push towards electric, with the aim of cutting emissions, can be the subject of cooperation and agreement between Manila and Beijing.
To date, as noted in a recent statement by Zhao Jianhua, Chinese Ambassador to the Philippines, “in 2017, China-Philippines trade volume exceeded $50 billion for the first time, making China the Philippines’ top trading partner, top import origin and the fourth-largest export market.”
China’s BAIC and BYD both already have a presence in the country, and perhaps NIO and Byton will follow suit. And while there may be concerns regarding the “quality” of cars made in China, it remains a fact that the Philippine market may be a large market, but it has limited purchasing power. Thus, price or cost of a car will be a significant factor in prompting a shift to electric.
In this regard, I doubt if Tesla or the Japanese car makers can take the lead in selling affordable electric cars to Filipinos. China, I think, will have greater potential of saturating the Philippine market. The cars can be imported or built locally with Filipino partners. But Japan, I believe, can take the lead in supplying reliable batteries or electric cells. Tesla can enjoy a niche with wealthy buyers.
Moreover, with taxes now coming from the sale of gas- or diesel-fed motor vehicles and the sale of gas and diesel fuel, the government should also prepare for the fiscal implications of encouraging — also with incentives — the local sale or production of electric vehicles. What may be good for the environment may not necessarily be good for the National Treasury.
And, of course, the country should be in a position to generate more electricity at affordable costs. And this, to me, is the greatest challenge of all. The electric plants will have to come ahead of bridges and the highways if electric trains and electric cars are to make sense.
Marvin A. Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council.