Japan Automakers Face U.S. Supply Chain Challenge in E.V. Shift

by Carolyn Mathas

The Inflation Reduction Act passed in August 2022 provides a tax credit of up to $7,500 to consumers who purchase certain new vehicles, including EVs, assembled in North America. Automakers around the world are rushing to invest. Japanese companies account for approximately 1% of EV production and are creating local supply chains to avoid being shut out.

Toyota President Koji Sato just emphasized the company’s commitment to developing the next generation of EVs and said Toyota will produce an electric sport utility vehicle in the U.S. in 2025, marking the company’s first local production of EVs.

Honda Motor will also produce EVs in the U.S., aiming to release them in 2026. Honda will continue its gasoline and hybrid lines while also moving into EVs. Kia Motors also announced plans to begin EV production in the U.S. in 2024. Ford and Volkswagen will be building new automotive battery factories.

As of 2029, the big five Japanese automakers are projected to produce 950,000 EVs in North America, a sixtyfold increase from 2022. However, that will still account for about 20% of North American production. The U.S. and European companies plan to produce 2.69 million EVs by 2029, 3x as much as the Japanese companies.

As investment in EVs intensifies, development and labor costs will likely increase. U.S. auto manufacturers are facing major challenges with people leaving manufacturing and structural cost increases.

Tesla is lowering its prices in the U.S. for the second time in 2023. They reduced the price of the bestselling sedan Model 3, and the SUV Model Y by up to 6% to increase their market share.

This climate will be a challenge for Japanese automotive companies.

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