There was something unmistakably sombre in the tone when Mibe Toshihiro, chief executive of Honda, addressed reporters last month. With the quiet gravity of a leader accepting responsibility, he warned that Honda was on course to post its first net loss since 1957 in the fiscal year ending in March. In a gesture of accountability, he pledged to cut his own pay by 30%, along with that of his deputy. Yet his most striking remark was not about Honda alone. It was broader, sharper, and more unsettling: “The Japanese automotive industry itself is on the brink of survival.”
The numbers suggest he was not indulging in theatrics. Nissan, once the world’s sixth-largest carmaker by sales, has entered its second year of restructuring, with seven factory closures planned by 2028. Meanwhile, a 25% tariff on cars imported into America has further squeezed margins. But the fiercest pressure has come from the surge of Chinese rivals. In 2019, Japanese carmakers commanded 31% of global sales; by last year, that had fallen to 26%. The contraction has been most dramatic in Asia. In China, sales of Japanese vehicles have dropped by one-third since 2019. In South-East Asia, their market share fell to 57% in 2025, down from 68% just two years earlier.
At the heart of this decline lies a strategic hesitation around electrification. Many Japanese firms placed their bets on hybrids rather than fully electric vehicles (EVs). Conventional petrol vehicles still make up more than half of sales for all Japanese carmakers, and at struggling Nissan the figure stands at 80%. Yet global momentum tells a different story: EVs, including plug-in hybrids, accounted for 26% of the global car market last year, up from just 3% in 2019. In Asia, one-third of all cars sold are now electric. The trend is unmistakable, 45% of car registrations in Singapore last year were EVs, while Thailand reached 20%, and rising.
Late though it may be, the response has begun. In 2024, Honda launched its first mass-production EV, developed with General Motors. Yet electric vehicles demand software sophistication as much as mechanical precision—an area where traditional strengths are less decisive. Partnerships have become essential. Nissan has turned to Wayve to enhance advanced driver-assistance systems, though not all collaborations have flourished. Honda recently abandoned a joint EV venture with Sony, highlighting the cultural friction that can emerge when two ambitious giants share the same table.
Costs, meanwhile, have surged. According to Bernstein, the industry’s per-unit fixed costs, including research and development and depreciation, are 78% higher than a decade ago, even as total sales remain below pre-pandemic levels. Rising wages and rigid employment rules have only compounded the pressure.
One company, however, continues to defy the gloom. Toyota, the world’s largest carmaker by sales and profit, holds 40% of the global hybrid market and has maintained a 6% share in China, where market leader BYD commands 13%. Its strategy, cautious but adaptable, has included launching China-specific EVs in partnership with local technology players such as Huawei. A broader global EV rollout is expected by 2027.
Still, one resilient champion does not secure an entire industry’s future. Merger speculation, most notably the abandoned talks between Honda and Nissan in late 2024, reflects a growing sense that consolidation may be unavoidable. Yet as industry observers note, combining companies with overlapping models and incompatible processes can produce an outcome where, paradoxically, the whole is less than the sum of its parts.
For now, cooperation rather than consolidation appears the likelier path. Shared procurement standards, joint battery supply chains, and collective bargaining with suppliers are emerging as pragmatic steps. Japanese carmakers have survived oil shocks, currency crises, and fierce global competition before. But this moment feels different, less cyclical, more existential.
For the Japanese car industry, it would seem that the sun may be setting. Survival will demand not just resilience, but reinvention.
